Commissioner of Central Tax Vs Abhilash Synergetic Constructions & Exports Pvt Ltd (CESTAT Hyderabad)
Summary: The CESTAT Hyderabad considered cross-appeals arising from a common adjudication order concerning service tax on construction of residential flats under development agreements with landowners and separate agreements with individual purchasers. A Show Cause Notice dated 20.06.2013 had proposed service tax of Rs. 2,20,23,119/- for the period from 01.10.2007 to 31.03.2013. The adjudicating authority confirmed Rs. 80,27,853/- under Works Contract Service with interest and penalty and dropped the remaining demand of Rs. 1,39,95,266/-. The assessee challenged the confirmed demand, while Revenue challenged the portion dropped. The Tribunal held that although contracts involving supply of goods and construction services were composite works contracts, taxability of residential construction still depended upon satisfaction of the statutory definition of “Residential Complex” under Section 65(91a) of the Finance Act, 1994.
A building or independently identifiable project containing twelve or fewer residential units and not otherwise satisfying that definition could not be taxed merely by describing the activity as a works contract. The Tribunal further held that the Explanation to Section 65(105)(zzzh), deeming construction by a builder taxable where consideration was received from a prospective purchaser before completion certificate, operated only from 01.07.2010 and could not retrospectively sustain the demand for the earlier period. Construction undertaken under separate agreements with individual purchasers for completion of residential units intended for their personal use was also covered by the statutory exclusion.
On flats allotted to landowners, the Tribunal held that a separate demand could not survive where the value of development rights or land was already embedded in the value subjected to service tax, since that would result in double taxation. Wherever consideration was otherwise found taxable, applicable abatement and cum-tax benefit under Section 67(2) of the Finance Act, 1994 was to be extended.
On limitation, the Tribunal found that the controversy involved interpretation of composite construction contracts, the deeming Explanation, personal-use exclusion, landowner’s share and valuation, with divergent judicial views during the relevant period. Relying on Uniworth Textiles Ltd. Vs Commissioner of Central Excise, it held that mere non-payment did not constitute suppression and no positive act of fraud, collusion or deliberate suppression had been established. The extended period and all penalties were therefore set aside. Consequently, the assessee’s appeal was allowed and Revenue’s appeal was dismissed.
Cases Discussed
- Aruna Constructions Vs Commissioner of Central Excise and Service Tax, Visakhapatnam – I, Final Order Nos. A/30164-30166/2026 dated 13.03.2026 – relied upon regarding taxability of construction of residential flats prior to 01.07.2010.
- MVV Builders Vs Commissioner of Central Excise and Service Tax, Visakhapatnam – I, Final Order Nos. A/30517-30518/2025 dated 25.11.2025 – relied upon regarding individual construction contracts and personal-use exclusion.
- R.V. Nirman Pvt Ltd. Vs Commissioner of Customs, Central Excise and Service Tax, Hyderabad – II, Final Order No. A/30270/2026 dated 28.04.2026 – relied upon by the appellant.
- Commissioner of Central Excise and Customs, Kerala Vs Larsen and Toubro Ltd., 2015 (39) STR 913 (SC) – indivisible composite works contracts could not be subjected to service tax under construction service categories prior to 01.06.2007.
- Vasantha Green Projects Vs Commissioner of Central Tax, 2019 (20) GSTL 568 (Tri.-Hyd) – considered regarding separate taxation of flats allotted to landowners where development-right value was already embedded in taxable value.
- Uniworth Textiles Ltd. Vs Commissioner of Central Excise, 2013 (288) ELT 161 (SC) – mere non-payment does not amount to suppression; deliberate conduct with intent to evade must be established for extended limitation.
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT HYDERABAD
These two appeals – one is filed by M/s Abhilash Synergetic Constructions & Exports Pvt Ltd., (hereinafter referred to as appellant) and the other filed by the Revenue (hereinafter referred to as respondent) arise out of the common Order-in-Original dated 23.05.2014 passed by the Commissioner of Central Excise, Customs and Service Tax, Visakhapatnam – I. They are, therefore, taken up together and disposed of by this common order.
2. The fact, in brief, is that the appellant is engaged in the construction of residential flats under development agreements entered into with land owners and separate agreements entered into with perspective individual purchasers. A Show Cause Notice dated 20.06.2013 proposed demand of Service Tax amounting to Rs. 2,20,23,119/- for the period from 01.10.2007 to 31.03.2013, along with interest and penalties.
3. By the impugned order, the Adjudicating Authority confirmed Service Tax of Rs. 80,27,853/- under “Works Contract Service”, along with applicable interest and penalty, and dropped the remaining demand of Rs. 1,39,95,266/-. Aggrieved by the confirmed demand, the appellant has filed its appeal, while the Revenue has challenged the portion of the order dropping the demand.
4. Learned Counsel for the appellant submits that the appellant had undertaken construction of residential flats under development agreements and individual agreements with the respective purchasers. The appellant was registered under “Construction of Residential Complex Service”, whereas, the Adjudicating Authority has confirmed the demand by re-classifying the activity as “Works Contract Service”.
5. It is submitted that a building or group of buildings have been twelve or fewer residential units does not satisfy the definition of “Residential Complex” under Section 65 (91a) of the Finance Act, 1994. Further, construction undertaken under separate agreements with individual purchasers for their personal residential use falls within the exclusion incorporated in Section 65(91a) of the Finance Act, 1994.
6. The appellant has broadly divided the disputed period as follows:
i) For the period prior to 01.07.2010, the activity of a builder constructing flats for prospective purchasers was not taxable in the absence of the explanation subsequently inserted in Section 65(105)(zzzh);
ii) For the period from 01.07.2010 to 30.06.2012, construction undertaken under individual agreements for personal residential use was excluded from the definition of residential complex; and
iii) For the period from 01.07.2012 to 31.03.2013, the appellant claims exclusion of the land owner’s-share and, in the alternative, applicable abatement and cum-tax duty benefit.
7. Reliance has been placed on the decisions of this Tribunal in Aruna Constructions Vs Commissioner of Central Excise and Service Tax, Visakhapatnam – I, Final Order Nos. A/30164-30166/2026 dated 13.03.2026; MVV Builders Vs Commissioner of Central Excise and Service Tax, Visakhapatnam – I, Final Order Nos. A/30517-30518/2025 dated 25.11.2025; and R.V. Nirman Pvt Ltd., Vs Commissioner of Customs, Central Excise and Service Tax, Hyderabad – II, Final Order No. A/30270/2026 dated 28.04.2026.
8. On limitation, it is submitted that the issue was interpretational and divergent decisions prevailed during the relevant period. The explanation to Section 65 (105)(zzzh) was inserted only w.e.f. 01.07.2010. There was no fraud, wilful mis-statement or suppression with intent to evade tax. Invocation of the extended period and imposition of penalties or therefore contested.
9. Learned Authorized Representative for the Department reiterates the ground of the Departmental appeal and the findings supporting the confirmed portion of the demand. It is submitted that the contracts involved transfer of property in goods along with construction services and were correctly classifiable as Works Contract Service. It is further contended that the construction undertaken for land owners represented a taxable service for non-monitory consideration in the form of development rights. Therefore, the Adjudicating Authority ought not to have dropped the demand of Rs. 1,39,95,266/-.
10. We have heard and considered the submissions made by both sides and perused the records.
11. It is not in dispute that the contracts involved both supply of goods and rendition of construction services. Such indivisible composite contracts are in the nature of works contracts. The Hon’ble Supreme Court in Commissioner of Central Excise and Customs, Kerala Vs Larsen and Toubro Ltd., 2015 (39) STR 913 (SC) held that and indivisible composite works contract could not be subjected to Service Tax under the categories of Commercial or Industrial Construction Service or Construction of Complex Service prior to 01.06.2007. After 01.06.2007, such contracts could be taxed only under the specific taxable category of Works Contract Service, subject to satisfaction of its statutory requirements. However, mere existence of a composite contract does not conclude the question of taxability. To fall within Works Contract Service in relation to residential construction, the subject construction must satisfy the statutory description of a “Residential Complex”. Section 65(91a), as applicable during the material period, contemplated a complex comprising a building or buildings having more than twelve residential units, common area and one or more prescribed common facilities.
12. Consequently, where a project or an independently identifiable building consists of twelve or fewer residential units and does not otherwise constitute a residential complex as statutorily defined, its construction cannot be subjected to tax merely by describing it as a works contract. The special entry of Works Contract Service cannot enlarge the statutory meaning of “Residential Complex”.
13. The explanation to Section 65(105)(zzzh), deeming construction by a builder to be a taxable service where any amount was received from a perspective buyer before grant of the completion certificate, was inserted w.e.f. 01.07.2010. The said provision created the deeming fiction and cannot be applied retrospectively to the earlier period. The issue stands covered by the consistent decisions of the Tribunal, including Aruna Construction, holding that Construction of residential flats by a builder for perspective buyers was not liable to Service Tax prior to 01.07.2010 in the absence of the statutory deeming provision.
14. We accordingly hold that the demand under Construction of Residential Complex Service in respect of the period prior to 01.07.2010 is not sustainable.
15. The definition of “Residential Complex” under Section 65(91a) excluded a complex constructed by a person directly engaging another person for designing, planning and construction, where such complex was intended for personal use as residence by that person. The explanation to Section 65(91a) clarified that “personal use” includes permitting the complex for use as residence by another person on rent or without consideration. “Residential Unit” was separately defined to mean a single house or a single apartment intended for use as a place of residence. From the material placed before us, it appears that the appellant initially transferred the undivided share in the land together with the partly constructed to the residential unit ant thereafter entered into separate agreements with individual purchasers for completion and finishing of the respective flats. The construction and completion works was thus undertaken pursuant to individual agreements with the respective purchasers. The Coordinate Bench in MVV Builders, supra, after examining comparable agreements, held that construction undertaken under individual contracts for completing residential units intended for the personal use of the respective purchasers falls within the exclusion in Section 65(91a). It was further held that it is immaterial whether the individual purchaser personally occupies the unit or permits another person to use it as a residence on rent or without consideration. The Department has not produced any material to establish that the individual purchasers acquired the flats for commercial exploitation or that the units were not intended for residential use. The mere fact that several individual units form part of one development does not, by itself, negate the personal-use exclusion where separate construction agreements were entered into with individual purchasers for completion of their respective residences.
16. We therefore hold that the Service Tax is not payable on the consideration received under such individual agreements for construction or completion of residential units intended for the personal use of the respective purchasers.
17. The next issue concerns the flats allotted to the land owners under the development agreements. In Vasantha Green Projects Vs Commissioner of Central Tax 2019 (20) GSTL 568 (Tri.-Hyd), the Tribunal examined a comparative joint-development arrangement and held that where the value attributable to development rights or acquisition of land stood embedded in the value of flats sold to independent purchasers and appropriate Service Tax was discharged on the gross amount, the separate demand on flats allotted to landowners would result in double taxation. However, the principle is subject to verification that the value of land or development rights was, in fact incorporated in the assessable value of the developer’s share and that the appropriate tax was discharged on such value. A blanket conclusion that land owner’s share is invariably non-taxable, without examining the manner of valuation, would not be correct. In the present case, the impugned order does not establish that any part of the consideration received in kind from the landowners escaped taxation despite the corresponding value having already been included in the assessable value of the developers-share. In the absence of such evidence, a second levy upon the landowner’s share cannot be sustained. The Department’s challenge on this count is therefore rejected.
18. Without prejudice to the above findings, wherever any amount is found taxable upon final verification, the appellant shall be entitled to the applicable statutory abatement, subject to fulfilment of the prescribed conditions. The appellant has specifically claimed that it did not collect Service Tax separately from the purchasers. Section 67(2) of the Finance Act, 1994 provides that where the gross amount charged is inclusive of Service Tax, the value of taxable is must be determined on a cum-tax basis. Therefore, any consideration which is ultimately held taxable must be treated as inclusive of Service Tax unless the Department establishes that Service Tax was collected separately.
19. The Show Cause Notice was issued on 20.06.2013 for the period commencing from 01.10.2007. The substantial portion of the demand is therefore sustainable only if the extended period under the proviso to Section 73(1) of the Finance Act, 1994, is validly invoked.
20. The dispute involves the classification of composite construction contracts, the effect of the explanation inserted w.e.f. 01.07.2010, the scope of the personal-use exclusion, the taxability of the land owner’s share and the method of valuation. Divergent judicial views prevailed on these issues during the relevant period. The subsequent insertion of a deeming Explanation itself demonstrates the interpretational nature of the controversy. The Hon’ble Supreme Court in Uniworth Textiles Ltd., Vs Commissioner of Central Excise, 2013 (288) ELT 161 (SC) held that mere non-payment of duty does not amount to suppression and that something more indicating a deliberate act with intent to evade payment must be established for invoking the extended period. In the present case, the impugned order does not identify any positive act of fraud, collusion or deliberate suppression on the part of the appellant. The demand has arisen substantially from an interpretation of agreements and statutory provisions. We therefore hold that the extended period of limitation is not invokable.
21. For the same reasons, penalties cannot be sustained. Where the dispute concerns interpretation of complex and frequently amended statutory provisions, the appellant cannot be visited with penalty in the absence of fraud or deliberate evasion. The penalties imposed by the Adjudicating Authority are accordingly set aside.
22. In view of the forgoing discussion, we hold as follow:
i) The demand relating to construction of residential flats or the period prior to 01.07.2010 is set aside;
ii) Construction of a building or independently identifiable project having twelve or fewer residential units, which does not otherwise satisfy Section 65(91a), is outside the scope of construction of residential complex service;
iii) The demand on construction undertaken under separate agreements with individual purchasers for completion of residential units intended for their personal use is set aside.
iv) The separate demand on flats allotted to landowners is unsustainable where the value of the development rights or land is already embedded in the value subjected to Service Tax, since a further demand would amount to double taxation;
v) Wherever any consideration is otherwise found taxable, applicable abatement and cum-tax benefit under Section 67(2) shall be extended;
vi) Invocation of the extended period is set aside and any liability, if otherwise surviving, shall be confined to the normal period; and
vii) All penalties imposed upon the appellant are set aside.
23. Consequently, appellant’s appeal is allowed and the appeal filed by the Department is dismissed.
(Pronounced in the open court on 10.09.2026 )
