The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that leasing or licensing of vacant land by the New Mangalore Port Trust (NMPT) for commercial purposes was not liable to service tax prior to July 1, 2010, setting aside substantial tax demands and penalties raised by the department. 

The bench of P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member), upheld the appropriation of service tax already collected and deposited by the Port Trust.

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The appellant/assessee is one of India’s major ports, had allotted vacant land within the port area on lease or licence to various users for storage of iron ore, granite blocks, timber and other cargo-related goods, as well as for construction of structures connected with port operations. The Revenue Department alleged that such leasing or licensing amounted to “Renting of Immovable Property Service” and consequently attracted service tax. Three show cause notices were issued demanding tax for the period from June 2007 to March 2010.

The department contended that the land leased by the Port Trust was situated within the secured port premises and therefore constituted land appurtenant to buildings. According to the Commissioner, such land fell within the definition of immovable property used for business or commerce and was therefore taxable. On that basis, the extended period of limitation was invoked and penalties were imposed.

The Port Trust argued that the leased parcels were independently identifiable vacant lands and not land incidental to any building or common facility. It submitted that the agreements were entered into under the statutory framework governing major ports and that the land was primarily used for storage of goods such as iron ore, granite and timber that could not ordinarily be stored within enclosed buildings.

NMPT further contended that under the pre-July 2010 definition of “Renting of Immovable Property Service,” vacant land was specifically excluded from the scope of taxable immovable property. The subsequent amendment introduced with effect from July 1, 2010 expanded the tax net to cover vacant land leased for construction of structures intended for business or commerce, making the amendment prospective rather than retrospective.

The Port Trust also relied upon judicial precedents including Greater Noida Development Authority and Bhilai Steel Plant, which had recognized that leasing of vacant land was not taxable before July 1, 2010.

After examining the statutory provisions and precedents, the Tribunal observed that the definition of “Renting of Immovable Property” applicable during the disputed period expressly excluded vacant land, irrespective of whether it possessed facilities incidental to its use. The Bench found that the Commissioner had incorrectly relied upon amendments introduced from July 1, 2010 to justify taxation for an earlier period.

The Tribunal noted that the disputed period ended before the amendment came into force and therefore the expanded scope of taxation could not be applied retrospectively. It emphasized that vacant land, even when used for commercial storage purposes, remained outside the service tax net prior to July 1, 2010.

Relying heavily on the Allahabad High Court’s judgment in Commissioner of Service Tax, Noida v. Greater Noida Development Authority, the Tribunal reiterated that the 2010 amendment significantly enlarged the scope of the taxable service and therefore operated only prospectively. The High Court had earlier held that leasing vacant land for future commercial development became taxable only from July 1, 2010 and not before that date.

The Bench also referred to its earlier decision in Tuticorin Port Trust v. Commissioner of CGST and Central Excise, where service tax demands on leasing of vacant land for establishment of a thermal power plant were similarly quashed for the period prior to July 1, 2010. The Tribunal found the facts of the NMPT case to be substantially similar and followed the same reasoning.

While granting relief to NMPT, the Tribunal observed that the Port Trust had already collected and remitted service tax amounting to ₹3.81 crore pursuant to revised tariff notifications issued by the Tariff Authority for Major Ports (TAMP). Since this amount had already been appropriated and was not disputed by the Port Trust, the Tribunal upheld its appropriation.

However, the Tribunal set aside the remaining service tax demand for the period prior to July 1, 2010 and also quashed the associated penalties. Consequently, the appeal was partly allowed.

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