P.R.Chandrasekharan, Member (T) - (1.) THE appeal and stay petition are directed against Order -in -Original No. 49/ST -II/RS/2013, dated 29 -8 -2013 passed by the Commissioner of Service Tax, Mumbai. Vide the impugned order, the adjudicating authority has confirmed a Service Tax demand of Rs. 136,56,00,263/ - for the period 1 -6 -2007 to 31 -3 -2012 along with interest thereon on the appellant, M/s. City & Industrial Development Corporation of Maharashtra Ltd. (CIDCO in short) by classifying the services rendered by them under "renting of immovable property service". He has also imposed an equivalent amount of penalty under Section 78 of the Finance Act, 1994, apart from penalties under Sections 76 and 77 of the said Act. Aggrieved of the same, the appellant is before us. The facts relevant to the case briefly are as follows: "1.1 M/s. CIDCO, a corporation registered under the Companies Act, 1956 and wholly owned by the Government of Maharashtra, is a New Town Planning & Development Authority entrusted with the job of development of Navi Mumbai under the Maharashtra Regional Town Planning Act, 1966. CIDCO was also appointed as a Special Planning Authority under the said Act for developing certain towns. For the purpose of development, the Government of Maharashtra acquired privately owned land in the project area from various people on payment of consideration and CIDCO was authorised to lease the land for the purpose of creating infrastructure. CIDCO, on behalf of the Government of Maharashtra, leased the land to the intending lessees for an initial period of four years for construction of building, factory or complexes on the same and on completion of the construction activities, it entered into another lease agreement for a long period (more than 12 years). The lease amount was collected by way of premium at the time of entering into the 'agreement to lease' and by way of rental, when the Tease agreement' was entered into by CIDCO. The department was of the view that the activity undertaken by CIDCO falls under the taxable service category of "renting of immovable property service" as defined under Section 65(90a) read with Section 65(105)(zzzz) of the Finance Act, 1994 and on the amounts collected by way of premium and rental, the Service Tax liability was quantified at Rs. 136.56 crore as mentioned above. Accordingly, a show cause notice, dated 19 -10 -2012 was issued which was adjudicated upon vide the impugned order resulting in confirmation of the Service Tax demand and imposition of penalties. Aggrieved of the same, the appellant is before us."
(2.) THE learned Counsel for the appellant made the following submissions: "2.1 The first contention is that there are two agreements involved in this case. One is an "agreement to lease" for which the premium amount is paid. As per this agreement to lease, CIDCO leases vacant lands to private parties for developing structures thereon and the intending lessee, upon payment of the premium, acquires the right to construct a building or any other complex. Thereafter, the construction has to be completed within a period of three years. On completion of the construction, M/s. CIDCO enters into another agreement with the lessee whereby it leases the plot of land along with the structure for a term of sixty years for a rental of Rs. 100/ - per annum. Since the 'agreement to lease' and the Tease agreements' are different in law, what can be levied to Service Tax is only the rental payable as per the lease agreement and it is only this activity which can come under the Service Tax net. The premium collected on execution of "agreement to lease" is not liable to Service Tax, as the law provides for levy of tax on the activity of renting of immovable property. "Agreement to lease" is not lease. Reliance is placed on the decision of the Apex Court in the case of Panbari Tea Co. [ : AIR 1965 SC 1871]. In the said decision, the Hon'ble Apex Court distinguished the premium from the rent and held that the premium or salami is a single payment, non -recurring in character, and it is a payment prior to the creation of tenancy. The said payment is a consideration paid by the tenant for being let into possession and can be neither rent nor revenue but is a capital receipt in the hands of the landlord. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. Thus, there is a difference between "agreement to lease" and "lease agreement". Reliance is also placed on the decision of the Hon'ble Madras High Court in the case of A.R. Krishnamurthy and Anr. v. CIT - : 1982 133 ITR 922 Mad wherein it was held as follows: "Section 105 of the Transfer of Property Act defines a lease of immovable property as "a transfer of a right to enjoy such property, made for a certain time, express or implied or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium and the money, share, service or other thing to be so rendered is called the rent". A lease thus consists of a right to the possession and use of the property owned by some other person. It is an outcome of the separation of ownership and possession. The lessor of the land is he who owned and possessed it, but has transferred the possession of it to another. The price paid for the transfer of possession or the right to enjoy the property is called the premium under Section 105 of the Transfer of Property Act. The periodical payments made for the continuous enjoyment of the benefits under the lease are called rents or royalties." 2.2 Applying the ratio of the judgment to the facts of present case, the premium paid by the lessee is not subject to Service Tax and only the rental paid by the lessee can be subject to Service Tax and therefore, the impugned demands are not sustainable. 2.3 Secondly, it is argued that prior to 1 -7 -2010, Section 65(105)(zzzz) did not include in its purview, vacant land whether or not having facilities clearly incidental to use of such vacant land within its scope and only with effect from 1 -7 -2010 the scope of levy was extended to cover "vacant land given on lease or licence for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce". Since the "agreement to lease" does not provide for lease of vacant land, the same could not have been levied to Service Tax prior to 1 -7 -2010 and therefore, if demand for this period is excluded, the same would come down substantially. 2.4 The third argument put forth is that the appellant is a Government of Maharashtra undertaking and the land belongs to the Government of Maharashtra and not to the appellant. The appellant is a mere agent undertaking development of land. Since the activity undertaken by the appellant is a statutory function, Service Tax cannot be levied on such functions. Reliance is placed on the decisions of the Tribunal in the case of UTI Technology Services Ltd. v. CST, Mumbai - : 2012 (26) S.T.R. 147 (Tri. -Mumbai) and Maharashtra Industrial Development Corporation v. CCE - : 2013 (32) S.T.R. 351 (Tri. -Mum) in support of this contention. 2.5 The fourth argument is that the appellant is a Government Corporation and the activity of the appellant is in the public domain. No suppression can, therefore, be alleged to invoke extended period of time for confirmation of demand. Consequently no penalty also can be imposed on the appellant. The last contention is that since the appellant is a Government of Maharashtra undertaking, there is no risk to revenue and therefore, stay be granted at the interim stage pending disposal of the appeal finally." The learned Commissioner (AR) appearing for the Revenue, on the other hand, reiterates the findings of the adjudicating authority. He submits that the Service Tax law does not distinguish between the Government and non -Government agencies and whomsoever is rendering a taxable service is liable to pay Service Tax. Reliance is placed on the decision of the Hon'ble Apex Court in the case of SAIL v. National Union Waterfront Workers - : (2001) 7 SCC 1 wherein it was held that Government does not include a corporation constituted under the Act of the legislative assembly and they are merely creations of the Government and are distinguishable from the Government. He further submits that Section 65(105)(zzzz) clearly states that "Immovable Property" includes land incidental for use of the building and therefore, the demands are clearly sustainable in law. Reliance is also placed on the definition of renting under Section 65B(41) of the Finance Act, 1994 where renting has been defined to include "allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property". Therefore, the activity undertaken by the appellant squarely falls within the definition of renting as defined in law; therefore, the impugned demands are clearly sustainable.
(3.) IN his rejoinder, the learned Counsel for the appellant submits that Section 65B(41) was introduced only with effect from 1 -7 -2012. Therefore, the said definition cannot be applied for the previous period. He also submits that the appellant is facing financial hardship and they are incurring losses and this fact should be kept in mind, while considering the petition for stay. We have carefully considered the submissions made by both the sides. 4.1 As per the definition of renting of immovable property under Section 65(90a), - "renting immovable property includes, renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce." Similarly, Section 65(105)(zzzz) defines the taxable services as, - "any service provided or to be provided to any person by any other person by renting of immovable property or any other service in relation to such renting for use in the course of or for furtherance of business or commerce." With effect from 1 -7 -2010, vacant land given on lease or licence for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce was also brought under the Service Tax levy. 4.2 The expressions other similar arrangements used in Section 65(90a) and any other service in relation to such renting used in Section 65(105)(zzzz) are expressions of width and amplitude. It would include not only the actual leasing or renting but also any other activity in relation to such leasing/renting. Therefore, the agreement to lease which is entered into prior to the actual leasing and which is in relation to the lease undertaken subsequently subject to construction of building, etc. would also come within the purview of Service Tax levy with effect from 1 -7 -2010, if not before. Therefore, the distinction sought to be made by the appellant in respect of "agreement to lease" and the "lease agreement" would not matter and the levy would apply, in both the situations. In Doypack Systems Ltd. v. UOI [ : (1988) 2 SCC 299 : 1988 (36) E.L.T. 201 (S.C.)] the Hon'ble Court held as under: "The expressions "pertaining to", "in relation to" and arising out of, used in the deeming provision, are used in the expansive sense. The words "arising out of" have been used in the sense that it comprises purchase of shares and lands from income arising out of the Kanpur undertaking. The words "pertaining to" and "in relation to" have the same wide meaning and have been used interchangeably for among other reasons, which may include avoidance of repetition of the same phrase in the same clause or sentence, a method followed in good drafting. The word "pertain" is synonymous with the word 'relate'. The term 'relate' is also defined as meaning to bring into association or connection with. The expression "in relation to", is a very broad expression which pre -supposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context." Thus the expressions used "other similar arrangements" used in Clause (90a) of Section 65 and "any other service in relation to such renting" used in Section 65(105)(zzzz) would bring within its scope not only leasing but agreement to lease also. 4.3 As regards the argument that the appellant was an agent of Government of Maharashtra and was performing a statutory function and therefore, the levy of Service Tax would not apply, this argument is completely misplaced. The issue relating to payment of Indirect Taxes by or on behalf of the Government was considered by a Bench comprising of nine judges of the Hon'ble Supreme Court on a reference made by the President of India in the context of Section 20 of the Sea Customs Act, 1876 reported in : 1964 (3) SCR 787. The question formulated for decision by the Hon'ble Supreme Court was as follows: "(1) Do the provisions of Article 289 of the Constitution of India preclude the Union from imposing, or authorizing the imposition of, customs duties on the import or export of the property of a State, used for purposes other than those specified in Clause (2) of that article? (2) Do the provisions of Article 289 of the Constitution of India preclude the Union from imposing, or authorizing the imposition of, excise duties on the production or manufacture in India of the property of a State used for purposes other than those specified in Clause (2) of that article? (3) Will sub -section (2) of Section 20 of the Sea Customs Act, 1878, (Act 8 of 1878) and sub -section (1A) of Section 3 of the Central Excises and Salt Act, 1944 (Act 1 of 1944) as amended by the Bill set out in the Annexure to inconsistent with the provisions of Articles 289 of the Constitution of India - By the majority decision, it was held as follows: - - "35. But it is contended on behalf of the States that in the scheme of our Constitution, no distinction has been made between direct and indirect tax and therefore, this distinction is not relevant to the present controversy. It is true that no such express distinction has been made under our Constitution, even so taxes in the shape of duties of customs (including export duties) and excise, particularly with a view to regulating trade and commerce in so far as such matters are within the competence of Parliament and are covered by various entries in List I to which reference has already been made, cannot be called taxes on property; they are imposts with reference to the movement of property by way of import or export or with reference to production or manufacture of goods. Therefore, even though our Constitution does not make a clear distinction between direct and indirect taxes, there is no doubt that the exemption provided in Article 289(1) from Union taxation is from taxes on property and not to indirect taxes like duties of customs and excise which are in their essence trading taxes and not taxes on property. 36.............. 37.............. 38. For the reasons given above, it must be held that the immunity granted to the States in respect of Union taxation does not extend to duties of customs including export duties or duties of excise. The answer to the three questions referred to us must therefore, be in the negative." The same principle, in our humble opinion, would apply to Service Tax which is also an indirect tax. The law does not distinguish between the Government and non -Governmental agencies. It merely says that the activities of rendering of service (as defined in law) would be leviable to tax. In A.P. State Road Transport Corporation v. ITO : [1964] 52 ITR 524, the Supreme Court, dealing with the claim of the A.P.S.R.T.C., constituted under the notification issued by the Government of Andhra Pradesh in 1950, that the income derived from its trading activities is immune from liability of income -tax under Art. 289 of the Constitution on the ground that its trading activities are carried out by and on behalf of the State, held that though the majority of the shares are owned by the Andhra Pradesh Government and its activities are controlled by the State, the Corporation has a separate personality of its own. The trading activities of the Corporation and the profit and loss arising therefrom are the profit and loss of the Corporation. The income derived from its trading activities cannot be said to be the income of the Andhra Pradesh State under Art. 289 of the Constitution. In view of the above decisions of the Hon'ble Apex Court we do not find any merit in the contention of the appellant it is not liable to tax being an agent of the Government. 4.4 As regards the contention of the appellant that levy would apply only with effect from 1 -7 -2010, with the insertion of Clause (v) in Section 65(105)(zzzz) which provided for levy on "vacant land given on lease or license for construction of building or temporary structure at a later stage to be used for the furtherance of business or commerce", this contention appears to have some merit. Prior to 1 -7 -2010, there was no provision for levy of Service Tax on vacant land given on lease. 4.5 As regards the issue of time bar raised by the appellant, this is both a question of fact and a question of law which could be considered at the time of final hearing of the appeal. 4.6 As regards the financial hardship pleaded by the appellant, no evidence has been produced before us though it has been submitted that the appellant has been incurring losses. Be that as it may, the interest of the Revenue needs to be protected. As held by the Hon'ble Apex Court in the case of Assistant Collector v. Dunlop India Ltd. : [1985 (19) E.L.T. 22 (S.C.)] - "...........Even assuming that the company had established a prima facie case, about which we do not express any opinion, we do not think that it was sufficient justification for granting the interim orders as was done by the High Court. There was no question of any balance of convenience being in favour of the respondent -Company. The balance of convenience was certainly in favour of the Government of India. Governments are not run on mere Bank Guarantees. We notice that very often some courts act as if furnishing a Bank Guarantee would meet the ends of justice. No governmental business or for that matter no business of any kind can be run on mere Bank Guarantees. Liquid cash is necessary for the running of a Government as indeed any other enterprise. We consider that where matters of public revenue are concerned, it is of utmost importance to realise that interim orders ought not to be granted merely because a prima facie case has been shown. More is required. The balance of convenience must be clearly in favour of the making of an interim order and there should not be the slightest indication of a likelihood of prejudice to the interest. We are very sorry to remark that these considerations have not been borne in mind by the High Court and interim order of this magnitude had been granted for the mere asking." Considering the fact that the appellant does not have a prima facie case, especially for the period post 1 -7 -2010 and also taking into account the financial hardship pleaded, we direct the appellant to make a pre -deposit of Rs. 20 crore (Rupees Twenty Crore only), which is approximately the demand for the normal period of limitation, within a period of twelve weeks and report compliance by 7 -10 -2014. Subject to such compliance, pre -deposit of balance of dues adjudged against the appellant shall stand waived and recovery thereof, stayed during the pendency of the appeal. (Operative part of the order pronounced in Court);