Lease Premium Taxable as Renting of Immovable Property: CESTAT Upholds ₹2.88Cr Service Tax Demand on Ghaziabad Development Authority [Read Order]

The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) dismissed the appeal filed by the Ghaziabad Development Authority (GDA) and upheld the ₹2.88 crore service tax demand, holding that the amounts collected as lease premium, transfer charges, processing fees and other receipts constituted consideration for renting of immovable property under Section 65(105)(zzzz) read with Section 65(90a) of the Finance Act, 1994.

The case began when the department observed that GDA had allotted commercial and residential plots on long-term lease and collected various charges from allottees.

According to the department, these amounts were not one-time “salami” or advance payments, but were in the nature of consideration for granting the right to occupy immovable property, thereby attracting service tax under the taxable category of Renting of Immovable Property Service.

A Show Cause Notice (SCN) was issued proposing recovery of service tax, interest and penalty for the period in dispute, alleging that GDA had not paid tax on these receipts and also did’nt disclose the taxable value in statutory returns.

The adjudicating authority confirmed the demand and held that the lease premium and related charges collected by GDA were intrinsically linked to the activity of renting and were thus taxable.

GDA’s contention that the amounts were in the nature of “salami” and not taxable consideration was rejected by the adjudicating authority.

Before the Commissioner (Appeals), GDA argued that the amounts collected were statutory charges, not consideration, and relied on earlier case law to argue that lease premium was not taxable.

The Commissioner dismissed the appeal, observing that the lease premium was directly connected with the grant of right to use land and therefore fell squarely within the scope of the taxable service.

When the matter reached the Tribunal, GDA reiterated that the amounts collected were not rent, that long-term lease was equivalent to transfer of immovable property, and that the levy was not applicable. GDA also argued that the activity was not sovereign and statutory in nature.

The Bench comprising Sanjiv Srivastava (Technical Member) and Angad Prasad (Judicial Member) held that the payments were clearly linked to granting possession and enjoyment of land, and were therefore consideration for renting, not sovereign or statutory fees.

The Tribunal noted that GDA continued to retain ownership of the land, and that the allottees only obtained the right to occupy and use it for the lease term, thereby satisfying all elements of the taxable entry.

The Tribunal also rejected GDA’s claim of exemption, holding that no statutory notification or circular supported its argument and that the receipts were commercial in nature. It concluded that the lease premium, transfer charges and other amounts formed part of the gross value for the purpose of valuation.

Accordingly, the Tribunal dismissed the appeal and affirmed the demand of ₹2.88 crore, along with interest and penalty.

The GDA was represented by Atul Gupta, while A. K. Choudhary appeared for the Revenue.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates