Custom, Excise & Service Tax Tribunal
G V Properties Pvt Ltd vs Commissioner Of Central Tax, Bangalore ... on 20 December, 2024
Service Tax Appeal No. ST/20055/2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 2
Service Tax Appeal No. 20055 of 2019
(Arising out of Order-in-Original No. 21 & 22/2018-19 (CTA-I) dated
17.10.2018 passed by the Commissioner of Central Tax (Audit-I)
Commissionerate, Bengaluru.)
M/s. G V Properties Pvt. Ltd.,
150, Embassy Point,
Infantry Road,
Bengaluru - 560 001. ..........Appellant
VERSUS
Commissioner of Central Excise and Service Tax,
Bengaluru North Commissionerate,
Ground Floor,
H.M.T Bhavan,
Ganganagar,
Bengaluru - 560 032. ..........Respondent
Appearance:
Mr. N. Anand, Advocate for the Appellant Mr. P. Saravana Perumal, Addl. Commissioner (AR) for the Respondent Coram:
Hon'ble Mr. P.A. Augustian, Member (Judicial) Hon'ble Mr. Pullela Nageswara Rao, Member (Technical) Final Order No. 21633 /2024 Date of Hearing: 27.06.2024 Date of Decision: 20.12.2024 Per: P.A. Augustian The issue in the present appeal is whether the service tax can be demanded on the amount collected and retained towards cost for providing additional power from BESCOM power supply, whether service tax is leviable under 'Commercial or Industrial Construction' service without any abatement on the sale of developed property to the landowners as per Joint Development agreement and whether the Appellant is eligible for the CENVAT credit on various input services.Page 1 of 11
Service Tax Appeal No. ST/20055/2019
2. The brief facts are on conducting of the internal audit of M/s. G.V Proprieties Pvt., Ltd., the Appellant, it is observed by the audit that certain omissions were noticed and considering the same, show cause notice No. 347/2013 and show cause notice No. 348/2013 both dated 24.10.2013 were issued. After considering the issue in detail, Adjudicating Authority dropped the demand against show cause notice No. 347/2013 and as regards show cause notice No. 348/2013 dated 24.10.2013, Adjudication authority confirmed service tax of Rs. 5,09,850/- against non-payment of service tax on the deposit amount received from M/s. Goldman Sachs, confirmed demand of Rs. 3,21,18,738/- being the ineligible CENVAT credit in terms of Rule 14 of the CENVAT Credit Rules, 2004 and also confirmed demand of service tax of Rs. 2,68,42,572/- against non-payment of service tax on the construction services provided to landowners in terms of the proviso to Section 73(1)(2) of the Finance Act, 1994 along with interest and imposed penalties under the various provisions of the Finance Act, 1994. Aggrieved by the impugned order, present appeal is filed before the Tribunal.
3. When the appeal came up for hearing, the Ld. Counsel for the Appellant submits that the Appellant is a private limited company and involved in development of immovable property. During the disputed period, they have entered into 2(two) Joint Development Agreements with two separate landowners for development of the commercial property. As per the agreement dated 31.01.2007, landowners are entitled for 45% of super built area together with proportionate car parking space. This property was fully constructed, and occupancy certificate (OC) was issued by BBMP authority on 18.11.2008. As per Page 2 of 11 Service Tax Appeal No. ST/20055/2019 the second agreement dated 24.01.2008, landowners are entitled for 50% of the super built area together with 50% share of the common area, terrace area, etc. This property was also fully constructed, and Occupancy Certificate (OC) was issued by BBMP authorities on 19.10.2010. During the construction activities, the Appellant engaged various contractors, who rendered construction services to the Appellant and also discharged service tax liability. Appellant is also registered with service tax authorities under the category of 'Renting of Immovable Property', which was a taxable service and Appellant were also discharging service tax liability. The part of the property belonging to the Appellant as per the above agreement was let out to corporate tenants on rent, including maintenance charges under the category of 'Renting of Immovable Property' services and Appellant claimed the benefit of CENVAT credit on various inputs. During audit, alleging that the Appellant had availed ineligible CENVAT credit and also by alleging non-payment of service tax, proceedings were initiated and Adjudicating authority as per the impugned order, confirmed the demand proposals in the show cause notice No. 348/2013 dated 24.10.2013.
4. As regards the service tax on rental deposit, the Ld. Counsel for the Appellant submits that while renting out the property to M/s Goldman Sachs Services Pvt., Ltd., Appellant had collected certain amounts as deposit for providing additional KVA of power from BESCOM and as per the agreement, certain part of the amount is repayable to tenant on expiry of lease agreement and balance cost of Rs.49,50,000/- was to be retained by the Appellant. This amount which is retained by the Appellant was accounted as miscellaneous income over a period of Page 3 of 11 Service Tax Appeal No. ST/20055/2019 5(five) years. This amount cannot be considered as consideration for any renting of immovable property, but it is an additional deposit for providing additional KVA power. In this regard, the Ld. Counsel submits that there is no service tax applicable since the amount is a provision for providing additional power of 600 KVA and it is exempted from payment of service tax, since the said service is relating to transmission and distribution of electricity by a person to any other person as per Notification No. 45/2010-ST dated 20.07.2010, the demand of service tax of Rs. 5,09,850/- is not tenable.
5. As regards demand of CENVAT credit on various inputs, the Ld. Counsel draws our attention to the findings of the Commissioner, Adjudication authority and submits that the demand of CENVAT credit is made only based on the Circular No. 98/1/2008 dated 04.01.2008 and the said Circular deals only with CENVAT credit on 'Commercial or Industrial Construction' services or 'Works Contract" services. However the Adjudication authority wrongly denied the credit on various other services by applying the above Circular, which is unsustainable. The Ld. Counsel also draws our attention to Rule2(l) of CENVAT Credit Rules, which during the period prior to 01.04.2001 defined expression 'input services' both inclusively and exhaustively so as to encompass in Rule 2(l), any services used by a provider of taxable service for providing an output services and includes services used in relation to setting up the premises of the service provider. The Ld. Counsel submits that by adopting the above, Respondent have deprived the benefit to the Appellant of input services credit to discharge output service tax liability. The Ld. Counsel relied on large number of decisions to substantiate that the issue is squarely covered, and it is only with effect Page 4 of 11 Service Tax Appeal No. ST/20055/2019 from 01.04.2011, the definition of input services was amended and narrowed down and till such date credit of tax on the input services for setting up of premises of service provider was allowed. It is further submitted that post 01.04.2011, the Appellant has not availed CENVAT credit on services relating to Construction/Works contract services and none of the input services on which credit was availed fall under any of the excluded services under Clause A to C of Rule 2(l) of Cenvat credit Rules, 2004. Thus, the impugned order is unsustainable. The Ld. counsel relied on the following decisions/judgments:
a) Oberon Edifices & Estates Pvt Ltd Vs. CCE Cochin, Final Order No.20922- 20924/2023 dated 01.09.2023 passed by this Honorable Bench.
b) CC GST Vs. DLF Limited, 2023 (70) GSTL 237 (P&H).
c) CCE Vs. Bellsonica Auto Components India Pvt Ltd, 2014 (40) STR 41 (P&H).
d) Vodafone Mobile Services Limited Vs. CST Delhi, 2019 (27) GSTL 481 (Del.).
e) Golf links Software Park Pvt., Ltd., Vs. CCE, 2018-TIOL-
2877-CESTAT-BANG affirmed by the Honorable Karnataka High Court in CST Vs. Golflinks Software Park Pvt Ltd, vide judgment dated 28.10.2022 passed in CEA No.38/2019.
f) RMZ Infotech Pvt Ltd Vs. CCT, 2022 (64) GSTL 599 (Tri- Bang.).
g) Millenia Realtors Pvt Ltd Vs. CCE, 2020-TIOL-435- CESTAT-BANG.
h) Bharti Realty Limited Vs. CST Delhi, 2022 (65) GSTL 234 (Tri-Del.).
6. As regards demand of Rs. 2.68,42,572/- against non-payment of service tax on the construction services provided to the landowners, the Ld. Counsel submits that the transaction was an exchange of Page 5 of 11 Service Tax Appeal No. ST/20055/2019 immovable property and the question of payment of service tax doesn't arise. The landowners share of fully constructed property is given only after its construction and issue of Occupancy Certificate (OC). Thus, there is no rendering of construction services between the Appellant- builder and the landowners. In support of the same, the Appellant relied on the decisions of the Tribunal in the matter of M/s Bairathi Developers Pvt., Ltd. Vs. CCE, -2016 (43) STR 455 (Tri. Del) and also Circular No. 332/35/2006-TRU dated 01.08.2006, Circular No. 108/2/2009-ST dated 29.01.2009 and Circular No. 151/2/2012 dated 10.02.2012. The Ld. Counsel further submits that the demand is also unsustainable by virtue of the Notification No.36/2010-ST dated 28.06.2012 read with MF(DR) letter D.O F.No. 334/3/2010-TRU dated 01.07.2010. As per the above Notification and the Ministry's letter any service specified in clause A of Section 76 of the Finance Act, 2010 other than 'Commercial Training or Coaching Center' services, falling under Section 65(105)(zzc) or 'Renting of Immovable Property' Services, falling under Section 65(105)(zzzz), where consideration was received prior to 01.07.2010 is fully exempted from payment of service tax. However, Adjudication authority has not considered the above and confirmed the demand and it is therefore, unsustainable.
7. Further the Appellant being a builder/developer was brought under the service tax post 01.07.2010 vide amendment made by the Finance Act, 2010, where the Parliament had inserted explanation below Section 65(105)(zzq) of the Finance Act, 1994. The Ld. Counsel submits that even the consideration adopted for assessing the service tax is also unsustainable. Demand is made based on the cost of land recognized by the Appellant in their books of accounts, which is without any basis. Page 6 of 11
Service Tax Appeal No. ST/20055/2019 Further demand of service tax on the gross value without deducting the value of goods and material and also without granting the benefit of abatement of 67% towards value of the goods and material vide Notification No. 1/2006-ST dated 01.03.2006 is unsustainable.
8. The Ld. Counsel submits that the Adjudication proceedings were initiated for different periods and by dropping the proceedings against show cause notice No. 347/2013 dated 24.10.2013, it clearly demonstrates that the Department itself held the view that sale of landowners share of constructed property as exempted service and had proposed to demand proportionate credit from the Appellant. Hence invocation of extended period of limitation was also unsustainable and submitted that there is no suppression of facts and considering the ratio of the decision taken by the Adjudicating authority in the previous period demand, the demand invoking the extended period of limitation and penalty imposed by Adjudication authority are unsustainable.
9. As regards denial of input credit, the issue was squarely covered by the decision of this Tribunal in the matter of M/s Golf links Software Vs. CC., wherein it is held that:-
"6. We have carefully considered the submissions made by both the parties and perused the records as well as have gone through the various decisions relied upon by the appellant. The issue involved in the present appeal is whether the services such as architects service, construction service, management consultancy service, real estate agent service, erection and commissioning service etc. used in the construction of the premises are admissible input services for taking CENVAT Credit as against the output service of the appellant i.e. renting of immovable property and other related services on which Service Tax has been discharged. In order to appreciate the controversy, it necessary to examine the definition of "input service' as provided under Page 7 of 11 Service Tax Appeal No. ST/20055/2019 Rule 2 (l) of CENVAT Credit Rule, 2004 during the relevant time which is re-produced below:
"Input Services- As per Rule 2 (l) of CENVAT Credit Rules, 2004, (prior to 01.04.2011) 'Input service' means any service. (1) Used by a provider of taxable service for providing an output service, or
(ii) Used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or Capital goods and outward transportation upto the place of removal."
"6.1 From the above definition, it is clear that any service used by the service provider for providing an output service is admissible „input Service‟. Input service specifically includes amongst other services used in relation to setting up of premises of the provider of output service or an office relating to such provider. From the definition, it is clear that the input service is not limited to the services for providing output service but it also includes the services for setting up the premises of provider of output service. In the present case, all the input services involved and used for setting up the premises. The Board Circular relied upon by the Revenue are contrary to the various decisions relied upon by the appellant."
(emphasis supplied) Page 8 of 11 Service Tax Appeal No. ST/20055/2019
10. The Ld. Authorised representative (AR) for the revenue reiterated the finding in the impugned order, relied on the judgment of the Hon'ble High Court of Telangana in the matter of M/s. Prahitha Construction Pvt., Ltd., Vs. Union of India (2024) 15 Centax 295 (Telangana), wherein it is held that transfer or development right held by land owners to Real estate developers by way of Joint Development Agreement would be subject to levy of GST.
11. Heard both sides and perused the records.
12. We find that the Tribunal has held the same view in the matter of M/s. Oberon Edifices & Estates Pvt Ltd -2023 -TIOL-850 CESTAT- BANG. Thus, on the input services availed by the Appellant for the period prior to 01.07.2011, while renting out the property, the Appellant is eligible for the Cenvat credit and denial of the Cenvat credit is unsustainable. The issue is also considered in the matter of CC Vs. M/s. DLF Ltd -2023 (17) GSTL and also in M/s. Bellsonica Auto Components India, M/s. Golf links Software Park, RMZ Infotech, Bharti Realty Limited.
13. As regards the service tax liability prior to 01.07.2010, the issue was considered by the Tribunal in the matter of CC, Chandigarh Vs. M/s UB Construction-2013 (32) STR 732 (Tri. Del), wherein it is held that:-
"5. In Maharashtra Chamber of Housing Industry v. Union of India 2012 (25) S.T.R. 305 (Bom.), the validity of the 'Explanation' added to Sections 65(105)(zzq) and (zzzh) was challenged on several grounds. The Bombay High Court, also considered the issue whether the explanation was prospective or retrospective in operation and ruled that the explanation inserted by the Finance Act, 2010 brings within the fold of taxable service a construction service provided by the builder to a buyer where there is an Page 9 of 11 Service Tax Appeal No. ST/20055/2019 intended sale between the parties whether before, during or after construction that the 'Explanation' was specifically legislated upon to expand the concept of taxable service; that prior to the explanation, the view taken was that since a mere agreement to sell does not create any interest in the property and the title to the property continues to remain with the builder, no service was provided to the buyer; that the service, if any. would be in the nature of a service rendered by the builder to himself, that the explanation expands the scope of the taxable service, provided by builders to buyers pursuant to an intended sale of immovable property before, during or after the construction and therefore the provision is expansive of the existing intent and not clarificatory of the same; and is consequently prospective.
6. In the light of the judgement of Bombay High Court in Maharashtra Chamber of Housing Industry (supra) and in the light of the admitted factual situation that constructions on behalf of the assessee were during the period prior to 1-7-2010 when the explanation was not yet appended to Section 65(106) (zzzh) of the Act, there is no liability on the assessee to remit tax under the then extant legislative regime. On the aforesaid analysis the impugned order passed by Commissioner (Appeals) is impeccable and warrants no interference. The appeal is without merits and is accordingly dismissed. Cross objections are also disposed of."
14. We have also considered the judgment of the Hon'ble Supreme Court in the matter of CC Vs. M/s Larsen & Toubro-2015 (39) STR 913 (SC) and the decision of this Tribunal in the matter of M/s. Godrej Properties Ltd., wherein it is held that, once the works contract is a composite contract involving both supply of goods and material and services, it cannot be confirmed under any other category of service other than the "Works Contract' service.
15. As regard the method of valuation, we find that the Appellant have a good case on merit, the demand of Rs. 2.68,42,572/- under Page 10 of 11 Service Tax Appeal No. ST/20055/2019 'Commercial or Industrial Construction' services is also unsustainable, since the appellant has transferred the property to the landowner after the issuance of Occupancy Certificate (OC). Further we find that in the matter of M/s UB Construction (supra), it is categorically held that amendment carried out by Notification No. 24/2010-ST dated 22.06.2010 w.e.f from 01.07.2010 cannot be considered with retrospective effect and it will only be prospective.
16. In view of the above discussion and considering the facts and circumstances of the case the appeal is sustainable.
17. Accordingly, the appeal is allowed with consequential relief, if any, in accordance with law.
(Order pronounced in Open Court on 20.12.2024) (P.A. Augustian) Member (Judicial) (Pullela Nageswara Rao) Member (Technical) Hr Page 11 of 11