Advance Received for Sale of Land Falls Outside Service Tax Scope, Rules CESTAT New Delhi
Pranav B Prem
The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that any advance amount received by an assessee towards the sale of land falls outside the scope of the Finance Act, 1994, and hence, no service tax is leviable on such transactions. A division bench comprising Dr. Rachna Gupta (Judicial Member) and A.K. Jyotishi (Technical Member) observed that the assessee had clearly established that the activity related to the amount in question was linked to the sale of immovable property, not to the provision of any taxable service. Therefore, the advance received in connection with the sale could not attract service tax.
Background
The assessee, engaged in the construction of residential complexes and townships, acquired land for development purposes. It received advances from customers for booking residential accommodations and obtained layout plan approvals from the local body (Urban Improvement Trust – UIT). However, the Revenue Department alleged that the assessee had failed to declare these advance receipts in its ST-3 returns and had not paid service tax due on the same. It argued that the advances were consideration for booking of flats, thus attracting tax under Sections 66, 66B, 67, and 68 of the Finance Act, 1994, read with Rule 6 of the Service Tax Rules, 1994. Consequently, a show-cause notice was issued and a tax demand was confirmed.
Assessee’s Contention
The assessee contended that the advances were not received for booking of flats or construction-related activities but were exclusively related to the sale of land, which is not a “service” under the Finance Act. It further submitted documentary evidence and memorandums of agreement with four companies to support that the transactions pertained to land sale and not construction.
Tribunal’s Findings
The CESTAT noted that the department had presumed the advances were for booking flats merely because they appeared in the balance sheet under “advance from customers.” No documentary proof was presented to establish that the payers were indeed flat buyers. The bench also observed that the four agreements submitted by the assessee concerned conversion and sale of commercial land, not any housing project or construction service. The payments were made subject to the assessee’s obligation to convert certain portions of land into commercial plots.
Accordingly, the Tribunal found that the advance amount received by the assessee related solely to sale of land, which is beyond the scope of the Finance Act. The finding of the adjudicating authority that these advances were for booking flats was declared unsupported by evidence.
Holding that no service tax liability arises on amounts received as advance for sale of land, the CESTAT set aside the demand and allowed the assessee’s appeal. The bench reaffirmed that transactions pertaining to the sale of immovable property do not constitute a taxable service under the Finance Act, 1994, and hence cannot be subjected to service tax.
Appearance
Counsel for Appellant/Assessee: Shri Rahul Lakhwani and Ms. Diksha Khandal, Chartered Accountants
Counsel for Respondent/Department: Shri S.K. Meena
Cause Title: Suwalka & Suwalka Properties and Builders Pvt. Ltd. v. Commissioner of Central Goods & Service Tax, Jodhpur
Case No: Service Tax Appeal No. 52874 of 2019
Coram: Dr. Rachna Gupta (Judicial Member), A.K. Jyotishi (Technical Member)
