Principal-to-principal land trading is not real estate agent service where no agency commission is payable.

Profit from purchase, development and sale of land on a principal-to-principal basis was not taxable as a real estate agent service because no agency commission was agreed or paid and the surplus retained was only trading profit. The demand, together with interest and penalties, was therefore unsustainable on that count. A separate construction of residential complex demand had already been paid with interest before the show cause notice, so penalty was held unwarranted, while the tax and interest on that liability were upheld.

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Issues: (i) Whether the profit earned by the appellant from purchase, development and sale of land could be taxed as "Real Estate Agent Service" under the Finance Act, 1994. (ii) Whether penalty was leviable in respect of the demand under "Construction of Residential Complex Service" that had already been paid before issuance of the show cause notice.

Issue (i): Whether the profit earned by the appellant from purchase, development and sale of land could be taxed as "Real Estate Agent Service" under the Finance Act, 1994.

Analysis: The transaction was found to be one of purchase and sale of land on a principal-to-principal basis. The sale agreement and the power of attorney were treated as part of the same arrangement, under which the appellant paid the landowners a fixed consideration and retained the sale surplus as its own profit. No agency commission was agreed or paid by the landowners, and the buyers paid the appellant for the land sold. In the absence of consideration for any agency service, the activity did not answer the description of a taxable real estate agent service. The principle that profit arising from trading in land is not itself consideration for agency service was applied.

Conclusion: The demand of service tax, interest and penalties under "Real Estate Agent Service" was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether penalty was leviable in respect of the demand under "Construction of Residential Complex Service" that had already been paid before issuance of the show cause notice.

Analysis: The demand under this category had been paid along with interest before the notice, and the assessee did not contest the tax liability on this count. On that basis, the levy of penalty for this demand was held unwarranted.

Conclusion: The penalty relating to the "Construction of Residential Complex Service" demand was set aside, while the tax and interest on that count were upheld.

Final Conclusion: The appeal succeeded on the principal dispute relating to real estate agent service tax, but the separate service tax demand under construction of residential complex remained upheld with only the penalty being deleted.

Ratio Decidendi: Where an assessee purchases land, develops it on its own account and sells it on a principal-to-principal basis without any agreed agency commission, the surplus retained as profit is not consideration for a taxable agency service.

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