Lessor liable for Service Tax on extra lease rent for vacant land

Centax Editorial Board

August 13, 2025

• 5 min. read

Service Tax lessor liability additional lease amount vacant land lessee payments

Case Details: Shree Vijayalakshmi Charitable Trust Versus Commissioner of GST and Central Excise, Coimbatore (2025) 33 Centax 86 (Tri.-Mad)

Judiciary and Counsel Details

S/Shri M. Ajit Kumar, Member (T) and Ajayan T.V., Member (J)
Shri K. Sankaranarayan, Adv., for the Appellant
Shri Anoop Singh, Authorised Representative, for the Respondent.

Facts of the Case

The Appellant, acting as lessor, entered into a notarized lease agreement with the lessee for vacant land, with a separate lease deed stipulating a fixed yearly lease amount. The notarized agreement further provided that, as there were sources and assets in the property, the lessee would pay the lessor 75% of receipts every month as additional lease amount. A joint agreement between the lessor, lessee, and the District Collector recorded that the quarrying lease was granted by the District Collector on the lessee’s application for quarrying and carrying away minor minerals under the Tamil Nadu Minor Mineral Rules, 1959. The agreements collectively established that the lessee bore all risks, maintained the property, deposited security, paid seigniorage fees, and complied with statutory requirements. Both parties disclosed the additional lease amounts as rent before the Income Tax authorities and in financial statements. The Department issued a show cause notice alleging that the Appellant had provided “renting of immovable property” service taxable under Sections 65B(44) and 65B(51) of the Finance Act, 1994. The Appellant contended that the arrangement was a joint venture on a principal-to-principal basis involving fixed-ratio revenue sharing, attracting the mutuality doctrine; that tax could not be determined by nomenclature or accounting treatment; that the transaction amounted to a sale exigible to VAT; and that the lessee acted as hired labour while the lessor produced excisable goods. The matter was accordingly placed before the CESTAT.

High Court Held

The CESTAT held that the parties were ad idem on the transaction being a lease, and the quantification of additional lease amount as a percentage of receipts did not alter its character as rent. Reading the lease deed, notarized agreements, and joint agreement together, there was no indication of a joint venture involving shared responsibilities, joint control, or mutual risk in mining operations. The lessee alone undertook quarrying risks, and subsequent documents, including TDS exemption certificates and income tax filings, consistently presented the transaction as renting of immovable property. The Tribunal held that the leasing of vacant land fell within “renting” as defined in Section 65B(41) of the Finance Act, 1994, was a declared service under Section 66E(a), and was not covered by the “charitable activities” exemption under Sl. No. 4 of para 2(k) of Notification No. 25/2012-ST, dated 20-06-2012, nor within the negative list. The service tax liability arose solely from the leasing transaction, and mining operations were not subject to the impugned demand. Consequently, the lessor was held liable to pay service tax under Section 66B.

List Of Case Cited

AB Motions Pvt. Ltd. v. Commissioner — 2019 (4) TMI 2043-CESTAT Chandigarh — Distinguished [Paras 12, 25, 36]
ACL Mobile Ltd. v. Commissioner — 2019 (20) G.S.T.L. 362 (Tribunal) — Distinguished [Paras 10, 12, 25, 36]
Akzo Nobel Chemicals (India) Ltd. v. Commissioner — 2018 (11) G.S.T.L. 420 (Tribunal) — Distinguished [Paras 10, 12, 36]
Ambience Hospitality P. Ltd. v. Commissioner — 2019 (21) G.S.T.L. 400 (Tribunal) — Distinguished [Para 12, 25, 36]
Anand Nishikawa Co. Ltd. v. Commissioner — 2005 (188) E.L.T. 149 (S.C.) — Distinguished [Paras 10, 12, 36]
Avian Overseas Pvt. Ltd. v. Commissioner — 2009 (15) S.T.R. 540 (Tribunal) — Distinguished [Paras 10, 12, 36]
B.G. Exploration & Production India Ltd. v. Commissioner — 2022 (64) G.S.T.L. 578 (Tribunal) — Distinguished [Paras 12, 25, 26, 36]
B.G. Exploration & Production India Ltd. v. Commissioner — 2022 (63) G.S.T.L. 351 (Tribunal) — Distinguished [Paras 12, 25, 36]
B.S.C. Footwear Ltd. v. Ridgway (Inspector of Taxes) — [1972] 83 ITR 269 — Distinguished [Paras 10, 12, 36]
Bajaj Travels Ltd. v. Commissioner — 2012 (25) S.T.R. 417 (Del.) — Distinguished [Paras 10, 12, 36]
Bharat Sanchar Nigam Ltd. v. Union of India — 2006 (2) S.T.R. 161 (S.C.) — Distinguished [Paras 10, 12, 13, 36]
Centre For Development of Advance Computing v. Commissioner — 2016 (41) S.T.R. 208 (Tribunal) — Distinguished [Paras 12, 25, 36]
Chemicals & Fibres of India Ltd v. Collector — 1988 (33) E.L.T. 551 (Tribunal) — Distinguished [Paras 10, 12, 36]
Chetak Traveling Agency v. Commissioner — 2017-TIOL-2481-CESTAT-DEL — Distinguished [Paras 12, 36]
Collector v. Dai Ichi Karkaria Ltd. — 1999 (112) E.L.T. 353 (S.C.) — Distinguished [Paras 12, 36]
Commissioner v. AB Motions Pvt. Ltd. — (2024) 22 Centax 459 (S.C.) — Distinguished [Paras 12, 25, 36]
Commissioner v. Acer India Ltd. — 2004 (172) E.L.T. 289 (S.C.) — Distinguished [Paras 10, 12, 36]
Commissioner v. Bharuch Dahej Railway Company Ltd. — 2020 (34) G.S.T.L. 565 (Tribunal) — Distinguished [Paras 12, 25, 36]
Commissioner v. D.C.M. Textiles — 2006 (195) E.L.T. 129 (S.C.) — Distinguished [Paras 10, 12, 36]
Commissioner v. Damnet Chemicals (P) Ltd. — 2007 (216) E.L.T. 3 (S.C.) — Distinguished [Paras 10, 12, 36]
Commissioner v. Goa Golf Club Pvt. Ltd. — 2023 (72) G.S.T.L. 523 (Tribunal) = (2023) 4 Centax 306 (Tri. – Mum.) — Distinguished [Paras 12, 25, 36]
Commissioner v. Gourmets Food — 2018 (15) G.S.T.L. 348 (Tribunal) — Referred [Para 13]
Commissioner v. Zee Media Corporation Ltd. — 2018 (18) G.S.T.L. 32 (All.) — Distinguished [Paras 10, 12, 36]
Continental Foundation Jt. Venture v. Commissioner — 2007 (216) E.L.T. 177 (S.C.) — Distinguished [Paras 10, 12, 36]
Cricket Club of India Ltd. v. Commissioner — 2015 (40) S.T.R. 973 (Tribunal) — Distinguished [Paras 10, 12, 36]
ETA Engineering Ltd. v. Commissioner — 2004 (174) E.L.T. 19 (Tribunal) — Distinguished [Paras 12, 36]
Executive Engineer, Urban Division, Tamil Nadu Water Supply and Drainage Board v. Commissioner — 2018 (5) TMI 1467-CESTAT. Chennai — Distinguished [Paras 10, 12, 36]
Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd. — 2008 (12) S.T.R. 401 (S.C.) — Distinguished [Paras 10, 12, 13, 24, 25, 36]
Fibre Foils Ltd. v. Commissioner — 2005 (190) E.L.T. 352 (Tribunal) — Distinguished [Paras 10, 12, 36]
Flyingman Air Courier Pvt. Ltd. v. Commissioner — 2004 (170) E.L.T. 417 (Tribunal) — Distinguished [Paras 12, 36]
Medpro Pharma Pvt. Ltd. v. Commissioner — 2006 (4) S.T.R. 322 (Tribunal) — Distinguished [Paras 12, 36]
Meghraj Cinema v. Commissioner — 2024 (8) TMI 1053-CESTAT Mumbai — Distinguished [Paras 12, 25, 36]
Moped India Limited v. Assistant Collector — 1986 (23) E.L.T. 8 (S.C.) — Distinguished [Paras 10, 12, 36]
Mormugao Port Trust v. Commissioner — 2017 (48) S.T.R. 69 (Tribunal) — Distinguished [Paras 12, 25, 26, 36]
New Horizons Ltd. v. Union of India — (1995) 1 SCC 478 — Distinguished [Paras 10, 12, 13, 25, 36]
Niraj Prasad v. Commissioner — 2020 (38) G.S.T.L. 78 (Tribunal) — Distinguished [Paras 12, 25, 36]
NRC Ltd. v. Commissioner — 2007 (209) E.L.T. 22 (Tribunal) — Distinguished [Paras 10, 12, 36]
Padmini Products v. Collector — 1989 (43) E.L.T. 195 (S.C.) — Distinguished [Paras 10, 12, 36]
Pushpam Pharmaceuticals Company v. Collector — 1995 (78) E.L.T. 401 (S.C.) — Distinguished [Paras 10, 12, 36]
PVS Multiplex India Pvt. Ltd. v. Commissioner — 2018 (10) G.S.T.L. 496 (Tribunal) — Distinguished [Paras 12, 25, 36]
R.N. Gosain v. Yashpal Dhir — (1992) 4 SCC 683 — Followed [Para 38]
Rashmi Metaliks v. Kolkata Metropolitan Dev Authority — 2013 INSC 606 — Followed [Para 43]
S. Chattantha Karavalar v. Central Bank of India — (1965) 3 SCR 318 — Followed [Para 21]
Secretary, Town Hall Committee, Mysore City Corpn. v. Commissioner — 2007 (8) S.T.R. 170 (Tribunal) — Distinguished [Paras 10, 12, 36]
Sir Ganga Ram Hospital v. Commissioner — 2018 (11) G.S.T.L. 427 (Tribunal) — Distinguished [Paras 12, 25, 36]
Sir Ganga Ram Hospital v. Commissioner — 2020 (43) G.S.T.L. 390 (Tribunal) — Distinguished [Paras 12, 25, 36]
Siyaram Silk Mills Ltd. v. Commissioner — 2006 (195) E.L.T. 284 (Tribunal) — Distinguished [Paras 10, 12, 36]
Spencer International Hotels Ltd. v. Commissioner — (2023) 10 Centax 105 (Tri. – Mad.) — Distinguished [Paras 12, 25, 36]
Star Neon Singh v. Commissioner — 2002 (141) E.L.T. 770 (Tri. – Del.) — Distinguished [Paras 12, 36]
Taparia Tools Ltd. v. Joint Commissioner of Income Tax — 2015 (3) TMI 853-(SC) — Distinguished [Paras 12, 36]
Times Internet Ltd. v. Commissioner — 2017 (4) G.S.T.L. 33 (Tribunal) — Distinguished [Paras 12, 25, 36]
Tuticorin Alkali Chemicals & Fertilizers Ltd. v. Commissioner of Income Tax — [1997] 227 ITR 172 (SC) — Distinguished [Paras 10, 12, 36]
Union of India v. Garware Nylons Ltd. — 1996 (87) E.L.T. 12 (S.C.) — Distinguished [Paras 10, 12, 36]
White Cliffs Hair Studio Pvt. Ltd. v. Additional Commissioner — 2012 (8) TMI 105 (Mad.) — Distinguished [Paras 12, 36]