2024 (10) TMI 567 - AT - Service Tax

Revenue's appeal dismissed as flat allotment rights sale constitutes property transfer, not taxable service under service tax provisions

Commissioner of Central Excise & Service Tax, Central Tax Commissionerate, New Delhi Versus M/s. Government Official Welfare Organisation

CESTAT dismissed Revenue's appeal regarding service tax liability on income from selling flat allotment rights. The tribunal held that the respondent ... Levy of service tax - income earned by the noticee from the foresee transaction of selling allotment rights in respect of selling flats to buyers - amount charged in the name of demand survey - cancellation charges and miscellaneous income received by the noticees - Extended period of limitation - Penalty - interest. Whether the income earned from selling allotment rights of flats is exigible to service tax? - HELD THAT:- On examining the terms and conditions under the MOU, it is found that the society had agreed to book 232 apartments, the sale price of which was payable by them. Further, Clause 6 of the MOU is relevant to be appreciated as it provides that in case the society fails to confirm the purchase of all the 232 apartments to the company within the time prescribed, the company will be entitled to forfeit the entire sum of Rs.11 lakhs, which has been deposited by the society as advance. This establishes that the appellant is acting on principal to principal basis being solely responsible for the sale of the flats and in the event of failure, are liable to bear the consequences. In the entire transaction, there is no scope of ‘commission’ being paid to the appellant either by the builder or by the subsequent customers. The contention of the Revenue that the respondent receives consideration for the services by retaining a certain amount from the total amount paid by a customer to the builder and, therefore, the role is similar to the role of a Real Estate Agent, cannot be upheld. The profit earned by way of difference in the amount which the appellant paid to the builder and what is collected from the customers cannot really be termed as ‘commission’. The definition of “service” specifically excludes the activities which constitutes a transfer of title in goods or immovable property, by way of sale, gift, or in any other manner. In view of our conclusion that the respondent is engaged in sale-purchase of flats which involves transfer of rights in immovable property, on the simple reading of the definition, the activity rendered by the appellant does not fall within the ambit of “services”. Consequently, even during the post-negative era, respondent is not exigible to service tax. Following the decision in M/S SAUMYA CONSTRUCTION PVT. LTD. VERSUS CST AHMEDABAD [2013 (12) TMI 379 - CESTAT AHMEDABAD], the Principal Bench in M/S ESS GEE REAL ESTATE DEVELOPERS PVT. LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE [2019 (6) TMI 633 - CESTAT NEW DELHI], where the owners granted/assigned exclusive rights to the appellant to develop the property and to sell individual developed plots in a phased manner and as consideration for the same the owners were entitled to receive from the appellant the amounts specified in the agreement. Taking note of the Circular No. B–11/3/98-TRU dated 7.10.1998 clarifying that activity of actual construction of any building, carried out by builders or developers does not attract service tax levy as it is not a service within the meaning of the term “Real Estate agent” or “Real Estate Consultant”, it was concluded that as per the agreement, extensive construction and development had to be carried out by the appellant and it is thereafter the land or plots were to be sold for which the finances were also arranged by the appellant and, therefore, does not fall in the category of “Real Estate Agent”. Service tax on amount charged by the respondent in the name of ‘Demand Survey’ - HELD THAT:- The Adjudicating Authority referring to the actual transaction on the basis of which the amount of Rs.5000/- was deposited by the customers along with the application form had dropped the demand. The findings arrived at is agreed upon, as the said amount is adjusted against the price of the property in the customers account on finalising the deal or is refunded to the customer in the event the property is not found to be suitable. It has been rightly noted that the department has accepted the said situation in the show cause notice. Leviability of service tax on the ‘Cancellation Charges’ - HELD THAT:- There are no hesitation in agreeing with the findings arrived at by the adjudicating authority that the cancellation charges are in the nature of penalty levied on the buyers for not fulfilling the commitment in which no real estate agent service is being provided by the appellant and hence, no service tax is leviable thereon. Similarly, the Miscellaneous Income has been verified as per the ledger account where the miscellaneous income has been reflected as discount extended to them on the advertising service on which no element of service is involved. Extended period of limitation - Penalty - interest - HELD THAT:- Since the issue on merits stands decided in favour of the respondent, there are no reason to go into the question of the applicability of the extended period of limitation or the imposition of penalty and interest. There are no error in the impugned order and the same is, hereby affirmed - appeal of Revenue dismissed. Issues Involved:1. Whether the income earned from selling allotment rights of flats is exigible to service tax.2. Whether the amount charged as 'Demand Survey' is taxable under service tax.3. Whether service tax is applicable on cancellation charges and miscellaneous income.Issue-wise Detailed Analysis:1. Income from Selling Allotment Rights:The primary issue was whether the respondent's activities fell under the taxable category of 'Real Estate Agent Services' as defined under Section 65(88) of the Finance Act, 1994. The Revenue argued that the respondent acted as an intermediary or facilitator in real estate transactions, earning income from the difference between buying and selling prices. However, the tribunal found that the respondent was engaged in the purchase and sale of allotment rights in a principal-to-principal capacity, assuming the risks and rewards of the transaction. The respondent was not hired by the builders or customers, and there was no service provider-recipient relationship. The tribunal concluded that the respondent's activities were outside the scope of 'Real Estate Agent Services,' as they involved the transfer of rights in immovable property, which is excluded from the definition of 'services' under Section 65B(44) of the Finance Act, 1994.2. Demand Survey Charges:The tribunal examined whether the Rs. 5,000 charged as 'Demand Survey Amount' was taxable. The Adjudicating Authority had previously dropped the demand, noting that this amount was refundable if the property was not purchased and adjusted against the property price if the deal was finalized. The tribunal agreed with this finding, as the amount did not constitute a service charge but was part of the sales transaction process.3. Cancellation Charges and Miscellaneous Income:Regarding cancellation charges, the tribunal found these to be penalties for buyers not fulfilling commitments and not for any real estate agent service. Therefore, they were not subject to service tax. Similarly, miscellaneous income was verified as discounts on advertising services, with no service element involved. The tribunal upheld the Adjudicating Authority's decision that these charges were not taxable.Conclusion:The tribunal affirmed the Adjudicating Authority's order, finding no error in the decision to drop the service tax demand. The respondent's activities were not classifiable as 'Real Estate Agent Services,' and the charges for demand survey and cancellation did not constitute taxable services. Consequently, the appeal filed by the Revenue was dismissed, and the tribunal did not address the extended period of limitation or penalties, as the merits were decided in favor of the respondent.