Aquaculture and fishing leases of water bodies were held outside service tax under both pre- and post-negative list regimes.

Leasing or auctioning water bodies for aquaculture and fishing rights was treated as outside the taxable net. For the pre-1 July 2012 period, the exclusion for vacant land used for agriculture and aquaculture was read broadly, and water bodies used as an inseparable precondition for such activity were not treated as taxable renting of immovable property. For the post-1 July 2012 negative list regime, agriculture was construed to include aquaculture and allied fishing activity, so the leasing did not amount to a taxable service. The demand and penalties were set aside.

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Issues: Whether leasing or auctioning of water bodies for aquaculture and fishing rights is chargeable to service tax as renting of immovable property for the period prior to 1 July 2012 and under the negative list regime thereafter.

Analysis: For the pre-negative list period, the exclusion in the definition of renting of immovable property covered vacant land used for agriculture and aquaculture. The use of water bodies for aquaculture and fishing was treated as inseparably linked with vacant land and as an essential precondition for such activity, so a narrow construction excluding water bodies was rejected. For the period from 1 July 2012, agriculture fell within the negative list and the statutory definition of agriculture was applied broadly to include aquaculture and allied fishing activity. On that basis, leasing of water bodies for such purposes was held not to constitute a taxable service.

Conclusion: Leasing of water bodies for aquaculture and fishing rights is not liable to service tax under either regime and the demand was unsustainable.

Final Conclusion: The impugned demand and penalties were set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Water bodies leased for aquaculture and fishing are outside the taxable net where the statutory exclusion for aquaculture or the negative list for agriculture applies, because such leasing is treated as part of the exempt agricultural use rather than taxable renting of immovable property.

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