The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) in New Delhi has partially set aside a Rs. 21.28 crore service tax demand imposed on the Raipur Development Authority (RDA), holding that the leasing of land and transfer of development rights did not constitute taxable services.
The bench of Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that the transfer of development rights under a 2005 agreement with Gupta Infrastructure (India) Pvt. Ltd. for the construction of City Centre Mall amounted to a sale of immovable property, not a taxable service under the Finance Act. It emphasized that such development rights are “benefits arising out of land,” thereby excluded from the scope of service tax under Section 65B(44).
The appeal arose from an order passed by the Commissioner of Central Excise and Customs, Raipur, alleging that RDA failed to pay service tax on several transactions, including lease premiums, transfer fees, construction services, and water supply. The authority was also accused of availing ineligible Cenvat credit.
The Tribunal held that Pre-2012 Leasing Not Taxable Under ‘Renting of Immovable Property’ For the period prior to July 1, 2012, CESTAT ruled that leasing vacant land on long-term basis for commercial development did not qualify as ‘Renting of Immovable Property Services’ under Section 65(105)(zzzz). The transaction, involving possession, usage, and even resale rights, resembled a deemed sale and was not merely a lease.
While upholding the tax liability on the construction of residential complexes, the Bench granted RDA the benefit of abatement under Notification No. 29/2010, which allows a 75% deduction on the gross amount charged, subject to conditions. The Tribunal found that RDA met those conditions, including reversal of Cenvat credit.
The interest received from allottees for deferred payments on residential units was not held taxable. The Tribunal said it constituted “liquidated damages” or penalty for delayed payment and not consideration for services, citing CBEC Circular No. 96/7/2007.
Charges collected by RDA for water supply were deemed part of sovereign functions akin to those performed by municipalities. Thus, the activity did not fall under Management, Maintenance or Repair Services and was not liable to service tax.
The Tribunal accepted that RDA had already reversed ineligible Cenvat credit and hence was not liable for additional recovery or penalty on that account.
The Tribunal disagreed with the Commissioner’s finding that RDA was not a “government authority.” Based on statutory notifications and the nature of its constitution under the Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973, CESTAT held that RDA meets the revised definition of government authority as clarified by the Supreme Court in Shapoorji Pallonji & Co. Pvt. Ltd..
CESTAT has set aside the majority of the tax demand and associated penalties, except for service tax on residential construction, which now needs to be recomputed after applying the eligible abatement. The appeal has been partly allowed.
Case Details
Case Title: M/s. Raipur Development Authority Versus Commissioner of Customs, Central Excise and Service Tax, Raipur
Case No.: Service Tax Appeal No. 53203 of 2015
Date: 24.07.2025
Counsel For Appellant: A.K. Batra, Chartered Accountant
Counsel For Respondent: R.P. Sharma, Special counsel
