By TIOL News Service

ALLAHABAD, APR 23, 2015: THE appellant is a body established under the Uttar Pradesh Industrial Development Act, 1976 to develop certain notified areas as a planned industrial township. It functions as an arm of the State Government through its officers. Under section 6 of the said Act, one of the functions of GNIDA is to allocate and transfer whether by way of sale or lease or otherwise plots of land for industrial, commercial or residential purposes. Section 7 of the said Act gives power to GNIDA to transfer of land. They charge, both one-time lease charges at the time of initial handing over of the land and also charge annual lease charges at different rates for land given for different purposes.

Revenue was of the view that service tax is payable on such lease charges received as per provisions of section 65 (105) (zzzz) read with section 65 (90a) of FA, 1994. So they initiated proceedings for recovery of Service Tax of Rs.4,13,45,830/- on the Lease rent received during the period July 2010 to May 2011 and which demand was confirmed by the CCE, Noida along with interest and penalties.

It is the stand of the appellant that they are doing a statutory sovereign function and not a service and that long-term lease is like sale and not akin to renting made taxable under section 65(105)(zzzz) and hence the demand is not maintainable.

The CESTATwhile granting waiver of pre-deposit and ordering a stay in the matter inter alia observed –

"…A government authority doing an activity as per a mandate in an Act of the legislature by itself cannot take away the character of service from the activity. If that is not the case transportation functions done by Indian Railways would not amount to service. So may be the case of insurance service provided by Life Insurance Co-operation of India mandated to do so under LIC Act, 1956. However it is recognized that sovereign functions done by a government authority like certifications done under Weights and Measures Act, issue of passport etc cannot be considered as taxable service. The concept as to what are sovereign functions also is changing. Developing a township according to a plan which will be conducive to society at large and maintaining municipal functions in such township has to be considered prima facie to be sovereign functions and not a commercial activity of the government ."

We reported this order dated 08.11.2012 as 2013-TIOL-44-CESTAT-DEL.

The appeal was heard on 28.08.2014 along with the appeal in respect of the O-in-O dated 30.04.2013 (ST demand of Rs.140.74crores) and the CESTAT in a marathon order held as under –

++ In the case of New Okhla Industrial Development Authority Vs. Commissioner of Customs, Central Excise & Service Tax, Noida - 2014-TIOL-67-CESTAT-DEL Tribunal has held that the giving of vacant land on lease or licence for construction of a building or a temporary structure at a later stage to be used for furtherance of business or commerce would become taxable only w.e.f. 1.7.2010 and not during the period prior to 1.7.2010.

++ Section 65(90a) while defining the immovable property does not make any distinction between the long term lease or short term lease and there is absolutely no provision to exclude the long term lease or lease in perpetuity from the purview of the expression renting of immovable property.

++ Therefore, service tax demand would be sustainable only in respect of leases, whether long term or short term, of vacant land for the period w.e.f. 01.07.2010 where such leases of vacant land were for construction of building or structures for furtherance of business or commerce. No service tax would be chargeable in respect of such lease paid prior to 01.07.2010.

++ Since the levy of service tax is on renting of immovable property & not on transfer of interest in property from lessor to lessee, service tax would be chargeable only on the rent whether it is charged periodically or at a time in advance.

++ Service tax under Section 65(105)(zzzz) read with Section 65(90a) cannot be charged on the premium or salami paid by the lessee to the lessor 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.

++ By Finance Act, 2001, Section 65(105)(zzzz) was amended retrospectively w.e.f. 1.6.2007. As per the amended provisions effective from 1.6.2007, 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 any other service in relation to such renting.

++ Therefore, processing charges for application for land allotment on lease basis would also be taxable.

++ 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 activities in relation to the construction of building on the vacant land allotted on lease basis i.e. the charges of map approval, validation, map revision, malba charges, etc. would not attract service tax.

++ The allotment of land to a 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) as in such cases it cannot be said that the vacant land given on lease is for construction of building to be used for furtherance of business or commerce.

++ Since the taxing event for service tax is provision of service and 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. Therefore, the rent from lease of vacant lands for commercial or industrial use received during the period w.e.f. 01.07.2010 would be taxable even if the leases had been given during the period prior to 01.07.2010.

++ Though the order dated 30.04.2013 passed by the Commissioner in respect of a show cause notice dated 17.10.2012, at one place mentions that the service tax demand of Rs.140,74,64,321/- confirmed does not include the service tax of Rs.4,13,45,830/- demanded in the SCN dated 22.3.2012 issued by a ADG, DGCEI and adjudicated by the order-in-original dated 16.07.2012, from the order dated 30.04.2013, it is not at all clear as to whether the service tax demand confirmed vide order-in-original dated 16.07.2012 is not covered by this order.

It was concluded thus:

++ Service tax demand confirmed by the order-in-original dated 19.07.2012 is upheld only for the normal limitation period and the same is to be quantified by the Commissioner. The penalty on the Appellant under Section 77 and 78 is set aside by invoking s.80 of FA, 1994.

++ Order-in-original dated 30.04.2013 is set aside and the matter is remanded to the Commissioner for de-novo adjudication.

We reported this order as 2014-TIOL-1741-CESTAT-DEL.

Against this order the appellant Greater Noida Industrial Development Authority is before the Allahabad High Court.

The High Court observed as follows:

++ In view of the definition of expression of "renting of immovable property" read with Explanation, in our opinion, will include the lease of various plots allotted by the assessee for business/ commercial purposes and rent charged/ collected in respect of the lease so executed would necessarily be subjected to service tax.

++ The term/period of the lease whether it is for short duration or for 90 years or perpetuity makes absolutely no difference to the meaning of the expression "renting of immovable property". The contention of the assessee that since long term lease of 90 years/perpetuity would virtually amounts to transfer of ownership of the land does not appeal to us especially in view of the simple meaning of the language use in the aforesaid sections.

++ The Tribunal appears to be justified in recording that the letting of vacant land by way of lease or license irrespective of the duration or tenure for construction of building or temporary construction for use in the course or furtherance of business or commerce is taxable w.e.f. 1st July, 2010 in view of Clause (v) of Explanation 1 to Section 65 (105) (zzzz) of the Finance Act, 1994.

++ So far as the term lease is concerned, it may be recorded that it has not been defined under the Finance Act, 1994. The term "lease" would cover a lease for any period including a lease in perpetuity, as will follow from simple reading of Section 65 (90a). The Finance Act, 1994 does not carve out any distinction in the mater of long term lease/lease in perpetuity or lease for short duration, so far as the charging section is concerned.

++ Judged in the aforesaid background we do not find any illegality in the conclusions drawn by the Tribunal that the lease of immovable property under Section 65 (105) (zzzz) would be covered for service tax, irrespective of the fact that the lease is short term or long term or lease in perpetuity.

++ The plea of the appellant that it is performing statutory duties and is a creation of a statute and, therefore, cannot be subjected to service tax does not appeal to us. Suffice is to mention that the Finance Act, 1994 makes no distinction between a statutory body i.e. a juristic person and an individual.

++ If a sovereign/public authority provides a service 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.

++ Letting out of immovable property for consideration, which is determined on the basis of offers received from public at large by the assessee Greater Noida Industrial Development Authority is a service provided for consideration and not on payment of statutory fees, neither it is a statutory service performed by the assessee.

++ It may be that the statute permits such activities of letting out of immovable property for augmenting its finances but the same cannot be termed as service in public interest nor it is a mandatory or statutory function of the Development Authority. Accordingly such activity of leasing do constitute a taxable service.

++ The issue as to whether premium paid along with rent fixed should form the total consideration for levy of service tax or not is not entered into as no appeal has been filed by the Department against the order of the Tribunal.

++ The Tribunal has rightly held the lease of open land for use as commercial/business purpose as a taxable event, but what amount is to be taken into consideration for computation of service tax has been confined to the periodical rent only.

Holding that there is no error in the order of the Tribunal, the appeal was dismissed.

(See 2015-TIOL-1008-HC-ALL-ST)