No Service tax leviable as ‘Real Estate Agent’ when there is mere transfer of land

The Hon’ble Supreme Court in the case of Commissioner of Service Tax Versus M/s. Elegant Developers - 2025 (11) TMI 518 - Supreme Court held that transactions involving the purchase and sale of land by a developer do not fall within the definition of “Real Estate Agent” or “Real Estate Consultant” under the Finance Act, 1994, and are expressly covered by the statutory exception for transfer of title in immovable property, thus not exigible to Service Tax.

Facts:

Ms Elegant Developers (“the Petitioner”) is a partnership firm engaged in purchasing, selling, developing, and dealing in lands and buildings.

The Commissioner of Service Tax, New Delhi (“the Respondent”) issued a Show Cause Notice dated April 22, 2010, demanding Service Tax of Rs. 10,45,61,837 for the period October 1, 2004 to March 31, 2007, plus penalties and interest, alleging the Petitioner was a “Real Estate Agent” and liable under Section 65(105)(v) read with Sections 65(88) and 65(89) of the Finance Act, 1994.

The Petitioner entered into MOUs with Sahara India Commercial Corporation Ltd. (“SICCL”) for acquisition and development of land for housing projects at three locations. SICCL paid a fixed average rate per acre, from which the Petitioner earned a margin, potentially incurring losses, if the purchase price exceeded the MOU rate.

The Respondent contended that the Petitioner acted as a facilitator, only acquiring Power of Attorney from sellers and transferring land to SICCL, and that profit margins were in nature of commission for agency services.

The Petitioner replied that its activities were purely business transactions of land purchase and sale, not services rendered as agent, consultant, or advisor, and consistently disclosed profits/losses in audited accounts through banking channels.

The Commissioner passed a penalty order on September 30, 2013, finding Petitioner liable as a “Real Estate Agent,” confirming tax demand and penalties. Petitioner appealed to CESTAT, which set aside the order, holding there was no agency relationship and no suppression of facts.

The Commissioner appealed to the Supreme Court seeking the revival of the tax and penalty order.

Issue:

Whether the Petitioner rendered services as “Real Estate Agent” taxable under Section 65(105)(v) read with Sections 65(88) and 65(89) of the Finance Act, 1994, and whether the extended period of limitation for service tax demand is justified on grounds of suppression?

Held:

The Hon’ble Supreme Court in Commissioner of Service Tax Versus M/s. Elegant Developers - 2025 (11) TMI 518 - Supreme Courtheld as under:

• Observed that, the MOUs did not evidence any agency or consultancy arrangement. The Petitioner bore procurement risks and acted as principal, not as an agent. Further no commission or service fees were charged—profit or loss was contingent on land purchase rates.
• Noted that, Section 65B(44)(ai) excludes activity “which constitutes merely, (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner” from the definition of “service”.
• Held that, the Respondent did not act as a real estate agent or consultant—transactions amounted to transfer of title, not provision of service. Remuneration was a price margin, not a service commission, and there was potential for operational loss.
• Referred to CESTAT findings and agreed that the service tax demand was unsustainable in law, and there was no valid agency contract or evidence of service.
• Held that, mere non-payment of tax does not constitute suppression; all transactions were via banking channels and disclosed. Extended period under the proviso to Section 73 of the Finance Act, 1994 is only for deliberate suppression, fraud, or collusion.
• Dismissed the Revenue’s appeal, upholding CESTAT’s decision and setting aside all demands and penalties against the Petitioner.

Our Comments:

The judgment exhaustively analyses the distinction between a sale transaction and rendered services in the real estate domain. It interprets “service” under the Service Tax regime, including the statutory exceptions for transfer of title. Reliance on M/s. STEMCYTE INDIA THERAPEUTICS PVT. LTD. Versus COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, AHMEDABAD – III - 2025 (7) TMI 1007 - Supreme Court is critical as the Court reiterates that extended limitation applies only for proven suppression or intentional evasion, not mere omission.

In M/s. Chhattisgarh Steel Castings (P) Ltd. Versus Union of India, through Central Board of Indirect Taxes & Customs, Ministry of Finance, New Delhi, Commissioner, Central Excise & Service Tax, Raipur - 2019 (11) TMI 1207 - CHHATTISGARH HIGH COURTit was held that even transactions with intent to resell property could attract service tax as agency, where there is evidence of facilitation against commission or service fee—distinguished as current MOUs evidenced only price margins, not advisory or facilitation services for third parties.

Further in the case of UNION OF INDIA & OTHERS Versus FUTURE GAMING SOLUTIONS PVT. LTD. & ANOTHER ETC. - 2025 (2) TMI 483 - Supreme Court Supreme Court adopted economic reality test, focusing on risk and reward assumption, rather than the form of arrangement. This fortifies the principal-to-principal nature in the present case.

Relevant Provisions:

Section 65(88) of the Finance Act, 1994:

“Real estate agent means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting of real estate and includes a real estate consultant.”

Section 65(89) of the Finance Act, 1994:

“Real estate consultant means a person who renders in any manner, either directly or indirectly, advice, consultancy or technical assistance, in relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management, of real estate.”

Section 65(105)(v) of the Finance Act, 1994:

“'taxable service' means any service provided or to be provided-

(v) to any person, by a real estate agent in relation to real estate;”

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