TaxTMI 
TaxTMI 
2023 (8) TMI 474
X X X X Extracts X X X X
X X X X Extracts X X X X
....Chennai took up investigation of the case. On verification and scrutiny of records of the appellant, it was noticed that the appellant was engaged in promotion of layouts/ projects which are then marketed as plot/ land for residential construction for individual customers/ commercial customers. They collected development charges from the buyers. However, the appellant neither paid service tax nor filed periodical ST-3 returns. Hence a Show Cause Notice dated 17.10.2012 was issued to the appellant proposing to demand service tax to the tune of Rs.5,30,04,265/- for the period from 2007-08 to 2011-12 under the taxable service 'Site Formation and Clearance' service as per section 65(105)(zzza) of the Finance Act, 1994, under proviso to section 73(1) of the Finance Act, 1994. Further demand of interest and imposition of penalties were also proposed. After due process of law, the adjudicating authority confirmed the service tax demand as proposed in the Show Cause Notice. He held that the appellants have rendered 'Site Formation and Clearance' service to the buyers of the lands for which consideration towards the said activity has also been received from the buyers. He stated that it pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n filling ST-3 returns regularly and the law mandates only to inform the taxable revenue in the ST-3 returns and the appellant was under a was a bonafide belief that development charges are not liable to be taxed as the agreement is for sale of land and the development is being carried out prior to registration. She hence prayed that the impugned order be set aside. 6. The learned AR Shri N. Satyanarayanan reiterated the findings in the impugned order. 7. Heard both sides. 8. We find that on merits, this is a case in which the appellant has stated to be carrying out two types of transactions. One is an outright purchase of land that is further sold reportedly after developing it, before selling the land in order to enhance the sale value of land. Secondly, they sell the land to buyers on the strength of the GPA executed in their favour by landowners. After the execution of GPA and prior to the sale of the land to buyers they develop the land to enhance the land value. These activities according to them are activities which are incidental to sale and cannot be considered as a different activity. In both the cases they are of the opinion that since the land is in their posse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lation to site formation and clearance, excavation and earthmoving and demolition and such other similar activities rendered 'to any person, by any other person'. Ownership of the land where the service is rendered is not mentioned and is hence not a relevant condition for determining the taxable service. 8.2.2 The relevant portions of Agreement dated 27/06/2007 between M/s MRF Ltd and Green House Promoters (Pvt) Ltd. is reproduced below:- AND WHEREAS the Second party has further represented to the First Party that they have entered into negotiations and have obtained the authority to negotiate on behalf of the owners / occupiers of the land in the "SCHEDULE PROPERTY" hereunder and is in a position to arrange for the purchase / registration of the entire 'SCHEDULE PROPERTY' in favour of the First Party at a sale price of Rs.4,35,000/- (Rupees four lakhs thirty five thousand only) per acre inclusive of land cost and development charges etc. if any. The Second Party shall also do the development of the land post sale or simultaneously for which there shall be a fixed priced of Rs.2,90,000/- (Rupees two lakhs and ninety thousand only), thus making the total consideration p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... said agreements shown to us. This is not unusual as self-service would not result in income generation to be reflected in account books. It may only add to the cost of developing land which would generally be reflected/ subsumed in the sale price of land. If any land developer collects development charges separately from customers without any receipt it is perhaps illegal, with implications on taxability under various laws. Hence it appears that these lands purchased by the appellant and sold as plots to any person were not among those which have generated income from development charges as recorded in their book of accounts and mentioned in the calculations at para 4 of the SCN 319/2012 dated 17/10/2012. They are hence not the subject of the impugned order. 9.2 However, on principle it is agreed that if a landowner does site preparation/ development work on self-owned land, which work is not done on behalf of or for any person involving a consideration, then it would be self-service. The landowner would not be liable to pay service tax for such self-development of land as there is no service provider and service receiver relationship. It is also relevant to state that if the t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eparate consideration for this activity at the time of sale of land and is hence distinguished. 9.3 Hence, when land is purchased outright by the appellant from the landowners and where it is self-developed by site formation etc. after purchasing the land but before selling it, and the development work is not done for or on behalf of any person involving a consideration being collected, service tax is not payable by the landowner. The judgements cited by the appellant are in accordance with the views stated above. 10. Whether on the land sold by the appellant as per the GPA obtained from the landowners and where site formation etc. is done after obtaining GPA but before selling the land, service tax is payable under the classification heading 'Site formation and clearance' service. 10.1 This issue is examined in the context of the 'development charges' pertaining to various projects recorded in the appellants books of account and the MRF agreement which is a matter of dispute in the present appeal. The main contention of the appellant is that they are not liable to pay any service tax as being Power of Attorney holders of the said land, they are its owners and the activity....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rges etc. if any. The Second Party shall also do the development of the land post sale or simultaneously for which there shall be a fixed priced of Rs.2,90,000/- (Rupees two lakhs and ninety thousand only), thus making the total consideration per acre under this agreement at Rs.7,25,000/- (Rupees seven lakhs twenty five thousand only). The land will be conveyed to the First Party within a period of 180 days from the date of execution of this agreement. The development charges include, charges towards land approvals if any, brokerage, legal expenses, ground leveling, earth filling and fixing of boundary stones etc. ***** ******* ******* That after being satisfied about the marketability / legality of the title / ownership of the "SCHEDULE PROPERTY" and the Registered Power of Attorney, the First Party shall call upon the Second Party to arrange for the transfer and registration of the "SCHEDULE PROPERTY" hereunder in favour of the First Party and the Second Party shall on receipt of such intimation in writing, arrange for the same for and on behalf of the owner(s) forthwith, as provided in this agreement within 180 days from the date of execution of this agreement. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. (emphasis supplied) It is noted that the section does not deal with the transfer of title from the seller (transferor) to the prospective buyer (transferee). It only protects the transferee from certain actions by the transferor once he has taken possession of the property. Taking possession of property does not amount to ownership of property. Hence by virtue of this section the appellant cannot claim to possess transferable tile to the land and become its actual owner. It is for this reason that the Agreement also only recognizes the appellant for performing certain actions on behalf of the landowners for which it provides for a 'brokerage'. The appellant has also signed the sale agreement with MRF only as the "power agent of the landowner" and not as the landowner. Hence, in the instant case the appellant is not eve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f sale. In the present case the imposition of service tax is on service rendered for site formation etc of land, while sale tax is on the act of sale of the land. The Appellant has relied upon the following two decisions wherein the demand of service tax was under renting of immovable property services with respect to an agreement entered into for granting license to a hotel company to run a hotel. This Hon'ble Tribunal has held that the main object of the agreement is to exploit the commercial potential of the hotel business and the use of the immovable property is only incidental and the same cannot be considered as letting of immovable property. It is submitted by the appellant that the agreement entered into with MRF is for procurement of land but not for development of land. Development is only incidental to make the land more suitable for sale. (a) Spencer International Hotels Ltd. - F.O.No.40461-40462/2023 dt.22.06.2023 (b) Hotel Shreelekha Regency Ltd. - F.O. No. 40554 / 2023 dt.14.07.2023 We have examined the said judgements on the accepted principle that it is neither desirable nor permissible to pick out a word or a sentence from a judgment divorced ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the Finance Act 1994 as extracted at para 8.2.1 above. The activities of development of land carried out by the appellant as per the Agreement is also extracted at para 8.2.2 above. It is seen from the agreement and the statement of the Director that the development charges include, charges towards ground leveling, earth filling, fixing of boundary stones and laying of roads on the land etc. The appellant has received a development charge of Rs.2,90,000/- per acre. The sale price of the land has been fixed separately at Rs 4,35,000/- per acre. Ground leveling, earth filling, laying roads on the land, fixing of boundary stones etc. are part of site formation and clearance which are clearly covered by the inclusive definition of Section 65(97a) that defines 'site formation and clearance, excavation and earthmoving and demolition'. The appellants activities do not fall under any of the exclusions of the said definition. The amount received by the appellant is shown as 'development charges' in the Agreement. If any part of this charge was towards any other expenses they should have bifurcated it with the help of documents and informed the department. When any fact is especial....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract : Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof." 8. We may next refer to the relevant provisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an testamentary instruments) which purports or operates to create, declare, assign, limit or extinguish whether in present or in future "any right, title or interest" whether vested or contingent of the value of Rs. 100 and upwards to or in immovable property. Section 49 of the said Act provides that no document required by Section 17 to be registered shall, affect any immovable property comprised therein or received as evidence of any transaction affected such property, unless it has been registered. Registration of a document gives notice to the world that such a document has been executed. Registration provides safety and security to transactions relating to immovable property, even if the document is lost or destroyed. It gives publicity and public exposure to documents thereby preventing forgeries and frauds in regard to transactions and execution of documents. Registration provides information to people who may deal with a property, as to the nature and extent of the rights which persons may have, affecting that property. In other words, it enables people to find out whether any particular property with which they are concerned, has been subjected to any legal obliga....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... possession of the proposed transferee who is put in possession in pursuance to such an agreement. It has nothing to do with the ownership of the proposed transferor who remains full owner of the property till it is legally conveyed by executing a registered sale deed in favour of the transferee. Such a right to protect possession against the proposed vendor cannot be pressed in service against a third party." It is thus clear that a transfer of immoveable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immoveable property can be transferred. 12. Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of TP Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under section 53A of TP Act). According to TP Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of TP Act enacts that sale of immoveable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Scope of Will 14. . . . . Conclusion 15. Therefore, a SA/GPA/WILL transaction does not convey any title nor create any interest in an immovable property. The observations by the Delhi High Court, in Asha M. Jain v. Canara Bank - 94 (2001) DLT 841, that the "concept of power of attorney sales have been recognized as a mode of transaction" when dealing with transactions by way of SA/GPA/WILL are unwarranted and not justified, unintendedly misleading the general public into thinking that SA/GPA/WILL transactions are some kind of a recognized or accepted mode of transfer and that it can be a valid substitute for a sale deed. Such decisions to the extent they recognize or accept SA/GPA/WILL transactions as concluded transfers, as contrasted from an agreement to transfer, are not good law." (emphasis added) The appellant, being engaged in procurement and development of land under a GPA, could not have missed out on the above significant Supreme Court judgement to continue to take a stand on GPA sale, quite contrary to it. In this context in D.P. Chadha vs Triyugi Narain Mishra, [Appeal (civil) 1124 1998/ (2001) 2 SCC 221], the Hon'ble Supr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e revenue in the ST-3 returns and the appellant was under a was a bonafide belief that development charges are not liable to be taxed as the agreement is for sale of land and the development is being carried out prior to registration. The activity conducted by the Appellant and their non-payment of Service Tax on it were known to the Department from 2009. This itself shows that the Appellant had not suppressed any facts with an intention to evade payment of Service Tax. The transfer of land is also recognized under Income Tax Act. The averment of the appellant cannot be accepted. Firstly, under Income Tax laws, illegal gains can be taxed at the hands of those who financially gained from these illegal actions. Hence this fact does not come to their rescue. The development of land by site formation was done by the appellant as per a registered agreement. The Agreement states that taxes like service tax and income tax etc. are to be paid by the appellant. This should have made them verify their obligations under the Finance Act 1994. What prompted them to believe that service tax on the development charges were not tenable is not forth coming from their pleadings. Hence their bonafide....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Industries Pvt. Ltd. (supra) is extracted below; "3. The earlier order dated 15.5.2009, noted the ill-effects of such SA/GPA/WILL transactions (that is generation of black money, growth of land mafia and criminalization of civil disputes) as under: "Recourse to `SA/GPA/WILL' transactions is taken in regard to freehold properties, even when there is no bar or prohibition regarding transfer or conveyance of such property, by the following categories of persons: (a) Vendors with imperfect title who cannot or do not want to execute registered deeds of conveyance. (b) Purchasers who want to invest undisclosed wealth/income in immovable properties without any public record of the transactions. The process enables them to hold any number of properties without disclosing them as assets held. (c) Purchasers who want to avoid the payment of stamp duty and registration charges either deliberately or on wrong advice. Persons who deal in real estate resort to these methods to avoid multiple stamp duties/registration fees so as to increase their profit margin. Whatever be the intention, the consequences are disturbing and far reaching, ad....