Pranav B Prem

The Delhi Bench of the Customs Excise and Service Tax Appellate Tribunal has set aside a service tax demand of ₹4.48 crore raised against a leading real estate developer, holding that transfer of development rights amounts to transfer of immovable property and does not constitute a taxable service under the Finance Act, 1994.

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The Bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) observed that the controversy was no longer res integra, as the issue had already been conclusively settled by earlier decisions of the Tribunal. Relying on consistent judicial precedents, the Tribunal held that development rights are “benefits arising out of land” and therefore fall outside the scope of “service” as defined under Section 65B(44) of the Finance Act.

The appeal was filed by M/s Omaxe Limited, a real estate developer engaged in the development of integrated townships. For execution of its projects, the appellant entered into memoranda of understanding with land-owning entities, under which land development rights were transferred to the appellant for consideration. Pursuant to these arrangements, the appellant undertook development of the land and later executed conveyance deeds in favour of buyers, transferring undivided interest in the underlying land along with the constructed property.

Based on information gathered by the Directorate General of GST Intelligence, the department took the view that such transfer of development rights did not involve transfer of title in immovable property and therefore constituted a taxable service. A show cause notice dated April 2017 was issued invoking the extended period of limitation, proposing to levy service tax under Section 66B of the Finance Act, 1994. The demand of ₹4,48,59,134 along with interest and penalties was confirmed by the Commissioner of CGST, Delhi East, vide Order-in-Original dated 6 November 2018.

Before the Tribunal, the appellant contended that the issue stood squarely covered by the Tribunal’s earlier decision in DLF Commercial Projects Corporation v. Commissioner of Service Tax, wherein it was held that transfer of land development rights constitutes transfer of immovable property within the meaning of Section 3(26) of the General Clauses Act, 1897 and is specifically excluded from the definition of “service” under the Finance Act. The appellant also relied on several other decisions of the Tribunal and High Courts taking the same view.

The Tribunal examined the statutory framework and judicial precedents, including decisions of the Allahabad High Court and the Bombay High Court, and noted that once development rights are transferred, the developer acquires not only the right to develop the land but also the right to sell the developed property along with an undivided share in the land. Such transactions ultimately culminate in execution of registered conveyance deeds on which stamp duty is paid, reinforcing the conclusion that the transaction is in the nature of transfer of immovable property.

Quoting extensively from its earlier ruling in DLF Commercial Projects Corporation, the Tribunal reiterated that when a transaction involves land or benefits arising out of land, it is expressly excluded from the ambit of “service” under Section 65B(44) of the Finance Act. It observed that the moment development rights are transferred for consideration, effective ownership rights in the land stand transferred, and such transactions cannot be artificially dissected to impose service tax.

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During the hearing, the authorised representative of the department fairly conceded that the issue was covered against the Revenue by multiple decisions of the Tribunal. In view of the settled legal position, the Tribunal set aside the impugned Order-in-Original in its entirety and allowed the appeal. Consequently, the service tax demand of ₹4.48 crore, along with interest and penalties, was quashed and full relief was granted to the appellant.

Case Title: Omaxe Limited Versus Commissioner of Central Goods And Service Tax and Central Excise, Delhi East

Case No.: Service Tax Appeal No. 50348 Of 2019

Coram: Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member)