CESTAT Rules, Transfer Of Approvals/Allotments Acquired From Government Involves Business Support Services, Attracts Service Tax
Pranav B Prem
The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the transfer of project approvals and allotments obtained from the government, when accompanied by extensive underlying services and coordination, constitutes “Business Support Services” and is liable to service tax.
The Tribunal, comprising Dr. Rachna Gupta (Judicial Member) and Mr. P.V. Subba Rao (Technical Member), observed that the approvals and allotments transferred by the appellants, M/s Vish Wind Infrastructure LLP (VWILLP) and M/s J.N. Investments & Trading Company Pvt. Ltd. (JNITPL), to their parent company EIL/WWIL were not merely passive rights or benefits arising out of immovable property but represented bundled services performed to enable the establishment of wind farm projects.
VWILLP and JNITPL, both group companies floated by EIL/WWIL, were engaged in activities related to the development of wind energy infrastructure. VWILLP had obtained exclusive development rights under the State Government’s Wind Power Policy, and both entities entered into agreements with EIL/WWIL dated 22.09.2010 and 11.03.2011 for transferring project approvals and allotments. These transactions were recorded in their books as “Sale of Allotments/Approvals” and corresponding amounts were shown as “Purchase Consideration.”
According to the appellants, they were independent developers who had obtained approvals and development rights in their own name, through their commercial discretion and engagement with nodal agencies, and subsequently transferred these rights to EIL/WWIL on a principal-to-principal basis. They contended that the approvals and allotments formed part of immovable property, and thus, their transfer was outside the purview of service tax. Further, they denied the existence of any agency relationship or service component.
However, the Tribunal rejected this claim. It observed that the appellants were not merely transferring allotments or passive rights but were actively performing a series of activities that culminated in the procurement of such approvals, all of which were necessary for setting up wind farms. These activities included identification of sites, wind monitoring, feasibility studies, obtaining government orders, micro-siting, land surveys, and securing evacuation infrastructure.
The bench noted that these underlying services were not merely incidental but central to the transaction. It found that the valuation report prepared for the transaction clearly demonstrated the involvement of these extensive support activities, and this, combined with the appellants' role in facilitating EIL/WWIL’s turnkey projects for third-party clients, reflected that they were providing business support services.
Further, the Tribunal found that the consideration recorded in the agreements and financial documents—running into several crores—matched the amounts charged by EIL/WWIL to its customers for wind farm projects, indicating that the services rendered by the appellants were integrated into the parent company’s contractual obligations. The appellants had, in effect, undertaken tasks EIL/WWIL was contractually bound to perform for its clients.
In assessing whether the transaction constituted a benefit arising out of immovable property, the Tribunal held that the approvals and allotments in question were not “profit a prendre” and did not qualify as such benefits. Instead, the core of the transaction was infrastructural and regulatory support provided to EIL/WWIL. The tribunal noted that merely naming a transaction as a “sale of development rights” does not determine its character. It is the substance of the activities performed that defines taxability.
It was also noted that the permissions granted by government agencies to the appellants were non-transferable, and the appellants had acted on behalf of EIL/WWIL while dealing with those agencies. This further negated the appellants’ claim of independent ownership and transfer.
The Tribunal found the attempt to categorize the transaction as a sale of immovable property as a deliberate mischaracterization, aimed at avoiding tax scrutiny. It held that the agreements and supporting documents showed clear intention to conceal the true nature of the services rendered. Hence, invocation of the extended period of limitation was also upheld. In conclusion, the Tribunal dismissed both appeals and upheld the service tax demands, holding that the appellants had rendered taxable “Business Support Services” to EIL/WWIL under the guise of transferring project approvals and allotments.
Appearance
Counsel for Appellant/ Assessee: Aarya More
Counsel for Respondent/ Department: Mihir Ranjan
Cause Title: M/s J.N. Investments & Trading Company Private Limited V. Additional Director General (Adjudication), New Delhi
Case No: Service Tax Appeal No. 52875 of 2019
Coram: Dr. Rachna Gupta [Judicial Member], Mr. P.V. Subba Rao [Technical Member]
