The Supreme Court of India, in the case of Commissioner of Service Tax v. M/s Elegant Developers, has dismissed appeals filed by the revenue, holding that a developer facilitating land acquisition for a “fixed average rate” while bearing the risk of profit or loss is not acting as a ‘Real Estate Agent’ and is not liable for service tax under the Finance Act, 1994.
The judgment, delivered by a bench of Justices J.B. Pardiwala and Sandeep Mehta, affirmed the findings of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The Court ruled that the transactions in question were “plain and simple transactions of sale of land” and not the provision of a taxable service. The Court also held that the revenue department’s invocation of the extended period of limitation was unjustified as there was no “wilful or deliberate suppression” by the developer.
Background of the Case
The dispute arose from three Memorandums of Understanding (MOUs) dated 2002, 2004, and 2005, between the respondent, M/s Elegant Developers, and M/s Sahara India Commercial Corporation Ltd. (SICCL) for the acquisition of land for ‘Sahara City Homes’ projects.
Under the MOUs, SICCL agreed to pay the respondent a ‘fixed average rate’ per acre. The respondent’s responsibilities included identifying and purchasing land in contiguous blocks, furnishing title papers, obtaining necessary permissions, and bringing landowners for registration. The respondent would pay the landowners from advances provided by SICCL.
A crucial term, noted in the judgment, was that “Any shortfall or surplus between the amount paid to the landowners and the fixed average rate would accrue to the respondent as its profit-loss margin.”
The Directorate General of Central Excise Intelligence initiated an investigation, concluding that the respondent was providing ‘Real Estate Agent’ services to SICCL without paying service tax. On April 22, 2010, a Show Cause Notice was issued demanding Rs. 10.28 crores (for the period October 1, 2004, to March 31, 2007) and invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994, alleging “wilful suppression of material facts.”
The Commissioner of Service Tax confirmed a demand of Rs. 10.45 crores with interest and penalties. However, the Appellate Tribunal (CESTAT) allowed the respondent’s appeal, holding that the parties acted as “principals” rather than “principal and agent” and that there was no mala fide intention to evade tax. The Commissioner subsequently appealed the CESTAT order to the Supreme Court.
Submissions of the Parties
The appellant (Commissioner of Service Tax) contended that the respondent “acted as a mere facilitator,” never gaining ownership of the lands and merely transferring them to SICCL via Powers of Attorney. The appellant argued the profit margin was a “commission” for services, bringing the respondent within the definition of a ‘Real Estate Agent’ under Section 65(88) of the Finance Act, 1994.
The respondent (M/s Elegant Developers) argued that its activities did not constitute a ‘service’ as it “assumed the risk and reward of loss and profit in land transactions” and acted as an “intervening trader.” It was further submitted that the demand was time-barred, as the revenue failed to demonstrate any “positive act of suppression” required to invoke the extended limitation period.
Supreme Court’s Analysis and Findings
The Supreme Court analyzed two main issues: whether the respondent qualified as a ‘Real Estate Agent’ and whether the extended limitation period was correctly invoked.
1. On ‘Real Estate Agent’ Status
The Court, examining the definitions of ‘Real Estate Agent’ (Section 65(88)) and ‘Real Estate Consultant’ (Section 65(89)), found that “both the definitions are centred on the rendering of services.”
In the judgment authored by Justice Sandeep Mehta, the Court held that a taxable service under this category requires a “contract of agency” where consideration is paid for services. Analyzing the MOUs, the Court found no such relationship.
The Court observed: “In the present case, admittedly, the respondent was not engaged by the SICCL for any such service. The terms of MoUs… do not indicate that there existed any relationship of principal and agent between SICCL and the respondent. There was no element of any service charges or consultancy charges being levied by the respondent on such sale transactions.”
The bench decisively differentiated the respondent’s earnings from a commission, stating: “The gains accruing to the respondent would arise from the difference of sale consideration over and above the fixed sale price… It is noteworthy that there existed a probability of the respondent even suffering losses in the transaction if the value of the land exceeded the fixed price agreed upon in the MoUs. This would not be possible if the contract was for providing services based on commission or in any other form.”
The Court concluded that the activities were “plain and simple transactions of sale of land” which are excluded from the definition of ‘Service’ under Section 65B(44)(a)(i) of the Act.
2. On Extended Period of Limitation
Regarding the invocation of the extended period of limitation under the proviso to Section 73(1), the Court held that the appellant was required to prove “deliberate suppression and concealment.”
Citing its recent decision in Stemcyte India Therapeutics (P) Ltd. v. CCE & ST, the Court reiterated that “for the Department to invoke the extended period of limitation, there must be an active and deliberate act on the part of the assessee to evade payment of tax. Mere non-payment… is not sufficient.”
The Court found no evidence of such suppression by the respondent. “Admittedly,” the judgment reads, “all the transactions inter se between the respondent and SICCL were through valid banking channels and thus, there was no element of concealment or suppression by the respondent…”
The Court concluded: “The appellant has failed to adduce any evidence or establish that the respondent engaged in wilful or deliberate suppression of material facts, and there is nothing on record to suggest that the respondent acted with any intention to mislead the authorities or evade payment of service tax.”
Decision
The Supreme Court upheld the Appellate Tribunal’s order, stating, “we have no hesitation in holding that the impugned judgment does not suffer from any infirmity warranting interference by this Court. Accordingly, we hold that the transactions in question neither fall within the definition of a ‘Real Estate Agent’ nor that of a ‘Real Estate Consultant’ under the Finance Act, 1994.”
Finding no merit in the appeals, the bench dismissed them.
