CESTAT Holds Service Tax Not Applicable on Advances Received for Land Transactions
Introduction
The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that the amount of advance received by the assessee towards the sale of land does not attract service tax, as such transactions are beyond the scope of the Finance Act, 1994. The decision reinforces the principle that the sale of immovable property does not constitute a taxable service.
Factual Background
The assessee, engaged in the construction of residential complexes and townships, purchased land and developed it after obtaining approval for layout plans from the local authority (UIT). In the course of business, the assessee received advances from various entities which were reflected in its books under “advance from customers.” The Revenue alleged that these advances were received for the booking of flats and that the assessee failed to declare such receipts in its ST-3 returns, thereby evading service tax. A show-cause notice was subsequently issued, proposing a demand of tax, interest, and penalty.
Procedural Background
The adjudicating authority confirmed the demand of service tax on the ground that the advances represented payments towards residential units to be constructed by the assessee. The assessee challenged the order before the CESTAT, arguing that the amounts were received towards the sale of land and hence were not liable for service tax under the Finance Act, 1994. The appeal was heard by a two-member bench comprising Dr. Rachna Gupta (Judicial Member) and A.K. Jyotishi (Technical Member).
Issues
1. Whether the advances received by the assessee were in relation to the sale of land or for booking of residential flats.
2. Whether such advances, if towards sale of land, fall within the taxable scope of the Finance Act, 1994, attracting service tax liability.
Contentions of the Parties
Assessee’s Contentions: The assessee argued that the advances were received towards the sale of land, not for booking of residential units. Copies of four agreements entered into with the concerned companies were produced, showing that the transactions pertained to sale of commercial land parcels, subject to certain conversion obligations. It was contended that no evidence existed to support the Department’s assumption that the advances related to the booking of flats.
Revenue’s Contentions: The Revenue submitted that the assessee failed to declare the advance receipts in its ST-3 returns and did not pay service tax on such amounts.
It was argued that the advances appeared under “advance from customers,” which indicated payments towards residential accommodation. The Department maintained that the assessee contravened Sections 66, 66B, 67, and 68 of the Finance Act, 1994, read with Rule 6 of the Service Tax Rules, 1994.
Reasoning and Analysis
The Tribunal observed that the department’s findings were based on assumptions, with no evidence proving that the customers were flat buyers. The bench noted that the agreements produced by the assessee clearly reflected transactions concerning sale of land, not the construction or sale of flats. The Tribunal emphasized that the sale of immovable property is outside the purview of the Finance Act, 1994, and no service tax can be levied on advances received for such transactions.
The Tribunal stated that, “The assessee has successfully established that the activity undertaken with reference to the amount in question pertains to the sale of immovable property, and as such, he was not liable to pay any service tax on the amount received as an advance towards that sale.” Accordingly, the Tribunal concluded that the adjudicating authority’s order was unsustainable in law, as it lacked evidentiary support and was based merely on the placement of entries in the balance sheet.
Implications
This decision reinforces the distinction between taxable services and transactions involving immovable property under the Finance Act. It clarifies that advances received for the sale of land cannot be treated as taxable consideration for construction services. The decision offers relief to real estate developers facing similar demands and underscores the need for the Revenue to substantiate tax liability with documentary evidence rather than presumptions.
In this case the appellant was represented by Shri Rahul Lakhwani and Ms. Diksha Khandal, Chartered Accountants. Meanwhile the respondent was represented by Shri S.K. Meena, Authorized Representative