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2019 (11) TMI 183
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....d 28/12/2016, issued by the Directorate General of Central Excise Intelligence for the period 2012-13. 2. The issue involved in this appeal is as to whether the amount of Rs. 45,08,09,200/- paid to the Appellant as per 'Settlement Agreement' and the compensation received by the Appellant from M/s Amit Mines Limited (hereinafter referred to as 'Amit Mines/AML') to the extent of Rs. 1,97,50,000/- for non supply of manganese ore on account of rate difference are liable for service tax under 'Declared Service' under Section 66 E(e) of the Finance Act or otherwise. The Appellant is engaged in the business of manufacture and sale of M.S. Billets and M.S. Rods, TMT bars etc., classifiable under tariff item 72 to the First schedule of Central Excise Tariff Act, 1985, for which they are duely registered with the Central Excise authorities under the provisions of Central Excise Act, 1944 (for short "the Act") and Rules made thereunder. The appellant is also registered with the service tax department in accordance with provisions of Finance Act and the Rules made thereunder for the services being rendered by them. 3. The Appellant entered into a 'Development Agreement' dated May 21, 201....
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....f Appellant. The details of the Development Agreements and Settlement Agreements are tabulated as under which is reproduced as under; Particulars Development Agreement Settlement Agreement Amount(Rs.) Amit Metaliks & 31 Companies 21.05.2010 11.04.2012 21,90,00,000/- Amit Metaliks & 11 companies 05.04.2012 20.06.2012 2,75,20,000 Amit Metaliks & 17 companies 04.05.2012 20.06.2012 1,60,11,200 Amit Metaliks & 1 company 05.04.2012 20.06.2012 62,78,000 Amit Metaliks & 43 companies 05.04.2012 20.06.2012 18,20,00,000 103 companies 45,08,09,200 These payments were received during January 2013 to March, 2013. 4. Learned Advocate, on behalf of the appellant, submits that the amount received pursuant to the settlement agreement is not a consideration towards rendition of any taxable services and hence not liable for service tax. The Section 65B(44) of the Finance Act defines "service", which is reproduced as under; "(44) 'service' means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include (a) An activity ....
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....ment to terminate the Development Agreements executed earlier. A careful analysis of the aforesaid Settlement Agreement would indicate that the same cannot be construed as agreeing to refrain from an act, as alleged or at all. There is no specific condition in the said settlement agreement under which are obligated to refrain from initiating any proceedings. At best, what is stated is that we will not have any 'intention to proceed'. The said phrase only indicates an "intention" and the same should be read in the context of the parties arriving at a compromise to settle a dispute. It is submitted that the said agreement cannot be construed to have a negative covenant so as to attract the provisions of Section 66E(e) of the 1994 Act. 9. It is further submitted that the amount received in terms of Settlement Agreement is not "declared service" under Section 66 E(e) of the Act. The settlement agreement indicates that the amount received is towards the damage or breach of contract towards full and final settlement of all disputes arising under the Development Agreement. This Settlement Agreement cannot be construed as agreement entered into by the appellant to refrain from initia....
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...., there is no reason to peruse any arbitration to end the litigation. 13. The demand relating to sum of Rs. 19,75,00,000/-, which was received by the Appellant from one M/s Amit Mines Private Limited, also held to be liable for service tax under Section 66E(e). It is also the submission of the learned Counsel, that the Appellant had entered into an agreement with M/s Amit Mines Private Limited for purchase of manganese ore and issued purchase order also. M/s Amit Mines Private Limited failed to supply manganese ore to the Appellant. Therefore, the Appellant debited an amount of Rs. 1,95,50,000/- to M/s Amit Mines Private Limited which was accepted by them also. This debit was on account of compensation on the rate difference due no non-execution of purchase order by M/s Amit Mines Private Limited. It is also submitted that no specific allegation or averment have been made in the Show Cause Notice about the nature and category of service rendered and where the transaction is required to fall for the purpose of payment of service tax under the Finance Act. It is also submitted that in any case the compensation received is not towards any activity liable for service tax but for com....
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....ing January to March, 2013, that date will be date of provisions of service and hence the demand is correctly confirmed in the impugned order. 16. We have considered the rival submissions and also peruse the appeal records. 17. The issue to be decided in this Appeal are twofold. The first one is as to whether the cancellation of the Development Agreement in terms of the Settlement Agreement would be liable to service tax under Section 66E (e) of the Finance Act and the other one is regarding non supply of iron ore from M/s Amit Mines, which resulted into payment of compensation would be chargeable to service tax within the said Section 66E(e) of the Finance Act. It is not in dispute that the Development Agreement and Settlement Agreement has been concluded before the introduction of Section 66E (e) of the Act which deals with declared service. The declared service has been defined as "agreeing to obligation or to refrain from the act or to tolerate and act and situation or to do an act". Learned Adjudicating Authority has concluded that the amount received by way of Settlement Agreement is agreeing to refrain from an act and thus chargeable to service tax. We find that these ....
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....tion of service tax liability on the Appellant, has been held in the impugned order. 19. The declared service under 66E(e) was first introduced from 01.07.2012 while the agreements are prior to the said date. The rules cannot go beyond Act since the charge under Finance Act was not available on the date of agreements in question. The Rule 5 of the Point of Taxation Rule has thus no application in this case to create a change in an indirect way. 20. Further, we also find that the all payments have been received towards the compensation for non performance of contract and the same will not be within the definition of Section 66 E (e) of the Act, which is for obligation to refrain from the Act or to tolerate and act of situation by the service provider. The Appellant has not provided any service as the Development Agreement itself has been cancelled. So, there is no question of any liability towards the service tax on the payment. The compensation that was received by the appellant is more of an actionable claim placing reliance in the case of Kesoram Industries wherein paragraph 13 to 23 are held as under; 13. If we ascertain the meaning of the word "debt", the express....
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....at d ate that a payment would become due from the committee to the doctors out of the balance of the moneys in the hands of the Committee for 1913..........." So also Bankes, L.J. observed: "Dr. Sweeny fulfilled that condition, and a debt arose, though the amount of it was not ascertained on April 9, 1914, and was not then payable." 14. This judgment in substance ruled that a present liability to pay an amount in future, though it was not ascertained but was ascertainable, was a debt liable to attachment. 15. The word "debt" was again considered in Inland Revenue Commissioners v. Bagnall, Ltd. (1) in connection with the excess profits tax. There, the Board of Inland Revenue accepted an offer of pound 10,000 made by the respondent company's accountants in settlement of their earlier liability. That offer was accepted only on September 22, 1937. The company contended that the sum was a debt due from the respondent to the Inland Revenue as from January 1, 1935. As the offer was not accepted, it was held that the sum was not a debt. It was argued that even if there was a liability on January 1, 1935, that liability did not become a debt within th....
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....ascertained did not make it any the less a debt. 17. In Dunlop & Ranken Ltd. v. Hendall Steel Structures Ltd.(Pitchers Ltd.-Garnishees) (4) it was held that the issuing of the architect's certificate was just as much a necessity for investing a cause of action in sub-contractors as it was in the main, contracts,, and the judgment debtors had no right to be paid, and therefore there was no debt, until the architect had certified the amount to be paid for the work ordered by the gamishees. On that reasoning it was held that no garnishee order should have been made. Strong reliance was placed on this decision in support of the contention of the Revenue that there could not be a debt if the ascertainment of the debt depended upon a certificate to be issued by a third party. But a perusal of the judgment shows that in such contracts a certificate by the architect was a condition for imposing a liability and that, therefore, till such a condition was completed with there could not be any debt. This decision does not throw any light on the question that now arises before us. The principle of the matter is well put in the Annual Practice, 1950, at p. 808, thus : "But ....
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....now payable or will become payable in future by reason of a present obligation." Mookerjee, J., quoted the following passage with approval from the judgment of the Supreme Court of California in People v.Arguello 9: "Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds : solvendum in praesenti and solvendum in future............... A sum of money which is certainly and in all events payable is a debt, without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt, or does not become a debt until the contingency has happened." This passage brings out with clarity the essential characteristics of a debt. It also indicates that a debt owing is a debt payable in future. It also distinguishes a debt from a liability for a sum payable upon a contingency. 21. A Full Bench of the Madras High Court in Doraisami Padayachi v. Vithi....
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....is sense means title or ownership in a thing. The word may also be used to describe the thing itself. The two concepts are distinct, a distinction which must be kept in mind when considering the use of the word in connection with the sale of goods. In the Dictionary of Commercial law by A.H. Hudson (1983 Edn.) the difference is clearly brought out. The definition reads thus: "'Property' -In commercial law this may carry its ordinary meaning of the subject-matter of ownership. But elsewhere, as in the sale of goods it may be used as a synonym for ownership and lesser rights in goods". Hence, when used in the definition of 'goods' in the different sales tax statutes, the word 'property' means the subject matter of ownership. The same word in the context of a 'sale' means the transfer of the ownership in goods. 36. We have noted earlier that all the statutory definitions of the word 'goods' in the State Sales Tax Laws have uniformly excluded, inter alia, actionable claims from the definition for the purposes of the Act. Were actionable claims etc., not otherwise includible in the definition of 'goods' there was no need ....
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....fillment of certain conditions to call for delivery of goods mentioned in a contract is an actionable claim and assignable under Section 130. (See Jaffer Meher Ali Vs. Budge-Budge Jute Mills Co.(1906) 33 Cal.702). There may also be assignments of an actionable claim dehors Section 130 (See Bharat Nidhi Ltd. Vs. Takhatmat (1969) 1 SCR 595). Negotiable Instruments, another species of actionable claim, are transferable under the Negotiable Instruments Act 1881. Transferability is therefore not the point of distinction between actionable claims and other goods which can be sold. The distinction lies in the definition of actionable claim. Therefore if a claim to the beneficial interest in movable property not in the vendee's possession is transferred, it is not a sale of goods for the purposes of the sales tax laws. 40. An actionable claim would include a right to recover insurance money or a partner's right to sue for an account of a dissolved partnership or the right to claim the benefit of a contract not coupled with any liability (see Union of India V. Sarada Mills (1972) 2 SCC 877, 880). A claim for arrears of rent has also been held to be an actionable claim (Stat....
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....failed to deliver possession of the entirely of the owners area within the stipulated time period, the Developer would be liable to pay to the Owner liquidated damage as may be mutually agreed upon. As the owner of the land could not provide the Contiguous piece of land within stipulated period, the Development agreement was terminated in terms of Settlement Agreement. The salient features of which is below mentioned; a. Each of the land owners agreed to pay a definitive sum of money to the Appellant-Developer to resolve all claims of settlement b. Parties, i.e., the owners and the Developers released each other from all rights and claims that they might have against the other arising from the dispute. c. This agreement was the result of a negotiated settlement. d. The parties were mutually agreed that each of the owners would pay to the Developer the sum as full and final settlement amount to terminate the development agreement executed on 5th April, 2012. e. On receipt of the settlement money, Developers would not have any intention to proceed with this dispute. f. Developer had agreed and terminated the Agreements. ....
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.... remain the owner of the land and as per the agreement, the development activities is taken place and thereafter developed property was sold by M/s DLF Ltd as per tri-pirate agreement to the prospective buyers upon execution of sale deed of land by the LOCs. 7. In this background, as per the facts, which are not in dispute that M/s DLF Ltd have given a sum of Rs. 1423.83 Crores to the appellant for purchase of land and the said amount has been paid by the appellant to various land owning company (LOCs). It is also a fact on record that the land owning company remained the owner of the land and have not transferred the land in the name of the appellant unless and until if the appellant become the owner of land, how the appellant can transferred development right in favour of the DLF Ltd. 8. Admittedly, from the facts of the case, it emerges that the advance to purchase of land given by M/s DLF Ltd to the appellant which has been further given to the LOCs to purchase the land who ultimately purchased the land. The activity of the appellant would have been started only after acquisition of land and thereafter to procure NOC from the various Govt. Authorities and ther....
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....vided interest in the land in favour of developer's buyers for which no separate consideration is paid for it. In other words, such transfer of undivided interest in the land by the land-owning company is in return of the initial consideration paid by the developer to it for transfer of land development rights only. Thus, it is the ownership of the land, which stands transferred effectively by the land-owning company in return of consideration payable by the developers. The moment it is either land or "benefits arise out of land", it goes outside the purview of "Service" as defined in Section 65B (44) of Finance Act, 1994. Under the Development Agreement dated 05.12.2006, it is stated that there would be transfer of Development Rights in future and the Developer were permitted to carry out the developmental activities as per clause 2.2 of the Development Agreement, wherein the developer is permitted to enter the scheduled property for carrying out developmental activities. After the developmental activities have been carried out, sale deed is executed among the three parties namely Landowner, Developer and the Purchaser under which the title to the undivided portion of the land is ....
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....ut 15.11.2003 100 5,75,000/- Raeberalli 16.05.2005 125 7,50,000/- 4. Under the MOU, Sahara India, had agreed to pay an average rate per acre of land to be purchased by Sahara India, which land would be identified, divided and demarcated by the appellant firm together with necessary documents and other formalities. The MOU for each site specifically provided the obligations of both the parties. It specifies that Sahara India had agreed to procure land at the aformentioned locations, at the fixed average rate per acre, which included all the cost of land, development expenses (items). The obligations of the appellant under the MOU were- (a) divide and demarcate the entire land into the blocks of 20 to 30 acres, (b) purchase the land in contiguity block wise, (c) furnish title papers and other necessary documents for the land to be purchased (d) obtain the permission and approval from the concerned authority for transfer of land and the expenses incurred in this regard, would be borne by the appellant firm, (e) bring the owners of the land for the purposes of negotiating, registration, etc , to the relevant places and bear all the expenses invol....
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....rom the roadside. 6.2 The appellant shall furnish the title papers and all other necessary documents with reference to the land proposed, within 15 days from the date of signing of the MOU. 6.3 Thereafter the appellant shall obtain and furnish, each and every other necessary permission/ approval from the Government body/competent authority, or other regulatory authority, required for transfer of the land proposed, and further arrange for the purchase of land proposed under the MOU, at the average agreed rate per acre, within two months or within such further time at the discretion of Sahara India. 6.4 All expenses for obtaining proof of title and approval (except for ULC clearance) required for the transfer of title in the land shall be borne by second party, that is the appellant, and all the supporting documents furnished in respect thereof shall reflect the latest position of the ownership of land. 6.5 Thereafter scrutinising the papers relating to title, the first party- Sahara India shall enter into an agreement of sale with the owners of the land, after payment of advance/signing amount, in favour of the cultivators/owner of the land. ....
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....hority shall be borne by Sahara India and the appellant shall be required to coordinate and to do the work of Pairvi in respect thereof in the concerned offices and shall provide to Sahara India all necessary help so as to get the work of mutation completed. 7. It appeared to Revenue that the appellant was liable to pay the service tax under the classification 'Real Estate Agent Service' (introduced with effect from 1st October,2004) under section 65(88) of the Finance Act which defines a 'real estate agent' as a person who is engaged in rendering any service in relation to sale, purchase, leasing and renting, of real estate and includes a real estate consultant. In the above stated facts which are similar to facts of this case, this Tribunal vide Final Order No. 53322-53323/2018 dated 27.11.2018 observed as under:- 28. From the perusal of Memorandum of Understanding (MoU) between the appellant and M/s Sahara India Ltd. It is very obvious that MoU is not only for providing purely service for acquisition of the land but involves many other function such as verification of the title deeds of the persons from whom the lands are to be acquired and obtaining n....
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....e can be established, the question of taxing an attendant monetary transaction will not arise. Contributions for the discharge of liabilities or for meeting common expenses of a group of persons aggregating for identified common objectives will not meet the criteria of taxation under Finance Act, 1994 in the absence of identifiable service that benefits an identified individual or individuals who make the contribution in return for the benefit soderived. 13. ... Neither can monetary contribution of the individuals that is not attributable to an identifiable activity be deemed to be a consideration that is liable to be taxed merely because a "club or association" is the recipient of that contribution. 14. ... To the extent that any of these collections are directly attributable to an identified activity, such fees or charges will conform to the charging section for taxability and, to the extent that they are not so attributable, provision of a taxable service cannot be imagined or presumed. Recovery of service tax should hang on that very nail. Each category of fee or charge, therefore, needs to be examined severally to determine whether the payments are indeed rec....
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....etation, and there is no malafide on the part of the appellant. The transaction is duly recorded in the books of accounts maintained by the appellant. Further there is no suppression of information from the revenue. Accordingly, we hold that the extended period of limitation is not applicable. 14. Now, we deal with the legal aspect of the case. Section 65B(44) of the Finance Act, 1994 defines the services and excluded certain activities which are as under:- any activity which constitutes merely - (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution, or (iii) a transaction in money or actionable claim;" As per the said provisions, the transfer of title in goods or immovable property, by way of sale, gift or in any other manner is not a service and no service tax is payable thereon. 15. As immovable property has not been defined in the Finance Act, 1994, therefore, as per Section 3 (26) of the General Clauses Act, 1897, the immovabl....
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.... establish the compensation in money would be an adequate relief. Can FSI/TDR be said to be a benefit arising from the land. Before answering that issue we may refer to some judgements for that purpose. In Sikandar and Ors. Vs. Bahadur and Ors. 27 ILR 462 a Division Bench of the Allahabad High court held that right to collect market dues upon a given piece of land is a benefit arising out of land within the meaning of Section 3 of the India Registration Act, 1877. A lease, therefore, of such right for a period of more than one year must be made by resitered instrument. A Division Bench of the Oudh High Court in Ram Jiawan and Anr. V. Hanuman Prasad and Ors. AIR 1940 Oud 409 also held, that bazaar dues, constitute a benefit arising out of the land and therefore a lease of bazaar dues is a lease of immovable Allahabad High court in Smt. Dropadi Devi v. Ram Das and Ors. MANU/UP/0120/1974 : AIR1974AII473 on a consideration of Section 3 (26) of General Clauses Act. From these judgments what appears is that a benefit arising from the land is immovable property. FSI/TDR being a benefit arising from the land, consequently must be held to be immovable property and an Agreement for ....
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....nstitute a benefit arising out of the land and therefore a lease of bazaar dues is a lease of immovable property. A similar view has been taken by another Division Bench of the Allahabad High Court in Smt.Dropadi Devi vs. Ram Das and ors., AIR 1974 Allahabad 473 on a consideration of section 3(26) of General Clauses Act. From these judgments what appears is that a benefit arising from the land is immovable property. FSI/TDR being a benefit arising from the land, consequently must be held to be immovable property and an Agreement for use of TDR consequently can be specifically enforced, unless it is established that compensation in money would be an adequate relief." 6. The Division Bench has held that since TDR is a benefit arising from the land, the same would be immoveable property and therefore, an agreement for use of TDR can be specifically enforced. The said dictum of the Division Bench is later on followed by a learned single Judge of this court in 2009(4) Mh.L.J.533 in the matter of Jitendra Bhimshi Shah ..vs.. Mulji Narpar Dedhia HUF and Pranay Investment and ors. The learned judge relying upon the judgment of the Division Bench in Chheda Housing Development Corpo....
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....f Actionable Claim placing reliance on the decision of Hon'ble Supreme Court in case of Kesoram Industries and Sunrise Association(Supra) 13. A careful reading of the Settlement Agreement in question clearly show that the land owners have agreed to pay a definite sum, that is, an ascertained amount to the Appellant-developer to resolve all claims of settlement. The settlement agreements have resulted in creation of a debt in favour of the Appellant. Under the said circumstances a debt is clearly created and the said amount would fall within the scope and ambit of an actionable claim within the meaning of Section 3 of the Transfer of Property Act, 1882 and hence excluded from the definition of ' service' as per Section 65B(44). 14. It is submitted that the amount in question is an 'actionable claim' which is not liable for any service tax under the provisions of the 1994 Act. The meaning, nature and scope of actionable claim has been dealt with in detail by the Constitution Bench of the Hon'ble Supreme Court of India in case of Sunrise Association vs. Govt. of NCT of Delhi reported in (2006) 5 SCC 603. 26. Thus, we held that the entire sum of money would be clas....