No Service Tax on Land Use Conversion Charges Paid to RIICO, Refund Allowed: CESTAT
Pranav B Prem
In a significant relief to M/s. Sesame Foods Pvt. Ltd., the Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not leviable on land use conversion charges paid to the Rajasthan State Industrial Development & Investment Corporation Limited (RIICO), and accordingly, the assessee is entitled to refund under Section 104 of the Finance Act, 1994. The Tribunal, comprising Ms. Binu Tamta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member), dismissed the Revenue’s appeal and upheld the order of the Commissioner (Appeals), Jaipur.
The assessee, a 100% Export Oriented Unit (EOU), is engaged in the manufacture of natural health products including sesame seeds, extra virgin sesame oil, and sesame cake. M/s. Sesame Foods Pvt. Ltd. was allotted Plot No. SP–20, admeasuring 20,000 square metres in RIICO Industrial Area, Neemrana, through a registered lease deed dated 21st May 1999, for a period of 99 years for undertaking industrial activity. Later, the respondent applied to RIICO for change in land use from industrial to commercial. RIICO approved the request and levied conversion charges along with service tax amounting to ₹1,50,44,629, which the respondent paid. RIICO, in turn, deposited the amount to the government exchequer.
Contending that no service tax was payable on such conversion charges, the respondent filed a refund application dated 15th May 2015. However, the Assistant Commissioner returned the application on 20th May 2014 citing procedural deficiencies, such as absence of ST-3 returns, and opined that the amount should be recovered from RIICO. Upon resubmission, the refund claim was again rejected on the ground that the amount had been deposited by RIICO on a self-assessment basis, and therefore, only RIICO was entitled to seek any refund or reassessment.
The respondent challenged this rejection before the Commissioner (Appeals), who remanded the matter back to the adjudicating authority with directions to issue a speaking order. A show cause notice dated 15th July 2015 was issued proposing to reject the refund claim on the ground that service tax was rightly collected by RIICO and deposited to the exchequer. The Assistant Commissioner passed an order on 10th March 2016 rejecting the refund once again. This order was challenged before the Commissioner (Appeals), resulting in the impugned order dated 24th January 2018, whereby the Commissioner (Appeals) allowed the refund claim under Section 104 of the Finance Act, 1994.
Section 104, inserted by the Finance Act, 2017, with retrospective effect from 31st March 2017, contains a non-obstante clause stating that no service tax shall be levied or collected on one-time upfront payments, such as premium, salami, cost, price, development charges, or any similar amount paid to state industrial development corporations for long-term lease (30 years or more) of industrial plots during the period from 1st June 2007 to 21st September 2016.
The Tribunal examined the statutory framework and noted that the amended lease deed dated 21st April 2014 was for a tenure of more than 30 years and squarely fell within the eligible time frame under Section 104. It further noted that clause (2) of Section 104 provides for refund of any service tax that was collected contrary to the provision, and clause (3) mandates that such refund applications must be filed within six months from 31st March 2017—the date on which the Finance Bill received presidential assent. Since the refund claim in this case had already been filed on 15th May 2015, well before the statutory deadline of 30th September 2017, the Tribunal found that the claim was well within the limitation period.
The Tribunal further affirmed the Commissioner (Appeals)’s findings on the issue of unjust enrichment. The respondent had submitted a certificate from a Chartered Accountant dated 31st October 2017, confirming that the amount of ₹1,50,44,629 paid to RIICO had not been passed on to any other person. It was also observed that in the respondent’s books of accounts and financial statements, the said amount was recorded under the head “Service Tax Refundable” in Note No. 1.09 under “Loans and Advances” in the balance sheets for the financial years 2013–14 and 2016–17. This treatment in the financial records supported the conclusion that the tax burden was borne by the respondent and had not been transferred to customers or clients, thereby satisfying the test against unjust enrichment.
In support of its conclusion, the Tribunal also referred to the earlier decision of the Delhi Bench in RIICO Ltd. v. CCE, Jaipur-I [2018 (10) GSTL 92 (Tri. - Del.)], where it was held that one-time upfront payments received by RIICO from allottees of industrial plots on long-term lease were not taxable in view of the retrospective exemption introduced under Section 104.
The Tribunal noted that the department was unable to rebut the applicability of Section 104 or demonstrate any legal ground for denying the refund. It held that the Commissioner (Appeals) had rightly allowed the refund both on merits and on limitation.
In conclusion, the Tribunal stated: “We do not find any reason to interfere with the impugned order and hence the same is affirmed. The appeal filed by the Revenue is, accordingly, dismissed.” Accordingly, the CESTAT upheld the order allowing the refund of ₹1,50,44,629 to the respondent and dismissed the Revenue’s appeal in its entirety.
Appearance
Shri Manoj Kumar, Authorised Representative for the appellant.
Shri B.L. Narsimhan and Shri Shivam Bansal, Advocates for the respondent
Cause Title: Commissioner of Central Goods & Service Tax, Customs and Central Excise V. M/s. Sesame Foods Pvt. Ltd.
Case No: Service Tax Appeal No.51277 of 2018 (DB)
Coram: Ms. Binu Tamta [Judicial Member], Ms. Hemambika R. Priya [Technical Member]
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