TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 989
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....riwal ( the other appellant) is a Director in the company. 4. Based on the balance sheets filed by the appellants before the income tax authorities for the financial years 2013-14 and 2014-15 the department came to the view that entries shown under the head 'Compensation/Short term capital gains' for the two years was nothing but consideration received for rendering service and was, therefore, liable to service tax . 5. Show cause notice dated 28.09.2018 was , accordingly, issued invoking the extended period and demanding Rs.3,09,55,655/- from the appellants along with interest. Penalty was proposed on the appellant company as well as the Director, Shri Nikunj Beriwal. 6. The appellants submitted detailed reply dated 21.03.2019 giving factual and legal submissions as to why no service tax was payable on the above receipts. 7. However, the Pr. Commissioner of GST & CX, Rourkela, rejected the submissions of the appellants and, vide his Order-in-Original No 3/CCE/S.Tax/RKL/2019-20 dated 19.07.2019 (the impugned order), confirmed the full demand along with interest and imposed equivalent penalty plus Rs 10,000/-on the company and penalty of Rs 1 lakh on the Director, Shri Nikunj Be....
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....e definition of 'service' and, hence, not liable to service tax. (6)(a). The Principal Commissioner has held that capital gains can be earned only against change in ownership, not otherwise. This is not legally correct since even amount earned by surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005]. (6)(b) Further, in para 6.2.8 of the Service Tax Education Guide it has been clarified that ownership is not necessary for transfer of any right in an immovable property. The relevant portion is reproduced below:- 6.2.8 If the person who has entered into a contract with the builder for a flat for which payments are to be made in 12 installments depending on the stage of construction and the person transfers his interest in the flat to a buyer after paying 7 installments, would such transfer be an activity chargeable to service tax? Ans: Such transfer does not fall in this declared service entry as the said person is not providing any construction service. In any case transfer of such an interest would be transfer of a benefit to arise out of land which as per the definition of immoveable prope....
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....f the eventual buyer or tolerated any situation. The Principal Commissioner has not clarified how these clauses are applicable in the case of the appellants. D. Excelsior Services Pvt Ltd. (1). In this case the appellants entered into an agreement with M/s Excelsior Services Pvt Ltd ,to purchase a built-up area of a building in Kolkata for Rs 25,10,00,000/- and advance money was also paid for the same. As per the agreement the possession of the said building, along with the car parking, was to be handed over to the appellants by September 2014. However, subsequently, M/s Excelsior Services Pvt Ltd expressed their inability to perform their agreement and a deal of cancellation was executed with the appellants on payment of Rs 8,78,50,000/- as compensation. (2). On the same lines, in this case also, the transaction did not relate to any 'service' and, therefore, no service tax was leviable on the same. (3). Further, it is now established law that such compensation cannot be considered as the appellants agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act. The Pr. Commissioner has not clarified how these clauses are applicable in t....
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.... by the appellants on their behalf to M/s Ensol Power Pvt Ltd. This, by no stretch of imagination can be considered as a 'service' provided by the appellants as this was nothing but reimbursement. No service of any sort had been rendered by the appellants to M/s Thermax Ltd. (2). The appellants had given the correct position in their reply to the SCN but the Principal Commissioner has simply ignored these submissions. (3). Even if it is held that this amount was paid by Thermax for nonfulfilment of agreement to supply manpower ( though there are no documents to support this), as held by the Principal Commissioner, then also this amount is not liable to service tax as it would then be in the nature of liquidated damages. (4). The law is well settled that no Service Tax is payable on liquidated damages. H. Nilu Construction Pvt Ltd. (1). The appellants were occupying a portion of godown space, as tenant, owned by M/s Nilu Construction Pvt Ltd, Kolkata. M/s Nilu Constructions Pvt Ltd wanted to erect a new building on the said premises. The appellants agreed to vacate the said premises on payment of Rs.90,00,000/- as compensation for surrender of their tenancy rights. As per the d....
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....mmovable property and outside the definition of 'service' and, therefore, cannot be subjected to Service Tax . (4). Surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers- MANU/SC/0070/2005]. K. Jasmine Commercials Pvt Ltd. (1). Jasmine Commercials Pvt Ltd. was the owner of a building in Kolkata. The appellants entered into agreement with Jasmine Commercials Pvt Ltd to buy a portion of the ground floor subject to the condition that the car parking space in the building would be converted for commercial use of the appellants. Out of Rs 4,00,00,000 being the price or the said property the appellants paid an advance of Rs 2.25 crores. However, since Jasmine Commercials Pvt Ltd failed to get permission from the Municipal Corporation to convert the seven car parking space for commercial use, the matter was referred for arbitration and an award of Rs 3.19 crores, as damages, was passed in favour of the appellants. (2). These damages cannot be considered as agreeing 'to the obligation to refrain from an act or to tolerate an act or a situation or to do an act' as per clause (e) of section 66E of the Finance Act, 1994. 9.....
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....n on the part of the appellants to conceal anything. Had that been the case they would not have declared these receipts in their balance sheet and also paid capital gains tax on them. It is clear that the appellants were under a bona fide belief that the amount received by them from the 11 companies were not consideration for any service provided by them and, therefore, not liable to service tax. (2). Courts have consistently held that the extended time limit can be invoked only if there is a positive act on the part of an assessee to conceal anything from the department. There must be a deliberate attempt to suppress information for invoking the extended period. (3) In this regard the appellants have rely on the following judgments:- (i) Compark E Services Pvt. Ltd. Cs. Commr. Of C.Ex & ST., Ghaziabad [2019(24)GSTL634(Tri-All)] (ii) Uniworth Textlines Ltd. Vs. Commissioner of Central Excise, Raipur 2013(288)ELT161(SC) (iii) Nestle India Ltd. Cs. Commissioner of Central Excise, Chandigarh [2009(235)ELT577(SC)] (iv) Continental Foundation Jt. Venture Vs. Commr. Of C.Ex., Chandigarh [2007(216)ELT177(SC)] (v) Sarralle Equipments India P. Ltd. Vs. Commr. Of C.Ex & ST., Hald....
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....follows:- '(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 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; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. .........' (4) 'Immovable property' has not been defined in the Finance Act, 1994, or the Rules made thereunder. As per the Service Tax Education Guide ( para 2.6 refers) issued by the CBEC the words 'immovable property' would have the same meaning as given in section 3(26) of the General Clauses Act, 1897, which reads as under:- (26) "immovable property" shall include land, benefits to arise out of land, and things attached to the earth, or permanently fas....
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....mmovable property and was, therefore, an immovable property itself. The instant case is nothing but transfer of the title of immovable property in any other manner ( not by way of sale or gift). Such a transaction is excluded from the definition of 'service' and, hence, not liable to service tax. (7) We do not agree with the adjudicating authority that 'capital gains' can be earned only against change in ownership, not otherwise. It is now established law that any amount received on account of surrender of tenancy rights is also liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005]. (8) Further, in para 6.2.8 of the Service Tax Education Guide of the CBEC it has been clarified that ownership is not necessary for transfer of any right in an immovable property. The relevant portion is reproduced below:- 6.2.8 If the person who has entered into a contract with the builder for a flat for which payments are to be made in 12 installments depending on the stage of construction and the person transfers his interest in the flat to a buyer after paying 7 installments, would such transfer be an activity chargeable to service tax? Ans....
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.... of immovable property. The so-called lease being an unregistered instrument, it could not effect the transfer and could not be admissible in evidence. We are therefore of opinion that the Court of first instance was right. We set aside the order of the lower appellate Court and restore the decree of the Court of first instance with costs in all courts." Further, in the case of Chheda Housing Development Corporation v. Bibijan Shaikh Farid, the Hon'ble High Court of Bombay observed as under - 15. The question is whether on account of the term in the clause which permits acquisition of slum TDR the appellants in so far as the additional FSI 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, and things attached to the earth, or permanently fastened to anything attached to the earth." If, therefore, any benefit arises out of the land, then it is immovable peruperty. Considering Section 10 of the Specific Relief Act, such a benefit can be specifically enforced unless the respondents....
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....been defined as under :- (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." If, therefore, any benefit arises out of the land, then it is immovable property. Considering section 10 of the Specific Relief Act, such a benefit can be specifically enforced unless the respondents establish that 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 judgments for that purpose. In Sikandar and ors. v. Bahadur and ors., XXVII Indian Law Reporter, 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 Indian Registration Act, 1877. A lease, therefore, of such right for a period of more than one year must be made by registered instrument. A Division Bench of the Oudh High Court in Ram Jiawan and anr. v. Hanuman Prasad and ors., AIR 1940 Oudh 409 also held, that bazaar dues, constitute a benefit arising out of the land and therefore ....
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....ng, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completioncertificate by the competent authority. ......... (c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; .............................." (11) By the surrender of the agreement rights in the property by the appellants it cannot be said that the appellants agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any act or situation. (12) The issue as to what types of case would be covered in clause (e) of section 66E of the Finance Act, 1994, came to be discussed in the case of South Eastern Coalfields Ltd vs CCE &ST [ 2020-TIOL-1711- CESTAT-DEL]. It was held as under:- "28. It also needs to be noted that section 65B(44) defines "service" to mean ....
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....t it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of another person or tolerated any act or situation. C. M/s Shanti Enterprise (1). In this case the appellants entered into an agreement with another buyer for purchase of non-agricultural land @ Rs.1,51,00,000/- and an advance payment was also made. Subsequently another company, M/s Shanti Enterprise wanted to purchase the said land for developing it and, accordingly, the appellants surrendered their agreement rights at a mutually agreed price of Rs 2,08,00,000/. On the same lines, we hold that in this case also, the transaction did not relate to any 'service' and, therefore, no service tax was leviable on the same. (2). Further, in this case too, by the surrender of the agreement right in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any situation. D. Excelsior Services Pvt Ltd (1). In this case the appellants entered into an agreement with M/s Excelsior Services Pvt Ltd to purchase a built-up area of a building in Kolkata for Rs 25,10,00,000/- and advance money ....
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....3,18,09,200/- from the land owners. Accordingly, the appellant got a total amount of Rs. 45,08,09,200/- as the full and final settlement for the termination of Development Agreement from the various land owners. In addition to this, the Appellant also received an amount of Rs. 1,97,50,000/- as compensation from M/s. Amit Mines Limited towards the non-supply of agreed manganese ore. It is these settlement amounts, which the Department is trying to tax under the Finance Act in terms of provisions of Section 65B(44) of the Act under subheading 65B(44)(a)(iii) at the hand of appellant. ....... 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 66E(e) of the Act, which is for obligation to refrain from the Act or to tolerate [an] act [or] 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 ....
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....he reimbursement by M/s Thermax for the amount paid by the appellants on their behalf to M/s Ensol Power Pvt Ltd. (2) This cannot be considered as a 'service' provided by the appellants as this was nothing but reimbursement. No service of any sort had been rendered by the appellants to M/s Thermax Ltd. H. Nilu Construction Pvt Ltd (1) The appellants were occupying a portion of godown space, as tenant, owned by M/s Nilu Construction Pvt Ltd, Kolkata. M/s Nilu Constructions Pvt Ltd wanted to erect a new building on the said premises. The appellants agreed to vacate the said premises on payment of Rs 90,00,000/- as compensation for surrender of their tenancy rights. (2) As per the decision of the Hon'ble Allahabad High Court in the case of Kanhiya Lal and Anr ( supra) the surrender of tenancy rights cannot be considered as 'service' and, hence, no tax is payable. (3) As already discussed above, the surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005 ( supra)]. (4). Further, it also cannot be said that the appellants had agreed to an obligation to refrain from an act or tolerated an act or a situ....
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....res. However, since Jasmine Commercials Pvt Ltd failed to get permission from the Municipal Corporation to convert the seven car parking space for commercial use, the matter was referred for arbitration and an award of Rs 3.19 crores, as damages, was passed in favour of the appellants. (2). This is nothing but receipt of compensation on account of the other party not being able to fulfil its obligations under a contract. These damages cannot be considered as agreeing 'to the obligation to refrain from an act or to tolerate an act or a situation or to do an act' as per clause (e) of section 66E of the Finance Act, 1994. (3) The matter is clearly covered by the decisions in the case of Amit Metalics Limited vs Commissioner of CGST, Bolpur (supra) and M/s. South Eastern Coalfields Ltd. Vs. CCE and ST 2020-TIOL-1711- CESTAT-DEL( supra) discussed above. 12. In view of the above we hold that the appellants were not required to pay service tax on any of the amounts received by them in the above enumerated cases. 13. We also find that in the instant case the show cause notice is dated 28.09.2018 whereas the period involved is 01.04.2013 to 31.03.2015. The demand has been raised by invo....