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BRIEF FACTS OF THE CASE :-

M/s. Dev Arcade Pvt. Ltd., "Dev Arc", (hereinafter referred to as “M/s Devarc”) Near Fun Republic, Isckon Cross Roads, S.G. Highway, Ahmedabad are engaged in the business of Construction of Commercial & Residential Building and Real Estate Service and holding service tax registration for Real Estate Agent. Intelligence gathered revealed that the service provider had under taken some big construction projects under the brand name of 'Dev' and they had not paid service tax either in the category of Real Estate Agent Service or Construction of Commercial & Residential services, since July'2005.

02. Searches were carried out at the residence and office premises of “M/s. Devarc” on 15.03.2007 under the authority of Search Warrant No. 51 & 52 / 2006-07 respectively. Relevant records were withdrawn under panchnama dtd.15.03.2007 drawn at the office premises.

03. During the search at said office and from the examination of the records withdrawn from their office, it was observed that the said company was incorporated in June 2005 and presently was engaged in organization / supervision of construction work of 'Dev Arc Mall’ being constructed by M/s. Dev Arc (Jodhpur) Commercial Co.Op Society Ltd., Jodhpur, Ahmedabad. There are approximately 158 shops / offices in ‘Dev Arc Mall’ and booking of shops / offices had been done. Further, approximately 60% of construction was completed at the time of search. M/s. Dev Arcade Pvt. Ltd., had entered into an agreement with the said society for helping in arranging of labours, supervisors and experts in the field of construction and to supervise the scheme. As per the agreement, “M/s. Devarc” were entitled to receive organization / supervision charges equal to 7% of the amount of construction work. Vide letter dtd. 19.05.2009 “M/s. Devarc” had informed that organizing fees had been increased from 7% to 10.65% of the project cost during the year 2007-08. Shri Sanjay Hiralal Thakkar, Chairman of the said company had admitted that their company was liable to pay Service Tax under the category of 'Real Estate Agent' (which includes 'Real Estate Consultant's Service') on such organization / supervision charges. As per Profit & Loss Account during the year 2005-06, Income-Tax return filed by them for the assessment year 2006-07 alongwith Balance Sheet ending 31.03.2006 and Ledger for the period 2005-06, “M/s. Devarc” had charged Rs.30,25,068/- as organization / supervision charges from M/s. Dev Arc (Jodhpur) Commercial Co-Op Society, Jodhpur, Ahmedabad.

04. “M/s. Devarc” had furnished profit & Loss Accounts and the Balance sheet for the year ending March 31, 2007. Thereafter, they had also furnished ledger account for the years 2005-06 & 2006-07. From which it was noticed that they had collected an amount of Rs.2,16,88,624/- during the year 2006-07 as organization / supervision charges. As per statement showing the construction cost, they had also collected supervision charges amounting to Rs.3,13,99,053/- for the year 2007-08. On this account, “M/s. Devarc” had produced a cheque of Rs.7,00,000/- towards payment of Service Tax for the year 2005-06, 2006-07 under the category of 'Real Estate Agent service' which includes services of 'Real Estate Consultant'. They had also made payment of service tax of Rs.8,11,725/- + Ed. Cess Rs.16,234/- + Rs.2,000/- as penalty vide challan dated 19.05.08.

05. The Real Estate Agent Services were brought in the Service Tax net by the Finance (ii) Act, 1998 w.e.f. 16.10.1998.

The taxable service means any service provided or to be provided, to any person, by a Real Estate Agent in relation to Real Estate (Section 65(105)(v). As per Section 65 (88) of he Finance Act, 1994, ‘Real Estate Agent’ which includes services of ‘Real Estate Consultant’ has been defined as follows :-

“Real Estate Agent” means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting, of real estate and includes a real estate consultant which is defined in Section 65(89) as follows :

“Real Estate Consultant” means a person who renders in any manner, either directly or indirectly, advice, consultancy or technical assistance, in relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management, of real estate.”

06. As per agreement dtd. 01.10.2005 executed between M/s. Dev Arc (Jodhpur) Commercial Co. Society Ltd. and “M/s. Devarc” it was agreed upon vide Point No.5 which reads as 'As a consideration for execution and carrying out of various job-work or functions entrusted by the society to the company, the society shall pay and company would receive, amount as organization / supervision charges equal to 7% for the year 2005-06, 2006-07 and @ 10.65% for the year 2007-08, of the amount of construction work as certified by Architect of the society. The company would raise its bills on the society in respect of the job-work or functions executed by it once every year, on or before the end of the financial year ending on 31st March and the society would make payment to the company, subject to deduction of income tax, as early as possible after 31st March every year, of such amounts against the bills so raised by company, as are certified by separate experts engaged by the society.

07. On examination of the records, such as Balance sheets, profit & loss account for the year 2005-06 to 2008-09, it was noticed that “M/s. Devarc” had collected the supervision charges of Rs.30,25,068/-, Rs.2,16,88,624/-, Rs.3,13,99,053/- and Rs.1,26,96,322/- for the year 2005-06, 2006-07, 2007-08 and 2008-09 respectively from M/s. Dev Arc (Jodhpur) Commercial Co-Op Society Ltd., as per terms and conditions laid down in the said agreement between them. Therefore, their services were liable to be charged under 'Real Estate Agent's Service' (which includes Real Estate Consultant) as defined here in above.

08. “M/s. Devarc” had been issued certificate of registration under Section 69 the Finance Act, 1994 (32 of 1994) on 11.07.2007 for services of “Real Estate Agent” and their Registration No. was AACCD1788PST001 given by Range Superintendent, Service Tax, Ahmedabad.

09. “M/s. Devarc” vide their letter dtd.10.10.07 had furnished Profit & Loss A/C (Provisional) for the year 2006-07 and the copy of invoices of their clients, as per details given in following table, who had provided the services such as consultancy services, agency fee, plumbing design services, structural design services, preparing valuation of property services, electrical design services etc. under which Service Tax + Edu. Cess had been paid.

Sr. No. / Name of the party / Particulars / Bill No. & Date / Amt. of Bill charged / Amt. of Service Tax paid
Service Tax / Edu. Cess
1 / M/s Achal Parikh Consulting Engineers, Ahmedabad / Consultancy Service / 3 Dtd. 10.04.06 / 44,550 / 5,346 / 104
2 / - do - / - do - / 4 Dtd. 20.10.06 / 44,550 / 5,346 / 104
3 / M/s Chesterton Meghraj, Mumbai / Agency Fee / CM/MUM/ART-SP-085/06-07 / 5,50,000 / 66,000 / 1,320
4 / - do - / - do - / CM/MUM/ART-SP-086/06-07 / 25,50,000 / 3,06,000 / 6,120
5 / M/s Trammell Crow Meghraj, Mumbai / - do - / CM/MUM/ART-SP-228/06-07 / 50,00,000 / 6,00,000 / 12,000
6 / - do - / - do - / CM/MUM/ART-SP-384/06-07 / 30,00,000 / 3,60,000 / 7,200
7 / Aqua Designs, Ahmedabad / Plumbing Design Services / PF/06-07/047 / 67,500 / 8,100 / 162
8 / - do - / - do - / PF/06-07/133 / 1,12,500 / 13,500 / 270
9 / M/s Pyramid Associates, Ahmedabad / Structural Design / 03/06-07/004 / 1,00,000 / 12,000 / 240
10 / - do - / - do - / 01/06-07/003 / 1,00,000 / 12,000 / 240
11 / Bharat N Pandya, Ahmedabad / For Valuation of Property / 04.10.06 / 30,000 / 3,600 / 72
12 / M/s Pankaj Dharkar & Associates, Ahmedabad / Consultancy Service / A-065/P-3/151 dtd. 22.03.07 / 1,80,000 / ,21,600 / 432
13 / M/s Jhaveri Associates, Ahmedabad / Professional fees / DAPL/DAM/1 dtd. 28.12.06 / 1,67,500 / 20,100 / 402
14 / - do - / - do - / DAPL/DAM/2 dtd. 24.02.07 / 1,00,000 / 12,000 / 240
TOTAL / 1,20,46,600 / 14,45,592 / 28,806

10. “M/s Devarc” had submitted a letter dated 26.05.08 alongwith (i) copy of challan dated 21.08.08 vide which payment of service tax had been made and (ii) copy of ST-3 return for the half year ending Oct-March,07 under which they had availed cenvat credit of input service amounting to Rs.14,30,137/- service tax + Rs.28,601/- education cess =Total Rs.14,58,738/-.

11. With regard to said availment of cenvat credit of input service, it was observed that “M/s. Devarc” had availed cenvat credit of Rs.14,58,738/- and utilized the same during the year 2006-07 for the “Real Estate Agents Services”. In this regard it was submitted that “M/s. Devarc” had provided their services to supervise the scheme in the field of construction of "Dev Arc Mall" to M/s. Dev Arc (Jodhpur) Society and collected supervision charges during the year 2005-06 to 2007-08. The construction work of said “Dev Arc Mall” was carried out by the said society. Further, on going through input invoices, it was noticed that the said input invoices furnished by “M/s. Devarc” were meant for services of structural consultancy, Agency fee for leasing of retail space to Magnet, Plumbing Design as professional fees, structural design, fees for valuation of property, fees for electrical design, etc., which were input services for the said Dev Arc (Jodhpur) Commercial Co. Op. Soc. Ltd. which had carried out the construction work. The said “M/s. Devarc” had provided only their supervision services for construction. Thus, the services sought for and claimed by “M/s. Devarc” can not be considered as their input services. In fact these services were input services of the construction service. Therefore, it appeared that Cenvat Credit amounting to Rs. 14,58,738/- of various services mentioned therein was not available to them as these services were not input services for Real Estate Consultant services and was required to be recovered from them. On the similar ground cenvat credit of Rs.16,28,569/- availed and utilized during the year 2007-08 was also required to be demanded and recovered from them.

12. A statement of Shri Deepakbhai A. Thakkar, Director of the said M/s. Dev Arcade Pvt. Ltd., was recorded on 21.04.2010 wherein he agreed to the supervision charges income as reflected in their Balance sheet/ledgers. The same are as under:

Year / Supervision charges charged (Rs.)
2005-06 / 30,25,068
2006-07 / 2,16,88,624
2007-08 / 3,13,99,053
2008-09 / 1,26,96,322
Total / 6,88,09,067

12.1 He also agreed and confirmed to income of rent reflected in their balance sheet / ledgers. The same were as under :-

Year / Amount of rent collected (Rs.)
2007-08 / 2,36,23,622
2008-09 / 2,61,30,751
Total / 4,97,54,373

12.2 He had also submitted photocopies of rent agreement of following parties viz. Infinity Retail Ltd dated 26.03.2007, M/s Net Hot Zone Media Pvt. Ltd dated 27.01.2009, M/s Mx Foods Pvt Ltd dated 26.04.2008, M/s Reliance Communications Ltd. dated 27.01.2009, M/s Fascel Ltd. (Vodafone) dated 11.01.2007, M/s Weizman Forex Ltd. dated 27.12.2008, M/s Astha Enterprise (Baskin & Robbins) dated 15.04.2008, M/s Havmor Restaurant Pvt. Ltd. dated 08.05.2008, M/s Peora Fashions Pvt. Ltd. dated 18.04.2008, M/s Wireless TT Info Services Ltd. dated 03.12.2008. In respect of agreement with M/s. Fascel (Vodafone) Ltd, he stated that they had provided facility for display of hoardings to advertise their products and therefore income earned from them fall under the service category of Selling of Space or Time Selling' services for Advertisement. The year wise income were produced by him, which was as follows as an amount of rent under “Selling of Space or Time Selling services for Advertisement”. Except M/s. Fascel Ltd. (Vodafone) all the income received as per ledger of Rent/financial account were income towards giving space/area (kiosk) on rent for selling their products and therefore the same fall under the category of “Renting of Immovable property” and the amount towards the same were detailed in the table as below.

Amount of Rent under / Amount of Rent under" Selling / Amount of
Year / "renting of immovable / of Space or Time Selling' / Rent collected
properties" / services for Advertisement" / (Rs.)
2007-08 / 2,19,39,986/- / 16,83,636/- / 2,36,23,622/-
2008-09 / 2,44,49,515/- / 16,81,236/- / 2,61,30,751/-
Total / 4,63,89,501/- / 33,64,872/- / 4,97,54,373/-

12.3. Further he stated that as per ledger 2008-09 of rent income, their company had earned rent income from 14 different parties as mentioned in the ledger and out of said 14 parties, they had submitted copies of agreements in respect of 10 parties as mentioned in above para. In respect of other parties viz. M/s Bunjee Jumping, Mama Mukhwas, Khushi Advt., Cookie Man Australia, he stated that they had not entered into written agreement and their firm was earning income of rent as per oral agreements towards space provided to them for selling their products which fell under the category of under "renting of immovable properties" as per provision of Finance Act, 1994 relating to Service tax matter.

12.4. He further stated that M/s Dev Arcade Pvt. Ltd. had entered into agreements with M/s Infinity Retail Ltd. dated 26.03.2007, M/s Reliance Communications Ltd. dated 27.01.2009 and M/s Wireless TT Info Services Ltd. dated 03.12.2008.

12.5. He also stated that Dev Arc (Jodhpur) Commercial Co-operative Society had entered into agreements with M/s. Net Hot Zone Media Pvt. Ltd. dated 27.01.2009, M/s Mx Foods Pvt. Ltd. dated 26.04.2008, M/s Weizman Forex Ltd. dated 27.12.2008, M/s Astha Enterprise (Baskin & Robbins) dated 15.04.2008, M/s Havmor Restaurant Pvt. Ltd. dated 08.05.2008, M/s Peora Fashions Pvt. Ltd. dated 18.04.2008.