Profit-Spread Land Aggregation Is Not a “Real Estate Agent” Service: Supreme Court Clarifies Agency Test and Limits Extended Limitation under Section 73(1) Proviso

Introduction

This commentary examines the Supreme Court of India’s decision in Commissioner of Service Tax v. M/s Elegant Developers, 2025 INSC 1299 (decided on 10 November 2025), a reportable judgment that squarely addresses the scope of “real estate agent” services under the Finance Act, 1994 and the stringent threshold for invoking the extended period of limitation under the proviso to Section 73(1).

The dispute arose from a service tax demand on M/s Elegant Developers (the respondent), a land aggregation and development firm that entered into three Memoranda of Understanding (MOUs) with Sahara India Commercial Corporation Ltd. (SICCL) in 2002, 2004, and 2005 for land acquisition in contiguous blocks at Vadodara (Gujarat), Sri Ganganagar (Rajasthan), and Kurukshetra (Haryana). Under the MOUs, SICCL agreed to pay a fixed average rate per acre inclusive of land cost and development expenses; Elegant Developers would source, verify, and process the land, earning or losing on the difference between the fixed average rate and the price paid to landowners. The Directorate General of Central Excise Intelligence issued a show cause notice in April 2010 demanding service tax for the period 1 October 2004 to 31 March 2007 on the premise that Elegant acted as a “real estate agent,” and also sought to invoke the extended limitation on alleged suppression.

The Commissioner confirmed a demand of Rs. 10,45,61,837 with interest and penalties. On appeal, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside the demand, holding that the respondent acted on a principal-to-principal basis without any identifiable commission or service consideration. The Commissioner appealed to the Supreme Court.

Summary of the Judgment

The Supreme Court (Mehta, J., for the Bench also comprising Pardiwala, J.) dismissed the revenue’s appeals and affirmed CESTAT’s order. The Court held that:

• Transactions under the MOUs were principal-to-principal sales of immovable property, not “services” rendered by a “real estate agent” or “real estate consultant” under Sections 65(88), 65(89) and 65(105)(v) of the Finance Act, 1994.
• The respondent’s remuneration was not a commission for facilitation but a variable profit or loss on the spread between SICCL’s fixed average rate and the negotiated price paid to landowners; the respondent bore procurement risk and could suffer losses—features inconsistent with an agency.
• Such transfers of title in immovable property fall within the exclusion from “service” recognized in Section 65B(44)(a)(i) (transfer of title in goods or immovable property), which the Court employed as contextual support.
• The extended period of limitation under the proviso to Section 73(1) was not available: the department failed to prove deliberate suppression or wilful misstatement; transactions were routed through banking channels and duly recorded.

Analysis

Statutory Framework and the Court’s Reading

The Court meticulously parsed the definitions:

• Section 65(88): “real estate agent” means a person engaged in rendering any service in relation to sale, purchase, leasing or renting of real estate and includes a real estate consultant.
• Section 65(89): “real estate consultant” means a person who renders advice, consultancy or technical assistance in relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management of real estate.
• Section 65(105)(v): taxable service includes service provided to any person by a real estate agent in relation to real estate.
• Section 65B(44)(a)(i): “service” excludes an activity constituting a transfer of title in goods or immovable property (used by the Court as a clarificatory context to reinforce the non-service character of outright sales of land).

From these provisions, the Court distilled two central propositions:

1. The “real estate agent” and “real estate consultant” categories are service-centric. There must be a relationship of agency or consultancy, and the consideration must be for the service (typically a commission, fee, or identified service remuneration).
2. Transactions that are essentially transfers of title in immovable property do not constitute “service.” Profit earned (or loss suffered) as a trading spread in procuring and selling land for one’s own account is not consideration for a service.

Nature of the MOUs and the Agency Test

Key MOU features shaped the Court’s conclusion:

• SICCL agreed to pay a fixed average rate per acre for specified parcels. This rate covered land cost and development expenses.
• The respondent undertook to identify contiguous land parcels, furnish title papers, obtain necessary approvals for transfer, bring landowners for completion of formalities, and coordinate registrations. SICCL bore stamp, registration, and mutation costs.
• Crucially, the respondent’s gain or loss was the difference between SICCL’s fixed average rate and the actual price paid to the landowners. There could be a shortfall (loss) if acquisition costs exceeded the fixed average rate; SICCL could withhold a portion of the margin to ensure performance.
• Title was conveyed directly to SICCL (often via powers of attorney obtained from landowners), but this structural choice did not alter the respondent’s risk-bearing role.

The Court held that no principal–agent relationship existed because:

• There was no identifiable service fee/commission; remuneration was embedded in the trading spread.
• The respondent bore procurement risk and could suffer losses—antithetical to an agent’s typical risk profile.
• Both parties acted as principals in a land procurement and onward sale arrangement; the respondent was not engaged to render services “in relation to” sale/purchase for a fee.

The Court emphasized that it is the presence of a contract of agency or consultancy, and consideration for such service, that triggers the taxable service under Section 65(105)(v); absent that, pure transfers of immovable property (even if structured with facilitative steps) remain outside service tax.

Extended Limitation and Alleged Suppression

On limitation, the Court reiterated the settled rule: the extended period under the proviso to Section 73(1) can be invoked only on proof of fraud, collusion, wilful misstatement, or deliberate suppression of facts with intent to evade tax. Mere non-payment of tax, failure to register, or an erroneous view of taxability does not suffice. Given that all transactions were through banking channels and recorded, and that the core classification issue itself stood decided in the respondent’s favour, the department failed to establish the necessary mens rea to stretch limitation beyond the normal period.

Precedents Cited and Their Influence

• Stemcyte India Therapeutics Pvt. Ltd. v. CCE & ST, 2025 SCC OnLine SC 1412:
  • Relied on by the respondent and applied by the Court on limitation. The Supreme Court reaffirmed that the extended period requires an active, deliberate act to evade tax. Absence of such intent renders a belated show cause notice time-barred.
  • Directly influenced the Court’s conclusion that extended limitation was not invocable.
• Union of India v. Future Gaming Solutions Pvt. Ltd., (2025) 5 SCC 601:
  • Relied on by the respondent to underscore principal-to-principal trading with spread-based margin versus a commission-based service model. While the factual matrix differs (lottery distribution in Future Gaming), the underlying economic characterization—risk-bearing trader versus service agent—resonated with the present facts.
  • Supports the Court’s “economic reality” lens: risk and reward on the spread typically signal a principal-to-principal transaction, not an agency.
• M/s Chhattisgarh Steel Castings (P) Ltd. v. Union of India, 2020 (34) G.S.T.L. 70 (Chhattisgarh HC):
  • Relied on by the revenue to argue that a premeditated acquisition for onward sale amounts to “real estate agent” service. The Supreme Court did not follow this approach on these facts, instead insisting on the agency-consideration nexus and risk allocation to distinguish between trading and service.

Key Legal Reasoning distilled

• Service-centric definitions: Both “real estate agent” and “real estate consultant” presuppose a service being rendered, with consideration for that service. Facilitative steps incidental to an ultimate sale do not convert a principal-to-principal sale into a taxable service.
• Agency indicators absent: No commission; respondent bore risk of loss; remuneration was a spread, not a fee; control and authority were aligned with a trader aggregating land, not an agent acting on behalf of a principal for consideration.
• Transfer of title exclusion: Although Section 65B(44) post-dates the period in dispute, its exclusion for transfers of immovable property accords with the broader principle that outright sales are not “services.” The Court used this as contextual reinforcement of the non-service character of the transactions.
• High threshold for extended limitation: The department must prove deliberate suppression or similar culpable conduct; mere non-registration or silence does not automatically meet this test.

Impact and Forward-Looking Implications

This judgment will likely shape classification and limitation analyses in legacy service tax disputes and also inform analogous characterizations under GST. Key impacts include:

• Land aggregation and pooling arrangements:
  • Where the aggregator assumes procurement risk and earns a spread (with potential loss), the arrangement generally aligns with principal-to-principal sale of immovable property, not a “real estate agent” service.
  • Presence of a fixed or percentage-based commission, absence of risk, and pure facilitation for a fee are hallmarks of an agency and can attract tax (under the then-prevailing regime).
• Evidentiary burden on extended limitation:
  • Authorities must marshal concrete evidence of wilful suppression or misstatement. Booked transactions through banking channels, coupled with a plausible legal position on non-taxability, undercut the invocation of the proviso to Section 73(1).
• Consistency with GST framework:
  • Under GST, sale of land is treated as neither a supply of goods nor services (Schedule III), while certain development rights and construction-related supplies are taxable. The Court’s emphasis on title transfer and risk allocation offers a useful lens for characterizing mixed real estate arrangements even in the GST era—although GST has its own statutory architecture and deeming fictions.
• Contract drafting and compliance:
  • Businesses should draft MOUs/agreements to reflect the true nature of the arrangement. If the intention is a principal-to-principal trade, terms should clearly show risk-bearing by the aggregator and absence of a service fee/commission.
  • Accounting treatment (recognition of purchase cost and sale proceeds versus commission income), and documentation of risk assumption, can be decisive.

Complex Concepts Simplified

Who is a “Real Estate Agent” or “Real Estate Consultant”?

• Real estate agent: Someone who renders a service connected to sale/purchase/leasing/renting of real estate for consideration (often a commission).
• Real estate consultant: Someone who advises or provides technical assistance on evaluation, conception, design, development, construction, marketing, acquisition, or management of real estate.
• Common thread: A service rendered to another for an agreed consideration. Absent service and consideration, there is no taxable “agent” or “consultant” service.

Principal-to-Principal vs Principal–Agent: How to tell them apart?

• Indicators of principal-to-principal:
  • Party bears commercial risk (may suffer losses).
  • Remuneration is embedded in trading spread (difference between buy and sell rates).
  • No separate fee or commission for facilitation.
  • Party acts in own name and for own account (even if title eventually passes directly to the end-buyer).
• Indicators of agency:
  • Fixed/percentage commission or fee for services.
  • No exposure to trading losses; principal bears commercial risk.
  • Agent binds the principal in transactions without taking on inventory/procurement risk.
  • Services like introducing parties, negotiating for a fee, or managing paperwork strictly for consideration.

Extended Period of Limitation (Proviso to Section 73(1))

• Normal period: The Court notes 18 months; historically, across amendments, the normal period was shorter (e.g., one year in earlier years). In any case, beyond the normal period, the revenue can proceed only if it proves fraud, collusion, wilful misstatement, or deliberate suppression with intent to evade tax.
• What does not suffice: Mere non-payment, non-registration, or a bona fide (even if mistaken) view of taxability, especially when transactions are recorded and routed through the banking system.

Use of Later Statutory Definitions

• The Court referred to the post-2012 definition of “service” (Section 65B(44)) to underscore the exclusion for transfers of title in immovable property. This does not retroactively apply to earlier periods as a matter of law but provides persuasive context confirming the long-standing principle that outright transfers of immovable property are not services.

Conclusion

Commissioner of Service Tax v. M/s Elegant Developers marks an important consolidation of two distinct principles:

1. Classification principle: Land aggregation arrangements that expose the aggregator to procurement risk and remunerate via a variable spread, without any identifiable service fee or commission, are principal-to-principal sales of immovable property rather than “real estate agent” or “real estate consultant” services. The mere performance of ancillary steps to enable conveyance does not convert a sale into a service.
2. Limitation principle: The extended period under the proviso to Section 73(1) is exceptional and requires proof of culpable intent—fraud, collusion, wilful misstatement, or deliberate suppression. Transactional transparency and a bona fide legal position on non-taxability negate such intent.

For taxpayers and the administration alike, the decision offers a clear functional test: look to the economic substance—risk bearing, nature of consideration, and contract terms—to distinguish between trading in immovable property and taxable real estate agency/consultancy services. It also reiterates that extended limitation cannot substitute for weak merits or incomplete evidence. In the broader legal landscape, the judgment harmonizes legacy service tax principles with later statutory formulations and remains consonant with the GST regime’s treatment of land sales, while leaving space for taxation of true agency and development services where the statutory criteria are met.