Pranav B Prem

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), comprising Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member), has held that leasing of land for 90 years against a one-time premium with substantial rights of possession and control constitutes a transfer of immovable property and is not taxable under service tax, as such a transaction amounts to a deemed sale under Article 366(29A)(d) of the Constitution of India.

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The matter pertained to the Raipur Development Authority (RDA), a statutory body constituted under the Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973. The RDA was engaged in city development activities such as the construction and maintenance of roads, buildings, and civic infrastructure in Raipur. It had leased plots of land to private parties, including developers, for long durations (30 years, extendable up to 90 years), and collected a one-time premium along with nominal annual ground rent.

A show cause notice was issued to RDA by the department, alleging that the long-term leasing amounted to the taxable service of “renting of immovable property” and that RDA had failed to discharge appropriate service tax on the lease premium received. Further, the department also challenged the eligibility of Cenvat Credit claimed by RDA on the ground that input services availed were not covered under Rule 2(l) of the Cenvat Credit Rules, 2004.

RDA contended that the lease agreements in question involved a near-permanent transfer of land rights, including possession, usage, development, and even the right to sell. The lease period of 90 years and the nature of rights granted made it akin to a deemed sale, and thus not covered under the head of taxable service. RDA also submitted that the lease transaction was governed by the Transfer of Property Act and could not be reclassified as “renting” merely because of the nature of consideration paid.

The Tribunal took note of the language of the lease deeds, which indicated that lessees were granted comprehensive rights of use, possession, and control, and the one-time payment was not in the nature of periodic rent but a premium indicative of a capital transaction. The bench also observed that the 46th Amendment to the Constitution, which introduced Article 366(29A)(d), clearly categorizes long-term leasing for consideration as a deemed sale, particularly when it involves transfer of the right to use immovable property.

It was further held that the transaction did not fall under the ambit of “renting of immovable property service” as defined under Section 65(105)(zzzz) of the Finance Act, 1994, especially for the period prior to 01.07.2010. The bench cited judicial precedents and clarified that long-term leasing resulting in control and usage rights being transferred to the lessee for a substantial duration is outside the scope of service tax.

On the issue of Cenvat credit, the Tribunal partially accepted the department’s objection and remanded the matter to the adjudicating authority to verify the eligibility of certain credits availed, particularly concerning Construction of Residential Complex service, which was held taxable.

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Interestingly, the Tribunal also examined the department’s contention regarding the supply of water, and held that water is classified as a “good” under Schedule I of the Chhattisgarh VAT Act, 2003 and hence, the supply thereof is liable to VAT and not service tax. In conclusion, the Tribunal set aside the service tax demands raised on leasing of land and related long-term transactions, recognizing them as exempt transfers of immovable property. However, it upheld the tax liability only in relation to the service of construction of residential complexes.

Appearance

Counsel for Appellant/ Assessee: A.K. Batra, Chartered Accountant

Counsel for Respondent/ Department: R.P. Sharma

Cause Title: M/s. Raipur Development Authority V. Commissioner of Customs, Central Excise and Service Tax, Raipur

Case No: Service Tax Appeal No. 53203 of 2015

Coram: Dr. Rachna Gupta [Judicial Member], P.V. Subba Rao [Technical Member]