Prime Developers VERSUS C.C.E. & S.T.-Vadodara-I

Customs, Excise & Service Tax

 Appellate Tribunal West Zonal

Bench At Ahmedabad

 

REGIONAL BENCH- COURT NO. 3

Service Tax Appeal No. 10175 of 2013-DB

(Arising out of OIA-PJ-346-348-VDR-I-2012 dated 29/10/2012 passed by Commissioner of Central Excise, Customs and Service Tax-VADODARA-I)

 

Prime Developers

VERSUS

C.C.E. & S.T.-Vadodara-I

 

WITH

 

 

• ServiceTax Appeal  10176 of 2013- Pushpak Enterprise
• ServiceTax Appeal  10177 of 2013-Prakruti Developers
• ServiceTax Appeal  12830 of 2013- Prakruti Developers
• ServiceTax Appeal  12831 of 2013- Pushpak Enterprises
• ServiceTax Appeal  12832 of 2013-Prime Developers
• ServiceTax Appeal  10791 of 2016- Prakruti Developers
• ServiceTax Appeal  10792 of 2016- Pushpak Enterprises
• ServiceTax Appeal  10802 of 2016- Pushpak Enterprises
• ServiceTax Appeal  10803 of 2016- Samruddhi Constructions

 

 

 

APPEARANCE:

Shri Saurabh Dixit, Advocate for the Appellant

Shri Vijay G. Iyengar, Assistant Commissioner (AR) for the Respondent

 

CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON’BLE MEMBER (TECHNICAL), MR. C.L.MAHAR

 

 

Final Order No. A/ 11581 -11590 /2023

 

 

DATE OF HEARING: 23.03.2023 DATE OF DECISION: 21.07.2023

 

 

 

 

RAMESH NAIR

 

The issue involved in the present appeals are:-

 

• whether carrying out activity of Construction of Residential Complex (With material) as a developer, where the contract was executed before 01.06.2007 and where services were provided before and after 01.06.2007 is liable to service tax for the period up to 06.2007 at all, and after such date under “Residential Complex Service”.
• In connection with the demand on the above issue in respect of amount of service tax paid during investigation whether the appellant is entitled for refund or  otherwise and whether refund is barred by Section 73 (3) of Finance Act, 1994 as upheld in the impugned orders.

2. Shri Saurabh Dixit, Learned Counsel appearing on behalf of the Appellant submits that the appellant had undertaken construction of residential complex with material and entered into Tri-partied arrangement with the land owner and buyer of property, and recovered construction amount. The period during which such income was realized falls both prior to as well as after 01.06.2007.
   • He submits that the service of the appellant clearly falls under the category of works contract service as the construction service was provided along with material. This fact is admitted in the show cause notice itself as abatement of 67% was extended while raising the demand. The said abatement is available only when the service is provided along with  In this fact the service is clearly classifiable under works contracts service, hence, the demand raised under Construction of Residential Complex is not sustainable. He placed reliance on the following judgments:-
     • Total Environment Building Systems  Ltd – 2022 (63) GSTL 257 (SC)

 

• L& T Ltd- 2015 (39) STR 913 (SC)

 

• He submits that in respect of works contract service till 01.06.2007 there was no service tax, therefore till that date there was no levy of service tax. After 01.06.2007 also demand will not sustain as the same was raised under the category of construction of residential complex.
• He without prejudiced, further submits that any service provided bythe developer in connection with construction of residential complex till the execution of sale deed would be in the nature of self service and consequently would not attract service tax as clarified by the CBIC vide Circular No. 108/2/2009- ST dated 29.01.2009 and Circular No. 15/2/2012 – ST dated 10.02.2012, for this reason also till 01.07.2010 there was no service tax on developers of residential complex. He also placed reliance on the following judgments:-
  • SLElectricals  Ltd – 2019 (200 GSTL 273 (Tri.Mumbai)

 

• PragatiEdifice  Ltd – 2019 (31) GSTL 241 (Tri.Hyd)

 

• As regard the appeals on refund matter, he submits that this refund is in respect of the service tax deposited during the investigation of the case. Therefore, since the demand itself is not sustainable, the amount deposited should be refunded. He further submits that the lower authorities have denied there fund on the basis that service tax paid by the appellant is covered by the provision of Section 73 (3) of the Finance Act, 1994, therefore, the same cannot be  It is his submission that even after deposit of service tax show cause notice was issued, therefore the case is not covered under 73(3) and such deposit is only pre-deposit and not admitted liability of service tax.

3. Shri Vijay G Iyengar, Learned Assistant Commissioner (AR) appearing on behalf of the revenue reiterates the finding of the impugned order.

 

4. We have carefully considered the submission made by both sides and perused the records. As regard the first issue that whether the construction of residential complex with material is taxable before 01.06.2007, we find that in this case undisputedly the construction of residential complex was provided by the appellant along with material which stands established and admitted as per the show cause notice wherein the demand was raised after extending the abatement of 67% which is given only when the service is provided along with  Therefore, the fact that the construction was provided along with material is not under dispute. If this is be so then the service is clearly classifiable under works contract service and up to 01.06.2007, the service tax was not leviable on works contract service was held by the Hon’ble Supreme Court in the case of Total Environment Building System P. Ltd (Supra).As regard the period post 01.06.2007, the demand is not sustainable on the ground that despite the service of works contract service, the demand was raised under construction of residential complex. Since the service tax of works contract service demanded under different head i.e. Construction of Residential Complex the same is not legal and correct.
   • Without prejudice, we further find that as per the Board Circular 

108/02/2009 dated 29.01.2009, the construction service provided by the builder/developer was not taxable up to 01.07.2010. This particular issue has been considered by this Tribunal in the case of Pragati Edifice P. Ltd – 2019 (31) GSTL 241 (Tri.Hyd):-

“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.

 

• 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.

 

• 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 &  (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 –

 

• 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;

 

• 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.

 

• 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).

 

• 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  [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.

 

• Section66 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.”

 

• 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 :

 

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 17. 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 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, 1994all 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

 

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.

 

• 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.

 

• 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.

 

• 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.

 

• In the case of M/s. Krishna Homes v. CCE, Bhopal and CCE, Bhopal  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.”

 

• 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,

 

• Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and

 

• Such contract is for the purposes of carrying out, –

 

• 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

 

• 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

 

• Construction of a new residential complex or a part thereof; or

 

• Completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or

 

• Turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;”

 

• 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 flatsand 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 –

 

• abuilding or buildings, having more than twelve residential units;

 

• a common area; and

 

• 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, –

 

• “personal use” includes permitting the complex for use as residence by another person on rent or without consideration;

 

• “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]”

 

• 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  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 “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 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.”

 

• To sum up, as far as construction of ‘residential complexes’ by the builders are concerned :

 

• 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).

 

• 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

 

• 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.

 

• 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.

 

• 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.

 

• In view of the above, it is well settled legal position that whether the service is rendered asservice 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.

 

• 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.

 

• 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. Asfar 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 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 setaside all the penalties.

 

14. Inview of the above, both appeals are disposed of as below :

 

• 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.

 

• The demand of Service Tax on construction of Mahatma Gandhi Cancer Hospital and Research Institute is upheld under works contract service.

 

• The demand of Service Tax on construction of building for Indian Registrar of Shipping is set aside.

 

• The appellant/assessee can opt for works contract (composition scheme), if they so desire, for the payment of Service Tax liability.

 

• Interestneeds to be re-calculated on the differential Service Tax as 

 

• Allpenalties are set

 

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.”

 

• Thesimilar issue was also considered in the case of Jagdish Pala – 2022 (65) GSTL 241 (Tri. Hyd) wherein the following order was passed: –

“15.We have considered the submissions made by both the sides and perused the records.

 

16. We find that the Appellantare engaged in the construction of Residential and Commercial Complexes and received the booking amount as well as installment amount from his buyers. Revenue proceeded against them on the ground that they have evaded payment of Service Tax on the services rendered by them to their customers in the category of “Commercial or industrial Construction Services” during the period 2004-05 to 2008-09. Whereas, we find that an explanation was added by the Finance Act, 2010 in Section 65(105)(zzzh) of the Finance Act, 1994 which reads as under :

 

“Construction of a Complex 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 a person authorized by the builder before the 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.”

 

Further, the Board issued clarification on the construction service vide Circular No. 151/2/2012-S.T., dated 10-2-2012 as under :

 

• Taxabilityof the construction service :

 

• For the period prior to 1-7-2010 : construction service provided by the builder/developer will not be taxable, in terms of Board’s Circular No. 108/2/2009-S.T., dated 29-1-2009 [2009 (13) S.T.R. C33].

 

• For the period after 1-7-2010, construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land was received by the builder/developer before the issuance of completion certificate and the servicetax would be required to be paid by builder/developers even for the flats given to the land owner.

 

From the above position, we are of the considered view that prior to 1- 7-2010 builders/developers are not liable to pay service tax for the Construction Service and in the present case, the period involved is from 2004-2005 to 2008-09. Consequently, we hold that the impugned order is not sustainable in law.

 

17. Wealso find that in the case Collector of Central Excise, Vadodara  Dhiren Chemical Industries – 2002 (139) E.L.T. 3 (S.C.), the Apex Court held as under :

 

“We need to make it clear that regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue.”

 

In Collector of Central Excise, Meerut v. Maruti Foam P. Ltd. – 2004

(164) E.L.T. 394 (S.C.), the Apex Court held that the construction of statutory phrase, placed by a circular issued by the Central Board of Excise and Customs, although different from the one placed by the Supreme Court, was binding on the Revenue till the same was withdrawn.

 

18. In the light of above decisions , it becomes clear that the circular, is binding on the department and this circular makes it more than abundantly clear that construction service provided by the builder/developer will not be taxable for the period prior to 1-7-2010.

 

19. In the circumstances, the impugned order is not sustainable, hence the same is set aside. The appeal is allowed with consequential relief, if any.”

 

 

• Inview of the above judgment and the board circular it is clear that up to 01.07.2010 there was no service tax on the Construction of Residential Complex. Therefore, for this reason also the demand is not sustainable, hence, the same is set aside.

5. As regard the refund in respect of the deposit made against the aforesaid demand, we find that since the demand itself is set aside, the appellant is entitled for the refund as consequential benefit. Thecontention of the revenue is that the deposit made by the appellant is covered by the provision of Section 73 (3) of Finance Act, 1994. We find that in case of payment made under 73 (3), firstly the assessee is required to pay the amount of service tax along with interest and same need to be intimated to the department and simultaneously the department is not supposed to issue the show cause notice. In the present case admittedly the appellants were issued show cause notice demanding service tax, therefore, this case is not

 

covered by provision of 73 (3) of the Finance Act, 1994. Hence, the rejection of refund on that count is baseless and not tenable.

6. As per our above discussion and finding, the demand of service tax is set aside. Consequently, the appellants are entitled for the refund. All the appeals are allowed accordingly.

 

 

 

(Pronounced in the open court on 21.07.2023)

 

RAMESH NAIR MEMBER (JUDICIAL)

 

C.L.MAHAR MEMBER (TECHNICAL)