Customs, Excise & Service Tax Appellate Tribunal, New Delhi: The Appellant, Delhi Metro Rail Corporation Ltd. (‘DMRC’) challenged the order passed by the Commissioner of Central Excise & Service Tax, Rohtak (‘Commissioner’), wherein the demand of service tax on a portion of the amount received as “upfront fee” was upheld under the category of “Renting of Immovable Property Service” under the provisions of the Finance Act, 1994 (‘1994 Act’). The Tribunal comprising Binu Tamta, Member (Judicial) and Hemambika R. Priya, Member (Technical) held that definition of “Renting of Immovable Property” under Section 65(90-a) of the 1994 Act included only “leasing” and not an “agreement to lease”, thus “premium” or “upfront fee” received for entering into an “agreement to lease” was not liable to service tax. Further, the penalty imposed on DMRC under Section 78 of 1994 Act was set aside by the Tribunal.
Background
DMRC, a company formed under the Companies Act, 1956, was established by the Government of India and the Government of Delhi to implement and manage the Delhi Mass Rapid Transit System Project (‘MRTS Project’). The Governments also authorized DMRC to earn revenue through property development on lands allotted to it by different agencies as part of the MRTS Project. To do this, DMRC entered into Concession Agreements with various developers, giving them the rights to construct, develop, finance, manage, and maintain specific land parcels for periods ranging from 30 to 50 years.
DMRC charged an upfront fee from customers at the time of executing the Concession Agreements. As stated in Article 3 of the Concession agreement, DMRC was to receive two forms of consideration i.e., fixed upfront fee and recurring quarterly payments for the use of the land. Later, on 25-4-2013, DMRC received a show cause notice demanding service tax on the upfront fees collected under agreements signed before 1-7-2010 for leasing vacant land. The Commissioner passed an order directing DMRC to pay Rs 45,11,42,179 as service tax, along with interest and an equal amount as duty under Section 78 of the 1994 Act. Thus, being aggrieved from the aforesaid order, the present appeal was filed.
The issue involved in the present appeal was “whether the “upfront fee” received by DMRC from various customers under the Concession Agreements entered prior to 1-7-2010 was exigible to service tax on or after 1-7-2010 under “Renting of Immovable Property Services”?”.
Analysis, Law, and Decision
The Tribunal examined the appellant’s contention in light of the Rajasthan SIDIC case, ST Appeal No. 50553 of 2017, dated 27-1-2025, wherein the issue was whether a one-time payment like “premium” or “salami” falls under service tax for “Renting of Immovable Property” under Section 65(90-a) of the 1994 Act. The Tribunal noted that in Rajasthan SIDIC case (supra), it was stated that as “lease” was not defined in the 1994 Act, the Tribunal referred to the definition of “lease” under Section 105 of the Transfer of Property Act, 1882 (‘the 1882 Act’), which included both “premium” and “periodic rent” in a lease, and thus, it was held that one-time premium amount received by the lessor from the lessee for transfer of interest in the property was taxable under Section 65(105)(zzz-z) of the 1994 Act as part of renting immovable property.
The Tribunal held that even if the premium amount, was paid before the execution of the lease deed, was still covered under the definition of ‘lease’ as per Section 105 of the 1882 Act and “Renting of Immovable Property” under Section 65(90-a) of the 1994 Act, and was therefore liable to service tax. For the period after 1-7-2010, the Tribunal considered Sections 65-B(44), 66-D, and 66-E of the 1994 Act and the Tribunal rejected the appellant’s contention that renting of immovable property was excluded from service tax under Section 65-B(44)(a)(i) of the 1994 Act. The Tribunal held that ‘premium’ was a payment to gain possession and qualifies as consideration for “renting immovable property”.
The Tribunal held that under Section 65(90-a) of the 1994 Act, “Renting of Immovable Property” covered “leasing”, not an “agreement to lease”, thus, premium received for entering into an “agreement to lease” was not liable to service tax.
The Tribunal held that DMRC, as a Public Sector Undertaking, acted in bona fide belief that service tax did not apply to the “upfront fee.” The Tribunal observed that it was an established principle that government bodies or public undertakings did not act for personal gain. The appeal was partly allowed and the penalty imposed on DMRC under Section 78 of the 1994 Act was set aside.
[DMRC Ltd. v. CCE & CST, Service Tax Appeal No. 55198 of 2014, decided on 2-7-2025]
Advocates who appeared in this case:
For the Appellant: Vishwajeet Tyagi, Advocate and Sanjay Kumar, Authorised Representative
For the Respondent: Aejaz Ahmad, Authorised Representative