Casa Grande Private Limited Vs Commissioner of Service Tax (CESTAT Chennai)
In Casa Grande Private Limited Vs Commissioner of Service Tax, the CESTAT Chennai examined whether service tax could be demanded underworks contract service (WCS) on residential construction activities undertaken by a developer during December 2009 to September 2010. The appellant entered into agreements with prospective purchasers for the sale of undivided shares in land together with construction of residential units. These arrangements were composite contracts. The dispute arose from Order-in-Original No. 1/2013 dated 28.03.2013, whereby the Commissioner of Central Excise, Chennai confirmed a service tax demand proposed in the show cause notice dated 07.04.2011. The Revenue alleged that the appellant had not paid service tax for December 2009 to June 2010 and had incorrectly discharged tax under Construction of Residential Complex Service (CRCS), rather than WCS, during July to September 2010.
The total proposed service tax demand amounted to Rs.54,25,812, comprising Rs.50,19,399 for December 2009 to June 2010 and differential tax of Rs.4,06,414 for July to September 2010, together with applicable interest and penalties. The Revenue relied on the introduction of Construction of Complex Service under Section 65(30a) of the Finance Act, 1994 with effect from 16.06.2005 and Works Contract Service under Section 65(105)(zzzza) with effect from 01.06.2007. The appellant disputed liability before 01.07.2010, relying on Notification No. 36/2010 dated 28.06.2010, its corrigendum dated 29.06.2010, relevant CBEC clarifications and judicial precedents. It maintained that residential construction undertaken by a developer was not taxable before 01.07.2010 and that service tax had been paid under CRCS for the subsequent period.
Before the Tribunal, the appellant relied on decisions including Real Value Promoters Pvt. Ltd., URC Construction (P) Ltd., Krishna Homes and Pragati Edifice Pvt. Ltd. The Revenue defended the adjudication order and submitted that composite contracts were taxable under WCS after 01.06.2007. The Tribunal particularly examined the Hyderabad Bench decision in Pragati Edifice Pvt. Ltd., which had considered the Supreme Court ruling in Commissioner of Central Excise and Customs, Kerala v. Larsen & Toubro Ltd. and other Tribunal decisions. The principle emerging from those authorities was that composite works contracts were not taxable before 01.06.2007; after that date, the appropriate classification depended on whether the arrangement was a composite works contract or a pure service. However, in the context of residential construction by developers, construction undertaken before completion and transfer to customers was not liable to service tax before 01.07.2010.
Applying this reasoning, the CESTAT held that no service tax could be levied on the appellant’s construction of residential complexes for the period preceding 01.07.2010, irrespective of whether the activity was characterized as a service simpliciter or a works contract. Accordingly, it set aside the demand for the pre-July 2010 period. For the period from 01.07.2010 to September 2010, the Tribunal upheld the demand in principle but remanded the matter to the Adjudicating Authority for the limited purpose of calculating the service tax liability and interest after following the principles of natural justice. The appeal was therefore partly allowed and partly remanded. The Tribunal did not cancel the entire demand or finally quantify the surviving liability.
Cases Discussed
- Commissioner of Central Excise and Customs, Kerala v. Larsen & Toubro Ltd., 2015 (39) S.T.R. 913 (S.C.) — Considered as the Supreme Court authority governing taxation of composite works contracts before 01.06.2007.
- Real Value Promoters Pvt. Ltd. & Ors. v. Commissioner of GST & Central Excise, Chennai, Final Order Nos. 42436–42438/2018 dated 18.09.2018 (CESTAT Chennai) — Relied upon by the appellant; also referred to by the Revenue regarding the taxation of composite contracts after 01.06.2007.
- URC Construction (P) Ltd. v. Commissioner of Central Excise, Salem, 2017 (50) S.T.R. 147 (CESTAT Chennai) — Cited by the appellant in support of its challenge to the works contract service tax demand.
- Krishna Homes v. Commissioner of Central Excise, Bhopal, 2014 (34) S.T.R. 881 (CESTAT Delhi) — Cited by the appellant regarding service tax on residential construction activities.
- Commissioner of Customs, Central Excise & Service Tax, Visakhapatnam-I v. Pragati Edifice Pvt. Ltd. & Anr., 2019 (31) G.S.T.L. 241 (CESTAT Hyderabad); Final Order Nos. A/31010–31011/2019 dated 18.09.2019 — Expressly relied upon by the Tribunal for holding that residential construction undertaken before 01.07.2010 was not taxable and that subsequent liability required verification.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This appeal is filed by the assessee against the Order-in-Original No. 1/2013 dated 28.03.2013 passed by the Commissioner of Central Excise, Chennai.
2. Smt. Radhika Chandrasekhar, Learned Advocate, appeared for the appellant and Smt. Sridevi Taritla, Learned Additional Commissioner, appeared for the Revenue.
3.1 The appellant before us is engaged in the business of construction of residential complex, is a developer and the appellant enters into contract with prospective buyers for sale of undivided share in the land, together with the construction of residential unit for such buyers. Hence, such agreements / contracts entered into by the appellant are composite contracts.
3.2 The period of dispute is from December 2009 to September 2010. In paragraph 1.4 of the impugned order, it has been recorded that it appeared to the Revenue that the activities undertaken by the assessee were taxable under works contract service and that the assessee had informed that they had not paid Service Tax from January 2009 onwards.
4. It is thus the case of the Revenue that construction of complex service (CCS) was brought under the Service Tax net under Section 65(30a) of the Finance Act, 1994 with effect from 16.06.2005 and works contract service (WCS) was brought under the Service Tax net under Section 65(105)(zzzza) ibid. with effect from 01.06.2007. Accordingly, a Show Cause Notice dated 07.04.2011 was issued, alleging that for the period from December 2009 to June 2010 the Service Tax liability works out to Rs.50,19,399/-. It appeared that for the period from July 2010 to September 2010, the appellant had paid Service Tax under construction of residential complex service (CRCS) whereas the service rendered by the appellant was under WCS, for which the differential tax liability of Rs.4,06,414/- was required to be paid. Thus, a proposal was made to demand the total Service Tax liability of Rs.54,25,812/- for the period from December 2009 to September 2010 under Section 73(1) ibid., along with appropriate interest and penalties.
5. It appears that the appellant filed a reply denying any liability to Service Tax for the period prior to 01.07.2010 for the reasons that Notification No. 36/2010 dated 28.06.2010, as amended by Corrigendum dated 29.06.2010, provided for exemption in respect of taxable services specified in Section 76(A) of the Finance Act, 2010 other than services referred to in Section 65(105)(zzc) and Section 65(105)(zzzz). It was also pleaded that there was no liability on the value realized on the sale of residential flats; that they had entered into agreement with customers for the sale of undivided portion of land and for the construction of flat; that they had correctly remitted the Service Tax from July 2010 under the head CRCS and therefore, the demand under WCS was not tenable. In this regard, they relied on C.B.E.C. Circulars / Notifications / Clarifications apart from rulings of various judicial fora.
6. The above reply filed by the appellant was considered in adjudication by the Commissioner who, after considering the above reply, Circulars/Notifications of the C.B.E.C. and judicial precedents, has, however, confirmed the proposals made in the Show Cause Notice and it is against this impugned Order-in-Original No. 1/2013 dated 28.03.2013 that the present appeal has been filed before this forum.
7.1 Today, when the matter was taken up for hearing, Smt. Radhika Chandrasekhar, Learned Advocate appearing for the appellant, would submit at the outset that the demand, as confirmed in the Order-in-Original, would not survive since the Service Tax on the developer was brought into the ambit of Service Tax with effect from 01.07.2010. She would also contend that after 01.06.2007, the services could be chargeable under WCS only if it was a composite contract.
7.2 She would place reliance on the following orders of various co-ordinate Benches of the CESTAT: –
(i) M/s. Real Value Promoters Pvt. Ltd. & ors. v. Commissioner of G.S.T. & Central Excise, Chennai [Final Order Nos. 42436 to 42438 of 2018 dated 18.09.2018 – CESTAT, Chennai];
(ii) M/s. URC Construction (P) Ltd. v. Commissioner of Central Excise, Salem [2017 (50) S.T.R. 147 (Tri. – Chennai)];
(iii) M/s. Krishna Homes v. Commissioner of Central Excise, Bhopal [2014 (34) S.T.R. 881 (Tri. – Del.)];
(iv) Commissioner of Cus., C.Ex. & S.T., Visakhapatnam-I M/s. Pragati Edifice Pvt. Ltd. & anor. – Final Order Nos. A/31010 to 31011 of 2019 dated 18.09.2019 – CESTAT, Hyderabad [2019 (31) G.S.T.L. 241 (Tri. – Hyd.)].
8. Per contra, Smt. Sridevi Taritla, Learned Additional Commissioner appearing for the Revenue, relied on the findings in the impugned order. She would also refer to the Order of this Bench in the case of M/s. Real Value Promoters Pvt. Ltd. (supra) to buttress her arguments that what has been held by this Bench is that when the contract was composite in nature, the Service Tax would be attracted for the period post 01.06.2007.
9. Having heard the rival contentions, we find that the only issue to be decided is: whether the authority below is justified in demanding Service Tax from the appellant under ‘works contract’ service for the period from December 2009 to September 2010?
10. We find that the Order of the co-ordinate Hyderabad Bench of the CESTAT in the case of M/s. Pragati Edifice Pvt. Ltd. (supra) is a more recent one, which has considered many orders of other co-ordinate Benches and also the decision of the Hon’ble Apex Court in the case ofCommissioner of Central Excise and Customs, Kerala v. M/s. Larsen & Toubro Ltd.[2015 (39) S.T.R. 913 (S.C.)], and has opined as under: –
“(n) To sum up, as far as construction of ‘residential complexes’ by the builders are concerned:
(i) 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).
(ii) 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 simpliciter.
(iii) 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.
(iv) 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.
(v) 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.
(o) In view of the above, it is well settled legal position that whether the service is rendered as service 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.”
(Emphasis supplied by us, in bold, for clarity)
11.1 We have gone through the orders of the various CESTAT Benches which have been considered by the Hyderabad Bench of the CESTAT in M/s. Pragati Edifice Pvt. Ltd. (supra), the relevant observation of which has been extracted hereinabove. We find that it has been categorically held that no Service Tax could be levied on construction of residential complexes prior to 01.07.2010 even when the service is rendered either as service simpliciter or as a works contract.
11.2 Evidently, in the case on hand, the period of dispute is up to September 2010 and hence, in view of the above, the liability to Service Tax, if any, is restricted to the period post 01.07.2010.
12. Consequently, the demand for the period post 01.07.2010 is upheld and the demand for the period prior to this date, is set aside. The matter is remanded to the Adjudicating Authority for the limited purpose of calculating the Service Tax liability and interest, as above, after following the principles of natural justice.
13. The appeal stands partly allowed and partly remanded, as indicated above.
(Order pronounced in the open court on 06.04.2023)
