Unreported Decisions – ST – June 2019

By Vinay Jain & Sachin Mishra, Advocates

1. Whether ‘Transfer of Development Rights’ can be equated with ‘Benefits to arise out of land’ for the purposes of definition of ‘Immovable Property’ as enumerated under Section 3 (26) of the General Clauses Act, 1897 read with Section 65B(44) of the Finance Act, 1994? Whether transfer of such “Development Rights” is in that sense “transfer of immovable property” and therefore, not taxable under the Finance Act, 1994?

Facts and Pleading:: DLF Commercial Projects Corporations (hereinafter referred to as the ‘Appellant’) is engaged in the business of construction and development of integrated township. The Appellant entered into an agreement with DLF Ltd. As per the said agreement, the Appellant was receiving business advances. The said business advances were transferred by the Appellant to various companies who were using the same for purchasing lands or development rights in the land. The said companies were known as Land Owning Companies. After the construction, Land Owning Companies along with DLF Ltd., entered into a tripartite agreement with prospective buyers for sale of the constructed property.

The case of the department was that the Land Owning Companies transferred the Development Rights to Appellant which was in turn, transferred by the Appellant to DLF Ltd. The department alleged that the advances received by the Appellant from DLF Ltd. was the consideration for transfer of such Development Rights. Therefore, the Department was of the view that the Appellants are liable for service tax on such transfer of development rights.

The Appellant submitted that there was no transfer of development rights from the Appellant to DLF Ltd. as the Land Owning Companies remained the owner of the land. The Appellant also argued that the ‘transfer of development rights’ being immovable property is beyond the ambit of Finance Act, 1994. The Appellant contended that the rights given to developer to develop the land and sell super-structure in perpetuity shall fall within the meaning of ‘benefit arising out of land’ under the definition of ‘Immovable Property’ as enumerated under Section 3 (26) of the General Clauses Act, 1897. Thus, the Development Rights fall outside the purview of ‘Service’ as per section 65B(44) of the Finance Act, 1994.

Judgment: The Hon’ble Appellate Tribunal held that as the Appellant was never the owner of the land, it could not have transferred the development rights to DLF Ltd. The Hon’ble Appellate Tribunal also held that the advance received from DLF Ltd. was transferred by the Appellant to the Land Owner Companies. Hence, the Hon’ble Appellate Tribunal held that it is mere transaction of sale and purchase of land by the Appellant for DLF Ltd. for further development. The Page 19 www.ctconline.org THE CTC NEWS | June 2019 Hon’ble Appellate Tribunal further relied upon the Hon’ble Allahabad High Court’s judgment in the case of Bahadur and Others vs. Sikandar and Others and the Hon’ble Bombay High Court’s judgments in the cases of Chheda Housing Development Corporation vs. Bibijan Shaikh Farid and Shadoday Builders Private Ltd. and Ors, vs, Jt. Charity Commissioner and Ors. to held that the ‘Transferrable Development Right’ is immovable property as it is a ‘benefit arising out of land’. Therefore, Hon’ble Appellate Tribunal held that the development rights are excluded from the ambit of ‘service’ as per Section 65B(44)(a)(i) of the Finance Act, 1994 read with Section 3 (26) of the General Clauses Act, 1897.

DLF Commercial Projects Corporations vs. C.S.T. Gurugram, CESTAT, Chandigarh, decided on 22-05-2019 in the Final Order No. 60554/2019.

DLF Commercial Projects Corporations

2. Whether value of taxable services on which service tax is payable under the Reverse Charge Mechanism should be included in the ‘Aggregate Value’ for the applicability of Small Service Provider (SSP/SSI) Exemption under Notification No. 6/2005-Service Tax dated 1-3-2005?

Facts and Pleadings: M/s. Crossword Agro Industries (hereinafter referred to as the ‘Appellant’) are inter alia engaged in manufacturing & exporting of agricultural diesel engines. The Appellant had been paying transport charges and discharging the service tax liability under reverse charge mechanism as per section 66A of the Finance Act, 1994. During the financial year of 2005-06, the Appellant had not paid service tax on output services as its entire taxable value was under the basic exemption limit of ₹ 4 lakhs as described under Notification No. 6/2005-ST dated 1-3-2005.

Department alleged that the value of taxable service received by the Appellant on which the Appellant has discharged service tax liability under Reverse Charge Mechanism is to be considered as part of the ‘Aggregate Value’ for the purpose of grants of exemption Notification No. 6/2005-ST dated 1-3-2005.

Appellant contended that the ‘aggregate value’ for the purposes of Notification No. 6/2005-ST dated 1.3.2005 do not include the value of taxable service received by anassessee on which service tax liability has been discharged under Reverse Charge Mechanism. The ‘aggregate value’ includes only those taxable services charged in the first consecutive invoices issued or required to be issued by theassessee. Therefore, the Appellant are eligible for the Small Service Provider (SSP/SSI) Exemption.

Judgment: The Hon’ble Appellate Tribunal held that the ‘aggregate value’ for the purposes of Notification No. 6/2005-ST dated 01.03.2005 only includes the amount charged by the assessee. In so far as service tax paid by the Appellant under reverse charge basis is concerned, the Hon’ble Appellant Tribunal held that the consideration was paid by the Appellant to the foreign service provider i.e. it is the foreign service provider who has charged for the taxable services and not the Appellant. Hence, the said taxable value of service on which service tax was paid by the Appellant under reverse charge basis shall not fall under the aggregate value for the purposes of Notification No. 6/2005-ST dated 01.03.2005.

M/s. Crossword Agro Industries vs. C.C.E. & S.T. Rajkot, CESTAT, Ahmedabad, decided on 03.05.2019 in the Final Order No. A/10784/2019.

M/s. Crossword Agro Industries

3. Whether a discount received by an Air Ticket Agent from an IATA for purchasing an air ticket of a passenger from the IATA amounts to ‘commission’ and thus, taxable under the category of ‘Business Auxiliary Services’?

Facts and Pleadings: M/s. Mahan Travels (hereinafter referred to as ‘the Appellant’) are agent for booking air tickets however, they are not registered with the IATA agent. The Appellant purchase tickets from IATA agent and in turn sell it to the travellers. However, the tickets are directly booked by IATA agent in the name of the respective traveller. The IATA agent in turn gives discount to the Appellant.

Department alleged that the ‘discount’ received by the Appellant is nothing but ‘commission’ received by the Appellant from IATA agent for booking tickets of the travellers and hence the said transaction is taxable under ‘Business Auxiliary Services’.

The Appellant contended that the Appellant is purchasing the tickets on principal to principal basis. The Appellant first purchases the said ticket from an IATA agent and then sells it to the respective travellers. The Appellant further contended that the discount received by the Appellant from IATA agents is nothing but a trade discount and hence, no service tax is payable on the same.

Judgment: The Hon’ble Appellate Tribunal held that the even though the tickets were directly booked in the name of travellers, the Appellant had firstly purchased the said tickets from IATA agents on principal to principal basis. Thereafter, the Appellant has independently sold the said tickets to the travellers. The Hon’ble Appellate Tribunal held that the said discount cannot be considered as ‘commission’ rather it is nothing but a trade discount/trade margin. Thus, the Hon’ble Appellate Tribunal held that the present transaction is one of sell and purchase and the trade margin does not amount to any ‘service’, hence the same is beyond the scope of Finance Act, 1994.

M/s. Mahan Travels vs. C.C.E. & S.T. Ahmedabad, CESTAT, Ahmedabad, decided on 08.05.2019 in the Final Order No. A/10847/2019.

M/s. Mahan Travels