Leasing Out Land For 90 Years Against One-Time Payment Constitutes Transfer Of Immovable Property, Exempt From Service Tax: CESTAT

Dr. Rachna Gupta (Judicial) and P.V. Subba Rao (Technical Member) were addressing the issue of whether the act of transferring the land on lease for a period of 90 years against the one-time premium giving all rights of use, possession and even sale to the developer amounts to fall under the definition of service or under the definition of renting of immovable property.

In this case, the assessee/appellant is engaged in the activity of development of Raipur City by construction, development and maintenance of buildings, road etc.

The department observed that the assessee was engaged in collecting huge amounts on account of leasing of land to be used by their lessees for construction of commercial complexes and for furtherance of business. Despite renting/leasing being a taxable service, the assessee was not paying service tax.

The assessee was also alleged to have wrongly availed Cenvat credit as the input services for which the credit was claimed were not the eligible input services in terms of Rule 2(l) of Cenvat Credit Rules, 2004.

A show cause notice was served upon the assessee proposing that the amount received from leasing of vacant land as well as commercial complexes should be consideration towards rendering a taxable service.

The assessee submitted that the lease was for the period of 30 years agreed to be extendable till the period of 90 years. Such a transaction amounts to the transfer of immovable property, the deemed sale as different from Renting of Immovable Property Services. Resultantly, the lease premium received by the assessee against a transaction of deem sale as different from the consideration received for rendering taxable services.

The department submitted that transfer of development right cannot be equated with sale of land since the ownership of the land transfer remain of RDA only. The transfer of lease hold rights and development rights cannot be called as sale of land. Non-payment of service tax on the value of constructed area in CCM has been justified on the ground that the possession of area was not handed over, however the handed over property is not the point of taxation for the purpose of payment of service.

The Tribunal noted that any activity performed by a government authority which is not in the nature of statutory activity, if the activity is taxable, then even a government authority shall be liable to pay tax.

The bench opined that “it was an act of leasing out the land permanently for a longer period as that of 90 years against the one-time payment. Irrespective that an annual ground rent was received but the lessee was allowed to retain the possession with all control on the immovable property. The transaction is one similar to sale as defined under Article 366 (29A)(d) of the Constitution of India incorporated vide 46^th amendment. The activity therefore cannot fall under the definition of renting of immovable property even for the prior period.”

The Tribunal agreed with the assessee that Chhattisgarh State Act, 2003 in its Schedule I while talking about tax free goods has specifically covered water in its ambit. Once water is as good as a good supply thereof is an act of transfer of goods which is subject to VAT and not to service tax.

In view of the above, the Tribunal set aside the entire demand except that appellant is held liable to pay service tax w.r.t activity of Construction of Residential Complex.

Case Title: M/s. Raipur Development Authority v. Commissioner of Customs, Central Excise and Service Tax, Raipur

Case Number: Service Tax Appeal No. 53203 of 2015

Counsel for Appellant/ Assessee: A.K. Batra, Chartered Accountant

Counsel for Respondent/ Department: R.P. Sharma