2025 (11) TMI 518 - SC - Service Tax

Transactions held pure immovable property sales, not taxable as real estate agent/consultant services; no extended limitation under Section 73(1) proviso

Commissioner of Service Tax Versus M/s. Elegant Developers

SC held the transactions were plain sales of immovable property and did not attract service tax as 'Real Estate Agent' or 'Real Estate Consultant' under ... Taxability - Real Estate Agent service or not - suppression of facts or not - invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994. Whether the respondent rendered services falling within the category of ‘Real Estate Agent’, taxable under Section 65(105)(v) read with Section 65(88) of the Finance Act, 1994, during the period from 1st October, 2004 to 31st March, 2007? - HELD THAT:- For a person to qualify as a real estate agent, there has to be a contract of agency, to be specific, an estate agency agreement. Expanding the definition of ‘Real Estate Agent’ under Section 65(88) of the Finance Act, 1994, it becomes clear that, in order to fall within its ambit, an individual or the entity must be engaged in rendering a service and such service must be in relation to sale, purchase, leasing or renting of a real estate and includes a real estate consultant. For a person to be covered under the definition of ‘Real Estate Agent’, there must be attributable to such person, an act of rendering service. The section does not cover a direct transaction of sale and/or purchase inter se between two individuals or entities, as the case may be. Likewise, ‘Real Estate Consultant’ is a person who renders services in form of advice, consultancy or technical assistance for the purposes as set out in Section 65(89) of the Finance Act, 1994. The common thread passing through both the provisions is that the person concerned must be engaged in rendering of services, advice, consultancy or technical assistance for sale and purchase of land or for development, construction, evaluation, conception, etc. of real estate. In the present case, admittedly, the respondent was not engaged by the SICCL for any such service. The terms of MoUs (supra) which we have carefully examined, do not indicate that there existed any relationship of principal and agent between SICCL and the respondent. The MoUs simply referred to a fixed rate per plot which SICCL would pay to the respondent for every chunk of the land provided by the respondent to SICCL. There was no element of any service charges or consultancy charges being levied by the respondent on such sale transactions. The gains accruing to the respondent would arise from the difference of sale consideration over and above the fixed sale price settled in the MoUs - the Appellate Tribunal did not commit any error in holding that the respondent did not act as a real estate agent or a consultant while acting in furtherance of the MoUs entered with SICCL. The profitability of the respondent was contingent upon the rate at which land was procured by it from the sellers. The respondent admittedly transferred title of land to SICCL after negotiating the price thereof with the owners and procuring a Power of Attorney to execute the sale deeds. Hence, these activities were purely of sale/conveyance of immovable property which clearly falls within the exception as provided under Section 65B(44)(a)(i) of the Finance Act, 1994 - the transactions/activities undertaken by the respondent with SICCL did not bring it within the purview of ‘Real Estate Agent’ or ‘Real Estate Consultant’ as defined under Sections 65(88) and 65(89) of the Finance Act, 1994, respectively. These transactions were not undertaken for service charges, commission, agency or consultancy but were plain and simple transactions of sale of land, which are expressly protected under the exception clause to the definition of the ‘Service’. Whether the appellant has established that the respondent deliberately suppressed facts, thereby justifying the invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994? - HELD THAT:- The proviso to Section 73(1) of the Finance Act, 1994 provides for the recovery of service tax not levied or paid or short-levied or short-paid under circumstances where the normal limitation period has expired. While the general period of limitation is eighteen months from the relevant date, the proviso to Section 73(1) permits recovery beyond this period when there is deliberate suppression of facts or mis-statement by the service recipient or provider. The provision is therefore intended to deal with cases of intentional concealment, ensuring that taxpayers do not escape liability by withholding material information or misrepresenting facts that would affect the determination of tax - It is trite that for invocation of extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, the appellant was required to prove deliberate suppression and concealment of the material facts on the part of the respondent to evade the tax liability. Admittedly, all the transactions inter se between the respondent and SICCL were through valid banking channels and thus, there was no element of concealment or suppression by the respondent warranting invocation of the extended period of limitation by the Directorate General under the proviso to Section 73(1) of the Finance Act, 1994 - The appellant has failed to adduce any evidence or establish that the respondent engaged in wilful or deliberate suppression of material facts, and there is nothing on record to suggest that the respondent acted with any intention to mislead the authorities or evade payment of service tax. To be specific, the appellant failed to satisfy the Court that the respondent was under any obligation to seek clarification as to whether its activities with SICCL would bring it within the scope and ambit of a real estate agent. There are no hesitation in holding that the impugned judgment does not suffer from any infirmity warranting interference by this Court. Accordingly, we hold that the transactions in question neither fall within the definition of a ‘Real Estate Agent’ nor that of a ‘Real Estate Consultant’ under the Finance Act, 1994. There are no merit in these appeals which are dismissed as such. ISSUES PRESENTED AND CONSIDERED 1. Whether the activities undertaken under the Memoranda of Understanding (MOUs) constituted services falling within the definition of 'real estate agent' or 'real estate consultant' and were therefore taxable under Section 65(105)(v) read with Sections 65(88)-65(89) of the Finance Act, 1994 for the period 1 October 2004 to 31 March 2007? 2. Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 could be invoked on the ground of deliberate suppression of facts by the assessee, thereby justifying recovery beyond the normal limitation period? ISSUE-WISE DETAILED ANALYSIS - I. Whether the transactions constituted taxable 'Real Estate Agent'/'Real Estate Consultant' services? Legal framework: Sections 65(88) and 65(89) (definitions of 'real estate agent' and 'real estate consultant'), Section 65(105)(v) (taxable service event), and the exception to 'service' in Section 65B(44)(a)(i) (transfer of title in immovable property not being a service) provide the statutory matrix for characterisation. Precedent treatment: The Court considered and cited recent authority emphasising economic reality and risk/reward analysis in distinguishing agency/service from trading/intermediary transactions. Prior administrative and judicial approaches treating 'real estate agent' as service-centric and covering facilitation, advice or consultancy were noted. Interpretation and reasoning: The definitions in Sections 65(88)-65(89) were held to be service-centric; a person falls within them only where he is 'engaged in rendering any service' in relation to sale, purchase, leasing or renting, or renders advice/consultancy/technical assistance in relation to real estate activities. The Court examined the MOUs' terms (delineating fixed average rate per acre, respondent's obligation to procure land, undertake documentation, obtain approvals, bring owners for registration, and the mechanism whereby respondent's gain/loss depended on spread between amounts paid and fixed average rate). The Court found there was no fixed commission, consultancy or service charge: respondent bore procurement risk and could incur losses, and gains arose from price spread - features of a trading/intermediary purchase-and-resale arrangement rather than an agency-for-fee model. The MOUs established sale/conveyance mechanics (transfer of title to the principal/nominee) and payment through banking channels, supporting characterisation as transfer of title rather than provision of taxable service. Ratio versus obiter: Ratio - A person is a 'real estate agent/consultant' under Sections 65(88)-65(89) only where there is an attributable act of rendering a service (e.g., commission/consultancy/advice) and a contract of agency/principal-agent relationship; transactions structured as purchases with risk of profit/loss and transfer of title fall outside the definitions and are covered by the statutory exception to 'service' (Section 65B(44)(a)(i)). Obiter - Observations on dictionary/Real Estate (Regulation and Development) Act definitions were analytic/contextual and not necessary to the core holding but support statutory interpretation. Conclusion: The Court upheld the Appellate Tribunal's conclusion that the MOUs did not create an agency or consultancy relationship and that the respondent's activities were transactions of sale/transfer of immovable property falling within the exception to 'service.' Consequently, the demand and penalties premised on classification as 'real estate agent' services were not sustainable and were rightly set aside. ISSUE-WISE DETAILED ANALYSIS - II. Whether extended limitation under proviso to Section 73(1) could be invoked for deliberate suppression? Legal framework: Proviso to Section 73(1) permits recovery beyond the standard limitation where non-levy/payment is due to deliberate suppression, wilful mis-statement, fraud or collusion; standard period is eighteen months from the relevant date. Precedent treatment: The Court relied on recent controlling precedents reiterating that invocation of extended period requires proof of active, deliberate conduct to evade tax - mere non-payment or failure to seek clarification does not constitute suppression. The Court treated such precedents as binding guidance on the requisite mens rea and evidentiary burden for invoking extended limitation. Interpretation and reasoning: The Department's case rested on allegation of wilful suppression by non-registration and non-filing of ST-3 returns. The Court found the appellant failed to demonstrate any positive act of concealment: transactions passed through banking channels, were recorded in books of account, and the respondent advanced an arguable bona fide position that the transactions were not taxable services. No evidence established intent to mislead or that material facts were hidden from authorities. Absent demonstrable fraud, collusion, wilful mis-statement or deliberate concealment, the statutory precondition for invocation of extended period was not satisfied. Ratio versus obiter: Ratio - Extended limitation under proviso to Section 73(1) cannot be invoked unless there is proof of deliberate suppression or a positive, intentional act to evade tax; mere non-payment or omission to register/return-file without concealment does not suffice. Obiter - The Court's recitation of procedural expectations regarding seeking clarifications is advisory, not a mandatory duty creating liability. Conclusion: The Court held that the appellant failed to establish deliberate suppression by the respondent; therefore, invocation of the extended period of limitation was unjustified. Given the primary conclusion that transactions were non-taxable, extended limitation analysis reinforced setting aside the demand beyond the normal limitation rationale. OVERALL CONCLUSION (RATIO): The transactions under the MOUs were characterised as purchases and transfers of immovable property, not the rendering of services by a 'real estate agent' or 'real estate consultant' within Sections 65(88)-65(89) of the Finance Act, 1994; they fell within the exception to 'service' under Section 65B(44)(a)(i). Further, the appellant did not prove deliberate suppression warranting invocation of the extended limitation in proviso to Section 73(1). The Appellate Tribunal's setting aside of demand and penalties was therefore affirmed.