Supreme Court: Sale of Immovable Property is Not a Service

Supreme Court: Sale of Immovable Property is Not a Service

Issue: Whether the sale and transfer of title in immovable property, particularly raw land, should be classified as a taxable ‘real estate agent’ service under the Finance Act, 1994 (Service Tax regime), thereby attracting service tax liability.

Facts:

• The appeal was filed by the Commissioner of Service Tax, New Delhi, against M/s Elegant Developers.
• The Revenue Department contested a tax demand exceeding ₹10 crore, alleging that Elegant Developers acted as a ‘real estate agent’ for Sahara India Commercial Corporation Ltd (SICCL) in procuring and developing land.
• Elegant Developers maintained that its dealings involved a straight outright sale and transfer of land at a fixed per-acre rate, bearing all commercial risk, and not acting as an agent or broker.
• The CESTAT had previously overturned the tax demand, ruling the transactions were plain sales of land.

Decision:

The Supreme Court dismissed the Revenue’s appeal, reaffirming that the sale of immovable property, by itself, does not amount to a ‘service’ under the Finance Act, 1994, and is wholly outside the scope of service tax.

Key TakeDowns:

• Express Exclusion: The Court confirmed that the transactions amounted to the transfer of title in land, which is expressly protected under the exception clause to the definition of ‘service’ (Section 65B(44) of the Finance Act).
• Substance Over Form: The judgment reinforces the principle that the substance of the transaction must triumph over the label; if the primary activity is the outright transfer of land with commercial risk, it cannot be arbitrarily taxed as an intermediary service.
• Federal Balance: The ruling preserves the federal balance by acknowledging that the levy of tax on land or building is a domain that constitutionally belongs to the states (via stamp duty), and the Central Government cannot encroach upon that field by stretching the definition of ‘service’.
• Limitation Period: The court rejected the department’s attempt to invoke the extended limitation period, finding no evidence of fraud or willful suppression.