2014 (9) TMI 306 - AT - Service Tax

Tribunal clarifies service tax on leasing vacant land for business vs. residential use

M/s. Greater Noida Industrial Development Authority Versus CCE & ST, Noida

The Tribunal ruled that leasing vacant land for construction of buildings or temporary structures for business or commerce became taxable only from ... Renting of immovable property - Noida Authority - rents received for allotment of plots of vacant land to various persons on lease basis for industrial or commercial purposes - issuance of second show cause notice covering the same issue and same period as covered by earlier SCN - Held that:- giving of vacant land on license, rent or lease for construction of structure at a later stage for furtherance of business or commerce became taxable only w.e.f. 1.7.2010 under Clause (v) of Explanation I to Section 65(105)(zzzz) and this activity was not taxable during the period prior to 1.7.2010. - Decided in favor of assessee. Taxability of long term lease - leases of 90 years - Held that:- all the leases of immovable property as defined in Section 65 (105)(zzzz) would be covered for service tax whether the lease is short term or long term or lease perpetuity. - this very issue has also been examined in detail in paras-5, 6, 7 and 8 of the Tribunal’s judgment in the case of New Okhla Industrial Development Vs. Commissioner of Central Excise & Service Tax [2014 (1) TMI 1203 - CESTAT NEW DELHI] - Decided against the assessee. Levy of service tax only on the lease rent or also on one time premium amount charged in respect of long term leases - Held that:- Service tax under Section 65(105)(zzzz) read with Section 65 (90a) cannot be charged on the ‘premium’ or ‘salami’ paid by the lessee to the lessor for transfer of interest in the property from the lessor to the lessee as this amount is not for continued enjoyment of the property leased. Since the levy of service tax is on renting of immovable property, not on transfer of interest in property from lessor to lessee, service tax would be chargeable only on the rent whether it is charged periodically or at a time in advance. - Decided in favor of assessee. Service tax on various activities - Held that:- the services, which are in connection with the renting of immovable property for business or commerce, would also be taxable under this Section. Therefore, processing charges for application for land allotment on lease basis would also be taxable. However, the services like processing and approval of building plan, map revision, malba charges connected with building of structures on the land allotted on lease basis have no nexus with the renting of immovable property for business or commerce, and as such, the activities in relation to the construction of building on the vacant land allotted on lease basis i.e. the charges of map approval, validation, map revision, malba charges, etc. would not attract service tax. As regards restoration charges or penalty, which appears to be the penalty for violating the conditions of the lease, the same, in our view, cannot be said to be the consideration for lease and would not attract service tax. As regards the rent/licence fee received by the appellant from their staff to whom the residential units has been let out, such letting out the residential units to the staff is not renting of immovable property for use in or for furtherance of business or commerce and hence, the licence fee/ rent received from such letting out of houses of Noida Authority would not attract service tax. - Decided partly in favor of assessee. Allotment of vacant land to builders for construction of residential complexes - Held that:- it cannot be said that the vacant land given on lease is for construction of building to be used for furtherance of business or commerce. Therefore, the service tax demand on the lease rent in respect of the allotment of vacant land to builders or group housing societies for the construction of residential complex would not be taxable. For the same reason, wherever such allotments have been made to institutions for construction of their buildings, to be used for non-commercial purposes, the same would also not be taxable. - DEcided in favor of assessee. Taxability of lease where agreement entered into prior to 1.7.2012 - Held that:- Since the taxing event for service tax is provision of service, not the event of entering into an agreement for provision of service, the service provided from the date on which the same became taxable, would attract service tax, irrespective of the fact that at the time of entering into an agreement for provision of service, the same was not taxable. - Decided against the assessee. Extended period of limitation - Held that:- in the circumstances of the case, in our view, longer limitation period of 5 years from the relevant date would not be applicable and the service tax demand would survive only for the normal period of one year from the relevant date, which would be quantified by the adjudicating authority. - Decided in favor of assessee. Waiver of penalty u/s 80 - Held that:- this is a fit case, where by invoking the Section 80 of the Finance Act, 1994, penalties under Sections 76, 77 and 78 have to be waived - penalty waived - Decided in favor of assessee. Issues Involved:1. Taxability of leasing vacant land for construction of buildings or temporary structures for business or commerce.2. Inclusion of one-time premium in the taxable amount.3. Taxability of leasing vacant land for residential complexes.4. Taxability of processing and building plan fees, transfer charges, and miscellaneous income.5. Taxability of rent received from staff for residential units.6. Overlapping of service tax demands in two show cause notices.7. Applicability of the extended period for service tax recovery.8. Imposition of penalties under Sections 76, 77, and 78.Detailed Analysis:1. Taxability of Leasing Vacant Land for Construction of Buildings or Temporary Structures for Business or Commerce:The Tribunal held that giving vacant land on lease for construction of buildings or temporary structures to be used for furtherance of business or commerce became taxable only from 1.7.2010, when clause (v) was added to Explanation-I to Section 65(105)(zzzz). This activity was not taxable during the period prior to 1.7.2010. The Tribunal referenced its previous decision in the New Okhla Industrial Development Authority case, where it was concluded that leasing vacant land for business or commerce purposes was outside the purview of service tax before 1.7.2010.2. Inclusion of One-Time Premium in the Taxable Amount:The Tribunal clarified that service tax under Section 65(105)(zzzz) read with Section 65(90a) is chargeable only on the rent, not on the one-time premium or salami. The premium is considered a capital income for transferring interest in the property, whereas rent is a revenue receipt for the continuous enjoyment of the property. Therefore, the demand for service tax on the premium amount was not sustainable.3. Taxability of Leasing Vacant Land for Residential Complexes:The Tribunal held that leasing vacant land to builders or group housing societies for constructing residential complexes does not attract service tax under Section 65(105)(zzzz) read with Section 65(90a). Such leases are not for furtherance of business or commerce as defined in the Act.4. Taxability of Processing and Building Plan Fees, Transfer Charges, and Miscellaneous Income:The Tribunal stated that processing charges for land allotment on lease basis are taxable as they are in relation to renting of immovable property for business or commerce. However, charges related to building plan approval, map revision, and other construction-related activities are not taxable as they do not relate to the renting of immovable property for business or commerce. Penalties and restoration charges also do not attract service tax as they are not considered consideration for lease.5. Taxability of Rent Received from Staff for Residential Units:The Tribunal ruled that rent received from staff for residential units does not attract service tax under Section 65(105)(zzzz) as it is not for furtherance of business or commerce.6. Overlapping of Service Tax Demands in Two Show Cause Notices:The Tribunal directed the Commissioner to examine and provide a specific finding on whether the service tax demand of Rs. 4,13,45,830/- confirmed in the order dated 19.07.2012 is included in the service tax demand of Rs. 140,74,64,342/- confirmed in the order dated 30.04.2013.7. Applicability of the Extended Period for Service Tax Recovery:The Tribunal held that the extended period of five years under proviso to Section 73(1) of the Finance Act, 1994, is not applicable in this case. The appellant, being a statutory body, had a bona fide belief that leasing vacant land for construction purposes would not attract service tax. Therefore, the service tax demand is confined to the normal limitation period of one year from the relevant date.8. Imposition of Penalties Under Sections 76, 77, and 78:The Tribunal waived the penalties under Sections 76, 77, and 78 by invoking Section 80 of the Finance Act, 1994, due to the appellant's bona fide belief and the nature of their statutory functions.Conclusion:The Tribunal upheld the service tax demand for the normal limitation period and remanded the matter for de novo adjudication to the Commissioner, directing specific findings on overlapping demands and proper quantification of the service tax amount. Penalties imposed on the appellant were set aside.