Commission on sale of immovable property liable to service tax under ‘Real Estate Agent Service’.

PJ/Case Laws/2012-13/1417

Case:- GAURI GANESHA REAL ESTATES Versus COMMR. OF SERVICE TAX, BANGALORE

Citation:- 2012 (28) S.T.R.302 (Tri. – Bang.)

Brief Facts:-These applications filed by the appellants seek waiver of pre-deposit and stay of recovery in respect of the adjudged dues. The impugned order was passed in adjudication of a show-cause notice which was issued to the erstwhile partnership-firm, M/s. Gauri Ganesha Real Estate and its successor-firm, M/s. Maha Gauri Ganesha Builders and Developers. There were three partners in the firm M/s. Gauri Ganesha Real Estate and, upon its reconstitution, the new firm M/s. Maha Gauri Ganesha Builders and Developers came into existence with effect from 1-4-2007 with two of the above partners continuing (the instrument signifying this change of constitution of partnership firm was titled "Deed of Dissolution of Partnership"). Prior to and after 14-2007, the business of the partnership firm was in relation to real estate. The transaction which ultimately led to the present demand of Service tax for the period from January, 2005 to March, 2007 was like this: M/s Gauri Ganesha Real Estate executed agreements with prospective sellers of property and got these agreements registered also. Subsequently, Gauri Ganesha Real Estate obtained General Power of Attorney (GPA) from the prospective sellers and these GPAs were also got registered. On the strength of these GPAs, Gauri Ganesha Real Estate sold the properties of the aforesaid sellers to M/s. Sahara India Commercial Corporation. The documents covering the said transactions were registered as "sale deeds" which showed Gauri Ganesha Real Estate as confirming party as well as GPA holder of the property owners. Gauri Ganesha Real Estate received the sale consideration as GPA holders of the property sellers. The amount so received as sale consideration in each transaction was higher than the amount shown in the corresponding purchase agreement, and the difference was retained by Gauri Ganesha Real Estate. The impugned demand is on the total sum of these differential amounts and the same is under the head "Real Estate Agency Service". The total demand of Service tax and Education Cess is over Rs. 1.24 crores for the aforesaid period (January, 2005 to- March, 2007) and this demand is accompanied by penalties imposed under Sections 76 & 77 of the Finance Act, 1994.

Appellant Contentions:-The appellant submits that their activity was misclassified by the adjudicating authority and that it was nothing but a trading activity inasmuch as the appellants were purchasing and selling immovable properties. It is further submitted that the entire demand is beyond the normal period of limitation and that the extended period of limitation was invoked without any factual or legal basis. It is further pointed out that the learned Commissioner who adjudicated the show-cause notice refrained from imposing any penalty under Section 78 of the Act on valid grounds and that, on the very same grounds, it should have been held that the extended period of limitation was not invocable. In this connection, the learned counsel refers to Stay Order No. 1280/2011, passed by this Bench in Appeal No. ST/2045/2011 wherein a prima facie case was found for the appellant on the limitation issue. Finally, the learned counsel submits that his clients have financial difficulties and may not be able to make deposit except to the extent of 10% of the Service tax amount.

Respondent Contentions:-The learned Commissioner (AR) opposes the present application, by relying on the findings recorded in the impugned order.

Reasoning of Judgment:-Tribunal has given careful consideration to the submissions. The modus operandi of the appellants, which we have briefly stated hereinbefore, is crystal clear. They were not purchasing and selling immovable properties. They were only holding 'General Power of Attorney' of the property owners and, in that capacity, selling the property to M/s. Sahara India. The 'sale consideration' was given to the sellers and the difference between that amount and the higher amount mentioned in the relevant purchase agreement was retained by the appellants. For all practical purposes, the appellants were acting as agents of the sellers of the immovable properties. The nature of these transactions would prima facie bring them within the ambit of the definition of "real estate agent" under Section 65(88) of the Finance Act, 1994. ("real estate agent" means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting of real estate) Prima facie, the money retained by the appellants after executing the 'sale deeds' in favour of Sahara India on behalf of the sellers is in the nature of 'commission'. The impugned demand is on this 'commission' and the same is prima facie sustainable on merits. Coming to the plea of limitation also, we have not found prima facie case for the appellants. It is not in dispute that the appellants did not care to get registered with the department in respect of the above taxable service and also did not file returns. Needless to say that they did not pay Service tax on the above 'commission'. They suppressed the relevant facts before the department. Therefore, we are in agreement with the findings recorded by the adjudicating authority on the limitation issue also. Tribunal has gone through the facts of the case covered by Stay Order No. 1280/2011 and have found the same to be distinguishable vis-a-vis the facts of the present case. There is no plea of financial hardships in the stay application of Gauri Ganesha Real Estate and the plea of financial hardships raised in the stay application of Maha Gauri Ganesha Builders and Developers has not been substantiated. The suggestion by the learned counsel to pre-deposit 10% is too inadequate to suffice the present purpose on the facts of this case.

In the result, there will be a direction to M/s. Maha Gauri Ganesha Builders and Developers to pre-deposit an amount of Rs. 30,00,000/- within six weeks and report compliance to the Assistant Registrar. The Assistant Registrar to report to the Bench. Subject to due compliance, there will be waiver of pre-deposit and stay of recovery in respect of the penalties imposed on the appellants and the balance amount of Service tax and Education Cess and interest thereon.

Decision:-Stay partly granted.

Comment:-The analogy drawn from this case is that the extra amount retained on execution of sale deed of immovable property by holding General Power of Attorney on behalf of seller is to be considered as ‘commission’ received as agent and so liable to service tax under ‘Real Estate Agent Service’.

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PJ/Case Laws/2012-13/1417

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