Service tax cannot be imposed on amounts received as advance payments for sale of land

CESTAT Overrules Tax Demand on Suwalka & Suwalka Properties, Confirms Sale of Land Exempt from Service Tax. Appellate Tribunal Quashes Extended Limitation Invocation, Affirms No Service Tax on Advances for Land Sales

In a significant ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in its New Delhi Principal Bench has overturned the tax demand imposed by the Commissioner of Central Goods & Service Tax, Jodhpur, on Suwalka & Suwalka Properties and Builders Pvt. Ltd. The Tribunal confirmed that the amount received as advance payments towards the sale of land is not subject to service tax under the Finance Act, 1994.

The Tribunal, comprising Dr. Rachna Gupta, Member (Judicial), and Mr. A.K. Jyotishi, Member (Technical), concluded that the sale of land does not fall within the purview of the Finance Act, 1994, thereby exempting such transactions from service tax liability. The case revolved around the advances received by Suwalka & Suwalka Properties from four companies, which the Department had erroneously classified as advances for booking residential flats, thereby attracting service tax.

The Tribunal noted that the appellant had entered into agreements to transfer land to four companies, subject to conversion of land use to commercial purposes. However, due to the failure in obtaining this conversion, the agreements were rescinded, and the advances were returned. The Tribunal found that there was no evidence to support the Department's claim that these advances were for flat bookings.

Further, the Tribunal criticized the Department's reliance on presumptions and assumptions without concrete evidence and ruled that the invocation of the extended period of limitation under Section 78 of the Finance Act, 1994, was invalid. The Tribunal emphasized the absence of any willful suppression or positive act by the appellant to evade tax, as required to justify the extended limitation period.

The CESTAT's decision not only nullified the service tax liability of Rs. 1,63,30,533 along with interest and penalties but also underscored the importance of evidence over assumptions in tax impositions. This judgment reaffirms that transactions purely involving the sale of land are outside the ambit of service tax, providing relief to the real estate sector.

Bottom Line:

Service tax cannot be imposed on amounts received as advance payments for sale of land, as sale of land does not fall under the purview of the Finance Act, 1994. Mere presumption or assumption by the department without evidence cannot justify the imposition of service tax.

Statutory provision(s): Finance Act, 1994 Sections 66, 66B, 67, 68, Service Tax Rules, 1994 Rule 6, Finance Act, 1994 Section 78

Suwalka & Suwalka Properties and Builders Pvt. Ltd. v. Commissioner of Central Goods & Service Tax, Jodhpur, (CESTAT)(New Delhi)(Principal Bench) : Law Finder Doc id # 2800667