Supreme Court Issues Notice In DMRC Plea Against ₹45 Crore Service Tax Demand On Upfront Lease Premium
The Supreme Court on Tuesday issued notice on an appeal filed by Delhi Metro Rail Corporation Ltd (DMRC) challenging a CESTAT ruling that upheld a service tax demand of over ₹45 crore. The demand relates to upfront fees received under long-term lease arrangements for property development linked to the Delhi Metro project.
A Bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe issued notice and agreed to hear the case on merits.
The dispute arose from service tax demands against DMRC on upfront fees received from developers under concession agreements for property development on land allotted for the Delhi Metro project.
The Department alleged that such upfront fees paid for long-term leasing of land prior to July 1, 2010 were taxable under “Renting of Immovable Property Service” and confirmed a demand of over Rs.45 crore along with penalty.
DMRC argued before CESTAT that one-time premium or upfront fees paid for entering into lease agreements could not be subjected to service tax.
However, the CESTAT held that premium or salami received for leasing immovable property is taxable as part of “renting of immovable property” in view of the Larger Bench ruling in Rajasthan State Industrial Development & Investment Corporation Ltd. The Tribunal nevertheless set aside the penalty imposed under Section 78, holding that DMRC being a public sector undertaking, had acted under a bona fide belief regarding non-taxability.