{"id":354006,"date":"2025-07-21T11:30:45","date_gmt":"2025-07-21T06:00:45","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=354006"},"modified":"2025-07-22T18:09:39","modified_gmt":"2025-07-22T12:39:39","slug":"cestat-no-service-tax-on-upfront-fee-penalty-on-dmrc-set-aside","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2025\/07\/21\/cestat-no-service-tax-on-upfront-fee-penalty-on-dmrc-set-aside\/","title":{"rendered":"\u2018No service tax to be paid on upfront fee\/premium for agreement to lease\u2019; CESTAT sets aside penalty on DMRC"},"content":{"rendered":"
\n

Customs, Excise & Service Tax Appellate Tribunal, New Delhi:<\/span> The Appellant, Delhi Metro Rail Corporation Ltd. (\u2018DMRC\u2019) challenged the order passed by the Commissioner of Central Excise & Service Tax, Rohtak (\u2018Commissioner\u2019), wherein the demand of service tax on a portion of the amount received as \u201cupfront fee\u201d was upheld under the category of \u201cRenting of Immovable Property Service\u201d under the provisions of the Finance Act, 1994<\/a> (\u20181994 Act\u2019). The Tribunal comprising Binu Tamta, Member (Judicial)<\/span> and Hemambika R. Priya, Member (Technical) held that definition of \u201cRenting of Immovable Property\u201d under Section 65(90-a)<\/a> of the 1994 Act<\/a> included only \u201cleasing\u201d and not an \u201cagreement to lease\u201d, thus \u201cpremium\u201d or \u201cupfront fee\u201d received for entering into an \u201cagreement to lease\u201d was not liable to service tax. Further, the penalty imposed on DMRC under Section 78<\/a> of 1994 Act<\/a> was set aside by the Tribunal.<\/p>\n

Background<\/h3>\n

DMRC, a company formed under the Companies Act, 1956<\/a>, was established by the Government of India and the Government of Delhi to implement and manage the Delhi Mass Rapid Transit System Project (\u2018MRTS Project\u2019). 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.<\/p>\n

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<\/a> of the 1994 Act<\/a>. Thus, being aggrieved from the aforesaid order, the present appeal was filed.<\/p>\n

The issue involved in the present appeal was \u201cwhether the \u201cupfront fee\u201d 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 \u201cRenting of Immovable Property Services\u201d?\u201d.<\/span><\/p>\n

Analysis, Law, and Decision<\/h3>\n

The Tribunal examined the appellant\u2019s contention in light of the Rajasthan SIDIC case<\/span>, 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)<\/a> of the 1994 Act<\/a>. 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 \u201clease\u201d under Section 105<\/a> of the Transfer of Property Act, 1882<\/a> (\u2018the 1882 Act\u2019), which included both \u201cpremium\u201d and \u201cperiodic rent\u201d 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)<\/a> of the 1994 Act<\/a> as part of renting immovable property.<\/p>\n

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 \u2018lease\u2019 as per Section 105<\/a> of the 1882 Act<\/a> and \u201cRenting of Immovable Property\u201d under Section 65(90-a)<\/a> of the 1994 Act<\/a>, and was therefore liable to service tax. For the period after 1-7-2010, the Tribunal considered Sections 65-B(44)<\/a>, 66-D<\/a>, and 66-E<\/a> of the 1994 Act<\/a> and the Tribunal rejected the appellant\u2019s contention that renting of immovable property was excluded from service tax under Section 65-B(44)(a)(i)<\/a> of the 1994 Act<\/a>. The Tribunal held that \u2018premium\u2019 was a payment to gain possession and qualifies as consideration for \u201crenting immovable property\u201d.<\/p>\n

The Tribunal held that under Section 65(90-a)<\/a> of the 1994 Act<\/a>, \u201cRenting of Immovable Property\u201d covered \u201cleasing\u201d, not an \u201cagreement to lease\u201d, thus, premium received for entering into an \u201cagreement to lease\u201d was not liable to service tax.<\/p>\n

The Tribunal held that DMRC, as a Public Sector Undertaking, acted in bona fide belief that service tax did not apply to the \u201cupfront fee.\u201d 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<\/a> of the 1994 Act<\/a> was set aside.<\/p>\n

[DMRC Ltd. v. CCE & CST, 2025 SCC OnLine CESTAT 1991<\/a>, decided on 2-7-2025<\/span>]<\/p>\n

\n

Advocates who appeared in this case:<\/p>\n

For the Appellant:<\/span> Vishwajeet Tyagi, Advocate and Sanjay Kumar, Authorised Representative<\/p>\n

For the Respondent:<\/span> Aejaz Ahmad, Authorised Representative<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

“At the time of executing the Concession Agreements with developers, DMRC had collected “upfront fee” as a price for obtaining the respective Concession Agreements.”<\/p>\n","protected":false},"author":67526,"featured_media":354009,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,11],"tags":[85676,85681,6651,42972,14601,41264,20601,85677,30237,47705,85353,85678,85679,3208,32026,85680],"class_list":["post-354006","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-binu-tamta-member-judicial","tag-bonafide-belief","tag-cestat","tag-concession-agreement","tag-consumer","tag-dmrc","tag-finance-act","tag-hemambika-r-priya-member-technical","tag-premium","tag-psu","tag-renting-of-immovable-property","tag-section-6590-a-finance-act","tag-section-78-finance-act","tag-service_tax","tag-transfer-of-property-act","tag-upfront-fee"],"yoast_head":"\nCESTAT on service tax on upfront fee | SCC Times<\/title>\n<meta name=\"description\" content=\"CESTAT held no service tax applicable on upfront fees\/premium for agreement to lease, and sets aside penalty on DMRC due to bona fide belief.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2025\/07\/21\/cestat-no-service-tax-on-upfront-fee-penalty-on-dmrc-set-aside\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"\u2018No service tax to be paid on upfront fee\/premium for agreement to lease\u2019; CESTAT sets aside penalty on DMRC\" \/>\n<meta property=\"og:description\" content=\"CESTAT held no service tax applicable on upfront fees\/premium for agreement to lease, and sets aside penalty on DMRC due to bona fide belief.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.scconline.com\/blog\/post\/2025\/07\/21\/cestat-no-service-tax-on-upfront-fee-penalty-on-dmrc-set-aside\/\" \/>\n<meta property=\"og:site_name\" content=\"SCC Times\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/scc.online\/\" \/>\n<meta property=\"article:published_time\" content=\"2025-07-21T06:00:45+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-07-22T12:39:39+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.scconline.com\/blog\/wp-content\/uploads\/2025\/07\/service-tax-on-upfront-fee.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"886\" \/>\n\t<meta property=\"og:image:height\" content=\"590\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Sanket\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"\u2018No service tax to be paid on upfront fee\/premium for agreement to lease\u2019; CESTAT sets aside penalty on DMRC\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Sanket\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/post\\\/2025\\\/07\\\/21\\\/cestat-no-service-tax-on-upfront-fee-penalty-on-dmrc-set-aside\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/post\\\/2025\\\/07\\\/21\\\/cestat-no-service-tax-on-upfront-fee-penalty-on-dmrc-set-aside\\\/\"},\"author\":{\"name\":\"Sanket\",\"@id\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/#\\\/schema\\\/person\\\/121612e1a21dfc21448f9b2045c981f9\"},\"headline\":\"\u2018No service tax to be paid on upfront fee\\\/premium for agreement to lease\u2019; CESTAT sets aside penalty on DMRC\",\"datePublished\":\"2025-07-21T06:00:45+00:00\",\"dateModified\":\"2025-07-22T12:39:39+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/post\\\/2025\\\/07\\\/21\\\/cestat-no-service-tax-on-upfront-fee-penalty-on-dmrc-set-aside\\\/\"},\"wordCount\":793,\"commentCount\":0,\"image\":{\"@id\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/post\\\/2025\\\/07\\\/21\\\/cestat-no-service-tax-on-upfront-fee-penalty-on-dmrc-set-aside\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.scconline.com\\\/blog\\\/wp-content\\\/uploads\\\/2025\\\/07\\\/service-tax-on-upfront-fee.webp\",\"keywords\":[\"Binu Tamta Member (Judicial)\",\"Bonafide Belief\",\"CESTAT\",\"Concession Agreement\",\"Consumer\",\"DMRC\",\"Finance Act\",\"Hemambika R. 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