Custom, Excise & Service Tax Tribunal
Kolla Developers &Amp; Builders vs Hyderabad-Ii on 27 August, 2018
(1)
Appeal No: ST/1915/2010
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench
Court - I
Appeal No. ST/1915/2010
(Arising out of Order-in-Appeal No.49/2010 (H-II) ST, Dt.29.04.2010 passed by CCCE & ST,
Hyderabad-II)
Kolla Developers & Builders ..... Appellant(s)
Vs.
CCCE & ST, Hyderabad-II ..... Respondent(s)
Appearance Shri P. Venkata Prasad, CA (Representative) for the Appellant. Shri V.R. Pavan Kumar, Superintendent/AR for the Respondent. Coram:
HON'BLE Mr. M.V.Ravindran, MEMBER (JUDICIAL) HON'BLE Mr. P. Venkata Subba Rao, MEMBER (TECHNICAL) Date of Hearing: 27.08.2018 Date of Decision: 27.08.2018 FINAL ORDER No. A/31197/2018 [Order per: P.V. Subba Rao.]
1. This appeal has been filed against the Order-in-Appeal No. 49/2010 (H-II) ST dated 29.04.2010.
2. Heard both sides and perused the records. The appellant is a builder of residential complexes and had obtained registration with the service tax department. He sold undivided portion of land along with semi constructed apartment by executing sale deeds and entering into construction agreement with the buyers. During audit of the appellant's accounts, officers observed that appellant has received an amount of Rs.2,29,32,901/-
towards construction of residential complex for the period April, 2008 to September, 2008 on which they had not discharged the service tax. After (2) Appeal No: ST/1915/2010 availing 67% abatement on the total value in terms of Notification No. 01/2006-ST dated 01.03.2006, the appellant worked out the service tax liability as Rs.9,35,391/- and paid the same along with interest. Thereafter, a show cause notice was issued by the lower authority demanding the aforesaid amount of service tax and proposing to appropriate the amounts already paid by them towards this demand. It was also proposed to impose penalties under Sec.76 and 77 of Finance Act, 1994. After following due process, the lower authority confirmed the demand and interest, appropriated the amounts already paid against the same and imposed penalties under Sec.76 ad 77 of the Finance Act.
3. Aggrieved, the appellant preferred an appeal before the first appellate authority and contested the matter both on merits and also on the issue of imposition of penalty. The first appellate authority upheld the Order-in- Original and dismissed the appeal and hence this appeal.
4. The learned counsel for the appellant submits that the issues involved are
a) Whether construction activity by a builder prior to 01.07.2010 is liable to service tax and
b) Whether interest and penalties are imposable.
5. It is his contention that this issue is no longer res integra and it has been settled by the Board vide Circular Nos. 108/2/2009-ST dated 29.01.2009 and 151/2/2012-ST dated 10.02.2012. He would draw our attention to the circular dated 10.02.2012 in Para 2.1 it has been clarified that "for the period prior to 01.07.2010: construction services provided by builder / developer will not be taxable in terms of Board Circular (3) Appeal No: ST/1915/2010 No.108/2/2009-ST dated 29.01.2009. He also relied on the case of Krishna Homes [2014 (34) STR 881 (Tri-Del)] in which it was held as follows:
"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."
6. He also relied on the case of UB Construction Pvt Ltd [2013 (32) STR 738 (Tri-Del)] in which it was held as follows:
"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 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."
7. He further relied in the case law of Vinayaka Homes [2016 (43) STR 252 (Tri-Bang)] (wherein one of us (M.V. Ravindran) was a member) in which it was held as follows:
"4.1 The appellants were rendering 'construction of complex service' as they were designing, planning, developing and clearing site on their own land for construction activities for buyers/clients and were not doing any execution of 'works contract' and elements of definition of 'works contract', therefore, are not found present. It is made clear that the activities of the appellants fall under the category of 'construction of residential complex service' and such services for the period of January, 2009 to March, 2009 were not liable to service tax which is clear by virtue of the paragraph 3 of (4) Appeal No: ST/1915/2010 C.B.E. & C. Circular No. 108/2/2009-S.T., dated 29-1-2009; it says that the persons who are providing services of 'construction of residential complex' in the form of designing, planning, developing and so on will not be subject to service tax as such services would fall under the exclusion provided under definition of 'residential complex'. To make the subject matter more clear the contents of Para 3 of above Circular dated 29-1-2009 are quoted below :
"3. The matter has been examined by the Board. Generally, the initial agreement between the promoters / builders / developers and the ultimate owner is in the nature of 'agreement to sell'. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of 'self-service' and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a residential complex with a promoter / builder / developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of 'residential complex'. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax."
4.2 It is however, made clear that such services become taxable only after 1-7-2010 when the Explanation was added by the Finance Act, 2010 dated 8-5-2010 in definition of 'construction of complex service' to the provisions of Section 65(105)(zzzh) of the Finance Act, 1994."
8. Learned counsel therefore argued that they are not liable to pay service tax as the relevant period was prior to 01.07.2010 and therefore the question of penalty also does not arise.
9. Learned departmental representative reiterated the arguments made in the Order-in-Original and Order-in-Appeal.
10. We have considered both sides and it is evident from the record that the relevant period was April, 2008 to September, 2008 which is prior to 01.07.2010 and the service provided was construction of residential complex by the builder which, as clarified by the CBEC in their circular dated 10.02.2012 (supra) was not taxable during the relevant period. This position was also held in the orders of the Tribunal in the case of Krishna Homes (5) Appeal No: ST/1915/2010 (supra), UB Constructions (supra) and Vinayaka Homes (supra). Thus, we find that the legal position is settled and the appellant was not required to pay service tax on the services allegedly rendered by them during the relevant period. Consequently the interest and penalty are also liable to be set aside. We, therefore, find that the appeal is liable to be allowed and we do so.
10. The appeal is allowed with consequential relief, if any.
(Operative part of this order was pronounced in the open court on conclusion of hearing) (P.VENKATA SUBBA RAO) (M.V. RAVINDRAN) MEMBER (TECHNICAL) MEMBER (JUDICIAL) Veda