2019 (5) TMI 1299 - AT - Service Tax

Appellant not liable for service tax on alleged transfer of development rights. Extended limitation period not applicable.

Dlf Commercial Projects Corporations Versus Commissioner of Service Tax, Gurugram

The Tribunal held that the appellant did not transfer any development rights to M/s DLF Ltd. and that the alleged transfer of development rights was not a ... Taxability -Transfer of of Land Development Rights - Tri-partite agreement - it was alleged that the appellant has transferred development rights, therefore, they are liable to pay service tax on the said activity - Imposition of penalty - whether the appellant has transferred any land development right in favour of M/s DLF Ltd. or not? HELD THAT:- As per the business module of M/s DLF Ltd. they are engaged in the business of Real Estate Development of integrated township and construction. As per their business module, they appointed the appellant to purchase the land on their behalf and thereafter to obtain certain permissions from various Govt. Department and to handover the land to DLF Ltd. as per agreement dated 02.08.2006 for further development and thereafter to transfer the same to the appellant for construction and sale the flats/properties developed by M/s DLF Ltd to various prospective buyers. At the time of transferring the constructed property to prospective buyers, there is a tri-pirate agreement between the land owning company, M/s DLF Ltd. and the prospective buyers and documents of transfer of title were executed at that time. It shows that in the entire transaction, the LOCs remain the owner of the land and as per the agreement, the development activities is taken place and thereafter developed property was sold by M/s DLF Ltd as per tri-pirate agreement to the prospective buyers upon execution of sale deed of land by the LOCs. Admittedly, from the facts of the case, it emerges that the advance to purchase of land given by M/s DLF Ltd to the appellant which has been further given to the LOCs to purchase the land who ultimately purchased the land. The activity of the appellant would have been started only after acquisition of land and thereafter to procure NOC from the various Govt. Authorities and thereafter development activities on the land. The agreement which is based in this case dated 02.08.2006 does not say that the appellant have actually transferred the development rights - when the appellant never remain the owner of the land at the time of receiving the advance from M/s DLF Ltd. against purchase of land by the appellant, how can be the appellant transfer the land development right to M/s DLF Ltd. It is a fact on record that the appellant is not the owner of the land, therefore, how can he transfer development rights to M/s DLF Ltd. and as per the records, the amount given by M/s DLF Ltd. has been transferred by the appellant to various LOCs for purchase of the land. Therefore, it is mere transaction of the sale and purchase of land or purchase of land by the appellant for DLF Ltd. for further development. As appellant did not get any ownership of the land, in that circumstances, transfer of development right does not arises. Under the Development Agreement dated 05.12.2006, it is stated that there would be transfer of Development Rights in future and the Developer were permitted to carry out the developmental activities as per clause 2.2 of the Development Agreement, wherein the developer is permitted to enter the scheduled property for carrying out developmental activities. After the developmental activities have been carried out, sale deed is executed among the three parties namely Landowner, Developer and the Purchaser under which the title to the undivided portion of the land is transferred to the various vendees/purchasers from time to time as and when the Conveyance Deed/Sale Deed is executed in future. We further observe that it is not only the possession, which stood transferred with the right to use, enjoy and construct building/super structure, but, at the same time, undivided right, title and interest in the land also stand transferred under the Deed of Conveyance on which stamp duty has been paid and the Deed of Conveyance has been registered before the Sub-Registrar. Thus, it is a factual aspect of the case that the amount remitted by M/s DLF Ltd to the appellant is towards the acquisition of land by the LOCs which the said payment received from M/s DLF. Ltd was transferred to LOCs for acquisition of land. Further, no physical acquisition of land was taken over by the appellant. Consequently, the appellant have no right to transfer land development to M/s DLF Ltd. - it is clear that the appellant has not transferred any land development right to M/s DLF Ltd. or its subsidiary nominees etc. The immovable property includes land benefit arising out of land. In the case of transfer of development rights of the land, therefore, it is to be seen in the legal aspect whether the benefit arising out of land can be equated to transfer of development rights of land or not? - the transferrable development right is immovable property, therefore, the transfer of development rights in the case in hand is termed as immovable property in terms of Section 3 (26) of General Clauses Act, 1897 and no service tax is payable as per the exclusion in terms of Section 65B(44) of the Finance Act, 1994. Extended period of limitation - HELD THAT:- From time to time the query was made to the Revenue by the trade organization as well as M/s DLF Ltd whether they are liable to pay service tax on transfer of development right of land or not and the same was not answered till yet which means revenue itself is not clear whether the said activity is taxable service or not. In that circumstances, we hold that the extended period of limitation is not invokable and it cannot be said that the appellant did not pay service tax with malafide intentions. The activity in question which is only acquisition of land, therefore, no service tax is payable by the appellant in terms of Section 65B(44) of the Finance Act. Therefore, whole of the demand against the appellant is not sustainable. Consequently, the impugned order is set-aside. Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the appellant transferred land development rights to M/s DLF Ltd.2. Whether the appellant is liable to pay service tax on the alleged transfer of development rights.3. Applicability of the extended period of limitation for the demand of service tax.Issue-wise Detailed Analysis:1. Whether the appellant transferred land development rights to M/s DLF Ltd.:The appellant, engaged in the construction and development of integrated townships, was alleged to have transferred development rights to M/s DLF Ltd. The appellant contended that the agreement dated 02.08.2006 was futuristic and did not indicate any actual transfer of development rights. The appellant only facilitated the purchase of land for M/s DLF Ltd. and obtained necessary approvals. The land remained with the Land Owning Companies (LOCs), and no development rights were transferred to the appellant, nor did the appellant transfer any such rights to M/s DLF Ltd. The Tribunal found that the appellant merely acted as an intermediary to purchase land and obtain approvals, with the LOCs retaining ownership of the land. Therefore, the appellant did not transfer any development rights to M/s DLF Ltd.2. Whether the appellant is liable to pay service tax on the alleged transfer of development rights:The Tribunal examined whether the transfer of development rights constitutes a taxable service. As per Section 65B(44) of the Finance Act, 1994, services do not include the transfer of title in goods or immovable property. The Tribunal referred to various judicial precedents, including the cases of Bahadur & Others vs. Sikandar and Chheda Housing Development Corporation vs. Bibijan Shaikh Farid, which held that development rights are benefits arising out of land and thus constitute immovable property. Consequently, the transfer of development rights falls outside the purview of taxable services under the Finance Act, 1994. The Tribunal concluded that no service tax is payable on the transfer of development rights as it pertains to immovable property.3. Applicability of the extended period of limitation for the demand of service tax:The appellant argued that the substantial demand was beyond the normal period of limitation and that there was no malafide intent or suppression of facts. The Tribunal noted that the appellant and trade organizations had sought clarification from the Revenue regarding the taxability of development rights, and no clear response was provided. This indicated that the Revenue itself was uncertain about the taxability of the activity. The Tribunal held that the extended period of limitation could not be invoked as there was no malafide intention or suppression of facts by the appellant.Conclusion:The Tribunal held that the appellant did not transfer any development rights to M/s DLF Ltd. and that the alleged transfer of development rights was not a taxable service under the Finance Act, 1994. Consequently, no service tax was payable by the appellant. The Tribunal also ruled that the extended period of limitation was not applicable, and the entire demand against the appellant was unsustainable. The appeal was allowed with consequential relief.