Supreme Court holds land transactions are sales not taxable “Real Estate Agent” services; revenue appeals dismissed

A bench of Justice J.B. Pardiwala and Justice Sandeep Mehta heard appeals by the Commissioner of Service Tax challenging an order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi. The appeals arose from demands raised against a partnership firm for alleged non‑payment of service tax as a “Real Estate Agent” for transactions with a corporate buyer and from invocation of the extended limitation period under the Finance Act, 1994.

The Court dismissed the appeals and affirmed the Appellate Tribunal’s finding that the transactions recorded in the Memoranda of Understanding (MOUs) were transactions of sale and not taxable services as a real estate agent or consultant. The Court held that the statutory definitions in Sections 65(88) and 65(89) of the Finance Act, 1994 were service‑centric and required an agency/consultancy relationship. The Court observed that the MOUs created a commercial arrangement where profits and losses accrued to the respondent on the spread and that there was no separate commission or fee for services. The Court, in its reasoning, observed: The Court also noted that “For a person to qualify as a real estate agent, there has to be a contract of agency, to be specific, an estate agency agreement.”

Background The respondent, M/s Elegant Developers, entered into three substantially identical MOUs with a corporate purchaser for procurement, demarcation and transfer of land at multiple project sites. The MOUs fixed an average rate per acre and placed on the respondent the responsibility to identify land, furnish title papers, obtain approvals, arrange executions and coordinate registration; any shortfall or surplus between amounts paid and the fixed average rate would accrue to the respondent as its profit‑loss margin. The Directorate General of Central Excise Intelligence initiated inquiry and the Commissioner issued a show cause notice and an adjudication order dated 30 September 2013 demanding approximately Rs 10.45 crore, interest and penalties on the ground that the respondent rendered taxable “Real Estate Agent” services from 1 October 2004 to 31 March 2007 and wilfully suppressed facts to invoke the extended five‑year limitation under Section 73(1) proviso.

The Appellate Tribunal allowed the respondent’s appeal, concluding that the MOUs did not stipulate commission or a service contract, that both parties acted as principals and that transactions were routed through banking channels and recorded in books, negating deliberate suppression. The Supreme Court considered statutory provisions and recent precedents relied on by parties, including this Court’s observations in Stemcyte India Therapeutics on the scope of extended limitation (that “mere non‑payment of tax, without any element of intent or suppression, is not sufficient to attract the extended limitation period”), and cases cited on economic substance. The Court found that the MOUs evidenced transfer of title and commercial risk on the respondent and thus fell within the exception to “service” under Section 65B(44)(a)(i). The Court held that revenue failed to prove deliberate suppression warranting extension of limitation. Consequently the demand, interest and penalties were set aside and the revenue appeals were dismissed. Pending applications were disposed of.

Case Details: Case No.: CIVIL APPEAL NO(S). 11744 – 11745 OF 2025 (2025 INSC 1299) Case Title: Commissioner of Service Tax v. M/s Elegant Developers Appearances: For the Petitioner(s): V. Chandrashekara Bharathi, Advocate for Commissioner of Service Tax For the Respondent(s): Balbir Singh, Senior Counsel for M/s Elegant Developers