Composite land procurement and development services taxed by true nature; site formation demand and penalty set aside for earlier period.

Land procurement for a housing society was held taxable as real estate agent service for the period before 01.07.2012 and as taxable service under the post-01.07.2012 regime, with valuation left for verification. The development component, involving layout works such as roads, drainage, culverts, compound wall, landscaping and water supply, could not be artificially split to sustain a pre-01.07.2012 demand under site formation and allied services; that demand was set aside. For the post-01.07.2012 period, the development activity remained taxable and was remanded for fresh quantification. As the dispute involved interpretation, with receipts through banking channels and reflected in accounts, the extended period and penalty were held not invocable.

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Issues: (i) Whether the appellant's activity of procuring land for the housing society was taxable as real estate agent service for the relevant periods; (ii) Whether the development component could be taxed as site formation and clearance, excavation and earthmoving and demolition service, or only as works contract or bundled service; (iii) Whether the extended period of limitation and penalty were invocable.

Issue (i): Whether the appellant's activity of procuring land for the housing society was taxable as real estate agent service for the relevant periods?

Analysis: The agreement and supplementary memorandum showed that the appellant undertook to arrange and procure land for the society and that the land acquisition consideration was separately identifiable from the development component. On the facts, the activity was not a simple principal-to-principal land transaction but amounted to arranging procurement of land for another person. For the period prior to 01.07.2012 it fell within the taxable entry for real estate agent service, and for the period thereafter it was taxable as service under the corresponding post-01.07.2012 definition.

Conclusion: The land procurement activity was taxable as real estate agent service for the pre-01.07.2012 period and as taxable service for the post-01.07.2012 period, with quantification and verification left to the adjudicating authority.

Issue (ii): Whether the development component could be taxed as site formation and clearance, excavation and earthmoving and demolition service, or only as works contract or bundled service?

Analysis: The agreement contemplated procurement of land as well as development activities such as roads, drainage, culverts, compound wall, landscaping, water supply and allied layout works. The Tribunal treated the arrangement as bifurcated into land procurement and land development, and held that the development component could not be vivisected to sustain demand under site formation service. In view of the principle that composite works contracts are not to be artificially split, the pre-01.07.2012 demand under site formation service was unsustainable. For the post-01.07.2012 period, the development activity remained taxable under the service regime, and the matter required remand for proper assessment.

Conclusion: The demand under site formation and clearance, excavation and earthmoving and demolition service was set aside for the pre-01.07.2012 period, while the post-01.07.2012 development activity remained taxable and was remanded for fresh quantification.

Issue (iii): Whether the extended period of limitation and penalty were invocable?

Analysis: The record showed that the dispute concerned interpretation of the taxability of real estate and development transactions, the receipts were through banking channels, and the transactions were reflected in the books of account. In these circumstances, there was no wilful suppression or intent to evade tax sufficient to invoke the extended period. Since the ingredients for penal invocation were not established, the penalty also could not survive.

Conclusion: The extended period of limitation and penalty were not sustainable.

Final Conclusion: The appeal succeeded only in part. The impugned demand was sustained to the extent of taxable liability that required fresh determination for the land procurement and post-01.07.2012 development activity, while the demand under site formation for the earlier period, along with the extended-period demand and penalty, was set aside and the matter was remitted for limited reassessment.

Ratio Decidendi: A composite arrangement for land procurement and development cannot be artificially split to sustain a site formation demand where the taxable service, if any, must be determined according to the true nature of the activity and the applicable service entry; absent wilful suppression, the extended period and penalty are not invocable.

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