By TIOL News Service

NEW DELHI, AUG 30, 2017: THIS is a Revenue appeal.

Based on verification of documents maintained by the respondent, Revenue initiated action to demand and recover service tax, not paid under various categories.

The Commissioner dropped demands under "management consultancy service", "real estate agency service" and "advertising service".

Aggrieved by this order, the Revenue filed this appeal.

A part of demand under the categories of Management, maintenance and repair service and Business auxiliary service totally amounting to Rs. 1,06,080/- was confirmed alongwith penalties. Assessee has filed cross objection.

The AR adverted to the clauses of the agreement entered into by the respondent with their client and by placing reliance on the decision in RPG Enterprises - 2008-TIOL-643-CESTAT-MUM contended that the management consultant services will cover any advice rendered by one organization/person to another organization for improving the organization by conceptualizing, devising, development upgradation of recipient organization. So also, real estate agency service will cover all activities in relation to sale, purchase, leasing or renting, of real estate and, therefore, the respondent is liable to pay service tax on the consideration received for change of names of the buyers.

The respondent supported the order of the adjudicating authority and also contested the confirmation of the demand on the point of limitation.

After considering the submissions made, the CESTAT inter alia observed -

Management consultancy service& Real estate agent service:

+ Admittedly, the respondent has expertise and experience in the field of real estate projects. They have a set of know-how which will help the client who is engaged in real estate project.

+ The know-how is suitable and complete, which will enable the client to plan and execute the real estate development projects, including group housing projects, in a more profitable and efficient method. On careful consideration of the scope of the agreement, we note that there is no consultancy service with reference to improvement of organizational efficiency of the client.

+ As rightly pointed out by the Original Authority the know-how was transferred in the shape of data, information, drawings, design specifications of materials and utilities etc. It is thus, an undisputed fact that the know-how, was transferred by the respondent to their clients.

Commenting that the Bench is in agreement with the following findings of the adjudicating authority -

"Seen, under the light of the aforesaid definition of concept of management, the transfer of 'know-how' by the assessee to his clients did not amount to providing the of management consultant's service. The assessee did not make any study of the organizational pattern of their clients and did not give any advice or consultancy, in any manner, with regard to management of organizations of his clients or any sub unit of the organizations. The assessee was no way involved with the planning, organizing, staffing, directing, controlling and coordinating the activities of his clients. The assessee was also not engaged in redesigning any organizational structure or functioning of any unit or activities of their clients. The assessee only transferred the available 'know-how' to his clients under the agreements. Once the 'know-how' was transferred, it was for the clients to use the 'know-how' in the manner they desired. The assessee had no control over the usage of the 'know-how'."

- and the reliance placed on the decision of the Tribunal in  Castrol Ltd. - 2007-TIOL-405-CESTAT-MUM, the Tribunal concluded that there was no merit in the objection raised by the Revenue on the above findings of the Original Authority.

As for the tax liability under the category of "Real Estate Agent service", it was observed -

++ To levy service tax, first of all the provider of service should be a real estate agent and second while acting as such agent the person concerned should have provided service in relation to sale, purchase, leasing or renting of real estate. There is nothing in the show cause notice or the relied upon documents to show that the respondent acted in a capacity of "real estate agent" between the earlier owner and the new buyer of the flat. The changes made in the records by the respondent are not causative factors for such sale or purchase. We are in agreement with this observation of the Original Authority. [RIICO - 2017-TIOL-1725-CESTAT-DEL  relied upon.]

++ In the present case the respondent is a real estate developer selling their constructed flats. They are dealing with the buyers, old or new, on principal to principal basis. Accordingly, we are in agreement with the impugned order that no service tax liability can be confirmed against the respondent under this category.

++ Regarding tax liability of the appellant under the category of maintenance or repair service we note that they have entered into an agreement with M/s Star Estate Management Ltd. for maintenance of entire building including common area etc. The appellants are required to provide technical advice to M/s Star Estate regarding major repairs and modifications of the said property. …we note that there is nothing in the present grounds of appeal by Revenue to persuade us to interfere with the said findings. Advice or consultancy rendered by the appellant is not covered by maintenance or repair of immovable property. Admittedly the appellants are not involved in any activity of management, maintenance or repair.

++ We note that the entire building which was maintained and managed by the appellant/assessee for a consideration is for the collective benefit of the owners of the individual units in the building. Each owner collectively and severally got the benefit of said maintenance and as such we are in agreement with the Original Authority that the consideration paid by the owners of flat/plot/office is liable to service tax as affirmed by the Original Authority. We find no merit in the objection raised by the assessee in their Cross Objection.

Limitation:

++ We note that the appellant/assessee is a well organized large scale real estate developer. As such, it is not tenable for them to submit that they were not fully aware of the legal implications of various service tax entries applicable to them. We could not discern any bonafide belief in the present case for non-payment of service tax in time.

The impugned order was upheld and the Revenue appeal as well as the Cross objection by the assessee was dismissed.

(See 2017-TIOL-3154-CESTAT-DEL)