Profit Margin on Land Sales Not Commission as Landowners Paid No Agency Fee: CESTAT Sets Aside Service Tax Demand [Read Order]

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that profit retained by a developer on land sales cannot be treated as commission when landowners did not pay any agency fee.

Tiwari Sons Construction Pvt. Ltd., the appellant, was issued a show cause notice alleging that it acted as a real estate agent and earned commission of about Rs. 7.01 crores from land transactions. The department treated this margin as commission under “Real Estate Agent Services” and raised a service tax demand of Rs. 82,61,976 with interest and penalties.

The appellant’s counsel argued that the company purchased land and resold it on a principal-to-principal basis, bearing all risks and expenses. Landowners received fixed consideration under sale agreements, and no commission or agency fee was ever paid to the appellant. They argued that treating profit margin as commission was contrary to law.

The revenue’s counsel argued that by holding powers of attorney and conducting sales, the appellant acted as an agent of the landowners and the retained margin should be considered commission.

The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that landowners were entitled only to fixed amounts under the agreements and did not share in profits. The bench observed that there was no agreement for agency commission and no consideration was paid by landowners. It explained that the appellant functioned as an independent developer taking full risk of profit or loss and not as an agent.

The tribunal set aside the service tax demand of Rs. 82,61,976 under “Real Estate Agent Services,” holding that the profit margin on land sales was not commission.

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