DDA's Statutory Status Does Not Exempt Its Commercial Leasing From Service Tax: CESTAT New Delhi

The New Delhi Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 24 August held that the Delhi Development Authority's (DDA) statutory status does not exempt its commercial leasing activities from Service Tax. Also, receipts from leasing Government or Nazul land against lease premium, ground rent or other considerations are taxable when they are not compulsory statutory levies.

A Bench comprising Judicial Member Dr. Rachna Gupta and Technical Member P.V. Subba Rao dismissed two appeals filed by DDA against Service Tax demands for the periods from 2007-08 to 2014-15, upholding the original adjudicating authority's exclusion of the demand relating to renting of vacant land before 1 July 2010. It observed:

“...if the appellant was earning some profits while discharging any function under the statute, the same is liable to tax and that the amount is not the amount of statutory levy/fee which was to be deposited in Government treasury. It is apparent that the appellant has not been proved to be in the nature of statutory fee rather is admitted to be the amounts received against renting of immovable property.”

The demands arose from DDA's receipts from renting or leasing immovable property and membership and subscription charges collected from its sports complexes.

The Department's case was that DDA had not discharged Service Tax on amounts received from renting immovable property for commercial use, including lease amounts, premiums and ground rent. The DDA contended that, being a statutory authority constituted under the Delhi Development Authority Act, 1957, it carried out these activities pursuant to its statutory mandate and the receipts were therefore not liable to Service Tax.

The Tribunal rejected the contention that DDA's statutory character was sufficient to determine taxability. It relied on the Supreme Court's decision in Krishi Upaj Mandi Samiti, Alwar v. Commissioner of Central Excise & Service Tax, and held that activities undertaken by a Government or statutory authority can attract Service Tax where they are commercial in nature and undertaken for consideration, as opposed to genuine sovereign functions funded through compulsory statutory levies.

It noted that DDA was letting or leasing Nazul land on behalf of the Central Government and receiving ground rent and one-time premium. Also, that the objective of developing Delhi under the Delhi Development Authority Act, 1957 did not convert these commercial receipts into statutory fees.

Next, the Bench distinguished between a genuine statutory function, where an authority collects a compulsory statutory levy or fee for deposit in the Government treasury, and a service provided for consideration that falls within the taxable-service provisions. It also referred to the Supreme Court's discussion of the relevant 2006 Board Circular, which draws this distinction.

It relied on its Larger Bench ruling in RIICO Ltd., which held that lease premium or salami is exigible to Service Tax under the provisions relating to renting of immovable property. It noted that, following an earlier remand in DDA's own case, the adjudicating authority had examined the relevant periods and concluded that leasing or renting of immovable property constituted a taxable service.

However, the Tribunal accepted that renting of vacant land before 1 July 2010 was outside the taxable-service regime and excluded that portion of the demand. It also upheld Service Tax on membership and subscription charges collected from DDA's sports complexes, finding that the activity was commercial rather than sovereign in nature.

Further, it noted that DDA had failed to produce documents demonstrating that leasing Government land against rent, lease premium or other consideration constituted a sovereign function. It held:

“The original adjudicating authorities have also observed that the DDA could not produce any such document to justify their claim of rending the sovereign function while leasing out the Government lands against rent/lease/premium. In the light of the entire above discussion, we hereby upheld the findings arrived at by both the original adjudicating authorities.”

Accordingly, the CESTAT dismissed both appeals filed by DDA and upheld the Service Tax liability on the taxable leasing or renting activities and sports-complex membership and subscription charges, subject to the exclusion of the demand relating to renting of vacant land before 1 July 2010.

Counsel for the Revenue: Mihir Ranjan, Special Counsel