Greenwood Estates Vs Commissioner of Central Tax (CESTAT Hyderabad)
Summary: The Appellant, Greenwood Estates, was engaged in construction and sale of residential houses/units in the venture named ‘Flower Heights’. After acquiring land and obtaining the requisite permission, the Appellant constructed the units and sold unfinished units to prospective buyers through agreements providing for sale of an undivided portion of land together with the semi-finished flat. The sale consideration included the cost of construction of the unfinished unit and the sale of the undivided portion of land. The sale deed was registered upon payment of appropriate stamp duty, and the VAT liability on the deemed sale of the material component under the State Act was also discharged.
A separate agreement was entered into with the buyer of the unfinished flat/unit for undertaking or completing its construction. Revenue took the view that, while no service tax was leviable on services rendered up to the date of execution of the sale deed since the property remained with the builder and such services were effectively self-services, the construction services rendered after the sale deed under the separate construction agreement involved a service provider-service recipient relationship and were liable to service tax under Section 65(105)(zzzza) of the Finance Act. Revenue also considered the development to qualify as a residential complex under Section 65(91a), referring to common facilities such as a park and common water supply and the approval of the layout by HMDA and the Alluvial municipality.
For January 2010 to December 2010, Revenue relied upon a statement submitted by the Appellant showing house-wise amounts received and proposed service tax of Rs.48,00,391/- on gross receipts of Rs.11,65,14,336/-. A similar show cause notice for January 2011 to December 2011 proposed service tax of Rs.46,81,850/- on gross receipts of Rs.11,36,37,141/-, with a proposal to appropriate service tax of Rs.5,98,671/- already deposited.
This was the second round of litigation. In the earlier round, the common Order-in-Original dated 31.08.2012 accepted that service tax could not be demanded on the sale deed value, although that amount was included while calculating the tax liability. The Commissioner (Appeals), by order dated 27.02.2013, did not accept the contention regarding personal use but found merit in the plea for requantification and remanded the matter for recalculation after verification of details. The Tribunal, by Final Order No. 20401/2014 dated 25.03.2014, remanded the matter to the Original Authority to consider all issues, including quantification of tax liability, if any. Thereafter, the Additional Commissioner, by Order-in-Original dated 09.06.2017, confirmed the demand while rejecting the submissions, without recording findings on the various grounds raised by the Appellant. The Commissioner (Appeals), by Order-in-Appeal dated 27.04.2018, confirmed part of the demand and remanded the matter for requantification, leading to the present appeal before the Tribunal.
Before the Tribunal, the Appellant contended that the construction was undertaken for the personal use of individual customers and therefore fell within the exclusion contained in Section 65(91a) of the Finance Act. It was argued that “personal use” included permitting the complex or unit to be used as a residence by another person on rent or without consideration, and consequently no service tax was payable on consideration received under the construction agreements for completing houses or units already sold through sale deeds.
The Appellant relied upon the Tribunal’s decision in Modi Ventures Vs CCT & GST, Final Order No. 30882/2020 (Hyderabad Bench), where, under similar circumstances, the Tribunal held that separate construction agreements entered into with individual house owners for completion of their respective units meant that the construction was for their personal use and residence and was excluded from the relevant definition.
The Appellant also contended that the finding that it had not disputed the demand relating to amounts received under the construction agreement was incorrect, as the liability had been contested from the show cause notice stage. It further relied upon its own case reported at [2019 (2) TMI 772 – CESTAT] and the Tribunal’s ruling in CCE Vishakhapatnam Vs Pragati Edifices Private Ltd., [2019 31 GSTL 241 (Tri-Hyd)], in support of its contention concerning the period prior to 01.07.2010.
The Appellant additionally argued that Revenue had itself accepted that service tax could not be demanded on the sale consideration mentioned in the sale deed. It contended that inclusion of such amounts in the taxable value under the composition scheme was erroneous and beyond the scope of the show cause notice. It also submitted that non-taxable amounts such as reimbursements towards VAT and registration charges had been included in the demand.
Revenue opposed the appeal and relied upon the impugned order. The learned AR contended that the Appellant was not entitled to the benefit of the exclusion under Section 65(91a), submitting that the exclusion was confined to services received for designing or planning of the layout.
The Tribunal, after considering the rival contentions, found that the issue was squarely covered in favour of the Appellant by its decision in Modi Ventures. The Tribunal noted that the precedent had categorically held, on similar facts, that no service tax was chargeable both for the period prior to 01.07.2010 and for the period after 01.07.2010 where the service was provided to an individual buyer of a flat for personal use.
Accordingly, the Tribunal held that the Appellant was not liable to any service tax. It allowed the appeal, set aside the impugned order and held that the Appellant would be entitled to consequential benefits in accordance with law. The order was pronounced in open court on 12.03.2024.
Cases Discussed
- Modi Ventures Vs CCT & GST, Final Order No. 30882/2020 (Hyderabad Bench) — The Tribunal relied upon this decision as squarely covering the issue. On similar facts involving separate sale and construction agreements with individual buyers, the Tribunal had held that construction for the individual buyer’s personal use was excluded from the relevant definition and that no service tax was chargeable for the periods before or after 01.07.2010.
- CCE Vishakhapatnam Vs Pragati Edifices Private Ltd., [2019 31 GSTL 241 (Tri-Hyd)] — The decision was relied upon by the Appellant in support of its contention concerning liability to service tax for the period prior to 01.07.2010.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
The Appellant is engaged in construction and sale of residential houses/units in the venture named as ‘Flower Heights’. The Appellant after acquisition of land and obtaining the permission of the competent authority undertakes the construction. In the course of construction the Appellant have sold unfinished units to prospective buyers by entering into agreements as follows: –
“sale deed for undivided portion of land together with semi finished flat. The amount of sale consideration includes the cost of construction of the unfinished unit along with the sale of undivided portion of land. Sale deed is registered on payment of appropriate stamp duty. The VAT liability on the deemed sale of material component under the state act is also discharged”.
2. Another agreement is entered into with the buyer of the unfinished flat/unit for undertaking or completing the construction.
3. It appeared to Revenue that although Appellant is registered with the department but they are not discharging service tax liability properly and were not filing the ST-3 returns regularly. Upon enquiry revenue found that for the period January 2010 to December 2010, Service Tax return was not filed. The Appellant was of the view that as they are constructing house/units for the individual use of the buyer, the same falls under the exclusion clause under Section 65(91a) of the Finance act.
4. It appeared to Revenue that till the execution of sale deed the property remains in the name of the assessee/builder and services rendered thereto are self services. Therefore, there is no levy of service tax on the services rendered till the date of sale deed, that is on the value of consideration shown in the sale deed. But as regards the value of service rendered under the construction agreement, post sale, there exists the service provider and service receiver relationship between the assessee and the customers. Therefore such service invariably attracts service tax under section 65(105)(zzzza). It further appeared that the complex developed by the Appellant qualifies to be a residential complex as defined under Section 65(91a), as it has got common facilities like Park, common water supply etc., and the layout was approved by HMDA and the Alluvial municipality. On execution of the sale deed the right in the property/unit got transfered to the customer and the service provided thereafter is liable to service tax. Thend Appellant had submitted detailed statement received by revenue on 22 April 2011, giving the house-wise amounts received during the period January 2010 to December 2010. The gross amount received appears to be Rs. 11,65,14,336/- on which Service Tax was demanded Rs.48,00,391/-. Similar show cause notice was issued for the period January 2011 to December 2011 on the gross amount received Rs.11,36,37,141 demanding service tax of Rs. 46,81,850/-, with proposal to appropriate service tax already deposited Rs.5,98,671/-. The relied upon documents in the Show Cause Notice are –
- Show Cause Notice(1) dated 23.04.2011 – Statement submitted by M/s Greenwood Estates and received on 22.04.2011.
- Show Cause Notice(2) dated 24.04.2012 – Statement submitted by M/s Greenwood Estates and received in this office on 08.02.2012.
5. This is the 2 round of litigation. In the earlier round vide common Order-in-Original dated 31.08.2012, it was accepted that service tax cannot be demanded on the sale deed value. However in the order while calculating the tax liability the said amount was included in the taxable turnover. Being aggrieved the Appellant filed appeal before the Commissioner (Appeals) who vide impugned order in appeal dated 27.02.2013, did not agree on the contention of personal use, but did find merit in the plea of requantification and accordingly remanded the matter to the original authority to recalculate the value of taxable service after verification of details. Being aggrieved Appellant had preferred appeal before this Tribunal. Vide Final Order No. 20401/2014 dated 25.03.2014 this Tribunal remanded the matter to the Original Authority to consider all issues including quantification of the tax liability, if any. However the Adjudicating Authority – Additional Commissioner in the Order-in-Original dated 09.06.2017, confirmed the demand rejecting the submissions. No findings were recorded on various submissions/grounds raised by the Appellant. Being aggrieved, in the appeal filed before the Commissioner (Appeals), vide Order-in-Appeal dated 27.04.2018, part of the demand was confirmed and remanded back for requantification. Being aggrieved the Appellant assessee is in appeal before this Tribunal.
6. Learned Counsel for the Appellant inter-alia urges that the construction done by the Appellant is for personal use of the customer and therefore not liable to service tax. The construction for personal use of the customers/individual falls within the ambit of exclusion clause under Section 65(91a), which categorically states that personal use includes permitting the complex/unit for use as residence by another person on rent or without consideration. Hence no service tax is chargeable on the consideration received under the agreement of construction for completing the house/unit which have been sold vide sale deed. Appellant relies on the precedent ruling of this Tribunal in Modi Ventures Vs CCT & GST Final Order No. 30882/2020 (Hyderabad Bench). This Tribunal observed under similar circumstances, that there is no agreement for completion of the entire complex, but there are a number of agreements with different individual house owners for completion of their unit/building. In other words, the individual house owner is engaging the Appellant for construction of the residential unit for his personal use, and residence. It was held that no service tax is chargeable from the builder/assessee under the agreement entered into by them with the buyers for completion of their unit/building.
7. It is further urged that the finding in para 9 of the impugned order that the Appellant have not disputed the demand on the amount received under the construction agreement, is not correct, in as much as the Appellant have been contesting the same right from the show cause notice stage.
8. It is further urged that it has been held in the Appellant’s own case by this Tribunal in the Final Order reported at [2019 (2) TMI 772 – Cestat] that service tax is not applicable on construction services prior to the period 01.07.2010. Reliance is placed on the ruling of this Bench of the Tribunal in CCE Vishakhapatnam versus Pragati Edifices Private Ltd., [2019 31 GSTL 241 (Tri-Hyd)]. Although in the impugned order it have not been categorically held that Appellant is liable to service tax for the period prior to 01.07.2010, however the demand have been confirmed.
9. It is further urged, that in spite of it being the admitted case of the revenue that service tax cannot be demanded on the sale consideration mentioned in the sale deed executed between the Appellant and the buyer for the residential unit. However the adjudicating authority have erred in confirming the demand including on the sale consideration stating that under the composition scheme, does not exclude the value of sale deed. The impugned order is also beyond the scope of the show cause notice. This is also confirmed as per the observation in the Order-in-Original dated 31.08.2012 wherein para 17 it is observed – no service tax have been demanded on the sale deed value in light of Board circular dated 29.01.2009. After execution of sale deed, they have entered into an agreement with the customer for completion of the said flat and the service tax demand is confined to this agreement. While confirming the demand in the impugned orders, non-taxable amounts have also been included like reimbursements on account of VAT, registration charges, etc.
10. Learned counsel further urges that so far liability to service tax on consideration received towards completion of the unfinished unit already sold, is also not taxable, as service provided to the owner/buyer of the said unit, is excluded in the exclusion clause under Section 65(91a) as it have been held by this Tribunal in Modi Ventures Vs Commissioner of Central tax, Secunderabad (supra) as follows: –
9. This leaves us with the period from 01.07.2010 to 31.12.2010.
10. The undisputed fact is that appellant had entered into two contracts one for sale of land and the second construction agreement for the flat with individual buyers. For a tax to be levied under works contract service, in the first place, it must be either construction of a new residential complex or a part thereof or completion of unfinished services related to it. The term <residential complex= under Section 65(91a) specifically excludes any construction for personal use by an individual. This builder has planned his business with a separate construction agreement entered into with individual flat owners. Hence they get excluded from the definition of works contract service. Therefore no service tax can be levied even for the period post 01.07.2010.
Accordingly the learned counsel prayed for allowing the appeal with consequential benefits.
11. Learned AR for revenue opposing the appeal relies on the impugned order. It is further urged that Appellant is not entitled to benefit of exclusion clause in Section 65(91a), as exemption is confined to the service received for designing on planning of the layout only.
12. Having considered the rival contentions, we find that the issue herein is squarely covered in favour of the Appellant vide Final Order in Modi Ventures of this Tribunal (supra), wherein it have been categorically held under similar facts and circumstances, no service tax is chargeable both for the period prior to 01.07.2010 and also for the period after 01.07.2010, being service provided to the individual buyer of the flat for personal use. Accordingly we hold that the Appellant is not liable to any service tax.
13. In view of our finding we allow this appeal and set aside the impugned order. The Appellant shall be entitled to consequential benefits in accordance with law.
(Order Pronounced in open court on 12.03.2024)
