The Delhi Bench of Customs, Excise and Service Tax Tribunal (CESTAT) has held that the activity of purchase and sale of allotment rights of flats is outside the purview of the taxable category of ‘Real Estate Agent Services’ and no service tax is payable.
The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that the cancellation charges are in the nature of penalty levied on the buyers for not fulfilling the commitment in which no real estate agent service is being provided by the appellant and hence, no service tax is leviable.
Background
The department has challenged the order dropping the demand towards the service tax proposed under show cause notice under the category of “Real Estate Agent Service” under Section 65(105)(b) read with section 65(88) and (89) of the Finance Act, 1994.
The respondent-assessee, M/s. Government Official Welfare Organization, the respondent herein is a trust and is essentially serving officials of the Central & State Government both working and retired, their dependents and families.
The assessee book flats with the builders in bulk upon payment of earnest money to them and sells such flats to the Government officials. As per the terms of MOU, there is a lock in period of three to six months within which the respondent shall have the rights on the flats booked by it and if it failed to sell the flat/units within the prescribed lock in period, the builder will forfeit the earnest money deposited by the assessee for the booking of flats.
After booking flats with the builder, the assessee searched for prospective buyers for the said flats by way of advertisement in the newspapers and through brochures in its own name. The assessee received a discount from the advertising companies and recorded the same as ‘miscellaneous income’ in its books of account.
The prospective buyers had to fill an application form and pay Rs.50,000 plus 10% of sale price of the flats as booking amount to the respondent. The prospective buyer makes a deposit of Rs.5,000 along with the application forms to the respondent, which is called “Demand Survey Amount”. The demand survey is basically conducted to estimate the demand of the property in the market. The amount received is refundable in case the flat is not purchased by the prospective buyer. The buyer to whom flats have been allotted, the amount is adjusted in the amount due from him.
Based on an information received from Anti Evasion Branch, an investigation was initiated against the respondent and it was alleged that the respondent is acting as “Real Estate Agent” and is providing such services on which service tax was not paid by it.
The assessee was served with show cause notice proposing service tax demand at full rate on the demand survey, cancellation charges, miscellaneous charges and the margin money. During the period in dispute, the assessee sought registration with the Service Tax Department and paid Rs.21,79,876 under protest.
The show cause notice was adjudicated vide the impugned order, by which the entire demand was dropped by the Department holding that the respondent while executing the aforesaid activities is not covered under the ambit of Real Estate Agent’s services because it is not carrying out any activity specified therein. They are mainly engaged in purchase and sale of units in various projects and they are not providing any service to their buyers.
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Arguments
The department contended that the assessee arranges blocks of residential flats from various builders and thereafter, by selling these flats to individuals, they act as an intermediary/facilitator between the builder and the end customers, by earning income from the difference between the buying and selling prices of the flats. The assessee introduces the end user customers to the builder companies and assist them in finding their desired accommodation. The respondent is not a purchaser of the flat but acts as a confirming party in the agreements, which indicates that they are involved in the transaction to help the customers and builders connect, rather than as a party directly involved in buying or selling the property.
The assessee receives consideration for their services by retaining a certain amount from the total amount paid by the customer to the builder.
According to the department role is similar to the role of a “Real Estate Agent” as per the definition under Section 65(88) of the Act. Further, these facts have never been disclosed by the respondent to the Department, which were detected only during the investigation. While working under the self-assessment system, they are bound to correctly assess their service tax liability and accordingly file the ST-3 returns. Respondents having wilfully suppressed the facts from the Department with intent to evade the payment of service tax.
The assessee contended assessee is purchasing the allotment rights in bulk and is selling the units to the buyers. The assessee is neither hired by builder nor the customers, thus they cannot be said as ‘agent’, rather the assessee is buying and selling the units in its individual capacity.
Conclusion
The tribunal while dismissing the department’s appeal held that the appellant cannot be termed as an “agent‟ and hence the services provided do not fall within the ambit of “Real Estate Agent”.
Case Title: Commissioner of Central Excise & Service Tax, Central Tax Commissionerate Versus M/s. Government Official Welfare Organisation
Case No.: Service Tax Appeal No.53905 of 2018
Date: 23.09.2024
Counsel For Appellant: S.K. Ray
Counsel For Respondent: A.K. Batra
