The increasing complexity of land transactions in India has prompted discussions on the applicability of service tax to lease assignments. In this context, we delve into Luxmi Township Limited's appeal before the Customs, Excise, and Service Tax Appellate Tribunal, Kolkata Eastern Zonal Bench: Kolkata (Appellate Tribunal).

The appeal challenges an order issued on August 18, 2016 (Order), by the Commissioner of Central Excise and Service Tax, Siliguri Commissionerate (Commissioner). The crux of the dispute revolves around the classification of these assignments as taxable services, specifically under the "Renting of Immovable Property" category. The tax department, represented by the Commissioner, argues that these assignments should be subject to service tax. Luxmi Township Limited vehemently contests this position.

The Case:

In 2003, Luxmi Township Limited secured a 99-year lease for 393.25 acres of land for the purpose of developing a satellite township in West Bengal. The lease is renewable at the option of Luxmi Township Limited for an additional 99 years after its expiry. However, the tax department introduced amendments in 2007, 2008, and 2010 that expanded the tax category of "Renting of Immovable Property." Consequently, the department argued that service tax was applicable to the sub-leases executed by Luxmi Township Limited, effective from July 1, 2010. Subsequently, a show cause notice in 2015 demanded service tax, education cess, and SHE cess totalling Rs 5,11,88,790 for sub-leases executed after the specified date. Luxmi Township Limited appealed against this demand.

Legal Arguments:

Luxmi Township Limited presented several arguments in its appeal:

i. Categorization of Assignments:

It argued that the land assignments should not be categorized as taxable services under the Finance Act, 1994, specifically under "Renting of Immovable Property."

ii. Approval by District Land and Land Reforms Office (DLLRO):

Luxmi Township Limited asserted that the assignments were approved by the DLLRO, which effectively transferred all rights and title to the assignees.

iii. Sale vs. Lease:

Luxmi Township Limited contended that the transfer of leasehold rights should be treated as a 'sale' rather than a 'lease,' which would be exempt from service tax.

iv. Distinction between 'Premium' and 'Rent:

Luxmi Township Limited emphasized the crucial distinction between 'premium' and 'rent' in property transactions, citing relevant legal precedents.

v. Tribunal Decision:

Luxmi Township Limited cited a tribunal decision stating that "salami" or premium for leasing immovable property is not subject to service tax.

vi. Time-barred Demand:

Luxmi Township Limited argued that the demand was time-barred since it had not concealed any information, and the notice was issued more than two years after providing all relevant data to the department.

The Tax department contended that Luxmi Township Limited's sub-leases with the business entities should be classified as 'Renting of Immovable Property' service, as defined since July 1, 2010. This included 'vacant land leased for construction for business or commerce.' The focus was on not considering it a 'Sale of Property' due to the absence of a sale agreement.

Assignments vs. Subleases:

A critical aspect of the case revolved around the distinction between assignments and subleases. In the context of land transactions:

An assignment involves the complete transfer of the lease from the tenant (or sub-lessor) to the assignee. The tenant no longer has any ownership interest in the property, ending the "privity of estate" with the landlord.

In contrast, a sublease occurs when the tenant transfers only a portion of its interest, and the landlord retains the right to enforce the lease agreement with the tenant. Assignments lead to a new "privity of estate" between the landlord and the assignee, as the assignee possesses the present interest in the property.

Land Registration and Transfer of Rights:

Luxmi Township Limited provided evidence from the District Land and Land Reforms Officer (DLLRO) indicating that full rights and title were transferred to the assignees. The land was officially registered in the assignees' names, with the assignees recognized as the lessees of the plots, responsible for renewing the lease and paying rent directly to the government. This suggested a permanent assignment of leasehold rights rather than a sublease.

Premium vs. Rent:

Luxmi Township Limited underlined the distinction between 'premium' and 'rent' in property transactions. The argument was that the one-time 'premium' they received was for land development, whereas 'rent' implied periodic payments for ongoing property use.

Time-Barred Demand:

Luxmi Township Limited argued that the demand was time-barred, as it had not concealed any information from the tax department, and the notice was issued more than two years after providing all information. This claim rested on the premise that there was no suppression of information, and the extended period for invoking a demand did not apply.


This case revolves around the taxation of land assignments, particularly those executed by Luxmi Township Limited for its satellite township in West Bengal. The central question was whether these assignments should be classified as taxable services under the category of "Renting of Immovable Property."

After a detailed legal analysis, the conclusion favored Luxmi Township Limited. The distinction between assignments and subleases, the evidence of land registration and transfer of rights, the differentiation between 'premium' and 'rent,' and the argument of a time-barred demand collectively reinforced Luxmi Township Limited's case.

It was evident that the assignments constituted a permanent transfer of leasehold rights, not subject to service tax. The one-time 'premium' received was for land development, as opposed to periodic 'rent.'

The Appellate Tribunal has ruled that the demands for duty, interest, and the imposition of penalties in the Order cannot be sustained. Consequently, the Appellate Tribunal has nullified the Order and issued a favourable judgment in Luxmi Township Limited's appeal. Additionally, the Service Tax Cross Objection, submitted by the Commissioner, has been similarly disposed of.

This case establishes a legal precedent for land assignment taxation in India, providing clarity on the classification and taxation on such transactions.

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