By TIOL News Service

NEW DELHI, MAY 24, 2017: THE appellants are a company incorporated by the Government of Rajasthan under Companies Act, 1956. They are promoted and fully subscribed by the Government of Rajasthan and are engaged in development of industrial areas, export promotion parks, growth centres, SEZ etc. The appellant are registered with Service Tax department under the category of ‘Management, Maintenance and Repair Service' and ‘Renting of Immovable Property Service'.

The dispute mainly revolves around the various charges collected by the appellant from the allottees of land. For the development of industrial areas, Government of Rajasthan allots vacant land on 99 years long-term lease to the appellant in terms of Rajasthan Industrial Areas Allotment Rules, 1959 issued under Rajasthan Land Revenue Act, 1956. Such land is further allotted by the appellant to various allottees against payment of ‘Development Charges/Allotment Rate/Cost of Land (Premium)' on lump sum basis or by auction and lease rental (economic rent) on long term basis for a period not exceeding 99 years.

The appellants apart from these two charges also collected other charges like service charges, fire charges, retention charges, restoration charges, unauthorized construction regularization charges, transfer charges and pre-payment charges.

The Revenue entertained a view that the appellant is liable to pay service tax on all these charges and accordingly various show cause notices were issued to all the registered offices of the appellant across the State of Rajasthan.

The demands were adjudicated by the Original Authority and also upheld by the Commissioner(A).

Appeals have been filed before the Tribunal against these orders.

The appellant brought to the notice of the Bench the following section 104 inserted in the Finance Act, 1994 by the FA, 2017-

Special provision for exemption in certain cases relating to long term lease of industrial plots.

104. (1) Notwithstanding anything contained in section 66, as it stood prior to the 1st day of July, 2012, or in section 66B, no service tax, leviable on one time upfront amount (premium, salami, cost, price, development charge or by whatever name called) in respect of taxable service provided or agreed to be provided by a State Government industrial development corporation or undertaking to industrial units by way of grant of long term lease of thirty years or more of industrial plots, shall be levied or collected during the period commencing from the 1st day of June, 2007 and ending with the 21st day of September, 2016 (both days inclusive).

(2) Refund shall be made of all such service tax which has been collected, but which would not have been so collected, had sub-section (1) been in force at all material times.

(3) Notwithstanding anything contained in this Chapter, an application for claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2017 receives the assent of the President.

Reference is also made to the notification 41/2016-ST dated 22.09.2016 and which exempts taxable service provided by State Government Industrial Development Corporations/Undertakings to industrial units by way of granting long term (thirty years, or more) lease of industrial plots from so much of service tax leviable thereon under section 66B of the said Act, as is leviable on the one time upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable for such lease.

It is submitted that in view of the above amendment and the notification, more than 90% of the demand against the appellant is not sustainable.

On tax liability of economic rent and other charges received by the appellant, the AR reiterated the findings by the lower authorities.

The CESTAT observed thus-

Taxability:

++ In view of the introduction of new Section 104 in the Finance Act, 1994, the appellant's liability on such consideration (lump-sum premium amount, received by them from the allottees on allotment of land on long term basis) no longer exists. The one time payment received for grant of long term lease of 30 years or moreof industrial plot, is not liable to service tax for all the periods covered in the present proceedings. However, we hold that the appellants are liable to pay service tax in respect of such one-time amounts received in respect of lease granted for less than 30 years.

++ Regarding tax liability of the appellant on the economic rent received by them from 01/07/2010, we find that on the similar matter, this Tribunal has examined this very same issue in the case of Greater Noida Industrial Development Authority (supra) and upheld the service tax liability on such charges. The said decision of the Tribunal has been upheld by the Hon'ble Allahabad High Court. As such, we hold that the appellants are liable for service tax on the lease rent/economic rent received periodically, on the lands allotted for industrial purpose for the period post 01/07/2010.

++ It is clear that these charges (Retention charges, restoration charges etc.) are nothing but consideration received by the appellant in terms of their dealing with the allottee as per the conditions of allotment and closely linked to the lease arrangement for the plot. In other words, the continued facility of lease enjoyment by the allottee is linked to payment of these charges. Though under different names, these are attributable to the lease arrangement of plot between the appellant and the allottees and we have no hesitation to hold that these are considerations received for allowing the allottee to use the plot and they have direct nexus to the service of renting of immovable property by the appellant . As such, these charges are also liable to be taxed under the said tax entry.

++ Wherever any charges are collected by the appellants towards repair and maintenance of roads, the same shall not be liable to service tax under the category of management, maintenance and repair service. [Section 97 of the Finance Act, 1994 refers and also Notification 24/2009-ST dated 27/07/2009 and Notification No. 54/2010-ST dated 21/12/2010]

++ However, regarding other services rendered by the appellant to the allottees in the industrial areas, we find no exemption is available. The claim of the appellant that they have undertaken the said maintenance as a governmental authority and, hence, not liable to tax, is not tenable.…For the period prior to 30/01/2014 the appellants are not covered by the definition of “governmental authority” as the same is an authority or any other body set up by an Act of State Legislature. The appellants are not set up by an Act of Legislature. They are a company incorporated by the Government of Rajasthan.

++ However, the services rendered by the appellant after 30/01/2014 are eligible for exemption in terms of Sl. No. 39 of Notification 25/2012-ST dated 20/06/2012 as the said entry was substituted w.e.f. 30/01/2014, by Notification 2/2014-ST dated 30/01/2014. The substituted definition changed the scope of “governmental authority” to include any authority or any other body established by Government, with 90% or more participation by way of equity or control, to carry out any function interested to municipality under Article 243W of the Constitution.

++ As such we hold that appellant are liable service tax for the period prior to 30/01/2004 as no exemption is available to them.

++ We note that the said (transfer) charges cannot be subjected to service tax liability under the category of real estate agent service….However, the appellants are liable to be taxed under the category of renting of immovable property, on receipt of this consideration. … Wherever demand of service tax on this income is with reference to this tax entry, the appellant is liable to pay.

Limitation& Penalty:

The appellants are a Government company. The issues dealt with above are involving interpretation of legal provisions. Some differing views are already on record. As a Government agency it is not incorrect to assume that the appellant did not have any malafide intent to misrepresent or suppress facts from the tax authorities in order to evade the tax… As such, we find the demands for extended period are not sustainable against the appellant. On the same reasoning we hold that the penalties imposed on the appellant are also liable to be set aside.

Cum-tax benefits:

++ Subject to production of evidence that the appellants have charged gross amount which is inclusive of service tax and the arrangement with the service recipient/the documents support such assertion, …the appellant should be allowed to calculate the tax liability in terms of the said provision.

All the 69 appeals were disposed of.

(See 2017-TIOL-1725-CESTAT-DEL)