Transfer of Title in Immovable Property by Way of Sale Excluded from Service Tax: Supreme Court [Read Judgement]

In a recent judgment, the Supreme Court held that a simple sale of land does not amount to a taxable service and that the transfer of title in immovable property by way of sale is excluded from the scope of service tax under the Finance Act, 1994.

The appeal was filed by the Commissioner of Service Tax against Elegant Developers. The respondent firm had entered into agreements with Sahara India Commercial Corporation Limited to identify and acquire land at fixed rates. The firm purchased land from landowners and sold it to Sahara, earning profits or losses based on the price difference.

The department argued that Elegant Developers had provided services as a “real estate agent” under Section 65(105)(v) of the Finance Act, 1994 and was liable to pay service tax. It issued a demand for over Rs. 10 crore, along with interest and penalties, stating that the firm acted as an intermediary in the sale of land and had not paid tax despite providing taxable services.

The petitioner’s counsel argued that the firm was not acting as a service provider or agent but was engaged in buying and selling land on its own account. The profit or loss from each transaction depended on the price negotiated, which showed that it was a trading activity and not a service arrangement.

A Bench comprising Justice B.V. Nagarathna and Justice Augustine George Masih observed that the agreements did not create a principal-agent relationship and that there was no service fee or consultancy charge involved.

The court explained that the activities carried out by Elegant Developers were in the nature of transfer of title in immovable property, which is expressly excluded from the definition of “service” under Section 65B(44)(a)(i) of the Finance Act, 1994.

The court pointed out that the firm was engaged in direct land transactions and not in providing any advisory or intermediary services, so service tax could not be imposed. It also found that the extended limitation period for demanding tax was not justified in the absence of any deliberate suppression of facts.

The Supreme Court dismissed the department’s appeal and upheld the order of the CESTAT, holding that simple transactions of sale of land do not attract service tax.

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