M/S KISHAN ENTERPRISES V. THE PRINCIPAL COMMISSIONER OF CENTRAL TAX

WP/24480/2022

AI Insights

The case revolves around a writ petition filed by M/s Kishan Enterprises against an Order-in-Original issued by the Principal Commissioner of Central Tax, which deemed certain activities of the petitioner as taxable services under the Finance Act, 1994. The petitioner contested the classification of their activities, which involved real estate development and transactions with the Reserve Bank Employees' Housing Welfare Society (RBEHWS), arguing that these did not constitute taxable services as they primarily involved transfer of title in immovable property. The court found that the first respondent had not adequately examined the individual transactions and their tax implications, leading to the quashing of the original order and restoration of proceedings for a detailed review.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 726519 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 10-02-2023
• Assessment Year: misc
• Laws Referred To: Finance Act, 1994
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: JEEVAN NEERALAGI
• Assessee Lawyers: PRADYUMNA H
• Keywords: Extended Period of Limitation; Mis-declaration; Service tax; Show cause notice; Taxable service; Nil ST-3 Returns
• Section: 73(1); 75; 66D; 78(1); 65B (44); 65B(51)

Judgement Text

"- 1 - WP No. 24480 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 10TH DAY OF FEBRUARY, 2023 BEFORE THE HON'BLE MR JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 24480 OF 2022 (T-RES) BETWEEN: M/S KISHAN ENTERPRISES A PROPRIETARY CONCERN REPRESENTED BY ITS PROPRIETOR SHRI T G NARASIMHAMURTHY HAVING ITS OFFICE AT NO.6/A3 HOYSALA NAGAR NEAR SUNKADAKATTE BUS STAND SRIGANDHADA KAVAL MAGADI MAIN ROAD SUNKADAKATTE BENGALURU-560091. …PETITIONER (BY SRI. PRADYUMNA G H, ADVOCATE) AND: 1. THE PRINCIPAL COMMISSIONER OF CENTRAL TAX BENGALURU WEST COMMISSIONERATE TTMC-BMTC BUS STAND COMPLEX BANASHANKARI BENGALURU-560070. 2. THE ASSISTANT COMMISSIONER OF CENTRAL TAX, WEST DIVISION-7 GST WEST COMMISSIONERATE TTMC-BMTC BUS STAND COMPLEX Digitally signed by NARASIMHA MURTHY VANAMALA Location: HIGH COURT OF KARNATAKA - 2 - WP No. 24480 of 2022 BANASHANKARI BENGALURU-560070. …RESPONDENTS (BY SRI.JEEVAN J. NEERALAGI., ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH ORDER-IN-ORIGINAL BEARING NO.15/2022-23 (PR.COMMR) DATED 22.07.2022 ANNEXURE-A PASSED BY R1. THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER The petitioner has impugned the first respondent’s Order-in-original dated 22.07.2022 (Annexure-A). The first respondent by this impugned order has concluded that the petitioner’s activity during the taxable period between April 2014 and June 2017 is a taxable service as contemplated under Section 65B(44) read with Section 65B(51) of the Finance Act, 1994 (for short, the ‘Finance Act’); that the taxable value short declared is in a sum of Rs.87,31,62,085/-and Rs.12,44,14,177/- is short paid service tax; that the petitioner is liable to pay interest under Section 75 of the Finance Act; and - 3 - WP No. 24480 of 2022 that the petitioner is also liable to pay a penalty in a sum of Rs.12,44,14,177/- under Section 78(1) of the Finance Act for suppressing taxable activity and short declaring the tax payable. 2. It is seen from the records that the petitioner, who is engaged in the business of real estate development, has filed Income tax returns for the Assessment Years 2014-15 to 2016-17 declaring a gross total income of Rs.116,30,89,256/- [covering the tax period] and has offered tax accordingly. However, for service tax the petitioner filed ‘Nil’ returns in ST-3 declaring that there was no taxable service. Upon receipt of information of income tax returns filed by the petitioner for the taxable period from Central Board of Direct Taxes [CBDT], Government of India, the petitioner is issued with Show Cause Notice dated 30.12.2020 to show cause why its activities should not be construed as ‘service’ as contemplated under Section 65B[44] of the - 4 - WP No. 24480 of 2022 Finance Act and the service tax be recovered along with interest and penalty. The petitioner is also informed that because the ST-3 returns are filed suppressing facts with intent to evade payment of service tax, the extended period of limitation in terms of proviso to Section 73[1] of the Finance Act would apply. 3. The petitioner has replied on 20.01.2021 to the Show Cause Notice essentially asserting that there is no mis-declaration in filing ST-3 returns and the petitioner’s activity cannot be construed as taxable services. Thereafter the first respondent has extended an opportunity of personal hearing to the petitioner and also leave to file additional submissions and documents. The petitioner has filed additional submissions and documents on 11.05.2022. The first respondent has opined that the petitioner has offered a bouquet of services to Reserve Bank Employees’ Housing Welfare Society [RBEHWS] - 5 - WP No. 24480 of 2022 and therefore it is not just sale of land and hence the petitioner’s services to RBEHWS is neither exempted nor in the negative list. The first respondent has concluded that there is mis-declaration in filing ‘Nil’ ST-3 returns. 4. Sri. Pradyumna G H, the learned counsel for the petitioner, submits that the petitioner in filing additional submissions and documents, and also during the personal hearing, has placed material before the first respondent to demonstrate that if the petitioner has developed lands owned by RBEHWS, it has also entered into Joint Development Agreements with the owners of the respective lands for development of plots and has also purchased lands and transferred plots therein to the members of RBEHWS. The petitioner has entered into these multiple transactions with RBEHWS, the land owners/the members of RBEHWS in performance of the covenants under the Memorandum of - 6 - WP No. 24480 of 2022 Understanding concluded with the RBEHWS. Though these transactions could generally be described as a bouquet of services, each of the transaction is different and these transactions cannot be combined to opine that the petitioner has rendered taxable services and there is mis-declaration in filing ‘Nil’ ST-3 returns. 5. Sri. Pradyumna G H further submits that it is in this context that the petitioner has specifically contended that the petitioner’s transactions with RBEHWS/land owners/plot owners cannot be categorized as taxable services. The petitioner’s transactions for purchase of land/sale of plots could only be a transfer of title and hence would be excluded in terms of the definition of ‘service’ under Section 65B of the Finance Act. The transactions that only constitute transfer of title in immovable property either by way of sale or in another manner cannot be taxable service. As such, the first - 7 - WP No. 24480 of 2022 respondent, at any rate, should have therefore examined each of the transactions separately before concluding that all the transactions by the petitioner with the RBEHWS/land owners/plot purchasers would be ‘taxable service’. In the absence of such examination of the transactions, the first respondent could not have assumed jurisdiction and hence, this Court must interfere with the impugned Order-in- Original [Annexure-A] as being without jurisdiction. 6. Sri. Jeevan J Neeralgi, the learned counsel for the respondents, submits that the petitioner’s entire effort in the proceedings before the first respondent was to demonstrate that its transactions for development, purchase and transfer emanated from the Memorandum of Understanding concluded with RBEHWS and these transactions amounted to transfer of title to the plot purchasers on behalf of RBEHWS and therefore stand excluded from the definition of ‘service’ under Section 65B of the - 8 - WP No. 24480 of 2022 Finance Act. The petitioner now cannot contend that the transactions with RBEHWS, the land owners and the plot purchasers are separate transactions and therefore, the impugned Order-in-original is without jurisdiction. 7. The first respondent’s opinion that the petitioner’s transactions emanating from the Memorandum of Understanding concluded with RBEHWS are taxable services is premised in the following reasoning: 23. ...................................... From this it is clear that, the activity should constitute merely transfer of title, goods or immovable property etc. thus the transaction shall be out of Service Tax net only if the activities exclusively dealing with transfer of title in goods or immovable property. If the transaction is coupled with another activity/ies then this conclusion cannot be applied and consequently the transaction shall be subject matter of Service Tax. For example if a person promises to sell a piece of land to another, such transaction shall be out of definition of - 9 - WP No. 24480 of 2022 ‘service’, since the obligation vested is only to sell the land nothing else. However, if the seller is also required to convert the land for the residential use in the government authority records then such transaction is not a mere sale of land but also requires the service of conversion of use of land and cannot be kept out of ambit of Service Tax. In the instant case, M/s. Kishan Enterprises is not merely dealing in transfer of plots but has also brought in bouquet of other services as discussed above. 24. The services provided by the noticee does not merely involve transfer of title in immovable property. Further, the noticee were not the owner of the land per se. It is admitted fact that, part of the land was already owned by RBEHWS and against the advance of more than Rs.16,00,00,000/- given by the housing society they had purchased the land partly in their name against JDA with the Land Owners which were transferred after development and conversion into plots, site formations, electrical work, water supply and drainage work, etc., were transferred to the Members of the Housing Society as nominated by the society. Furthermore, it is seen that the developed plots were transferred with the housing - 10 - WP No. 24480 of 2022 society as “Confirming Party” and the consideration for each developed plots was received by the RBEHWS was for development of land and conversion into inhabitable plots of land on which the Members can construct their houses. By virtue of the MoU, the noticee was never the actual owner of the land. Further, the activity of the noticee is neither covered under negative list [Section 66D of the Act] nor it is exempted under the exemption Notification No.25/2012-ST. It is seen that, the transaction undertaken by M/s. Kishan Enterprises does not involve mere transfer of title in land..................” 8. It is obvious from this reasoning that the first respondent has not examined the petitioner’s transactions with RBEHWS, with the land owners who have offered their respective lands for joint development and with the purchasers who have purchased plots in the lands owned by the petitioner. This Court must opine that, if it cannot be disputed that mere transfer of title in immovable properties either by way of sale or gift or in any other manner would not amount to a taxable service, for a complete - 11 - WP No. 24480 of 2022 adjudication of the petitioner’s liability, not just to pay appropriate service tax but also interest and penalty, the first respondent should have examined the aforesaid transactions separately and decided the petitioner’s liability; if for any reason, the petitioner’s bouquet of transactions is to be considered as inseparable and a composite transaction, and hence subject to service tax, there must be justifiable reasoning for the same. On a perusal of the first respondent’s reasoning as aforesaid, this Court would only conclude that these aspects have not been considered, and if these aspects are not considered and liability fastened, the first respondent would have to usurped jurisdiction even insofar as those transactions which are only transactions for transfer of title. Hence the petitioner must succeed on this score and the proceedings restored to the first respondent for reconsideration in the light of the afore. As such, the following: - 12 - WP No. 24480 of 2022 ORDER The petition is allowed-in-part, and the impugned Order-in-Original dated 22.07.2022 [Annexure-A] is quashed restoring the proceedings of the first respondent. The petitioner shall without further Notice appear before the first respondent on 15.03.2023 and shall be at liberty to file details as referred above to facilitate a complete adjudication. Sd/- JUDGE AN/- "