C R Patel VERSUS C.C.E. & S.T.-Surat-i

SERVICE TAX Appeal No. 11405 of 2013-DB

[Arising out of Order-in-Original/Appeal No 31-SERVICETAX-2012 dated 28.02.2013 passed

by Commissioner of Central Excise, Customs and Service Tax-SURAT-I]

 

C R Patel

VERSUS

C.C.E. & S.T.-Surat-i

APPEARANCE:

Shri S. J. Vyas, Advocate for the Appellant

Sh. Vijay G. Iyengar, Assistant Commissioner (Authorized representative) for the

Respondent

CORAM: HON’BLE MEMBER (TECHNICAL), MR. RAJU

HON’BLE MEMBER (JUDICIAL), MR. SOMESH ARORA

Final Order No. A/ 10185 /2023

DATE OF HEARING:31.01.2023

DATE OF DECISION:31.01.2023

RAJU

This appeal has been filed by M/s. CR Patel against demand of service

tax as “Works Contract Service”.

Learned Counsel for the appellant pointed out that they were engaged

by Gujarat State Police Housing Corporation Ltd. (GSPHCL). The construct

residences for police personal. Learned Counsel pointed out that the service

provided by them is covered under the definition of “Works Contract Service”. 

He relied on the decisions in the case of Larsen & Toubro Ltd SC – 2015 (8)

TMI 479 to assert that for the period prior to 01.06.2007 no service tax could

have been demanded as service provided by them was in the nature of “Works

Contract Service”, and the said service became taxable only with effect from

01.06.2007. He relied on decisions of Tribunal in the case of Lanco Tanjore

Power Co. Ltd. and Sima Engineering to assert that, they are not covered in

definition of “Works Contract Service”.

Learned (AR) relied on the impugned order. He argued that GSPHCL is

not a Government body.

We have considered rival submissions. We find that so far as the period

prior to 01.06.2007 is concerned it is not in doubt that the demand has been

made in the category of “works contract service”. The works contract service

was not taxable prior to 01.06.2007 has held by Hon’ble Apex Court in the

case of Larsen & Toubro Ltd (Supra) , consequently the demand for the period

01.06.2007 made under the category of the “works contract service is set

aside.

4.1 So far as the period after 01.06.2007 is concern it is seen that the

definition of the above “works contract service” reads as under:

“Works contract”, for the purposes of section

65(105)(zzzza), 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; (Explanation to

Section 65 (105) (zzzza) of Finance Act, 1994)

4.2 The definition of residential complex excludes from the levy of Service

Tax “complex which is constructed by a person directly engaging any other

person for designing or planning of the lay out and the construction of such

complex is intended for personal use as residence by such persons.” This

expression has been interpreted by Tribunal in the case of Sima Engineering-

2018 (5) TMI 405 (Tri.-Chennai), wherein after examining this conclusion para

7 & 8 as follows:

7. Undisputedly, the appellants have entered into an agreement

with TNPHCL for providing services in relation to construction of

residential complex. However, these are meant for use of police

personnel. The said issue was considered by the Tribunal in the case

of Nithesh Estates (supra), wherein theTribunal has observed as

under:-

“7.1 In this case there is no dispute and it clearly emerges that

the residential complex was built for M/s. ITC Ltd. and

appellant was the main contractor. Appellant had appointed sub

contractors all of whom have paid the tax as required under the

law.

The questionthat arises is whether the appellant is liable to pay

service tax in respect of the complex built for ITC. From the

definition it is quite clear that if the complex is constructed by a

person directly engaging any other person for design or planning

or layout andsuch complex is intended for personal use as per

the definition, service tax is not attracted. Personal use has been

defined as permitting the complex for use as residence by

another person on rent or without consideration. In this case

what emerges is that ITC intended to provide the

accommodation built to their own employees. Therefore it is

covered by the definition of „personal use‟ in the explanation.

The next question that arises is whether it gets excluded under

the circumstances. The circular issued by C.B.E.&C. on 24-5-

2010 relied upon by the learned counsel is relavant. Para 3 of

this circular which is relevant is reproduced below :

“3. As per the information provided in your letter and during

discussions, the Ministry of Urban Development (GOI) has

directly engaged the NBCC for constructing residential complex

for Central Government officers. Further, the residential

complexes so built are intended for the personal use of the GOI

which includes promoting the use of complex as residence by

other persons (i.e. the Government officers or the Ministers). As

such the GOI is the service receiver and NBCC is providing

services directly to the GOI for its personal use. Therefore, as for

the instant arrangement between Ministry of Urban Development

and NBCC is concerned, the Service Tax is not leviable. It may,

however, be pointed out that if the NBCC, being a party to a

direct contract with GOI, engages a sub-contractor for carrying

out the whole or part of the construction, then the sub-contractor

would be liable to pay Service Tax as in that case, NBCC would

be the service receiver and the construction would not be for

their personal use.”

It can be seen that if the land owner enters into a contract with

a promoter/builder/developer who himself provided service of

design, planning and construction and if the property is used

for personal use then such activity would not be subject to

service tax. It is quite clear that C.B.E.&C. also has clarified that

in cases like this, service tax need not be paid by the

builder/developer who has constructed the complex. If the

builder/developer constructs the complex himself, there would

be no liability of service tax at all. Further in this case it was

different totally, the appellant, has engaged sub- contractors and

therefore rightly all the sub-contractors have paid the service

tax. In such a situation in our opinion, there is no liability on the

appellant to pay the service tax.”

4.3

The said decision was followed by the Tribunal in the case of Lanco

Tanjore Power Co. Ltd. (supra) wherein the Tribunal discussed as under:-

“7. Construction of residential complex activity was carried out

by the assessee for M/s. Lanco. It is submitted that such residential

units were constructed for use as quarters of the employees of M/s.

Lanco. It is evident from the facts of the case that M/s.Lanco has

engaged the assessee with the specific purpose of construction of

such residential units which are meant for personal use of the

employees of M/s. Lanco. We extract below the statutory definition

of section 65(91a) of the Finance Act, 1994:-

“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;”

The above definition specifically excludes construction undertakenfor

personal use and such personal use includes permitting the

complex for use as residence by another person. We find that the

above exclusion clause covers the construction activity undertaken by

the assessee.

We have gone through the case law relied upon by the

respondents where a similar case has been dealt with by the

Tribunal. Following the decision of the Tribunal in Nithesh Estates

Ltd. (supra), we find no reason to interfere with the impugned

orders which are sustained and the appeals filed by Rvenue are

rejected.”

4.4 Similar view has also been taken in the case of Khurana Engineering-

2010 (11) TMI 81 CESTAT –Ahmd, wherein following has been observed:

“2. Learned advocate on behalf of the appellants, first of all

submitted that the service was provided by the appellant to Govt.

of India for providing the same as residential accommodation for

the employees of the Income Tax department. He drew our

attention to the definition of the construction of complex services

given under the clause (30a) of Section 65 to submit that personal

use, according to the definition includes permitting the complex

for use as residence by another person on rent or without

consideration. In view of the definition of ‘Personal Use’ in the

definition of ‘Construction of Complex’ services, the services

provided by the appellant is covered by exclusion, which provides

that definition of service does not include the 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. In this case, the Govt. of India provides 80 flats to

Income Tax department on rent and therefore, it is excluded from

the definition of construction services. He also relies upon the

reply given by the Central Board of Customs and Excise to

National Building Construction Corporation Limited (NBCC), vide

Letter No. F. No. 332/16/2010-TRU., dated 24-5-2010, in support

of this contention. On the other hand, learned DR submits that it

is not correct to say that service has been provided to Govt. of

India directly. He submits that the land is owned by Income Tax

department and Income Tax department has requested the CPWD

to construct the quarters for them and funds have been made

available to CPWD by Ministry of Finance for this purpose. CPWD

in reality has acted as a bridge between Income tax department

and the contractor and after the residential complex is

constructed, the same was handed over by CPWD to Income tax

department and therefore, in terms of the clarification issued by

the Board also, the appellant would be liable to pay service tax.

He drew our attention to the letter relied upon by the learned

advocate and submitted that in that letter, it has been clarified by

the Board that if NBCC were to construct residential

accommodation and handover to Govt. of India, there would be

no liability to service tax. However, if NBCC were to entrust the

work to sub-contractor and such sub-contractor constructed the

residential complex and handed over to NBCC who in turn handed

over the same to Govt. of India, service tax would be leviable. He

drew our attention to the observation of learned Commissioner in

his order wherein he has also held that this is not a case where

residence is for personal use of a person and is not covered by

the explanation given under clause (30a). We have considered

this submission. We find ourselves in agreement that the

contention of the learned advocate that service has been provided

by the appellant to Govt. of India in this case and CPWD and

Income Tax department cannot be treated as separate entities

just because service has been provided to CPWD who in turn

handed over the same to Income Tax department. Further,

learned advocate also drew our attention to the notice issued by

the CPWD inviting tenders. The tender starts with words “Tenders

are invited on behalf of the President of India”. Further, we also

find that the guarantee executed by the contractor and agreement

entered by the contractor have been accepted by CPWD for and

on behalf of the President of India. Learned DR also fairly admitted

that he has not got any clarification from the department as to

whether there is any evidence to show that CPWD and Income

Tax departments are separate entities and have to be treated as

separate entities. It is well known that various departments of

Govt., of India act on behalf of the President of India and

therefore, it cannot be said that CPWD can be equated with NBCC

which is a Public Sector under taking. It is also well settled that

Public Sector undertakings are not considered as Govt.,

departments and also cannot be considered as “STATE”. Further,

learned DR also could not show whether there was any agreement

between Income tax department and CPWD for the purpose of

construction of residential complex. Invariably when two parties

are independent entities, there would be an agreement. Absence

of any agreement between CPWD and Income tax department

also supports the case of the learned advocate. Further, since on

behalf of the President of India contractors are entered into,

agreements are entered into and bonds are accepted, Govt. of

India is treated as “Person”. Therefore, we are unable to agree

with the learned Commissioner when he says that the exclusion

clause in the definition cannot be applied to the Govt. of India.

For ready reference, definition of Construction of Complex

Services is reproduced :-

(a) Construction of a new residential complex or a part thereof;

or

(b) Completion and finishing services in relation to residential

complex such as glazing, plastering, painting, floor and wall tiling,

wall covering and wall preparing, 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 definition of residential complex service has been given under

clause (91a) of Section 65 as under;

“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.”]

We have already explained the submission of learned advocate in

brief and as explained by him in this case, residential complex

constructed by the appellant is meant for use by the Income Tax

department to provide the same on rent to the employees and

therefore, it is clearly covered by the explanation given for

“Personal use” in the definition. In this case the CPWD has

engaged the appellant for construction of residential complex for

giving it on rent to the employees of Income Tax department and

therefore this service cannot be included in the definition of

residential complex services. It is basically the case of one

department taking the help of another department to get the work

done basically because of specialization of that department in

preparing documents and get the work executed.

  1. We also find alternative submissions made by the learned

advocate are to be sustained. The first alternative submission

made was that the show cause notice was issued on 4-10-2007

whereas, the service tax was payable for the period from 16-6-

2005 to 30-7-2007 and therefore, a portion of the demand is time

barred. Even if a view is taken that CPWD is to be treated as

separate entity, in our opinion appellant would be justified to

entertain a belief that CPWD and Income Tax department are to

be treated as part of the Govt. of India and therefore, services

provide by him would not be liable to service tax. Further, as

submitted by the appellant in his submission, the agreement also

provides that in case of liability of any tax, the service receiver is

liable to pay. In these circumstances, the appellants had no

reason to resort to suppression or mis-declaration of the facts to

avoid payment of service tax since if the service tax was liable, as

per the contract, CPWD was liable to pay service tax. Under these

circumstances, invocation of extended time limit cannot be

justified in this case. Therefore, penalties imposed under various

sections of Finance Act, 1994 also cannot be upheld.

  1. Another alternative submission made by the learned advocate

was that the contract between the appellant and the CPWD was a

works contract and VAT has been paid treating the same as works

contract and therefore, no service tax was liable to be paid for the

period prior to 1-6-2007. He has cited several decisions in support

of this contention. However, we find that the decision of the

Tribunal in the case of Cemex Engineers v. Commissioner of

Service Tax Cochin – 2010 (17) S.T.R. 534 (Tri. – Bang.) is

relevant. In this case, the Tribunal had considered the definition

of residential complex services and works contract services and

had come to the conclusion that in view of the fact that

construction of new residential complex was included in the

definition of works contract, the construction of residential

complex on the basis of works contract, cannot be leviable to

service tax prior to 1-6-2007. In view of the fact that this decision

is applicable to the facts of the present case, this would also go in

favour of the appellants.

  1. Further, in view of the fact that on merits, we have held that

service provided by the appellant is to be treated as service

provided to Govt. of India directly and end use of the residential

complex by Govt. of India is covered by the definition “Personal

Use” in the explanation to definition of residential complex

service, the other aspects need not be considered. In view of the

discussion above, the impugned order cannot be sustained and

accordingly the same is set-aside. Appeal is allowed with

consequential relief to the appellant.”

Relying on the aforesaid decision, we hold that the use of the residential

complex by (GSPHCL) is excluded from the definition of residential Complex

as “intended for personal use as residence by such persons”. In view of above,

we do not find any merit in the order, the order is set aside and appeal is

allowed.

(Dictated & pronounced in the open court)

(Raju)

Member (Technical)

(Somesh Arora)

Member (Judicial)

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