The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, upheld findings that service tax was payable on amounts received from certain commercial activities, including the leasing of immovable property and membership and subscription charges collected from its sports complex.

The bench of Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical  Member) has observed that leasing or renting of immovable property constituted a taxable service, while also applying the relevant legal position to exclude renting of vacant land from the service tax demand for the period before July 1, 2010.

The proceedings arose from departmental audits of the DDA’s records. According to the tribunal’s order, the DDA was registered for several taxable services, including Mandap Keeper Service, Health and Fitness Service, Architect Service and Club or Association Service.

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During the audit, the department found that the DDA had received amounts from activities involving the renting of immovable property for commercial use, but had neither registered itself under the relevant service category nor paid service tax on those receipts.

Consequently, show-cause notices were issued for various periods, proposing recovery of service tax. The demands were subsequently confirmed through adjudication orders, prompting the DDA to approach CESTAT.

The first appeal, Service Tax Appeal No. 50278 of 2017, covered the periods from April 1, 2013 to March 31, 2014 and April 1, 2014 to April 1, 2015, with amounts listed in the tribunal’s table at approximately Rs 157.32 crore and Rs 173.57 crore, respectively.

The second appeal, Service Tax Appeal No. 50191 of 2021, related to periods beginning from 2007-08 and extending through March 31, 2012. The amounts listed included approximately Rs 749.31 crore, Rs 28.23 crore, Rs 156.11 crore and Rs 15.95 crore for the respective periods.

A central issue before the tribunal was the DDA’s contention that, as a statutory body created under the Delhi Development Authority Act, 1957, it was performing statutory functions for the planned development of Delhi and therefore should not be liable to service tax.

The tribunal, however, relied upon the Supreme Court’s ruling in Krishi Upaj Mandi Samiti, Alwar v. Commissioner of Central Excise & Service Tax, Alwar. The Supreme Court had held that governmental or statutory authorities can be liable to service tax when their activities amount to commercial activities, regardless of their statutory status.

The CESTAT distinguished between genuine statutory functions and activities undertaken for consideration that fall within the definition of a taxable service.

The tribunal noted that the service tax demands related to renting of immovable property and club services, with the DDA receiving lease amounts, premiums, membership fees and subscription charges.

The tribunal examined the statutory definition of “renting of immovable property” under the Finance Act, 1994. The definition covered renting, letting, leasing, licensing and similar arrangements involving immovable property for use in the course or furtherance of business or commerce.

The tribunal also considered the DDA’s position that it was merely the custodian of Nazul land belonging to the Government of India rather than the owner of the land.

The department argued that ownership was not decisive for determining whether the activity constituted renting of immovable property. The tribunal accepted this broader approach, noting that the service provider need not necessarily be the owner of the property for the activity to fall within the taxable category.

According to the order, the DDA had been letting or leasing Nazul land on behalf of the Central Government and receiving ground rent and one-time premiums. The tribunal found that the amounts received were not established as statutory fees or levies deposited into the government treasury, but were consideration associated with the leasing of immovable property.

The Bench consequently held that the fact that the DDA was created for the statutory objective of developing Delhi did not automatically make every activity undertaken by it a sovereign or non-taxable function. Where a statutory authority undertakes a commercial activity for consideration, the resulting receipts can attract tax if the activity falls within the relevant taxable category.

The judgment placed considerable emphasis on the distinction between compulsory statutory levies and consideration received for commercial services.

The tribunal referred to the government’s 2006 circular concerning services performed by sovereign or public authorities. Under the principle discussed in the judgment, activities performed as mandatory statutory obligations, where the fee collected is a compulsory levy deposited into the government treasury, are not treated in the same manner as commercial services provided for consideration.

However, where an authority undertakes an activity that is not itself a statutory obligation and receives consideration that is not in the nature of a statutory fee or levy, service tax can apply if the activity falls within a taxable service category.

The CESTAT also stressed the principle that tax exemptions must be strictly construed. A claimant must satisfy the conditions prescribed for an exemption, and courts and tribunals cannot disregard statutory conditions where the language of the provision is clear.

The tribunal further referred to a Larger Bench ruling concerning RIICO Ltd., under which lease premium or salami was held to be liable to service tax under the applicable provisions relating to renting of immovable property.

The Bench also took note of an earlier DDA matter in which the tribunal had remanded the dispute to the adjudicating authority because the record did not adequately address whether the properties concerned were commercial or non-commercial and whether the relevant tax provisions applied to vacant land during the period in question.

Another important aspect of the case concerned charges collected by the DDA from its sports complex.

The tribunal noted that the DDA’s membership and subscription charges were not accepted as sovereign activities. Instead, the activity was treated as being undertaken for commercial purposes and therefore taxable.

The Bench recorded that the adjudicating authorities had rejected the argument that such activities were sovereign in nature. CESTAT found no infirmity in those findings.

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