Facts: The appellant, a body corporate established under U. P. Industrial Development Act, 1976 (UPIDA) discharges statutory duties and functions which includes allotment of land on lease basis and providing municipal services in the Greater Noida, being notified as an industrial township by the Government of U.P In terms of UPIDA. The Appellant may sell, lease or otherwise transfer, whether by auction, allotment or otherwise, any land or building belonging to the Authority in the industrial development area on terms and conditions it may think fit. The appellant accordingly allocated vacant land to various persons for residential/group housing, institutional, commercial or industrial purposes on 90 years lease term. In respect of such allotment of vacant land, the appellant, in addition to an amount called premium also collected lease rent. Besides this, the appellant have also rented a constructed building for commercial purposes in respect of which they paid service tax on the rent since 01-06- 2007. Based on the above facts, the following issues were framed.
Issue 1:
• Whether providing vacant land on lease for construction of building or structure at a later stage for furtherance of business or commerce, service tax is chargeable only with effect from 01- 07-2010?
Held:
Yes. Relying upon the decision of New Okhla Industrial Development Authority’ [2014] 44 Taxmann.com 287 (New Delhi-CESTAT), the Tribunal held that, giving of vacant land on license, rent or lease for construction of structure at a later stage for furtherance of business or commerce became taxable only with effect from 01-07- 2010 under Clause (v) of Explanation I to section 65(105) (zzzz) and this activity was not taxable during the period prior to 01-07-2010.
• Whether rent received during the period from 01-07-2010 in respect of leases of vacant land for construction of buildings or temporary structures for commercial use granted during the period prior to 01-07-2010 are also liable to service tax?
Issue 2:
Held:
Yes. Unlike manufacture of goods and clearance of manufactured goods which are one-time events, the provision of service in pursuance of an agreement for the same, may after starting the provision of service, continue for some time for several days, months or years, depending on the terms of the agreement and in between, a service which at the time of initiating the provision of service was non-taxable may become taxable. Since the taxing event for service tax is provision of service, not the event of entering into an agreement for provision of service, the service provided from the date on which the same became taxable, would attract service tax, irrespective of the fact that at the time of entering into an agreement for provision of service, the same was not taxable. Issue 3: • Whether service tax is chargeable only on the lease rent?
Held:
Yes. Relying upon the decision of New Okhla Industrial Development Authority’ case (supra), the Tribunal held that all the leases of immovable property viz. short-term, long-term or perpetual as per section 65(105)(zzzz) would be covered for service tax.
Issue 4:
• Whether service tax is chargeable also on one time premium amount charged in respect of long-term leases?
Held:
No. Relying upon the decision of the Apex Court in the case of CIT vs. Panbari Tea Co. Ltd. [1965] 57 ITR 422, the Tribunal held that the premium is the price paid for obtaining the lease of an immovable property. While rent, on the other hand, is the payment made for use and occupation of the immovable property leased. Since taxing event u/s. 65(105)(zzzz) read with section 65(90a) is renting of immovable property, service tax is leviable only on the element of rent, i.e., the payments made for continuous enjoyment under lease which are in the nature of the rent irrespective of whether the rent is collected periodically or in advance in lumpsum. Service tax u/s. 65(105)(zzzz) read with section 65 (90a) cannot be charged on the ‘premium’ or ‘salami’ paid by the lessee for transfer of interest in the property from the lessor to the lessee as this amount is not for continued enjoyment of the property leased.
Issue 5:
• Whether service tax is payable on the processing charges for approval of building plans for transfer charges, miscellaneous income such as map revision fee, map validation fee, forfeiture charges, penalty, restoration charges, documentation charges, etc., and also on the rent received from the staff for residential premises?
Held:
As per the amended provisions effective from 01-06-2007, section 65(105)(zzzz) covers not only the service of renting of immovable property to any other person for use in the course of furtherance of business or commerce but also any other service in relation to such renting. Therefore, the services in connection with renting of immovable property for business/commerce would also be taxable. Therefore, processing charges for application for land allotment would be taxable. However, the services like processing and approval of building plan, map revision, malba charges connected with building of structures on the land allotted on lease basis have no nexus with the renting of immovable property for business or commerce, and as such, the charges of map approval, validation, map revision, malba charges, etc., would not attract service tax. Further, restoration charges or penalty being in the nature of penalty for violating conditions of the lease, the same cannot be treated as consideration for lease and hence not taxable. Similarly, rent from the staff towards residential premises is also not for furtherance of commerce or business would not attract service tax.
Issue 6:
• Whether the allotment of vacant land to builders for construction of residential complexes would attract service tax u/s. 65(105)(zzzz) read with section 65(90a)?
Held:
No. The Tribunal observed that Explanation 1 to section 65(90a) defines the term ‘for use in the course of or for furtherance of business or commerce’ as including the use of immovable property as the factories, office buildings, warehouses, theatres, exhibition halls and multiple use buildings. However, when a building is constructed on a vacant land leased is purely a residential one, the same cannot be said to be a building to be used for furtherance of business or commerce. Therefore, such allotment of land to the builder or a group housing society for construction of residential complex would not be covered by section 65(105)(zzzz) read with section 65(90a).
Issue 7: •
Whether extended period under proviso to section 73(1) is applicable in the present case and consequently whether Penalties under sections 76,77 and 78 of the Act are leviable?
Held:
No. Tribunal found merit in the plea of bonafide belief as to non-taxability of long term lease. Therefore invoking section 80, all penalties were waived. Note: Readers may refer to New Okhla Industrial Development Authority vs. CCE [2014] 44 taxmann.com 287 digest provided at case No.50 335 (2014) 46-A BCAJ.
