TaxTMI 
TaxTMI 
2019 (6) TMI 633
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....ith a hotel known as "Umaid Bhawan Palace". The Owners proposed to develop a portion of the aforesaid property admeasuring 43,56,000 sq. ft. in a phased manner by preparation of a lay out plan dividing the property into various plots, carrying out all infrastructure works, including leveling of plots, construction of Shopping Mall, Hospital, School, College, Market, and to sell them in accordance with the Rules framed by Urban Improvement Trust, Jodhpur, all of which was to be known as the "Umaid Township Project". The Appellant represented to the Owners that it is in the business of and has the expertise, skill, infrastructure in development and marketing/sale of properties and, therefore approached the Owners to permit it to develop the said 'Umaid Township Project' at Jodhpur. The Owners, granted and assigned unto the Appellant, the exclusive right to develop the said property and to sell individual developed plots. The Appellant accepted such authority, permission and the right to develop the said property and to sell the developed plots in a phased manner. Under the aforesaid agreement, the Appellant had to develop an area measuring approximately 20 acres in the first phase wi....
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....y sold by the developer after the year 2005-06 on pre-determined commission. These services of "Site formation and clearance, excavation and earthmoving and demolition" and other activities are adjunct to the services of Real Estate Agenct under a composite contract where the developers retained a part of sale proceeds of the developed plots as consideration for the services rendered by them which is nothing but commission for preparation of site for developing a real estate. Service Tax appears to leviable as per the statutory provisions on real estate developed by site preparation on consideration basis as discussed above. The service tax payable has been worked out to Rs. 5,45,52,288/- for the year 2005-06, 2006-07, 2007-08, 2008-09 & 2009-2010 on the consideration received in lieu of services rendered." (emphasis supplied) 4. The show cause notice, therefore, called upon the Appellant to explain as to why:- "(i) Service tax amounting to Rs. 5,45,52,288/- as detailed in Annexure 'A' to this notice should not be demanded and recorded from them under the proviso to section 73(1) of the Finance Act, 1994; (ii) Interest should not be recovered from them on th....
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.... mentioned are indicative and not exhaustive. Prior to construction of buildings, factory or any civil structure, activity of mining or laying of cables or pipes, preparation services of site formation and clearance, excavation and earthmoving or leveling are normally undertaken for a consideration to make the land suitable for such activities. Such services include blasting and rock removal work, clearance of undergrowth, drilling and boring, overburden removal and other development and preparation services of mineral properties and sites and other similar excavating and earthmoving services. Demolition of structures, buildings, streets or highways is also undertaken for a consideration as a preparatory activity for subsequent construction activity or for clearing the site for any other purpose. All such activities fall within the scope of this service. 23. I further observe from the contents of the contract entered between developer and land owner that the developers will themselves market the developed plots and will retain their consideration to the services provided, from the sale proceeds of the plots and remit the land value of the owners as per the agreed formula g....
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....ervice by the Appellant to the Owners. Service if any, is a service to self; (v) The arrangement contemplated in the agreement dated 5 September, 2001 is in nature of co-venture and there is no provision of service inter se parties; (vi) In any case, the services, if any, are not classifiable under 'Site Formation' or 'Real Estate Agent'; and (vii) The extended period of limitation could not have been invoked, nor penalties could have been imposed. 9. Shri Amresh Jain, learned Representative of the Department has, however, supported the impugned order and has made the following submissions: (i) The Commissioner committed no illegality in confirming the demand after granting the benefit of cum service tax on the Appellant; (ii) A perusal of the show cause notice indicates that the essential character of the service rendered by the Appellant, is 'Site Formation' in terms of section 65A of the Act and 'Real Estate Agent' Service is merely adjunct; (iii) The order passed by the Commissioner has correctly appreciated the terms of the agreement for imposing tax liability upon the Appellant. 10. The submissions advanced on behalf....
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....ined after survey of the said property. C. The Developers have represented to the Onwers that the Developers are in the business of and have the expertise, skill infrastructure and reputation in development and marketing/sale of properties and the Developers have approached the Owners to permit them to develop the said Umaid Township Project at Jodhpur (hereinafter called "the Project"). D. -------------- Now it is hereby agreed, confirmed and declared by and between the parties hereto as follows:- 2. The Owners hereby grant and assign unto the Developers exclusive right to develop the said property describes in Annexure "C" hereto and to sell individual developed plots and the Developers accept such authority, permission and right to develop the said property and to sell the developed plots thereof in phase manner TO THE INTENT that the Developers shall complete the said project in accordance with the layout/building plans that may be sanctioned by UIT, Jodhpur and other concerned authorities and in accordance with all Rules, Regulations and bye-laws of the Public body and/or authority that may be applicable to the said property. ------....
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....r without building and for that purpose undertake publicity campaign through advertisement, brochures, electronics and print media etc. 12. (a) In consideration of the Owners granting exclusive and irrevocable rights to the Developers to develop the said property and to sell the individual developed plots, the Owners shall be entitled to receive from the Developers the following amounts: (i) In case of sale of Plot for the price upto Rs. 2,500/- per sq. yards then the Owners shall be entitled to receive 40% of the sale proceeds thereof; (ii) In case of sale of plot above Rs. 2,500/- per sq. yards and upto Rs. 3,500/- per sq. yards then the Owners shall be entitled to receive 48% of the sale proceeds thereof; (iii) In case of sale of plot above Rs. 3,500/- per sq. yards and upto Rs. 4,500/- per sq. yards then the Owners shall be entitled to receive 54% of the sale proceeds thereof; (iv) In case of sale of above Rs. 4,500/- per sq. yards and upto Rs. 5500/- per sq. yards then the Owners shall be entitled to receive 56% of the sale proceeds thereof; (v) In case of sale of plot above Rs. 5500/- per sq. yards then the Owners shall be....
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....btain permission/ consent/ sanctions/ approvals for the development envisaged in the agreement and to carry out all infrastructural work, including appointment of Architects, Quantity Surveyor, RCC Consultants and other professionals in connection with the said development of the project. (ii) In consideration of having been granted exclusive and irrevocable rights by the Owners to develop the said property and to sell individual developed plots, the Owners were entitled to receive from the Appellant the amount indicated in paragraphs 12 and 13 of the agreement depending on upon the size of the plots. The Owners were also entitled to receive a minimum of Rs. 400 per. sq. yard towards the land cost for residential and commercial plots. (iii) If for any reason any land/plot was not sold, the same was be divided between the Owners and the Appellant equally and in that event the Appellant would pay to the Owners only the cost of the land/or plots retained by the Appellant, after deducting the cost of the development. (iv) The Owners and the Appellant also agreed that the Development Agreement will not be treated as a Partnership/ Joint Venture between the par....
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....etermined according to the terms of the sub-clauses of clause (105) of section 65; (2) When for any reason, a taxable service is prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows :- (a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description; (b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable; (c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration; 18. It is in the light of the aforesaid provisions of the agreement and the definitions of 'real estate agent' and 'site formation' services that the submissions advanced by learned Counsel for the Appellant and the Authorized Representative of the Department have to b....
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....ice provided to any person by a real estate agent in relation to real estate, section 65(105)(zzza) contemplates a service provided to any person, by any other person, in relation to site formation and clearance, excavation and earthmoving and demolition and such similar activities. Section 65A deals with classification of taxable services. Sub-section (1) provides that classification of taxable service shall be determined according to the terms of the sub-clauses of clause (105) of section 65. However, if a taxable service, for whatever reason, is prima facie classifiable under two or more sub-clauses of clause (105) of section 65, then sub-section (2) of section 65A of the Act provides that the classification shall be effected in the manner described below; "(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more description; (b) composite services consisting of a combination of different services which cannot be classified in the manner specified in (a) shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable; (c....
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....t". In the last sentence of the paragraph the Commissioner observed "I also find that both the services are taxable and there is no need to bifurcate the consideration service wise." It was obligatory for the Adjudicating Authority to have specifically classified the service under which service tax was to be levied. The impugned, therefore, for this reason alone needs to be set aside. 24. In this connection it will be appropriate to refer to the Order passed by the Chennai Bench of the Tribunal in M/s CMS India Operation And Maintenance Company Pvt Ltd Vs. Commissioner of Central Excise, Puducherry^ 2017-TIOL-1491-CESTAT-MAD and the relevant paragraphs are as follows; "8. Sub-clause (b) under sub-section (1) of Section 65A provides classification of cluster of services under a specific taxing entry which gives the essential character of the services. Such an exercise was not carried out by the adjudicating authority and also there is no whisper the show cause notice in this regard. Such legal infirmity in the show cause notice is incurable at the appellate stage. Unless the show cause notice exhibits the activity carried out, and the service which has essential characte....
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....nce deed by the Owners in favour of the purchaser is for the reason that ownership is retained by the Owners. The right to develop and sell the property is with the Appellant under the Agreement. The Appellant is, therefore, entitled to receive the price from the purchase. In any view of the matter, the scope of the activity of the Appellant is to conceptualize and develop the property, which is not an activity attributable to a 'real estate agent'. It cannot, therefore, be urged that the Appellant had undertaken the activity of a 'real estate agent'. 26. In this connection, it would be appropriate to refer to the CBEC Circular dated 7 October 1998. The aforesaid Circular notices that some international reality concerns are providing services to real estate developers and promoters in respect of evaluation of a proposed real estate scheme/ project by conducting techno economic study, providing feasibility report and even helping in marketing real estate projects. Such services attract service tax. The Circular clarifies that the activity of actual construction of any building carried out by builder/ developer does not attract service tax levy as it is not a service within the me....
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....pellant had conceptualized, developed, implemented and marketed the scheme/ project for himself, and the amount received as development charges in the form of profit, would not be covered under the category of 'real estate agent' service. The relevant paragraph is reproduced below; "11. From the plain reading of above said definition of real estate agent and real estate consultant, it is seen that to get covered under the said definition, it has to be brought on record that the person has rendered directly or indirectly any services. It is seen from the records and the agreement entered into by the appellant with various entities, we find that the appellant is liable for the profit or the loss of the said project despite the said project was executed in the name of special purpose vehicle. It is also seen that the entire project was financed by the appellant herein. The said facts are not denied or disputed by the lower authorities. It is to be seen on this factual matrix whether there was any service rendered by the appellant in the category of real estate agent for receiving development charges. It is common knowledge that the real estate agent transacts the business of ....
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....greement clearly indicate that extensive construction and development had to be carried out by the Appellant and, thereafter, land/ plots were to be sold. The finances were also to be arranged by the Appellant. An agent does not carry out these activities. Thus, for this reason also the impugned order cannot be sustained. 31. It may not be necessary at all to deal with the submission of learned Counsel for the Appellant that the services, if any, rendered by the Appellant would also not fall under the category of "site formation" services since it has been contended by the learned Authorized Representative that the category of service for the activity undertaken by the Appellant would be 'real estate agent'. However, as learned counsel for the Appellant has made extensive submissions, this submission can be examined. 32. "Site formation" service is defined in Section 65 (97a) of the Act. It includes services for preparation of site for further development. This is apparent from the Circular dated 27 July 2005 issued by the Government of India, Ministry of Finance for the year 2005-2006 when this service was added. It is reproduced; "6.1. Any service provided or to be....