The *petitioners, is a private limited company, engaged in the business of development and sale of immovable property, i.e., real estate, have impugned a notice, dated March 6, 2006 issued by respondent Superintendent of Central Excise, whereby the petitioner-company has been asked to get itself registered under section 69 of the Finance Act, 1994 inasmuch as the petitioner-company has been providing commercial or industrial construction service/construction of complex service.
The petitioners challenge the very authority of respondent to issue the notice, which stands impugned in the present writ petition, the case of the petitioners being, in brief:
The petitioner-company constructs buildings and sells premises/flats in such buildings. During the course of development of such property and construction of buildings thereon and also after completion of such construction, the petitioner-company enters into flat purchase agreements with various premises/flat purchasers, whereunder the petitioner-company allots and sells flat/premises, in such buildings, to the purchasers.
The said transaction is a transaction of sale of flats/premises and the consideration is payable to the petitioner-company in instalments as per the terms, which may be mutually agreed upon, though the terms of the agreement are, usually, co-related to the extent and the stage of the development of the constructional work. The agreement for sale of such flats is stamped as sale of flat/premises for the entire consideration. Before accepting money as advance payment or deposit out of the sale price, the petitioner-company enters into an agreement for sale, which is registered. The agreement contains various details and price including area of the flat, the price of the flat (the price of common areas and facilities being shown separately) and various other facilities concerning the flat, etc. For the purposes of carrying out construction work of the buildings, the petitioner-company engages various contractors for obtaining construction related services to the petitioner-company. Thus, in their various projects, the petitioners have engaged reputed contractors. The petitioners, at times, engage contractors, who supply labour. Sometimes, the petitioners carry out part of the constructional activities. However, the petitioners carry out such constructional activities for themselves and for their own purposes and not for anyone else. The transaction between the petitioners and the flat purchasers is purely a transaction for sale of the flat/premises and cannot be treated as a contract for rendering of service of any nature whatsoever. On certain occasions, instead of purchasing the land from the owners, the petitioners enter into agreements with the owners of the land, such agreements being popularly known as development agreement. Under such agreements, the petitioners become entitled to construct a building on the land and sell the flats, which may be constructed thereon. The petitioners acquire all the rights, title, interest and advantages of the owners including the entitlement to sell, transfer, deal with, dispose of all the premises and areas in the building or structures to be constructed by the petitioners. The petitioners are given the right to enter upon the land, to raise constructions thereon and sell flats constructed on such land. Even after execution of such agreements, the constructional activities, carried out by the petitioners, are mostly through other persons working as external contractors. In any case, such constructional/ developmental activities are carried out by the petitioners for themselves and for their own benefits and not for any other entity or person.
The moot question, which the present writ petition has raised, is this :
Whether the petitioner-company has been working, as a service provider, for those persons with whom the petitioner-company enters into agreements and constructs flats for the purpose of sale to those with whom such agreements are entered into?
The High Court observed, “A combined reading of the various clauses of the agreement for sale makes it abundantly clear that the transaction between the petitioners, on the one hand, and the flat purchaser, on the other, is that of purchase and sale of premises and not for carrying out any constructional activities on behalf of the prospective buyers. What the petitioner-company sells is, thus, the flat/premises and the entire transaction is nothing, but sale and purchase of immovable property. The flat purchasers are entitled to seek specific performance of the contract and there is an obligation, on the part of the petitioner-company, to refund any part of money received together with interest if possession is not handed over to the prospective buyers in time. There is also an obligation, on the part of the petitioner-company, to register sale deeds and agreements. Even the registering authorities concerned treat these documents as agreements for sale/purchase of flats/premises inasmuch as the consideration is for sale and not for carrying out constructional activities. Stamp duty is, therefore, levied on the sale consideration. “
The term “service” has not been defined in the Finance Act, 1994, by way of any Explanation or otherwise or by the Rules framed thereunder. Service has been defined differently under various laws. Under the Income-tax Act, 1961, service means service of any description, which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature, such as, accounting, banking, communication, conveying of news, information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical
or other energy, boarding and lodging.
The High Court observed, “In the light of the various statutory definitions of “service”, one can safely define “service” as an act of helpful activity, an act of doing something useful, rendering assistance or help. Service does not involve supply of goods; service rather connotes transformation of use/user of goods as a result of voluntary intervention of “service provider” and is an intangible commodity in the form of human effort. To have “service”, there must be a “service provider” rendering services to some other person(s), who shall be recipient of such “service.
Under the Finance Act, 1994, “service tax” is levied on “taxable service” only and not on “service provider.A service provider” is only a means for deposit of the service tax to the credit of the Central Government. Although the term “service receiver” has not been defined in the Finance Act, 1994, the “service receiver” is a person, who receives or avails the services provided by a service provider.
From the provisions of the law, it becomes abundantly clear that the burden of registration and payment of “service tax” is on the person, who provides “taxable service” to any person. According to the petitioner-company, it does not provide any taxable service” to any person so as to warrant its registration under the Finance Act, 1994, and/or to pay any “service tax thereunder. Any part of constructional activity for construction of building, which is carried out by the petitioner-company, is not a service” rendered to anyone, but an activity, which is carried out by the petitioner-company, for its own self. Since the very concept of rendering of “service” implies two entities, one, who renders the “service”, and the other, who is recipient thereof, it becomes transparent that an activity carried on by a person for himself or for his own benefit, cannot be termed as “service” rendered.
Prior to the amendment of the Finance Act, 1994, in the year 2005, the Central Board of Excise and Customs, vide Circular No. 80/10/2004, dated September 17, 2004 , clarified that “estate builders, who construct buildings/premises f
or themselves (for their own use, renting it out or for sale thereof subsequently) are not covered within ambit of the construction services.
The clarification offered under the abovementioned circular, shall be applicable even after amendment of the Finance Act, 2005, whereby “construction service” includes construction of “residential complex”. Thus, construction of “residential complex” has also been brought within the purview of “service tax” and what kind of activities for residential complex” would attract “service tax” would have to be understood in the light of the clarification, which the circular aforementioned offers.
The Board has also, vide Circular No. 332/35/2006- TRU , dated August 1, 2006 , clarified that if no person is engaged for construction work and the builder/promoter/ developer undertakes construction work on its own without engaging the services of any other person, then, in such cases, in the absence of a relationship of “service provider” and service recipient, the question of providing taxable service to any person by any other person does not arise.
In the light of what has been laid down in the catena of decisions referred, it becomes clear that the circular, dated August 1,2006, is binding on the department and this circular makes it more than abundantly clear that when a builder, promoter or developer undertakes construction activity for its own self, then, in such cases, in the absence of relationship of “service provider” and “service recipient, the question of providing taxable service to any person by any other person does not arise at all. In the present case too, the materials placed by the writ petitioners clearly show that the construction activities, which the petitioners have been undertaking, are in respect of the petitioners’ own work and it is only the completed construction work, which is sold by the petitioner-company to the buyers, who may have made agreements for sale before the construction had actually started or during the progress of the construction activity or at the end or completion of the construction activity. Any advance, made by a prospective buyer, or deposit received by the petitioner-company, is against consideration of sale of the flat/building to such prospective buyer and not for the purpose of obtaining service from the petitioner-company. In the result, this writ petition succeeds and the impugned notice is hereby set aside and quashed.