TaxTMI 
TaxTMI 
2025 (12) TMI 32
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....d reported that they have not paid service tax on the amount recovered as "Lease Rent" from the customers. It was observed that though these charges were recovered under the head lease rent, the transactions had direct nexus against sale of flat and were accordingly chargeable to service tax. 2.1 The Adjudicating Authority observed that the Appellant has not produced any documents showing that the whole amount so collected has been deposited with the Noida Authority; it also held that the Appellant has not produced any documents in respect of lease rent required to be paid to Noida Authority and other terms and conditions imposed by the Authority. The demand of service tax was confirmed and penalty of equal amount was imposed. 2.2 On appeal, the learned Commissioner (Appeals) upheld the demand after observing that the activity of collection of payment of lease rent does not fall in the definition of pure agent as given in Rule 5 of Service Tax Rules (Determination of Value) Rules, 2006. He also observed that the decision in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. is under appeal before the Hon'ble Supreme Court. 3. The learned Authorized Representa....
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....ot collected for providing any taxable service. The relevant portion of the order reads as under :- "5 The second issue relates to the demand of service tax on 'External Development Charges' received by the appellant from the flat owners, which stands taxed under the category of "Special services provided by Builder" which category was introduced in the year 2010. According to the appellant the said amounts stand collected by them from flat owners and given to the Government Agencies for procuring the infrastructural facilities from them. The Adjudicating Authority has not disputed the said fact but has reasoned that inasmuch as the said amount collected by the appellant were given to Ghaziabad Development Authority, which cannot be considered to be Government, the same would be liable to tax under the above category". " 6 We have been shown the Circular issued by the Board vide Circular No.334/1/2010-TRU, dated 26-2-2010. While elaborating on the new entry introduced with effect from 2010, it stands clarified as under :- "8.2 Since these charges are in the nature of service provided by the builder to the buyer of the property over and above the construct....
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....rity as such. This stand of the appellant has not been countered either in the show cause notice, order in original or order in appeal. This amount was not towards any service provided by the appellant. However without specifying the purpose of this amount both the lower authorities have concluded that this amount is towards, renting of immovable property service. We do not find anything in the impugned order on basis of which both authorities have concluded so. Hence demand in respect of this amount, by holding that these amounts are towards renting of immovable property is not maintainable". 10. Before the Commissioner (Appeals), Appellant had taken categorical stand that the amount collected from customers and paid to Noida Development Authority cannot be included in the value of taxable service under provisions of Section 67 of Finance Act, 1994. It is not the amount charged for services and Rule 5 of Valuation Rules is ultra virus the Section 66 and Section 67 of Finance Act to the extent it levies service tax on reimbursement of expenses. Reliance was placed on Hon'ble Delhi High Court's decision in the case of Intercontinental Consultants & Technocrats (Pvt.) Ltd. Vs. UOI....
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....rvice tax is to be paid only on the services actually provided by the service provider". "29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the Learned Counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer t....
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....39;Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later." 11. We find that the period involved in the present case is April, 2012 to January, 2015. Therefore the ratio of law laid down by Hon'ble Supreme Court in the case of Intercontinental Consultants & Technocrats (Pvt.) Ltd. (Supra) is squarely applicable in the Appellant's case. We, therefore hold that the lease rent recovered from customers cannot be said to be the amount recovered towards provision of construction of residential complex ser....
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....rity as an intermediary and collect the same from the prospective buyers proportionately to the area of the flat. They are just acting as pure agents on behalf of prospective buyers/development authority and amount so calculated is not liable for payment of service tax. A transaction of merely collection and payment of money doesn't fall within the purview of service tax. The total lease rent recovered by them had been towards the reimbursable expenses of lease rent to Noida Authority. The appellant have not collected anything over and above the said lease rent. Section 67 of the Act, reads as under,- "Section 67. Valuation of taxable services for charging Service tax (1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,- (i) 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 by him; ..........................................................................." (3) The gross amount charged for the taxable service shall include any amount received....
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....provider in the course of providing any taxable service may incur certain expenditure or cost as a pure agent of the client. The service provider seeks to exclude such expenditure or cost incurred by him as a pure agent of his client (generally known as reimbursable expenditure) from the value of the taxable services. "4.1.9 There could be situations where the client of the service provider specifically engages the service provider, as his agent, to contract with the third party for supply of any goods or services on his behalf. In those cases such goods or services so procured are treated as supplied to the client rather than to the contracting agent. The service provider in such cases incurs the expenditure purely on behalf of his client in his capacity as agent of the client. Amounts paid to the third party by the service provider as a pure agent of his client can be treated as reimbursable expenditure and not includible in the taxable value. However, if the service provider acts as an undisclosed agent i.e. acting in his own name without disclosing that he is actually acting as an agent of his client, he cannot claim the expenditure incurred by him as reimbursable expe....
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....uyers, as buyers have no responsibility of any type for payment of these charges to the Noida Authority. This cannot be considered as reimbursable expenses. In the case of M/s Intercontinental Consultants & Technocrats Pvt. Ltd. Hon'ble Supreme Court has observed as follows:- "24. In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services ofr charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valua....
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....authorities under the provisions of any law are statutory duties. The fee or amount collected as per the provisions of the relevant statute for performing such functions is in the nature of a compulsory levy and are deposited into the Government account. Such activities are purely in public interest and are undertaken as mandatory and statutory functions. These are not to be treated as services provided for a consideration. 33. Therefore, such activities assigned to an performed by a sovereign/public authority under the provisions of any law, do not constitute taxable services. Any amount/fee collected in such cases are not to be treated as consideration for the purposes of levy of service tax. 34. However, if a sovereign/public authority provides a services, which is not in the nature of an statutory activity and the same is undertaken for a consideration (not a statutory fee), then in such cases, service tax would be leviable as long as the activity undertaken falls within the scope of a taxable service as defined. 35. Letting of immovable property for consideration, which is determined on the basis of offers received from public at large by the assesse....
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....he CIDCO is constituted and designated as the New Town Development Authority. 14. .... 15. ..... 16. ..... 17. ....... 18. In the case of Commissioner of Central Excise, Nashik (supra), the demand of service tax was in issue. The Finance Act, 1994 and particularly section 65 clause (64) was relied upon to urge that the service charges collected by the MIDC from the allottees of the plots are in relation to services provided by the MIDC to the plot holders and the same is covered by the category "maintenance, management and repairs" under clause (64) of section 65 of the Act. It is in relation to such a controversy that the Hon'ble Supreme Court's judgment in the case of Shri Ramtanu Co-operative Housing Society Ltd. (supra) outlining the legal position and the status of the Corporation is referred by the Division Bench. The issue raised related to collection of service charges, but whether the services rendered are taxable services or not. The Division Bench noted that this consideration is an amount received for the facilities and amenities provided. That is a statutory function. It is in these circumstances that the Revenue'....
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....in respect of it. The State is immune from being sued, as the jurisdiction of the courts in such matter is impliedly barred. 24. But there the immunity ends. No civilised system can permit an executive to play with the people of its country and claim that it is entitled to act in any manner as it is sovereign. The concept of public interest has changed with structural change in the society. No legal or political system today can place the State above law as it is unjust and unfair for a citizen to be deprived of his property illegally by negligent act of officers of the State without any remedy. From sincerity, efficiency and dignity of State as a juristic person, propounded in nineteenth century as sound sociological basis for State immunity the circle has gone round and the emphasis now is more on liberty, equality and the rule of law. The modern social thinking of progressive societies and the judicial approach is to do away with archaic State protection and place the State or the Government on a par with any other juristic legal entity. Any watertight compartmentalization of the functions of the State as "sovereign and non-sovereign" or "governmental and non-government....
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....t would not be maintainable against the State." 19. To the similar effect are the findings in the later judgment of the Hon'ble Supreme Court in the case of Agricultural Produce Market Committee vs. Ashok Hari Kuni AIR 2000 SC 3116 (see paras 22 and 31 to 33) 20. In the passing, we are of the opinion that the High Court of Judicature of Allahabad, while considering the demand, not arising out of the GST, but under the Finance Act in relation to the services of renting of immovable property of Greater Noida, has rightly arrived at the conclusion that the same was a taxable service and on the consideration received, the service tax could have been levied and demanded. Once we agree with the reasoning of the Division Bench, then, we do not feel it necessary to reproduce the paragraphs in the Division Bench judgment. We are not in agreement with the learned senior counsel appearing for the petitioners that the demand is contrary to law or unfair, unjust and unreasonable in any manner." 10.0 In the case of Supertech Realtors Pvt. Ltd., supra the observations made by us are not relevant because the issue therein was towards Renting of Immovable Property. The dema....
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....se amounts by classifying them under the category of Construction of Residential Complex Service after availing the abatement as provided by Notification No 29/2010-ST dated 22.06.2010." 11. In the said case also it has been held that appellant has paid service tax on the amount calculated under the category of construction of residential complex services. In the case of Supretech Realtors the issue was whether service tax on this amount could have been again charged under the category of 'Renting of Immovable Property Service'. Since appellant had paid service tax under the category of 'Construction of Residential Complex Service' after availing abatement provided vide Circular No.334/1/2010-TRU, dated 26-02-2010, we have not upheld the demand made again under the category of 'Renting of Immovable Property Service', demand in this case has also been set aside on the ground of limitation. Hence I do not find that the said decision supports the case of appellant. 12. Since there is no liability on the flat buyers under the lease agreement between Noida Authority and the appellant to pay any amount towards the lease rent, I am not inclined to accept the contention of the appell....
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.... been reflected in their ST-3 returns as amounts recovered as pure agent. From the show cause notice appellant have not shown this amount under the said head and have thus suppressed the gross value of services for determination of taxable value. Thus extended period has rightly been invoked in the present case. 14. In view of the above findings, I do not find any merits in the appeal and the impugned order is upheld. 15. Appeal is dismissed. Sd/- (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) POINTS OF DIFFERENCE In view of the difference in opinion expressed by the Member (Judicial) and Member (Technical), following questions are referred to Hon'ble President for referring the same to third member. "Whether the amounts collected by the Appellant as "Lease Rent", payable to the Noida Authority from the flat buyers, is an reimbursable expense, which need to be excluded from the gross value to arrive at the taxable value for payment of service tax during the period of dispute, as have been held by Member (Judicial)? Or "Whether the amounts collected by the Appellant by christening them as "Lease Rent", payable to the Noida Authority from the fla....
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.... no evidence to show that these charges were in the nature of lease rent only. ii). There is no documentary evidence with regard to payment of lease rent to the authority or subsequent execution of sub-lease by Allottees, Builder and Noida Authority, justifying the recovery of amount as lease rent charges. iii).The amount was actually against sale of flats. 3. To appreciate the issue whether the lease rent recovered from the customers can be said to be the amount recovered towards the provisions of "construction of residential complex service", it is necessary to examine the contents of the lease deed itself. The New Okhla Industrial Development Authority, a body corporate constituted under the provisions of the Uttar Pradesh Industrial Area Development Act, 1976 had executed the lease deed dated 14.06.2010, in favour of the appellant with respect to the Plot, as described therein. The appellant paid the amount of Rs.121.29 crores (in instalments) as total premium towards the cost of land. In addition thereto, the Noida Authority charged annual 'lease rent' equivalent to 1% of the premium amount, however, an option is provided to the allottee to make one time p....
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.... as the lessee has already received the one time lease rent of the plot from the lessee. In other words, if the appellant had not paid the one time lease rent but had paid it annually the sub-lessee would have been liable to pay the lease rent amount towards the remaining period of the lease to the NOIDA Authority directly. By paying one time lease rent equivalent to 11% of the premium, the appellant only facilitated their customers and saved them from the excess amount of lease rent, which would have been payable over a period of 90 years. Consequently, on the execution of the SubLease, the customers/flat owners paid the proportionate amount of lease rent to the appellant. This is evident from the Customer Lease Rent List for the period 1.04.2012 to 31.03.2013, giving the details of amount deposited customer wise total amounting to Rs.3,44,35,697/-. Similarly, for the period 1.04.2013 to 31.3.2014, an amount of Rs.2,54,05,010/- and for the period, 1.04.2014 to 31.01.2015, a sum of Rs.2,23,09,730/-has been deposited by all the customers of the appellant. In all Rs.8.21 crores have been received by the appellant as against the amount of Rs.13,34,16,568/- deposited with the Noida Aut....
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....imbursement to the appellant. 10. The next step to be appreciated is whether the amount deposited by the customers towards lease rent to the appellant by way of reimbursement can be subjected to service tax. As per Section 66, service tax is levied on the value of taxable services. Section 67 provides for determination of the value of the taxable service for the purpose of charging service tax under Section 66 as the gross amount charged by the service provider for such service provided or to be provided by him in a case where the consideration for the service is money. Thus the mandate of Section 67(1) is that the service tax is to be paid only on the services actually provided by the service provider. In this context, reference is invited to the decision of the Delhi High Court in Intercontinental Consultants and Technocrats (supra), where the appellant was providing "Consulting Engineering Services" and received payment not only for the services provided by it, but was also reimbursed for the expenses incurred by it on air travel, hotel, stay, etc. The service tax was paid on the amount received by it for services rendered to its clients but did not pay any service tax in res....
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....ourt was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider "for such service" and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service." 12. Similar view has been expressed by the Apex Court, in the case of Commissioner Vs. Bhayana Builders (P) Ltd. [2018(10) GSTL 118 (SC)], with reference to the provisions of Section 67 of the Act -- "Therefore, it is not any amount charged, which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily consideration for the service provided, which is taxable under the Act. By using the words "for such service provided", the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67". 13. The Tribunal in the case of M/s Supertech Realtors Pvt. Ltd versus Commiss....
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....orne by the customers through the appellant, which is apparent from the lease deed and sub-lease deed. The amount paid by the customers is not towards any services rendered by the appellant and as per the records, the same is not part of the consideration what has been specifically shown as the lease rent amount. On simple analogy, the amount paid by their customers towards lease rent which was paid by the appellant to the Noida authority is in the nature of reimbursement, which cannot be subjected to levy of service tax. 16. The counsel for the appellant has submitted that the appellant had acted as an intermediary between the buyers and the Noida Authority just to facilitate. Referring to the provisions of Rule 5(2) of the Valuation Rules, it was submitted that the amount collected as lease falls in the category of "Pure Agent Service" and hence no service tax can be levied on the consideration paid by the service recipient. Since the reference is limited to the issue whether the lease rent payable to Noida Authority is a reimbursable expense to be excluded from the gross value and the same has been decided in favour of the appellant, it is not necessary to consider whether th....