Custom, Excise & Service Tax Tribunal
Real Gem Buildtechp Ltd vs Commissioner Central Goods And Service ... on 2 August, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
REGIONAL BENCH
Service Tax Appeal No. 85046 of 2024
(Arising out of Order-in-Original No. 59/MRM/COMMR/ME/2023-24 dated
09.08.2023 passed by the Pr. Commissioner of CGST & CX, Mumbai East
Commissionerate.)
M/s. Real Gem Buildtech Pvt. Ltd. ........Appellant
7th Floor, Resham Bhavan,
Veer Nariman Road,
Churchgate, Mumbai - 400 020
VERSUS
Commissioner of CGST, Mumbai East ........Respondent
9th Floor, Lotus, Parel, Lotus Infocentre, Near Parel Station, Parel East, Mumbai - 400 012 APPERANCE:
Shri Arjun Raghavendra, Advocate with Shri Piyush Deshpande, Advocate for the Appellant Shri Ajay Kumar Shrivastava, Assistant Commissioner, Authorised Representative for the Respondent CORAM:
HON'BLE DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL) HON'BLE MR. ANIL G. SHAKKARWAR, MEMBER (TECHNICAL) FINAL ORDER NO. 85733/2024 Date of Hearing: 20.06.2024 Date of Decision: 02.08.2024 PER: DR. SUVENDU KUMAR PATI Confirmation of Service Tax demand of ₹12,02,59,606/- for the period from 2016-17 to 2017-18 (up to June) with interest, penalty respectively under Section 73, 75, 77 of the Finance Act, 1994 and equal penalty for extended period under Section 78 of the Act on the Developer-Appellant against reimbursement cost received from the land of owner (also a registered company) for constructing flats in ST/85046/2024 2 execution of a 'Joint Development Agreement', is assailed in this appeal by the Developer-Appellant.
2. Fact of the case goes to show that Appellant has registered itself with Service Tax registration having Goregaon (East), Mumbai address for providing taxable services like construction of residential complex services, architect service, construction services other than residential complex namely commercial/industrial buildings or civil structures. During the course of Audit of one M/s. Bhisma Realty Ltd., providing similar kind of service, it was noticed that there exist one 'joint development agreement' dated 31.07.2009 (Annexure B to show-cause notice) between the said M/s. Bhisma Realty Ltd. and the Appellant for construction of premium residential building at Dadar, Mumbai to be named as DB Crown on 60:40% sharing basis with major share @60% going to M/s. Bhisma Realty Ltd. who would share the land exclusively and 40% to the Appellant who would bear the expenditure for construction and development. It was also noticed by the Auditor that between the period referred above Appellant had received ₹80,17,30,712/- from M/s. Bhisma Realty Ltd. as reimbursement of expenses and the same was to be added to the gross taxable value of services rendered by the Appellant and Service Tax was to be paid thereon. Accordingly E.A. Audit team conducting audit in M/s. Bhisma Realty Ltd. wrote a letter to the Jurisdictional Commissioner of the Appellant to its Juhu Lane, Andheri (West) (Respondent herein) address on 27th March, 2017 informing them about the transaction for demanding Service Tax on ST/85046/2024 3 the reimbursement amount or in the alternative curtailing availment of CENVAT Credit to 40% from presently availed 100% CENVAT Credit by the Appellant and for its recovery.
2.1 Nearly about 5 years thereafter on dated 01.02.2022 detail of receipt of reimbursement amount by the Appellant was sought for by the jurisdictional Commissioner which was furnished by the Appellant vide its reply letter dated 21.02.2022 and 07.03.2022 with required detail covering period from October, 2016 to June, 2017 for an amount of ₹80,17,30,712/-, that was allegedly not declared in the ST-3 return as gross taxable value receipt. Accordingly Appellant was put to show-cause notice dated 05.04.2022 for payment of Service Tax of ₹12,02,59,606/- with interest and penalty as noted above including equal penalty for extended period under Section 78 of the Finance Act, 1994 on the reimbursement amount. Appellant contested the same and its unsuccessful attempt before the adjudicating authority namely the Commissioner of CGST & CX, Mumbai East Commissionerate has brought the dispute to the present forum.
2.3 Before entering into controversy in detail, it is imperative to zoom into the development of law concerning Service Tax on reimbursement amount that was first brought into Service Tax domain through Rule, 5 of the Service Tax (Determination of Value) Rules, 2006 w.e.f. June 01, 2007 that dictated inclusion of the value of reimbursable expenses on activities, in the gross value of the ST/85046/2024 4 services provided by the Assessee. Vide its judgment dated November 30, 2012 Hon'ble Delhi High Court had declared Rule, 5 as ultra vires as Section 67 of the Finance Act, 1994, dealing with 'valuation of taxable services for charging Service Tax', was not providing for inclusion of such reimbursement of expenses in its definition under "consideration". To weed out the defect, Respondent-Department included reimbursement of expenditure or cost incurred by service provider under the expression consideration in Explanation 2(ii) to Sub-Section 4 on May 14, 2015 by way of amendment to Section 67 of the Finance Act, 1994. When the matter stood thus appeal against the order of Hon'ble Delhi High Court declaring the said Rule-5 as ultra vires, that was preferred before the Hon'ble Supreme Court in several Civil Appeals, got disposed of with nomenclature Union of India Vs. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd., reported in 2018 (4) SCC 669 wherein they concurred with the findings of the High Court while observing that reimbursable expenditure can only be included with prospective application of statute and not retrospectively.
2.4 Marching ahead with the development of law as propounded by the Hon'ble Supreme Court, in reproducing para 29 of the said order passed in M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. cited supra, that deals with reimbursable expenditure or cost incurred to form part of valuation of taxable service for charging Service Tax w.e.f. May 14, 2015, Respondent-Department issued ST/85046/2024 5 show-cause notice to the Appellant and proceeded in confirming the demand on reimbursement expenses received by Appellant from its joint venture unit namely M/s. Bhisma Realty Ltd., who both developed premium residential building and parking space in the name of DB Crown situated at Dadar, Mumbai on the basis of joint development agreement entered between them on 31.07.2009. Learned Principal Commissioner also fortified his findings by borrowing ratio from the judgment passed by the Hon'ble Supreme Court in the case of Faqir Chand Gulati Vs. Uppal Agencies Pvt. Ltd., reported in 2008-TIOL-147-SC-MISC in holding that land owner is a customer and builder is a service provider. He justified invocation of extended period by attributing the fact of backward investigation into the matter upon receipt of letter from the Audit party containing allegation against the Appellant regarding such non-payment of Service Tax. Through this appeal, legality of the said finding is assailed by the Appellant.
3. During course of hearing of the appeal learned Counsel for the Appellant Mr. Arjun Raghavendra submitted that Respondent- Department has proceeded on a wrong premises that Appellant was providing construction service to the owner of the land namely M/s. Bhisma Realty Ltd. while in reality, through a Joint Development Agreement (JDA), both the Appellant and owner were jointly providing service to the customers by constructing residential premises and selling those to intended buyers and as per JDA, at point number 18, it is clearly mentioned that Municipal Commissioner ST/85046/2024 6 of Mumbai would permit them to construct flats on additional FSI (Floor Space Index) provided Appellant and its other partner M/s. Bhisma Realty Ltd. would construct public parking lot at their own cost and hand it over to the Municipal Corporation of Greater Mumbai (MCGM).
3.1 In submitting proof of commencement certificates receipt from MCGM issued between 2010-2014, he further submitted that as per the said JDA construction of parking space and of additional parking space etc. on the FSI land would be jointly shared by the Appellant and M/s. Bhisma Realty Ltd. in equal proportion @ 50:50 basis which had in fact happened but Appellant had initially invested the entire 100% amount, on which discharge of Service Tax liability was not disputed, and M/s. Bhisma Realty Ltd. subsequently repaid its share which is reflected in the debit note issued by the Appellant as 'reimbursement amount' and there was no other reimbursement made over and above the gross taxable value for which due discharge of taxes was made and that was duly Audited by the internal Auditor of the Respondent-Department from 2014 to 2018 covering the period of dispute, for which no additional Service Tax was payable though was demanded against reimbursement of expenses.
3.2 His further submission is that the entire activity was of the service providers inter se carried out by two service providers jointly and there is plethora of decision starting from Saturday Club Vs. ST/85046/2024 7 Assistant Commissioner of Service Tax Cell, Calcutta, reported in 2005 (180) ELT 437 (Cal.) to B.G. Exploration and Production India Ltd. Vs. Commissioner of Service Tax-VII, reported in (2023) 12 CENTAX 202 (Tri.-Bom), wherein it has been clearly held that activities carried out in a co-venture to reap the benefit out of the venture namely share of profit cannot be said that one party is providing service to another and fulfilment of obligation to contribute to the capital of joint venture is beyond the scope of taxation under Finance Act, 1994 for which the order passed by the Principal Commissioner is unsustainable both in law and facts. His further submission is that the fact of receiving payment from M/s. Bhisma Realty Ltd. was well known to the jurisdictional Commissioner that was also brought to his knowledge by the letter dated 27.03.2017 of the Auditor, after which also the activity continued up to June 20, 2017 but no action was initiated by them within 30 months that ended on 15.02.2020 if calculated from last date of filing of return for quarter ending June i.e. 15.08.2017 and therefore, issuing show- cause notice dated 05.04.2022 is a clear violation of the precedent decisions on the issue even settled at the Hon'ble Apex Court level including that of Commissioner of Central Excise, Indore Vs. Raymond Ltd. reported in 2017 (6) GSTL 225 (SC), wherein it was held that materials on the basis of which claims/demands have been raised were before the Revenue at all material point of time for which no question of suppression or misstatement can be legitimately arised to enable the Revenue to avail the benefit of extended period of limitation, apart from the fact that after Audit was conducted, ST/85046/2024 8 Department can't invoke extended period for a transaction pertaining to the said period [Delhi International Airport Ltd. Vs. Commissioner of CGST, Delhi as reported in (2019) 24 GSTL 403 (Tri.- Del.)]. In toto he pleads for acceptance of the appeal filed by the Appellant by setting aside order passed by the Principal Commissioner.
4. Learned Authorised Representative Mr. Ajay Kumar Shrivastava objected to such submission. He supported the reasoning and rationality of the order passed by the Principal Commissioner and explained in his written submission that wholly a new argument was led by the Appellant in putting forth a newly developed story that Appellant had developed free public car-parking for hanging over of the same to the MCGM that was supposed to be shared equally by the Appellant and M/s. Bhisma Realty Ltd. and the reimbursement amount is nothing but repayment of the said amount already invested by the Appellant on behalf of its other service provider/partner, but the same fact was not placed before the Adjudicating Authority and therefore, a new ground can't be taken before the Tribunal, in view of operation of Rule, 10 of the CESTAT (Procedure) Rules, 1982, for which he sought for no interference of the Tribunal in the order passed by the Principal Commissioner.
5. We took note of the divergent submissions and perused the case record, relevant provision of law vis. a. vis. relied upon case laws. Admittedly the meaning of the word "consideration" has been broaden w.e.f. 14.05.2015 by inclusion of reimbursable expenditure ST/85046/2024 9 in explanation to sub-Section 4 of Section 67 of the Finance Act, 1994 dealing with valuation of taxable services for charging Service Tax, it reads:
"Explanation.-For the purposes of this section,-
(a) "consideration" includes-
(i) any amount that is payable for the taxable services provided or to be provided;
(ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;
(iii) ..."
Going by the above definition taxable service would include any amount that is payable for the said service and additionally if any expenditure or cost incurred by the service provider was reimbursed, the said amount is to be included with certain contingencies/conditions/circumstances. In the instant case, as revealed from para 3 of the letter of the Audit Commissioner dated 27.03.2017, that forms the basis for initiation of proceeding against the Appellant, the entire expenditure towards construction cost of the flat as per development agreement was made by the Appellant and M/s. Bhisma Realty Ltd. reimbursed @33.33% of the construction cost to the Appellant that was being done through raising debit note on monthly basis. This being the allegation what is required to be seen here is whether this reimbursed amount @ 33.33% was on the ST/85046/2024 10 100% of expenditure made by the Appellant or in addition to the 100% expenditure made by the Appellant for construction of flats, in which case reimbursement of the said amount would be subjected to Service Tax since the same was an additional expenditure on which Service Tax was not discharged. The very said letter dated 27.03.2017 carries answer to it in para 3 last part and para 4. It states that Appellant was availing entire CENVAT Credit on input services used and consumed in construction of entire flats and therefore, it was either required to reverse the same to the extent of 60% or pay tax on reimbursable amount.
6. We will not deal with proportionate reversal of CENVAT Credit that had not formed part of the allegation in the show-cause notice and, therefore, reimbursement of approximately 33.33% of construction cost to the Appellant by M/s. Bhisma Realty Ltd., its collaborator is to be analysed and the period for which service was provided against such subsequent reimbursement is to be looked into. As has been held by Hon'ble Supreme Court in the above referred M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. cited supra judgement, reimbursement can be included in the consideration value for service that was provided after 14.05.2015. In the instant case, no such period of service is available but going by the additional submission and production of documentary evidence made before this Tribunal by the Appellant on 05.07.2024, in compliance to our order dated 20.06.2024 which we accept as additional evidence as per Rule, 23 of the CESTAT (Procedure) Rules, ST/85046/2024 11 1982, work commencement for the project was initiated with authorisation letter dated 18.02.2010 with a validity of one year period that was further extended on 22.03.2012 and 30.09.2014 with same validity that would have expired by September 15, 2015 but the 'Joint Development Agreement' restricts it to 60 months from the date of issue of 1st authorisation letter i.e. from 18.02.2010 (para-2, point-y of JDA), that would bind the developers to complete the service of construction of flats by 17.02.2015, much before the activity namely reimbursement becomes taxable. Further, the period of reimbursement of the said 33.33% of the construction cost commenced from October, 2016 and ended on June 2017, during which period provision of service must have been completed since re-imbursement started after 100% of expenditure made by the Appellant. However, in the absence of concrete data and any submission of the party on the applicability of the provision, we are not in a position to give our finding that Appellant's case is covered under non-inclusion of reimbursement cost since service was rendered prior to 14.05.2015 but we must place it on record that in M/s. Intercontinental Consultants and Technocrats Pvt. Ltd., cited supra judgement reimbursement of expenditure that occurred on some extraneous activities like expenses incurred in Air travel, Hotel stay etc. were dealt with which is different from the actual service rendered to its client by M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. cited supra, who got it reimbursed from its client namely the service recipient. In the present case the said reimbursement amount, as claimed by the Department is 33.33% ST/85046/2024 12 though erroneously, is part of the 100% component cost against which Service Tax liability was discharged and it is not a case in which 100% cost of the service plus 33.33% towards reimbursement was made separately.
7. The above discussion is based on the allegation made in the letter that formed part of the show-cause notice but the activities carried out in the present case are completely different from what is being observed by the Respondent-Department. We have skipped through the 'Joint Development Agreement' (JDA) of 2019 and the written submission filed on behalf of the Appellant. As has been noticed by us M/s. Bhisma Realty Ltd. would provide land to the Appellant over which construction would commence and Appellant would bear its entire cost. After completion of the project they would share the flats at 60:40 basis for sale to prospective buyers- customers. Parking space would also be constructed and Appellant would bear 100% cost of the construction of flats and parking space cost to be shared equally. They have a futuristic plan to offer the parking space to the Municipal Corporation of Mumbai for acquiring the same and providing public parking against which they would get free FSI i.e. additional space for construction. In the event they succeed in their proposal, then they would make construction over the additional space and meet the expenditure @ 50:50 basis that would again be offered for sale to customers (para-5 of JDA). This being the agreed upon stand, the very conception of adding the reimbursement cost @33.33% to the cost of construction of flats is ST/85046/2024 13 on a completely erroneous premises on which show-cause notice was issued to the Appellant and demand was confirmed against it by the Adjudicating Authority. On the other hand, going by the logic also 100% expenditure to be borne by Appellant was justified when land was given to it freely by M/s. Bhisma Realty Ltd., by its collaborator and sharing the expenditure @50:50 basis on additional space is justified because they got the space free as FSI from Mumbai Municipal Corporation.
8. A close scrutiny of the Joint Development Agreement (JDA) would further reveal that against offering its land in 2009 M/s. Bhisma Realty Ltd. had received ₹100 Crores as interest free security money (para 10 of the JDA at page 33) to be repaid in phased manner in 5 years out of sale proceeds after completion of first project. Nothing is brought on record as to when the said amount was repaid or it was not at all repaid but in the absence of copy of disputed debit note and the payment voucher it would be difficult to ascertain as to if that disputed amount of ₹80,17,30,712/- was repayment amount or a reimbursement amount!
9. Drawing inference from the judgment of the Hon'ble Supreme Court passed in the case of Faqir Chand Gulati, cited supra learned Principal Commissioner had given his finding that the agreement which was called as collaborative agreement or joint venture agreement was not so and it was, in fact, availment of service of the builder by the land owner for house construction (flats). But going ST/85046/2024 14 by the said decision one can notice that the facts of these two cases are quite dissimilar as in Faqir Chand Gulati case, builder had constructed the upper floor of the said house for the land owner for his use (para 15, sub-para at page 28 of appeal memo), against which it had received consideration but in no event, in the instant case, Appellant had provided any service to its collaborator referred in the joint development agreement and the very basis of reimbursement of 33.33% is a complete misnomer, in view of our finding noted above supported by the narration made in JDA.
10. At this juncture, it is equally important to answer to the written submission of learned Authorised Representative concerning allegation of bringing wholly new argument/additional ground on reimbursement of the cost in lieu of construction of free public parking space, which was not raised during the adjudication proceeding. Instead of offering our answer to this it would be worthwhile to reproduce three paragraphs from the reply to show- cause notice submitted by the Appellant to the Principal Commissioner on dated 05.05.2022, it reads:
"The Developer and the Owner will, after obtaining all the necessary approvals/permissions/sanctions, develop multi storied/parking lots/ Parking reservation for public purpose ('the Project Car Park') as per Development Control Regulations for Grater Bombay, 1991 ('DCR') and hand over the same to the Municipal Corporation of Greater Mumbai free of cost. Both Parties shall bear equally all costs, expenses and charges to develop the Project Car Park.
ST/85046/2024 15 The incentive facilities in the form of additional Floor Space Index ('FSI') which will be over and above the FSI permissible under any other provision of the DCR, will be divided between the Parties in equal shares. The construction cost for the development of the incentive FSI as above would be borne equally by the Parties, subject to the ceiling stipulated for owners' share of costs, as stated in the DA.
As per the Supplemental Agreement between the Parties dated 30th July, 2010, a new escrow bank account is opened by the Developer for the deposit of all the sale proceeds in respect of the total Saleable Area. On the deposit of such sale proceeds in the aforesaid Escrow Account, the proceeds received on account of the Owner's Share and the Developer's Share in the Saleable Area is transferred to the Owner's Account and the Developer's Account respectively. The said escrow account has been operated jointly by the Parties."
(underlined to emphasise) While the first two paragraphs would nullify the argument of learned Authorised Representative concerning bringing additional grounds at Appellate stage that was taken at the very initiation of proceeding, third paragraph would go to say that not only through joint agreement both Appellant and M/s. Bhisma Realty Ltd., may be called as land owner or collaborator, had provided construction service jointly but they operated as one unit and opened one bank account in which sale proceeds were deposited and from where their respective shares were disbursed. Drawing inference apparently from this learned Counsel for the Appellant had argued that apart from the fact that there was no provision of service between the developer and owner as principle of mutuality exist between the two and in view of decision of this Tribunal rendered on dated ST/85046/2024 16 17.07.2023 in the case of B.G. Exploration and Production India Ltd. Vs. Commissioner of Service Tax-VII, reported in (2023) 12 CENTAX 202 (Tri.-Mum), both being party to the joint venture, obligations and responsibilities discharged by co-venturer can't be brought under the levy of Service Tax. We are in agreement to this view for the reason that the said principle is settled by this Tribunal in 2017 in the case of Mormugao Port Trust Vs. Commissioner of Central Excise, reported in 2017 (48) STR 69 (Tri. Mum.) that was found approval by the Hon'ble Supreme Court by way of dismissal of appeal of Revenue. It would be worthwhile to reproduce para 15 and relevant portion of para 17 of the said order:-
"15. It is incumbent upon participants in collaborative undertaking to contribute capital for attainment of the common purpose. It is the nature of the undertaking, in terms of permanence and of purpose, that determines the mode of contribution. In the impugned 'production sharing contract', Government of India brings in its rights over the resources, M/s Oil & Natural Gas Corporation handles contracts and documentation, M/s Reliance Industries Ltd manages financial and commercial requirements and the appellant vested with responsibility for technical operations. The deployment of personnel is in pursuance of that obligation. No business venture can function without capital and the by-passing of transubstantiation of accumulated capital, in the form of cash and bank balances, into these rights and competencies does not derogate from that. Hence, the activity undertaken by the appellant with its cost equivalence recorded in the books is nothing but capital contribution. The adjudicating authority has erred in concluding that the mechanism of 'cash call' prescribed in the 'joint operations agreement' is consideration for services; it is intended as the vehicle for ST/85046/2024 17 contribution by the participating interests to the capital requirements of the venture. As such capital contributions are obligated for the establishment and operation of a business venture, it is not 'consideration' for rendering of any taxable service.
17........whatever the partner does for the furtherance of the business of the partnership, he does so only for advancing his own interest as he has a stake in the success of the venture.....All the resources and contribution of a partner enter a common pool of resources required for running the joint enterprise and the such an enterprise is successful the partners become entitled to profits as a reward for the risks taken by them for investing their resources in the venture...."
Taking note of the above observation and in following the judicial precedent set by this Tribunal, we must say that the reimbursable amount that was paid by one member of the joint venture and subsequently repaid by the other member would not be liable to payment of Service Tax.
11. In view of our above discussion when Service Tax is held to be not payable, extended period is also not invokable, apart from the fact that in the instant case, as noticed from the relied upon document namely letter dated 27.05.2017 entire factual aspect and modus operandi was known to the Respondent-Department and no proactive action in the nature of investigation, spot visit etc. were initiated by the Respondent-Department till it sought for a detail report from the Appellant on reimbursement expenses by M/s. Bhisma Realty Ltd. through its letter dated 21.02.2022, nearly after 5 years to which Appellant had furnished the figures ST/85046/2024 18 (₹80,17,30,712/-) as total reimbursement amount received between October, 2016 and June, 2017 (para 4 of the Order-in-Original), on which duty was straight away demanded, that would again take the Appellant out of the purview of wilful suppression since all information were available with it and furnished by it on demand and was also produced during audit. Hence the order.
THE ORDER
12. The appeal is allowed and the order passed by the Principal Commissioner of CGST & CX, Mumbai East Commissionerate vide Order-in-Original No. 59/MRM/COMMR/ME/2023-24 dated 09.08.2023 is hereby set aside with consequential relief, if any.
(Order pronounced in the open court on 02.08.2024) (Dr. Suvendu Kumar Pati) Member (Judicial) (Anil G. Shakkarwar) Member (Technical) Prasad