Custom, Excise & Service Tax Tribunal
B B C Foundation Ltd vs Service Tax - Chennai on 10 July, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. III
Service Tax Appeal No.41653 of 2013
(Arising out of Order-in-original No.5//2013 dated 29.04.2013 passed by
Commissioner of Central Excise, Chennai - I)
BBC Foundation Pvt. Ltd., ..... Appellant
No.20, Mylai Ranganathan Street,
T. Nagar, Chennai - 600 017.
VERSUS
The Commissioner of CGST & Central Excise ...Respondent
Chennai North Commissionerate No.26/1, Mahathma Gandhi Road, Nungambakkam, Chennai 600 034.
APPEARANCE :
Ms. Radhika Chandrasekar, Advocate, for the Appellant Shri Harendra Singh Pal, Authorised Representative for the Respondent CORAM :
HON'BLE MS. SULEKHA BEEVI.C.S., MEMBER (JUDICIAL) HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) FINAL ORDER No.40833/2024 DATE OF HEARING : 04.07.2024 DATE OF DECISION : 10.07.2024 Per Ms. Sulekha Beevi. C.S Brief facts are that the appellant is engaged in the construction of commercial and industrial complexes. They were not registered with the department for providing the said services. On intelligence gathered that the appellant is not discharging the appropriate service 2 tax on the consideration received by them, investigations were conducted. Statement was recorded from Shri Vummidi Ananth, Director of M/s. BBC Foundation, (P) Ltd. wherein interalia he stated that the appellant is in the business of building/developing/ promoting construction projects and plants. They have not discharged service tax during the period from April 2004 to March 2009. The department was of the view that the construction services provided by the appellant are taxable under Section 65 (25b) /65 (30a) of the Finance Act 1994 under Construction of Complex Services and Construction of Residential Complex Services. Therefore, show cause notice dated 15.04.2010 was issued to the appellant proposing to demand the service tax for the period from 2004-05 to 2008-09 along with interest and for imposing penalties. After due process of law, the original authority confirmed the demand of service tax along with interest and imposed penalties. Aggrieved by such order, the appellant is now before the Tribunal.
2. The Ld. Counsel Ms. Radhika Chandrasekhar appeared and argued for the appellant. It is submitted that the activity of the appellant merits' classification under the category of Works Contract Services. Works contract are basically contracts which involve both material and services and are indivisible contracts in contrast to contract of supply of materials or rendition of services. As per section 65 (105) (zzzza) of the Finance Act 1994, Works Contract Services 3 are defined and has come into force only with effect from 01.06.2007. It is submitted that the issue as to whether composite indivisible contracts can be subject to levy of service tax prior to 01.06.2007 has been settled by the decision of the Hon'ble Supreme Court in the case of Commissioner of Central Excise and Cus, Kerala vs. Larsen & Toubro Ltd, 2015 (39) STR 913. It was held that the demand cannot be raised on composite contracts prior to 01.06.2007 since there was no charging section specifically for levying service tax on works contract of composite nature. It is submitted that the demand for the period prior to 01.06.2007 cannot sustain for this reason.
3. Further that the entire period is prior to 01.07.2010. The appellant was a promoter, developer, builder for construction of buildings/residential apartments. The Board's Circular No.108/02/2009 dated 29.01.2009 has clarified that a promoter/developer/ builder is not liable to pay service tax for construction of residential projects. The Finance Act 2010 has for the first time brought developers into the ambit of service tax with effect from 01.07.2010 by introduction of an explanation under Section 65 (105) (zzzzq). This itself would show that the developers are not liable to pay service tax for the construction services prior to 01.07.2010.
4. The Tribunal in the case of M/s. Krishna Homes versus CCE 2014 (34) STR 881 had considered the issue as to whether 4 demand of service tax can be made against a promoter/builder developer prior to 01.07.2010. The issue was held in favour of the assessee.
5. The Ld. Counsel relied upon the decision of the Tribunal in the case of Real Value Promoters Pvt Limited vide Final Order No.42436- 42438/2018 wherein it has been held that the demand of service tax on composite invisible contract can be made only under works contract services for the period prior to 01.07.2012. The said decision was followed by the Tribunal in the case of Jain Housing and Constructions Ltd., Vs CST Final Order No. 40077 - 40079/2023. Thereafter, the department filed appeal against the said decision of the Tribunal which was dismissed by the Hon'ble Apex Court by maintaining the decision of the Tribunal as reported in (2023) 10 Centax 171 (S.C.).
6. The Ld. Counsel argued on the grounds of limitation also. It is submitted that the show cause notice is time barred as there are no ingredients for invoking the extended period. During the relevant period, the definition of Work Contract Services was not introduced and there were litigations as to whether service tax can be demanded on composite contracts which are indivisible in nature. These contracts involve supply of materials as well as rendition of services. The appellant had cooperated with the department and furnished all details when called for by the department. Hence, there is no 5 suppression of facts with intent to payment of service tax. The Ld. Counsel prayed that the appeal may be allowed.
7. Ld. AR Shri. Harendra Singh Pal, appeared and argued for the department. The findings in the impugned order was reiterated.
8. Heard both sides.
9. The first contention put forward by the appellant is that the demand for the period prior to 01.06.2007 cannot sustain for the reason that the works executed by them are indivisible contracts involving both supply of materials as well as rendition of services. From the show cause notice as well as the impugned order, it can be seen that the appellant has carried out activities as a builder/developer/promoter for construction of residential flats as well as other complexes. The description of documents examined during investigation the department are given in para 2.4 of the impugned order. This shows copy of memorandum of development agreement dated 03.04.2006, copy of sale deed, copy of agreement for construction between the appellant and another etc.
10. In para 3 of the impugned order, it has been discussed that the appellant had entered into agreements for purchase of land and also construction agreements for construction of apartments. The appellant as a builder would draw up the designs and plans including structure, elevation format, interiors etc., duly approved by the purchaser of the land and then obtain sanction from authorities. It is therefore seen that the works executed are not service simpliciter 6 but construction services involving both materials as well as rendition of services. The definition of works contract services was introduced for the first time with effect from 01.06.2007. The Hon'ble Apex Court in the case of Larsen & Tourbo Ltd.(supra) had held that the demand of service tax in the case of composite contracts cannot sustain for the period prior to 01.06.2007. Following the decision of the Hon'ble Apex Court in the case of Larsen & Tourbo, we hold that the demand for the period up to 01.06.2007 cannot sustain and requires to be set aside.
11. The Ld. Counsel has argued that the demand for the period up to 01.07.2010 cannot sustain for the reason that the appellant was carrying out construction services as a builder/developer/promoter. The Board vide Circular No.108/02/2009 dated 29.01.2009 has clarified that the promoter / developer / builder is not liable to pay service tax for construction of residential projects for the period prior to 01.07.2010. The issue was considered by the Tribunal in the case of M/s. BBC City park (a sister concern of the appellant) vide the Final Order No. 40599/2024 dated 09.05.2024. The Tribunal after taking note of the Board's Circular and also following the decision in the case of M/s. Krishna Homes Pvt Limited (supra) set aside the demand.
12. In the present case, the demand is raised under commercial or Industrial Construction Services as well as Construction of Residential Services. In the case of Real Value Promoters Pvt Limited (supra), it was held that in respect of any contract which is composite 7 in nature, the demand of service tax cannot be under CICS/CCS/ RCS for the period prior to 01.07.2012 and the demand would sustain only under WCS. The said decision was followed by the Tribunal in the case of Jain Housing and Construction Limited versus Commissioner of ST vide Final Order No. 40077-40079/2023. This decision of the Tribunal was appealed by the department before the Hon'ble Apex Court. However, the Apex Court maintained the decision of the Tribunal by dismissing the appeal filed by the department as reported to (2023) 10 Centax 171 (S.C.). The same issue has been considered in the case M/s. BBC City Park which is a Sister concern of the appellant. As per Final Order No. 40599/2024 dated 09.05.2024, the Tribunal set aside the demand. The relevant para reads as under:-
6. Heard both sides.
7. The issue is whether the demand of service tax raised against the appellant for the Construction of Residential Complex Services is sustainable for the period prior to 01.07.2010. The appellant being a Promoter/Developer/Builder of residential projects has entered into Joint Development agreement with land owners where the parties agree to jointly promote and develop a construction project. The relevant paras of the Show Cause Notice reads as under:-
"8. Perusal of above agreement, clearly shows that the assesse are the builders of the residential apartments, based on a joint development agreement entered between Shri V.Ramaiah, the M.D of assesse company and M/s.City Lando Corpn and 7 others for building 120 flats with certain common amenities like lift, club house, gymnasium, mini 8 theatre, children's play area, etc, in the 2.95 acres of land belonging to M/s.City Lando Corpn. The assesse are to pay sale consideration to M/s.City Lando Corpn and others by way of 30% of the Constructed Area and 30% of the UDs of the land along with Rs.35 lakhs. The assesse get the balance 70% of the UDs of land and 70% of the constructed area and enjoy the sale proceeds for the same as their share from the project."
11. From the foregoing, it appears that the services rendered by the assesse regarding construction of 120 flats with common amenities like lift, club house, gymnasium, mini theatre, children's play area, etc, for the land owners M/s.City Lando Corpn and 7 others, as a builder and subsequently entering into construction agreements with various customers as a builder, is classifiable under "Construction of Complex Service" and are liable for payment of Service Tax."
18. For rendering construction of complex service, the assesse received service charges, costs of construction, etc. From 16.06.2005 to May 2009 the assesse realized Rs.32,59,11,561/- and the amount of Service Tax payable thereon works out to Rs.3,99,60,537/- as detailed in Annexure-I to this notice."
8. It is very much clear that the appellant is a promoter of residential projects. The Board vide Circular dated 29.01.2009 has clarified that a Promoter/Developer/Builder is not liable to pay service tax for Construction of Residential Complex Services prior to 01.07.2010. The Tribunal in the case of M/s.Krishna Homes Vs. Commissioner of Central Excise 2014 (34) STR 881 held that the demand of service tax against a Promoter/Builder/Developer cannot sustain for the period prior to 01.07.2010. The relevant para of the decision of Tribunal reads as under:-
"8. Coming first to the question as to whether the activity of M/s. Krishna Homes and M/s. Raj Homes was taxable during the period of dispute or not, by Finance Act, 2005, Clause (zzzh) was introduced into Section 65(105) of Finance Act, 1994, so as to bring within the purview of the term 'taxable 9 service', a service provided or to be provided to any person by any other person "in relation to construction of complex". The expression "construction of complex" was defined in sub-section (30a) of Section 65 and accordingly this expression covered - "(a) construction of a new residential complex or a part thereof or (b) completion of finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or (c) repair, alteration, renovation or restoration of, or similar services in relation to, residential complex". The expression residential complex was defined in Section 65(91a) of the Finance Act, 1994 as any complex comprising of - "(i) a building or buildings, having more than twelve residential units; (ii) a common area; and (iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by any authority under law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person". There is no dispute that the complex constructed by both the assessees in these appeals is covered by the definition of "residential complex" as given in Section 65(91a). There is also no dispute that both the assessees had engaged contractors for construction of the complexes. The dispute in these appeals is as to whether the assessees would be liable to pay Service Tax on the amounts charged by them from their customers with whom they had entered into agreements for construction of the residential units and whose possession was to be handed over on completion of the construction and full payment having been made by the customers. It is seen that on this point, the Tax Research Unit of the Central Board of Excise & Customs, which is a wing of the C.B.E. & C. dealing with legislation work, had vide Circular No. 332/35/2006-TRU, dated 1-8-2006 clarified that in case where a builder, promoter, developer builds a residential complex having more than 12 residential units by engaging a contractor for construction of such residential complex, the contractor shall be liable to pay Service Tax on the gross amount charged for the construction service provided to the builder/promoter/developer under construction of complex service falling under Section 65(105)(zzzh) of the Finance Act, 1994 and that if no person is 10 engaged by the builder, promoter, developer for construction work who undertakes construction work on his own without engaging the services of any other person than in such cases, in absence of the service provider and service recipient relationship, the question of providing taxable service to any person by any other person does not arise. W.e.f. 1-7-2010 an explanation was added to Section 65(105)(zzzh) which was as under :-
"Explanation. - For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorized by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer."
9. Moreover, in the present case the contracts are composite in nature. The demand raised under Commercial or Industrial Construction or Construction of Residential Complex Services cannot sustain. The Tribunal in the case of Real Value Promoters Pvt Ltd (supra) had held that the demand of service tax for composite contracts can only be made under Works Contract Services. Therefore, the demand raised under the above categories of Services cannot sustain.
10. In the case of Jain Housing and Construction Ltd Vs. Commissioner of Service Tax vide Final Order Nos.4007740079/2023, the Tribunal followed the decision in the case of Real Value Promoters Pvt Ltd (supra) wherein it has held that in respect of any contract which is composite in nature the demand of service tax cannot be under CICS/CCS for the period prior to 01.07.2012. The said decision was maintained by Hon'ble Apex Court by dismissing the appeal filed by the department as reported in (2023) 10 Centax 171 (S.C.) 11
11. In the result, the impugned order is set aside. The appeal is allowed with consequential reliefs, if any.
13. After appreciating the facts and following the above decisions, we are of the considered opinion, that the demand of service tax, interest and penalties cannot sustain. The impugned order is set aside. The appeal is allowed with consequential reliefs, if any.
(Order pronounced in the open court on 10.07.2024) (VASA SESHAGIRI RAO) (SULEKHA BEEVI. C.S) Member (Technical) Member (Judicial) psd