2019 (5) TMI 1490 - AT - Service Tax

Transfer of land development rights not taxable; benefits from land excluded from service definition. Appellant not liable for service tax.

The Tribunal held that the transfer of land development rights does not constitute a taxable service under Section 65B(44) of the Finance Act, 1994, as it ... Levy of service tax on TDR - Transfer of land development rights - demand of service tax for the consideration received for transferring land development rights - SCN alleges that the appellant has acquired land development right from M/s DLF Commercial Projects Corporations and further transferred those rights to various parties, therefore, the appellant is liable to pay service tax - HELD THAT:- The decision in the case of DLF COMMERCIAL PROJECTS CORPORATIONS VERSUS COMMISSIONER OF SERVICE TAX, GURUGRAM [2019 (5) TMI 1299 - CESTAT CHANDIGARH] wherein it has been held that they have not transferred any development right to the appellant in question, therefore, no service tax is payable. Thus, as the appellant has not acquired any land development right from DCPC, then how the appellant can transfer development right of third party. The show cause notice is based on incorrect facts that the appellant has acquired land development right from DLF Commercial Project Corporations which were later transferred to various parties by the appellant, therefore, the appellant is liable to pay service tax. In fact, the appellant has not acquired any development right on the basis of the facts placed before us and as per the agreements relied upon by the revenue in the show cause notice, therefore, the question of transfer of development right by the appellant does not arises. Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the transfer of land development rights constitutes a service under Section 65B(44) of the Finance Act, 1994.2. Whether the extended period of limitation is applicable.3. Whether the appellant is liable to pay service tax on the transfer of land development rights.Issue-wise Detailed Analysis:1. Whether the transfer of land development rights constitutes a service under Section 65B(44) of the Finance Act, 1994:The appellant was engaged in real estate development and had given an advance to DCPC, which in turn gave the same amount as a refundable performance deposit to various land-owning companies. It was alleged that the appellant failed to pay service tax on the consideration received for transferring land development rights during the period 1.7.2012 to 31.3.2015. The appellant argued that no actual transfer of development rights (DRs) occurred, and the agreement dated 02.08.2006 only envisaged a future transfer.The appellant contended that the transfer of development rights does not constitute a service as per Section 65B(44) of the Finance Act, 1994, which excludes transfer of title in goods or immovable property from the definition of service. The General Clauses Act, 1987, defines 'immovable property' to include land and benefits arising out of land. The appellant cited several judgments to support that development rights are benefits arising out of land and thus constitute immovable property, which is excluded from the purview of service.The Revenue argued that the transactions involving immovable property could fall under three categories: transfer of title, development activities, and enjoyment of property through leasing or renting. They asserted that development rights involve benefits like exclusive licenses to develop the property, which do not constitute a transfer of title and are therefore taxable services.The Tribunal found that the appellant did not acquire any land development rights from DCPC. The agreement dated 02.08.2006 was futuristic and did not result in an actual transfer of development rights. The Tribunal referenced a similar case (M/s DLF Commercial Projects Corporations vs. Commissioner of Service Tax, Gurugram) where it was held that no transfer of development rights occurred, and thus no service tax was payable. The Tribunal concluded that the transfer of development rights is a benefit arising out of land, which constitutes immovable property and is excluded from the definition of service under Section 65B(44) of the Finance Act, 1994.2. Whether the extended period of limitation is applicable:The appellant argued that the extended period of limitation could not be invoked as the demand covered the period 31.3.2013 to 02.09.2014, and the show cause notice was issued on 15.3.2016. They contended that there was no suppression of information or malafide intent.The Revenue argued that the appellant did not disclose the amount received from the transfer of development rights in their ST-3 returns, even though they were registered with the Service Tax department. They asserted that the appellant was aware of their service tax liability and had intent to evade tax, justifying the invocation of the extended period of limitation.The Tribunal noted that the Revenue had not clarified whether the transfer of development rights was taxable, indicating a lack of clarity on the issue. The Tribunal held that the extended period of limitation was not applicable as the appellant did not act with malafide intentions and the issue involved interpretation.3. Whether the appellant is liable to pay service tax on the transfer of land development rights:The Tribunal found that the appellant did not acquire any land development rights from DCPC, and thus could not have transferred such rights to any third party. The Tribunal referenced several judgments to support that development rights are benefits arising out of land, constituting immovable property and excluded from the definition of service under Section 65B(44) of the Finance Act, 1994. Consequently, the appellant was not liable to pay service tax on the transfer of development rights.Conclusion:The Tribunal set aside the impugned order and allowed the appeal with consequential relief, holding that the appellant was not liable to pay service tax on the transfer of development rights as it constituted immovable property excluded from the definition of service under Section 65B(44) of the Finance Act, 1994. The extended period of limitation was also held to be inapplicable.