Custom, Excise & Service Tax Tribunal
Cst Ch - I vs Sreerosh Properties Ltd on 12 July, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. III
Service Tax Appeal No.41946 of 2016
(Arising out of Order-in-Appeal No.375/2016 (STA-I) dated 30.06.2016 passed by
Commissioner of Service Tax (Appeals-I), Chennai)
Sreerosh Properties P Ltd. ..... Assessee
No.97, (Old No.41) New Avadi Road,
Kilpauk, Chennai - 600 010.
VERSUS
Commissioner of GST & Central Excise .... Revenue
Chennai North Commissionerate
No.26/1, Mahathma Gandhi Road,
Nungambakkam, Chennai 600 034.
And
Service Tax Appeal No.42148 of 2016
(Arising out of Order-in-Appeal No.375/2016 (STA-I) dated 30.06.2016 passed by
Commissioner of Service Tax (Appeals-I), Chennai)
Commissioner of GST & Central Excise .... Assessee
Chennai North Commissionerate
No.26/1, Mahathma Gandhi Road,
Nungambakkam, Chennai 600 034.
VERSUS
Sreerosh Properties P Ltd. .... Revenue
No.97, (Old No.41) New Avadi Road,
Kilpauk, Chennai - 600 010.
APPEARANCE :
Ms. Radhika Chandrasekaran, Advocate, for the Asseessee
Shri. N. Satyanarayanan, Authorised Representative for the Revenue
CORAM :
HON'BLE MS. SULEKHA BEEVI.C.S., MEMBER (JUDICIAL)
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
FINAL ORDER No.40861-40862/2024
DATE OF HEARING : 12.07.2024
DATE OF DECISION :12.07.2024
Per Ms. Sulekha Beevi. C.S
These appeals arise out of the same impugned order and
therefore heard together and disposed of by this common order. For
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the sake of convenience, the parties are referred to as Assessee and
Department.
2. Brief facts are that the assessee is registered under Construction
of Residential Complex Services with the Service Tax Commissionerate.
On verification of accounts it was noted that
(a) The assessee has not paid service tax of Rs.10,28,419/-
for the period from May 2007 to May 2008 under
'Construction of Residential Complex Service' in respect of
Sreerosh Palm Vally Project;
(b) The assessee has not paid service tax of Rs.1,81,799/-
under 'Construction of Residential Complex Service' on
built in area built for land owner in lieu of cost of land in
respect of Sreerosh Palm Valley Project;
(c) The assessee has not paid service tax of Rs.12,92,806/-
under 'Works Contract Service' on built in area built for
land owner in lieu of cost of land in respect of Sreerosh
Seascpe Project;
(d) The assessee has not paid service tax of Rs.2,49,968/-
under 'Construction of Complex Service' on built in area
built for land owner in lieu of cost of land in respect of
Sreerosh Nasheeman Project;
(e) The assessee has not paid service tax of Rs.1,97,482/-
under 'Works Contract Service' on built in area build for
land owner in lieu of cost of land in respect of Sreerosh
Sree Padmam Project; and
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(f) The assessee has not paid service tax of Rs.4,14,000/-
under 'Construction of Complex Service' on built in area
built for land owner in lieu of cost of land in respect of
Sreerosh Bay Heights Project;
Show cause notice dated 30.09.2010 was issued for the period June
2007 to May 2008 proposing to demand service tax under Construction
of Residential Complex Services as well as Works Contract Services
along with interest and for imposing penalties. After due process of
law, the original authority confirmed the demand, interest and imposed
penalties. On such order the assessee preferred appeal before the
Commissioner (Appeals) who vide order impugned herein upheld the
demand and interest. However, the penalty imposed under Section 78
was set aside. The assessee has filed appeal no. ST/41946/2016
aggrieved by the confirmation of demand of service tax and interest.
The department has filed appeal against the order passed by the
Commissioner (Appeals) setting aside the penalty under Section 78 of
the Finance Act 1994.
3. The Ld. Counsel Ms. Radhika Chandrasekhar appeared and
argued for the assessee. It is submitted that the assessee has carried
out the construction activities as a Builder/Promoter/Developer. It is
very much clear from the agreement produced by the assessee, before
the adjudicating authority that the assessee had entered into joint
venture agreements by which the assessee had taken up the activity
of construction services. The land owner was to be given specified built
up area in the projects by way of cost of the land. All this would go to
show that the appellant has acted as a promoter/developer and builder
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of these projects. The Board vide Circular No.108/02/2009-ST dated
29.01.2009 had clarified that the promoter/developer/ builder is not
liable to pay service tax under Construction of Residential Complex
Services for the period up to 01.07.2010. The Ld. Counsel stated that
the very same issue was considered in the assessee's own case for the
subsequent period from October 2008 to June 2010. The Tribunal after
considering the Board's Circular as well as the decision in the case of
M/s. Krishna Homes versus CCE, Bhopal 2014 (34) S.T.R. 881
(Tribunal-Delhi) had set aside the demand. The Ld. Counsel argued
that the Finance Act 2010 has for the first time brought developers into
the ambit of service tax net with effect from 01.07.2010 through the
introduction of explanation to Section 65 (105) (zzzh). Hence there can
be no demand of service tax on developers prior to 01.07.2010.
4. Further the original authority has confirmed the service tax under
Construction of Residential Complex Services and under Works
Contract Services. The contracts entered into by the assessee are
composite contracts involving supply of material and delivery of
services. The Commissioner (Appeals) has travelled beyond the show
cause notice and has confirmed the entire demand under Works
Contract Services. The Commissioner (Appeals) in the impugned order
failed to appreciate the settled position of law that an appellate
authority cannot confirm a levy under a category which is not proposed
in the show cause notice. In the show cause notice the proposal is to
demand service tax under Construction of Residential Complex
Services and Works Contract Services for different projects which has
been confirmed by the original authority. However, the Commissioner
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(Appeals) has confirmed the entire demands under works contract
services. For this reason itself the order passed by the Commissioner
(Appeals) cannot sustain.
5. The Tribunal in the case of United Telecom Ltd versus
Commission of Central Excise, Hyderabad (2011) 21 S.T.R 234 has held
that the liability of tax cannot be confirmed without putting a person
on notice with reference to the specific statutory position. The
department has confirmed service tax on the landowner's share with
respect to projects Freedom Square, Karun Villa and Chenoli Centre.
The projects Freedom Square and Karun Villa are residential projects.
There is no liability for a promoter/developer to pay service tax for the
period prior to 01.07.2010 in respect of landowner's share also.
6. The Ld. Counsel argued on the ground of limitation. The entire
demand has been raised on the figures accounted by the assessee.
There is no specific act of suppression alleged in the show cause notice.
The department was fully aware of the transaction of the assessee and
there were communications between the department and the assessee
during the disputed period. For these reasons, the vague allegation in
the show cause notice cannot be the basis for invoking the extended
period. It is prayed that the appeal may be allowed.
7. The Ld. AR, Shri N. Satyanarayanan, appeared for the
department. The findings in the impugned order was reiterated.
8. Heard both sides.
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9. The issue to be decided is whether the appellant is liable to pay
service tax under the Construction of Residential Complex Services and
Works Contract Service for the period from June 2007 to May 2008
10. The show cause notice demanded service tax for certain projects
for the period prior to 01.06.2007 also. The Commissioner (Appeals)
has set aside such demand for the period prior to 01.06.2007. The
appeal is for the period from June 2007 to May 2008. Interestingly,
though the show cause notice proposes to demand service tax for
different projects under the category of Construction of Residential
Complex Services and Works Contract Services separately, the
Commissioner (Appeals) vide order impugned herein has held that the
service tax demand has to be confirmed under Works Contract service
only, since the period is with effect from 01.06.2007. This view taken
by the first appellate authority is definitely beyond the show cause
notice. The foundation of a proceeding is the show cause notice which
is putting the assessee to notice in regard to the allegations and the
basis for demand of tax. The original authority confirmed the demand
under the categories as proposed in the show cause notice. However,
the Commissioner (Appeals) has taken the view that since Works
Contract Services was introduced w.e.f. 01.06.2007, all demands
should be under Works Contract Services. This is erroneous as it
travels beyond the show cause notice.
11. The Ld. Counsel has relied upon the Board Circular as well as the
decision of the Tribunal in the case of M/s. Krishna Homes (supra) to
argue that prior to 01.07.2010, there is no liability to
promoter/developer/builder to pay service tax.
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12. In the decision of M/s Krishna Homes (supra) the Tribunal had
considered the Board Circular and held that the demand of service tax
against a promoter, developer, builder cannot sustain for the period
prior to 01.07.2010. The said decision was followed by the Tribunal in
the case of Pragati Edifice Pvt Limited versus Commissioner of CCE &
ST vide Final Order No. 31010 - 31011/2019. The relevant para in the
case of Pragati Edifice Pvt Limited reads as under: -
11. We have considered the arguments on both sides and perused the
records. The demands in all these cases are under the works contract. There
is no dispute that in all these cases the appellant not only supplied materials
but also rendered services related to the works contract. Therefore, these
are all composite works contracts. It is not in dispute that the appellant has
not sought or followed the procedure required for composition scheme.
Now, we proceed to decide each of the demands on merits.
(i) The demand of Service Tax on residential complex services : At
this stage, it would be profitable to examine the various legal provisions
and to issue decisions with regard to levy of Service Tax on construction
of residential complex services.
(a) The Constitution of India divided the legislative powers between
the Union and States listing them in three lists of the Seventh Schedule.
Service Tax is levied by the centre as per its legislative competence under
Article 265 read with Entry 97 of List I of this Schedule. Tax, on sale or
purchase of goods, falls in the competence of States as per List II. Initially,
Constitution of India (as well as its predecessor Government of India Act,
1935) did not provide for taxing the goods used in executing composite,
indivisible works contracts treating such use of goods as sale. The State's
attempt to tax in such a manner was struck down by the Constitutional
Bench of Hon'ble Supreme Court in the case of State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd. - 1959 SCR 379 = 2015 (330) E.L.T. 11
(S.C.). After examining this judgment, the Law Commission of India, in its
61st Report suggested three alternative amendments to the Constitution to
bring the goods used in execution of works contracts within the legislative
competence of the States to tax. Accepting one of these alternatives, the
Parliament passed the 46th Amendment to the Constitution in 1983 by
inserting clause (29A) to Article 366, the definition clause as follows :
366(29A) "tax on the sale or purchase of goods" includes -
(b) a tax on the transfer of property in goods (whether as goods or in
some other form) involved in the execution of a works contract; and such
transfer, delivery or supply of any goods shall be deemed to be a sale of
those goods by the person making the transfer, delivery or supply and a
purchase of those goods by the person to whom such transfer, delivery or
supply is made;
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(b) This 46th Constitutional amendment was challenged in Builders'
Assn. of India v. Union of India, (1989) 2 SCC 645 and it was upheld by
the Apex Court. Thus, the goods component of the indivisible works
contracts fell within the legislative competence of the States to tax.
(c) The legislative competence of the Union to tax services itself is not
in doubt because the Service Tax itself is under the residuary power under
Entry 97 of List I (Any other matter not enumerated in List II or List III
including any tax not mentioned in either of those Lists).
(d) The question as to whether such taxation is covered by the
charging section of the Service Tax provisions (Finance Act, 1994) or
otherwise was examined by the Hon'ble Supreme Court in the case of
Commissioner of Central Excise and Customs v. Larsen & Toubro Ltd.
[2015 (39) S.T.R. 913 (S.C.)]. The charging sections in this Act are
Sections 66 and 66A. While Section 66 provides for charging services
within India, 66A provides for charging the recipient of a service for
services received from outside India.
(e) Section 66 reads as follows :
"There shall be levied a tax (hereinafter referred to as the Service Tax) at
the rate of ten per cent of the value of taxable services referred to in sub-
clauses ...... of clause (105) of Section 65 and collected in such manner as
may be prescribed."
(f) The sub-clauses of clause (105) of Section 65 listed various
services. With effect from 1st June, 2007, 'Works Contract Service' has
been introduced in this clause by sub-clause (zzzza) of clause (105) of
Section 65. Even before the introduction of this sub-clause, Revenue sought
to charge Service Tax under various other heads on composite works
contracts allowing abatement towards the cost of materials as per
applicable notifications. Hon'ble Apex Court held that 'works contract is a
separate species of contract distinct from the contract for services
simpliciter recognized by the world of commerce and law as such, and has
to be taxed separately as such. It was further held that prior to the
introduction of sub-clause (zzzza) of clause (105) of Section 65, there was
neither any charging section nor machinery to levy and assess Service Tax
on indivisible works contracts. The relevant paras of this landmark
judgment are as below :
17. We find that the assessees are correct in their submission that a works
contract is a separate species of contract distinct from contracts for services
simpliciter recognized by the world of commerce and law as such, and has
to be taxed separately as such. In Gannon Dunkerley, 1959 SCR 379, this
Court recognized works contracts as a separate species of contract as
follows :-
"To avoid misconception, it must be stated that the above conclusion has
reference to works contracts, which are entire and indivisible, as the
contracts of the respondents have been held by the Learned Judges of the
Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p. 165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of 9 remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment." (at page
427)
27. In fact, the speech made by the Hon'ble Finance Minister in moving the Bill to tax Composite Indivisible Works Contracts specifically stated :-
"State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract Service Tax. Hence, I propose to levy Service Tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 per cent of the total value of the works contract."
42. It remains to consider the argument of Shri Radhakrishnan that post, 1994 all indivisible works contracts would be contrary to public policy, being hit by Section 23 of the Indian Contract Act, and hit by Mcdowell's case.
43. We need only state that in view of our finding that the said Finance Act lays down no charge or machinery to levy and assess Service Tax on indivisible composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing elements both of transfer of property in goods as well as labour and services.
44. We have been informed by Counsel for the revenue that several exemption notifications have been granted qua Service Tax "levied" by the 1994 Finance Act. We may only state that whichever judgments which are in appeal before us and have referred to and dealt with such notifications will have to be disregarded. Since the levy itself of Service Tax has been found to be non-existent, no question of any exemption would arise. With these observations, these appeals are disposed of.
45. We, therefore, allow all the appeals of the assessees before us and dismiss all the appeals of the Revenue.
(g) Thus, the established legal position is that 'Works Contract Service' can be charged as 'works contracts' only under Section 65(105)(zzzza) and only with effect from 1-6-2007.
(h) In the case of Real Value Promoters Pvt. Ltd. and Others as reported in 2018 (9) TMI 1149-CESTAT, Chennai, the question which arose was whether a demand can be made on 'commercial and industrial construction service' under Section 65(105)(zzzh) of the Finance Act, 1994 after 1-6-2007 where the nature of contract is a composite contract involving both supply of materials and rendition of services. It has been held that "For the period post 1-6-2007, Service Tax liability under the category of 'commercial or industrial construction service' under Section 65(105)(zzzh), 'Construction of complex service' under Section 65(105(zzzq) will continue to be attracted only if the activities are in the nature of services simpliciter.
(i) Thus, if the services rendered are in the nature of composite works contracts, they cannot be charged to Service Tax prior to 1-6-2007 and can be charged post this date only under this head 65(105)(zzzza) and not under any other head.
10(j) In the case of M/s. Krishna Homes v. CCE, Bhopal and CCE, Bhopal v. M/s. Raj Homes as reported in 2014 (3) TMI 694-CESTAT, Ahmedabad, the scope of taxing 'Composite Works Contracts' rendered in connection with construction of complex services prior to 1-7-2010 was examined. 'Construction of complex services' was covered in Section 65(105)(zzzh) and in this clause an explanation was added w.e.f. 1-7-2010. This reads as follows :
(zzzh) to any person, by any other person, in relation to construction of complex;
"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."
(k) The definition of 'Works Contract Service' is as follows :
(zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.
Explanation. - For the purposes of this sub-clause, "works contract" means a contract wherein,
(i) Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii) Such contract is for the purposes of carrying out, -
(a) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
(b) Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
(c) Construction of a new residential complex or a part thereof; or
(d) Completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
(e) Turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;"
11(l) Before the introduction of the explanation in [sub-clause] (zzzh) w.e.f. 1-7-2010, in all cases where the builder entered into an agreement to sell flats and collected advances, but the actual transfer of the property took place only after the completion certificate is issued, the service was considered as self-service by the builder only and not a service provided to the customer and hence was not taxable. Similarly, where the semi-built flats are sold and then the customer enters into an agreement with the builder for its completion, such agreement, being in the nature of service for a flat for personal use, was also excluded from the definition of 'residential complex' under Section 65(91a) which reads as follows :
"(ii) "Residential Complex" means 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 an authority under any 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.
Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this clause, -
(a) "personal use" includes permitting the complex for use as residence by another person on rent or without consideration;
(b) "residential unit" means a single house or a single apartment intended for use as a place of residence;
[Section 65(91a) of the Finance Act, 1994]"
(m) Thus, as far as Service Tax, under 'construction of complex service' in respect of residential complexes is concerned, prior to 1-7-2010 (when the explanation was inserted), no tax could be levied. This was also clarified by the C.B.E. & C. in Circular No. 108/2/2009-S.T., dated 29-1-
2009. The question as to whether this limitation on taxation prior to insertion of the explanation in 'construction of complex services' also extends to cases where such services are rendered as 'works contract service' was examined and answered in affirmative in the case of Krishna Homes (supra) by the Tribunal. This ratio has been followed in subsequent orders including by this bench. The relevant portion of the order in the case of Krishna Homes v. CCE, Bhopal [2014 (34) S.T.R. 881 (Tri. - Del.)] is as follows :
"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 service', a service provided or to be provided to any person by any other person "in relation to construction of complex". The expression 12 "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 are 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 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."
Thus, in terms of this explanation, when a builder/promoter/ developer got a residential complex constructed for his customers with whom he had 13 individually entered into agreements, in terms of which the prospective customers were required to make payments for the residential units to be constructed in instalments and the possession of the residential units was to be given to the customers on completion of the complex and full payment having been made, the builder/promoter/developer was to be treated as a deemed provider of construction of residential complex service to his customers. Thus, by this explanation, the scope of the Clause (zzzh) of Section 65(105) has been expanded and this amendment by adding an explanation has been held by this Tribunal in the case of CCE, Chandigarh v. U.B. Construction (P) Ltd. (supra) as prospective amendment. In this regard, para 5 of this judgment is reproduced below :-
"5. In Maharashtra Chamber of Housing Industry v. Union of India - (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 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".
9. In view of the above, though in view of the Apex Court judgment in the case of M/s. Larsen & Toubro Limited and Others v. State of Karnataka & Others (supra), the agreements entered into by a builder/promoter/developer with prospective buyers for construction of residential units in a residential complex against payments being made by the prospective buyers in instalments during construction and in terms of which the possession of the residential unit, is to be handed over to the customers on completion of the residential complex and full payment having been made, are to be treated as works contracts, it has to be held that during the period of dispute, there was no intention of the Government to tax the activity in terms of such contracts a builder/developer with prospective customers for construction of residential units in a residential complex. Such works contracts involving transfer of immovable property were brought within the purview of taxable service by adding explanation to Section 65(105)(zzzh) w.e.f. 1-7-2010, and therefore, it has to be held that such contracts were not covered by Section 65(105)(zzzh) during the period prior to 1-7-2010."
(n) To sum up, as far as construction of 'residential complexes' by the builders are concerned :
(i) Prior to 1-6-2007, if it is a composite works contract, no Service Tax is leviable in view of the judgment of the Hon'ble Apex Court in the case of Larsen & Toubro (supra).
(ii) After 1-6-2007, it is chargeable as 'works contract' only if it is a composite contract and under 'construction of complex services' if it is a service simpliciter.14
(iii) However, after 1-6-2007 but prior to 1-7-2010, whether it is a service simpliciter or a works contract, if the service is rendered prior to issue of completion certificate and transfer to the customer, it is not taxable being in the nature of self service.
(iv) Further, whenever the service is rendered for completion or construction of a flat for personal use of the service recipient, no Service Tax is payable in view of the exclusion in the definition of residential complex service.
(v) After 1-7-2010, Service Tax is chargeable under the head of 'construction of complex services' if it is service simpliciter and under 'works contract service' if it is a composite works contract.
(o) In view of the above, it is well settled legal position that whether the service is rendered as service simpliciter or as a works contract, no Service Tax can be levied on construction of residential complex prior to 1-7-2010. Learned Counsel would submit that for the period post 1-7-2010, they have been discharging Service Tax appropriately. This is a fact which can be verified to ascertain the full tax liability for the period post 1-7-2010 or otherwise.
(ii) The demand of Service Tax on construction of Mahatma Gandhi Cancer Hospital and Research Institute : Learned Counsel sought to impress upon us that it is not meant for industry or commerce and therefore, a hospital building cannot be subjected to Service Tax. We do not find any reason to hold that the activity of a corporate hospital does not amount to commerce or industry. In fact, health care and hospitals is one of the most profitable and fast growing service industries in the country. In view of the above, we do not find any reason to hold that the construction of hospital building of a corporate hospital is excluded from the definition of works contract service. It is clearly covered by Section 65(105)(zzzza)(ii)(b) as a new building meant for the purpose of commerce or industry. The demand on this count, therefore, needs to be upheld and we do so.
(iii) The demand of Service Tax on construction of administrative building for Indian Registrar of Shipping : We find that the Indian Registrar of Shipping is regulatory body who registers ships and vessels in the country and also classifies them and does related activities. These cannot be termed as an act of commerce or industry. Learned departmental representative submits that the IRS charges fees for its activities. Even if it does so it is similar to that of other regulatory agencies such as RT officer, Transport Authority charging fees for issuing a driving license or for registering a vehicle. It is neither an organisation involved in commerce or industry nor does the organisation make any profit. In view of the above, we find that the demand on construction of administrative building for IRS is liable to be dropped and we do so.
12. In view of the above, we find that the demand under works contract on construction of residential complexes post 1-7-2010 and on construction of cancer hospital building need to be upheld and the rest of the demands need to be set aside. As far as the composition scheme is concerned, the assessee has the option of paying Service Tax under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, if he chooses to do so. The mere fact that they have not opted for this earlier does 15 not reduce their entitlement to opt for this scheme now. The demand of Service Tax needs to be recomputed as above, after following principles of natural justice and giving the assessee an opportunity to present their case including, indicating if they desire to avail the benefit of composition scheme. Interest as applicable will have to be paid on the differential Service Tax, if any.
13. As far as the imposition of penalties is concerned, we find that of all the demands, with respect to major portion, we have already held in favour of the assessee. Of the demand which we upheld, the assessee claims that they have already paid Service Tax on residential complex services from 1-7-2010 onwards. In view of the above, invoking the provision of Section 80, we set aside all the penalties.
14. In view of the above, both appeals are disposed of as below :
(A) The Service Tax under works contract services on construction of residential complexes post 1-7-2010 is upheld and the demand for the period prior to this date is set aside.
(B) The demand of Service Tax on construction of Mahatma Gandhi Cancer Hospital and Research Institute is upheld under works contract service.
(C) The demand of Service Tax on construction of building for Indian Registrar of Shipping is set aside.
(D) The appellant/assessee can opt for works contract (composition scheme), if they so desire, for the payment of Service Tax liability.
(E) Interest needs to be re-calculated on the differential Service Tax as above.
(F) All penalties are set aside.
15. The matter is remanded to the original authority for the limited purpose of calculation of Service Tax liability and interest as above, after following principles of natural justice.
13. The Tribunal in the above decision has also considered the issue as to whether the demand of service tax can be made under Construction of Complex Services/ Construction of Residential Complex Services for the period prior to 01.07.2012. The decision of the Tribunal in the case of Real Value promoters Pvt Limited 2018 (9) TMI 1149 - Cestat-Chennai was referred to by the coordinate bench of the Tribunal to observe that in the case of composite contracts involving both supply of materials and rendition of services the demand can be 16 made only under WCS and not under construction of residential complex services or construction of complex services.
14. In the assessee's own case for the period subsequent to the disputed period the demand has been set aside following the decision in the case of M/s. Krishna homes observing that the assessee has provided services as a promoter/developer/builder.
15. After appreciating the facts of the case and following the decisions cited above we are of the considered opinion that the demand of service tax cannot sustain.
16. In the result the impugned order is set aside to the extend of confirming the demand of service tax and interest. The appeal filed by the assessee is allowed with consequential reliefs, if any. Since we have already set aside the demand and interest, the appeal filed by the department for imposing penalty does not survive. The department appeal is dismissed.
(Order pronounced in the open court)
(VASA SESHAGIRI RAO) (SULEKHA BEEVI. C.S)
Member (Technical) Member (Judicial)
psd