TaxTMI 
TaxTMI 
2019 (5) TMI 1299
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....veloping integrated townships and have been provided other services, such as, renting of immovable property, maintenance & repair service, construction of residential complexes, construction of commercial complex etc, that they neither executed any sale deed nor did they pay any stamp duty to the State Government on their activity of transferring the land development rights and did not pay any service tax on the consideration received on account of transferring land development rights. On the basis of documents recovered it was revealed that various Land Owning Companies (LOCs) had executed Land Development Agreement or Memorandum of Understanding or both with DCPC regarding transfer of the land development rights. One such agreement entered with DLF Ltd on 02.08.2006 was examined and the terms of agreement are as under:- 5.1 The salient features of the said agreement dated 02.08.2006 are as under: a) DCPC have definitive arrangements with various landowners and are in the final stages of negotiations for acquisition of development rights in certain land situated in the State of Haryana in District Gurgaon, which is capable of being developed for the development a....
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....anies. (ii) DCPC would purchase development rights from land owning companies and transfer those rights without any valuation addition to DLF. (iii) Amount paid to land owning companies for purchase of development right would be adjusted against the ad hoc fund provided by DLF. On the basis of the said agreement and various other agreements it was alleged that the appellant has transferred development rights, therefore, they are liable to pay service tax on the said activity. Accordingly, the show cause notice was issued to demand service tax and to impose penalty. The demand was confirmed against the appellant. Penalty was also imposed against the appellant. Against the said order, the appellant is before us. 3. The Ld. Counsel for the appellant submits as under:- (i) A Show Cause Notice dated 16.11.2016 was issued covering the period 01.07.2012 to 31.03.2016 (substantial demand is beyond the normal period of limitation) seeking to raise demand to the tune of Rs. 208,22,50,224/- on the allegations that the there was a transfer of development rights by various Companies (who owns land) to the Appellant and the Appellant, in turn, transferred the dev....
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....pellant is that even on the "Development Rights" no "Service Tax" is payable. Further, no "Development Rights" have at all been transferred by the Appellant to either M/s. DLF Limited and/or its associate. This fact is duly certified by Chartered Accountant vide its Certificate dated 3.5.2016. (v) The appellant filed specimen copies of letters written by the appellant to the various land owning companies and on the said letters, the land owning companies have certified that the "Refundable Performance Deposit" remitted to them is not a consideration towards transfer of "Development Rights" (as alleged by the Department). Further, the "Performance Deposit" shall be refundable in future as and when either the sale deed is executed for the land or agreement is executed for transfer of "Development Rights". (vi) The Annual Accounts of the Appellant does not say that the development rights have been transferred by the Appellant to M/s. DLF Limited nor the Annual Account of M/s DLF say so. In addition, independent CA vide Certificate dated 30.4.2018 certified that the Appellant neither purchased the land nor purchased the "Development Rights". Further, the said certific....
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....of this amount. (xi) M/s. Prem Arun Jain & Company, Chartered Accountants, have given a certificate dt.3.5.2016 clearly certifying that the amount of Rs. 1424.83 had been paid by the appellant as "Performance Deposit" to various land owning companies. It has also been certified by the Chartered Accountants that the Appellant had neither purchased any land nor purchased any Development Rights from these land owning Companies. This certificate was filed along with the reply to the Show Cause Notice and the same has, completely, been ignored/overlooked by the learned AA. There is another Certificate dt.30.4.2018, which further says that neither land nor "Development Rights" had been acquired by Appellant nor, at the same time, any land or "Development Rights" had been transferred by Appellant either to DLF Ltd or its associates. (xii) The fact of the matter is, as would be seen from the CA certificates, that neither the land has been sold by the land owning Companies nor there was transfer of any development rights by the said land owning Companies in favour of the Appellant. At the same time, there is also CA certificate dated 30.04.2018 certifying that Appellant ha....
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.... (xv) Section 65B (44) (a) (i) says that transfer of title in goods or immovable property, by way of sale, gift or in any other manner. In other words, the transaction of transfer of title either in goods or in "immovable property" are excluded from the purview of "Service". A question then arises, what is the meaning of the word "immovable property". Immovable property has not been defined in Finance Act, 1994 but has been defined in Section 3(26) of General Clauses Act, 1987 in following words:- (26) "immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth; (xvi) The aforesaid definition clearly says that the immovable property includes not only "land" but also the benefits "arising out of land". Next, the question then arises whether transfer of development rights is a benefit arising out of land so as to fall under "immoveable property". The word "benefit arising out of land, has been interpreted in the following judgments:- a) Bahadur & other Vs.Sikandar MANU/UP/0016/1905 b) Ananda Behera Vs. State of Orissa AIR 1956 SC 17 c)....
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....amely Landowner, Developer and the Purchaser under which the title to the undivided portion of the land is transferred to the various vendees/purchasers from time to time as and when the Conveyance Deed/Sale Deed is executed in future. (xx) It is submitted that it is not only the possession, which stood transferred with the right to use, enjoy and construct building/super structure, but, at the same time, undivided right, title and interest in the land also stand transferred under the Deed of Conveyance on which stamp duty has been paid and the Deed of Conveyance has been registered before the Sub-Registrar. (xxi) In fact, in the Order-in-Original, the learned AA has reproduced certain clauses of Agreement dated 10.11.2006, the full text of the agreement, the effective date has been defined to mean the date of completion of the purchase of the scheduled property including the mutation thereof, NEPL in Revenue Records and the vesting of the right, title and interest in the scheduled property in favour of NEPL, which shall be communicated in writing to the developer of NEPL. (xxii) There is an Apartment Buyer Agreement, which is entered into in all cases at....
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....td. who were the owner and title holder of the land to third party. (xxvii) It is submitted that the regime of declared service has came into being w.e.f. 01.07.2012. The appellant booked an income of Rs. 8,01,40,000/- on account of appreciation of value of land, to which, the Department is alleging that taxable service due to renunciation of development rights. The Appellant was in doubt as to whether any service tax is payable or not in view of the fact that previously Trade Association has written to Government seeking clarification as to whether Service Tax is payable or not on transfer of development rights. To all these communications, the Govt. never came forward to say any service tax is payable upon transfer of development rights. Consequently, on 15.02.2013, M/s. DLF Limited seeking clarification as to whether the Service Tax is payable on transfer of development rights. The Government did not say that any Service Tax is payable on transfer of development rights and, therefore, the period subsequent to 15.02.2013, M/s DLF did not pay Service Tax on the alleged renunciation of development rights. However, in relation to the booking income prior to 15.02.2013, the ....
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....es for purchase of development rights would be adjusted against the ad-hoc funds provided by DLF. (xxxi) In para 6 of the SCN, records as under:- "Therefore, it is apparent that DCPC received funds from DLF to procure development rights from LOCs. DCPC utilizsed only part of the funds provided by DLF Limited to procure the development rights from LOCs. Thereafter, DCPC transferred the development rights to DLF Limited under the above said agreement dated 02.08.2006." (xxxii) The agreement dated 02.08.2006 is futuristic in nature in as much as it says that the development rights shall be transferred in future. None of this Clause of this Agreement says that the "Development Rights" had been actually transferred. (xxxiii) Para 4 (I) of the SCN, it is stated that:- (I) "The DCPC provided development rights without transferring the title of land to DLF and for transfer of development rights received consideration from DLF but failed to pay Service Tax. (II) In few cases, DCPC surrendered land development rights to third party other than DLF and in lieu of surrendering land development rights, received monetary consideration but fail....
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....transferred. (xxxviii) The Appellant submits that DLF Limited has given advances of Rs. 1424.83 crores during the period i.e. 01.07.2012 to 31.03.2016, to various land owning companies by way of refundable performance deposit for the purpose of procurement of land. Further, it was submitted that the amount of Rs. 1424.83 crores was remitted by DLF Ltd. to DCPC and later on, DCPC has, transferred to various land owning Companies. Almost all land owning Companies have acquired the land out of the funds provided by DCPC. There is absolutely no documents, agreement or instrument to suggest that any development rights have been transferred by land owning companies to DCPC. To this effect, M/s. Prem Arun Jain & Co, Chartered Accountants has given a certificate dated 3.5.2016 and also M/s. Prem Arun Jain & Co, Chartered Accountants, have also given a certificate dated 30.4.2018 clearly stating that no development rights have been transferred by the land owning Companies to DCPC and similarly, DCPC have also not transferred any development rights to either DLF or any other person. Again, there is absolutely no document or instrument to suggest there was actual transfer of developm....
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....ransactions of transfer of development rights viz. "between various land owners and M/s DCPC" and "between M/s DCPC and M/s DLF" are, mutually exclusive, independent but separately taxable transactions and should not be confused as one. Further, in the present Appeals it is not only the transactions between M/s DCPC and M/s DLF which is under dispute and hence only the taxability of same should be adjudicated. (vii) The submission made by the Appellant is incorrect. M/s DLF Limited (DLF) provided business advance or an ad-hoc fund to DCPC for procuring development rights from other companies. This business advance was given for specific purpose i.e. to acquire Development Rights which was other than the loan, provided by DLF to DCPC, for example the balance of such loan was Rs. 247.83 crores as on 31.03.2015 and Rs. 554.47 crore as on 31.03.2014. These loans carry an interest rate of 12% per annum. Whereas, the business advances were interest free. The accounts of DCPC show that many times a part of such business advance or ad hoc fund had been returned to DLF, if such fund was not used by DCPC for procuring development rights from other companies. In the show cause notice....
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....that "The Firm has entered into development agreements with various land owning companies ("LOCs") wherein the firm has acquired sole irrecoverable development rights in land which has been acquired by (LOCs). Further, the firm has entered into agreement with DLF Limited (one of its partners) wherein the Firm has agreed to assign or transfer all the development rights so acquired from the LOCs to DLF Ltd.", therefore, it indicate that DCPC received advances from DLF to procure Development Right and transferred the development rights to DLF. (x) The above said Business Development Agreement dated 02.08.2006 shows that DCPC agreed to provide development rights to DLF. The provisions of the Finance Act, 1994 ("Act‟) and rules made thereunder provides that service provider is liable to pay service tax on the consideration received against the services agreed to be provided inasmuch as Section 67(1) of the Act which is for valuation of taxable services for charging service tax, provides that in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided for the purpo....
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....d to the State. Neither DCPC nor DLF paid such stamp duty on impugned transfer of development rights. The agreements discussed in paras 5 and 8 of SCN indicate that acquiring or transferring the development rights to develop and carry out construction, does not involve transfer of title in land. The Business Development Agreement dated 02.08.2006, discussed in paras 5 of SCN, under which DCPC transferred the development rights to DLF or under sale deeds to other real estate developers but did not transfer the title of land along with development rights to recipients of service at any point of time. The Development Agreement dated 05.12.2006, under which DCPC had acquired the land development rights, the para 2.2 of the agreement (RUD-9 to SCN), specifically mentioned as under: "The parties agree that nothing contained herein shall be construed as delivery of possession in part performance of any agreement of sale, under Section 53A of the Transfer of Property Act, and/or such other applicable law for the time being in force. It is clarified that M/s Red Topaz Real Estate Private Ltd. (PREPL) shall be the owner of the Scheduled Property only for carrying out the development....
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..... The agreement which is based in this case dated 02.08.2006 does not say that the appellant have actually transferred the development rights. In fact, the said agreement is futuristic in nature which says that in further on acquisition of land, the appellant shall transfer the development rights to M/s DLF Ltd, it means that when the appellant never remain the owner of the land at the time of receiving the advance from M/s DLF Ltd. against purchase of land by the appellant, how can be the appellant transfer the land development right to M/s DLF Ltd. 9. We also take a note of the fact that the Ld. AR disputed that the amount received by the appellant is paid by DLF Ltd. to the appellant for acquisition of development rights. It is a fact on record that the appellant is not the owner of the land, therefore, how can he transfer development rights to M/s DLF Ltd. and as per the records, the amount given by M/s DLF Ltd. has been transferred by the appellant to various LOCs for purchase of the land. Therefore, it is mere transaction of the sale and purchase of land or purchase of land by the appellant for DLF Ltd. for further development. As appellant did not get any ownership of the....
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....e as and when the Conveyance Deed/Sale Deed is executed in future. We further observe that it is not only the possession, which stood transferred with the right to use, enjoy and construct building/super structure, but, at the same time, undivided right, title and interest in the land also stand transferred under the Deed of Conveyance on which stamp duty has been paid and the Deed of Conveyance has been registered before the Sub-Registrar. 11. From the above, it is a factual aspect of the case that the amount remitted by M/s DLF Ltd to the appellant is towards the acquisition of land by the LOCs which the said payment received from M/s DLF. Ltd was transferred to LOCs for acquisition of land. Further, no physical acquisition of land was taken over by the appellant. Consequently, the appellant have no right to transfer land development to M/s DLF Ltd. 12. From the above, it is clear that the appellant has not transferred any land development right to M/s DLF Ltd. or its subsidiary nominees etc. 13. We also take a note of the fact that similar facts enumerate from the case of Premium Real Estate Developers vs. CST-Service Tax, Delhi in Appeal No. ST/50103-50104/2014 wherein....
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....gistration charges, mutation charges would be borne by Sahara India. On satisfaction by Sahara India about the fitness of deal(s) for the land, appellant firm shall organise the registration in the name of Sahara India, after making the payment to the owners of land, from the advance amount given to them for the purchase of land. The difference, if any, between the amount actually paid to the owners of land and the average rate per acre settled between the parties as indicated, would be payable to the appellant firm, as their margin or profit. Further Sahara India had reserved its right to withhold 50 per cent of the amount (out of margin) to ensure that the obligations on the developer/appellant are fully discharged in terms of the MOU, and in case there was any serious default on the part of the appellant, the same could be made good by way of forfeiture of such amount, so withheld. 5. Pursuant to the MOU, the appellant firm received advance amount from Sahara India for each site. Substantial part of such amount was used by the appellant to pay to the seller or the prospective seller of the land, for agreeing tosell land to Sahara India. The details of such amount based ....
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....OU through agreement(s) to sell, the appellant shall thereafter get the sale deed(s) executed by the cultivators/owners of land in favour of Sahara India or its nominees, after payment of remaining amount towards purchase. Where there are several co-owners in a 'Khata' (entry in the land record) the second party/appellant shall ensure that all the co owners execute the document (sale deed) at one time. In no case shall any document be executed by part co owners. That in the case the land is owned by minor, lunatic or an insane person, appellant will get appropriate guardianship certificate from the competent court/authority and agreement to sell shall be executed only with such guardian. In case any dispute is pending before any civil court or revenue Court, regarding title, share or for partition of the property, the appellant will try its best to get the settlement arrived among the co sharers/co owners and agreement to sell shall be executed accordingly. 6.7 That it is the responsibility of the appellant for bringing the cultivators/land owners to the Registrar office along with the necessary documents and photograph and to witness execution/registration of the document....
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.... for providing this activity has actually not being quantified in the MoU. The MoU provides that "the difference, if any, of the amount being actually paid to the owner of the land and the average rate shall be payable to the second party (appellant). It is veryclear from the provision of the MoU that the amount payable to the appellant is not quantified and it is more of the nature of a margin and share in the profit of the deal in purchase of land. We feel that for levy of service tax, a specific amount has to be agreed between the service recipient and the service provider. As no fixed amount has been agreed in the MoU which have been signed between the parties, the amount of the remuneration for service, if any is not clear in this case. In this regard, we also take shelter of this Tribunal's decision in the case of Mormugao Port Trust vs. CC, CE&ST, Goa - 2017 (48) S.T.R. 69 (Tri. - Mumbai). The relevant extract is reproduced here below :- "18. In our view, in order to render a transaction liable for service tax, the nexus between the consideration agreed and the service activity to be undertaken should be direct and clear. Unless it can be established that a specific....
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....at since the specific remuneration has not been fixed in the deal for acquisition of the land we are of the view that both the parties have worked more as a partner in the deal rather than as an agent and the principle, therefore we are of view that taxable value itself has not acquired finality in this case. 30. It is also seen that some of the MoUs were not fully executed at the time of the issue of the show cause notice for example, in the case of MoU dated 15/11/2003 entered between Sahara India Ltd. and the appellant, the agreement is for provisioning of 100 acres of land at Village Rora, Distt. Lalitpur, U.P. and for this purpose an amount of Rs. 6,75,00,000/- have been remitted for land cost and an amount of Rs. 1,66,50,000/- have been remitted for the purpose of stamp duty and registration. Thus, a total amount of Rs. 8,41,50,000/- have been remitted to the appellant out of which a total amount of Rs. 3,66,32,000/- have been spent by the appellant for procurement and registration of land. Thus, an amount of Rs. 4,75,18,000/- still remain unspent with the appellant. It is to be seen that out of the above amount though the MoU was for 100 acres of land till the issue....
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....things attached to the earth, or permanently fastened to anything attached to the earth; 16. On going through the said definition, the immovable property includes land benefit arising out of land. In the case of transfer of development rights of the land, therefore, it is to be seen in the legal aspect whether the benefit arising out of land can be equated to transfer of development rights of land or not? The said issue has been examined by the Hon'ble Allahabad High Court in the case of Bahadur and Others vs. Sikandar and Others wherein the Hon'ble Apex Court observed as under:- "Therefore, the principal question we have to consider is whether the right to collect dues upon a given piece of land, the property of the alleged lessor, is a benefit to arise out of land within the purview of Section 3 of the Registration Act. In our opinion, the right to collect dues upon a given spot is such a benefit, and therefore, we are constrained to find that the document in question purported to convey that which falls within the definition of immovable property. The so-called lease being an unregistered instrument, it could not effect the transfer and could not be admissible in ....
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.... Further, the issue was examined by the Hon'ble High Court of Bombay again in the case of Shadoday Builders Private Ltd. and Ors. Vs. Jt. Charity Commissioner and Ors (supra) wherein the issue was in respect of sale of transferrable development right is immovable property or not? The Hon'ble High Court observed as under:- "5. The principal issue which arose before the learned Joint Charity Commissioner as to whether the TDR could be termed as a movable property, is concluded and is no more res integra in view of the judgment of the Division Bench of this court reported in 2007(3) Mh.L.J. 402 in the matter of Chheda Housing Development Corporation ..vs.. Bibijan Shaikh Farid and ors.Para no.15 of the said judgment is material and is reproduced hereunder. 15. The question is whether on account of the term in the clause which permits acquisition of slum TDR the appellants insofar as the additional F.S.I. is concerned, are not entitled for an injunction to that extent. An immovable property under the General Clauses Act, 1897 under section 3(26) has been defined as under : - (26). "immovable property" shall include land, benefits to arise out of land, an....