Haresh Kishor Vs Commissioner of GST and Central Excise (CESTAT Chennai)
Summary:The Chennai Bench of CESTAT allowed the appeal of M/s Haresh Kishor against Order-in-Appeal No. 181/2015 (STA-II), dated 5 August 2015. The dispute concerned service tax on construction of flats, together with a separate issue relating to renting of immovable property. The Tribunal considered the nature of the approved construction, subsequent use of the flats, and the law governing composite works contracts before 1 June 2007.
The appellant constructed nine residential flats on his own land under an approved residential plan. Six flats were sold with undivided shares in the land, and three were retained. The purchasers subsequently used their flats for commercial purposes. The Department treated that subsequent use as a basis to demand service tax under commercial or industrial construction services for September 2004 to September 2006. The appellant disputed the classification, arguing that purchasers’ later use could not retrospectively change the nature of the construction service.
The Tribunal found that the Department had not produced evidence showing that the buyers had contracted for construction of a building intended primarily for commercial or industrial use. The flats were constructed as residential units under the approved plan. The buyers’ subsequent lawful use of their premises was not a sufficient ground to classify the appellant’s original activity as commercial or industrial construction service.
The Tribunal also examined the appellant’s works-contract contention. The appellate authority had rejected it because the taxable works-contract category commenced only on 1 June 2007, without disputing that the activity was in the nature of a works contract. Applying Commissioner of Central Excise & Customs v. Larsen & Toubro Ltd., Real Value Promoters Pvt. Ltd. and Jain Housing & Construction Ltd., the Tribunal held that the pre-1 June 2007 period was covered by the settled law on composite works contracts.
As to renting of immovable property, the appellate proceedings themselves recorded that the appellant had already paid the entire service tax and applicable interest before the original adjudication order. The Tribunal clarified that no further amount remained to be demanded or recovered on this count. It set aside the impugned appellate order and allowed the appeal with consequential relief, if any, in accordance with law.
Cases Discussed
- Commissioner of Central Excise & Customs, Kerala v. Larsen & Toubro Ltd. — 2015 (39) S.T.R. 913 (SC)
- Real Value Promoters Pvt. Ltd. v. Commissioner of GST & Central Excise — Final Order Nos. 42436–42438/2018, dated 18 September 2018 (CESTAT Chennai)
- Jain Housing & Construction Ltd. v. Commissioner of Service Tax, Chennai — (2023) 10 Centax 170 (CESTAT Chennai), dated 24 February 2023
- Commissioner of Service Tax v. Jain Housing and Construction Ltd. — 2023 (10) Centax 171 (SC)
FULL TEXT OF THE CESTAT CHENNAI ORDER
Harish Kishor, the appellant herein, has assailed the impugned Order-in-Appeal No. 181/2015 (STA-II) dated 05.08.2015 (OIA) to the extent where by the appellate authority, after recording the appellant’s contest of the demand of service tax payable as regards to commercial and construction service, goes on to reject the same and has modified the order in original to the extent of sustaining the demand made therein along with applicable interest and imposition of penalty under Section 78 on this count. The appellate authority has also sustained the demand of service tax on renting of immovable property along with appropriate interest thereon while setting aside the penalty imposed under Section 78 on this count.
2. Briefly stated, the facts are that the appellant is engaged in the business of construction and renting of immovable property and is registered as a service tax assessee. The appellant had constructed nine residential flats in his own land after getting approval for the same from the competent authority and had sold 6 flats along with undivided share to the buyers, while retaining three. The buyers subsequently used their flats for commercial purposes. The Department issued an SCN No.69/2009 dated 25.08.2009 invoking the extended period of limitation, proposing to demand service tax for ‘Commercial or industrial construction services’ under Section 65 (25)(b) read with Section 65 (25) (zzq) of the Finance Act 1994 for the period September 2004 to September 2006 and proposing to demand service tax for ‘renting of immovable property service’ for the period June 2007 to March 2009 along with applicable interest and proposing imposition of penalties. The appellant filed its reply contesting the demands and after due process of law, the adjudicating authority vide Order in Original No.148/2011 dated 14.12.2011 confirmed the demand of commercial or industrial construction service observing that since the buyers and the appellant had let out the premises for commercial purposes, the service is liable to be taxed as commercial or industrial construction service. The Order in Original, inter-alia, also found that with respect to the demand pertaining to renting of immovable property the appellant had paid the applicable tax along with interest and appropriated the same. Aggrieved by the demand confirmed on the service tax for ‘Commercial or industrial construction services’ the appellant preferred an appeal before the Commissioner of Service Tax (Appeals-II), and after due process, the appellate proceedings had culminated in the impugned order in appeal, aggrieved by which, the appellant having preferred this appeal is now before this forum.
3. Smt. Radhika Chandrashekar, Advocate appearing for the appellant submits that the building plan was approved for construction of nine residential flats and was accordingly constructed by the appellant. Ld. Counsel submits that since the definition of ‘residential complex’ under Section 65(91a) of the Finance Act, 1994 as amended required at least 12 residential units to attract the definition, the said definition being inapplicable to the appellant, the appellant has been made liable under ‘commercial and Industrial Construction service’ on the finding that the buyers of the flat as well as the appellant had since utilized the same for commercial purposes. She submits that subsequent to purchase and securing possession, the purpose for which the buyers put the premises to use is beyond the control of the appellant and that cannot be a reason for foisting the levy under the said activity and the consequent liability on the Appellant. She would draw attention to the finding of the Ld. Appellate Authority to their contention that the appellant’s activity is covered under works contract service, under Section 65 (105)(zzzza) that deals with service tax on works contract and which has come into force only with effect from 01.06.2007, the appellate authority has chosen to reject the contention on the ground that the period involved in the present case is September 2004 to September 2006 and is prior to the said date and thus their plea is not tenable. Ld. Counsel submits that the issue is squarely covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of C.Ex & Cus. Kerala v Larsen and Toubro Ltd, 2015 (39) STR 913 wherein it has been held that works contract services cannot be taxed prior to 01.06.2007 since there was no charging section specifically to levy service tax only on works contract. She also placed reliance on the decision of this Tribunal in Real Value Promoters Pvt Ltd, Final Order 42436- 42438/2018 dated 18.09.2018 in this context along with various other decisions.
4. It was also submitted that the Finance Act 2010 had for the first time brought developers within the ambit of service w.e.f.01.07.2010 through the introduction of explanation to section 65(105)(zzq) as well as 65 (105) (zzzh) and hence there is no question of service tax on developers prior to 01.07.2010. She would also submit that the appellate authority has sustained the demand on ‘renting of immovable property for commercial purpose service’ despite finding in para 7 of the impugned order in appeal that in the present appeal the taxability of ‘renting of immovable property for commercial use service’ was not at all contested and that the entire service tax demand alongwith appropriate interest has since been paid before passing of the impugned order in original.
5. Shri. N. Satyanarayana, Ld. Authorised Representative, reiterated the findings in the impugned Order in Appeal.
6. Heard the rival submissions, perused the appeal records as well as the decisions submitted as relied upon.
7. The principal issue that arises for consideration is whether the demand of service tax made on the Appellant, alleging provision of ‘Commercial or industrial construction services’, is tenable. Admittedly, the appellant’s “K.G. Galaxy Project” consisted of only nine flats of which the appellant had retained three and sold the remaining six to the respective buyers. The Department has not brought any evidence on record to indicate that the appellant’s services were engaged or contracted by these buyers to whom the six flats were sold, to construct the said building to be used for, or to be occupied primarily with, or engaged primarily in, commerce or industry or work intended for commerce or industry, so as to come within the ambit of the definition of “commercial or industrial construction service” for the relevant period. That being so, we find merits in the appellant’s contention that the appellant had only constructed residential units as per the approved plan and since it is the right of the buyer to use the property in whatever manner it is legitimately permitted to be put to use, that cannot be a reason to construe that the appellant had provided “commercial or industrial construction service” to the said buyers and foist the liability to service tax under the said service on the appellant.
8. That apart, the contention of the appellant that the activity of the appellant is covered under works contract service has been sought to be negated by the appellate authority on the ground that the said service has come into force only after the relevant period, without controverting the factum that the appellant’s activity was covered under works contract service.
9. We find from the decision submitted as relied upon by the Ld. Counsel for the appellant that this Tribunal, in its decision in Jain Housing & Construction Ltd v Commissioner of Service Tax, Chennai, (2023) 10 Centax 170 (GTri-Mad) ( 24-02-2023) to which one of us, (Shri. M. Ajit Kumar) was a party, it has been held as under:
“5.1 The Learned Advocate for the appellant would submit at the outset that the issue involved is no more res integra as the same stands settled by the decision of the Hon’ble Apex Court in the case of Commissioner of C.Ex. & Cus., Kerala v. M/s. Larsen & Toubro Ltd. [2015 (39) S.T.R. 913 (S.C.)], which has been followed by the Chennai Bench of the CESTAT in the case of M/s. Real Value Promoters Pvt. Ltd. v. Commissioner of G.S.T. and Central Excise, Chennai & ors. [Final Order Nos. 42436-42438/2018 dated 18-9-2018 – CESTAT Chennai]. This very Bench, in the case of M/s. Real Value Promoters Pvt. Ltd. (supra), has considered the orders of various Benches of the CESTAT wherein the decision in the case of M/s. Larsen & Toubro Ltd. (supra) of the Hon’ble Apex Court was considered, and has concluded as under:-
“8. In the light of the discussions, findings and conclusions above and in particular, relying on the ratios of the case laws cited supra, we hold as under:-
a. The services provided by the appellant in respect of the projects executed by them for the period prior to 1-6-2007 being in the nature of composite works contract cannot be brought within the fold of commercial or industrial construction service or construction of complex service in the light of the Hon’ble Supreme Court judgment in Larsen & Toubro (supra) upto 1-6-2007
b. For the period after 1-6-2007, service tax liability under category of “commercial or industrial construction service’ under section 65(105)(zzzh) ibid, “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.
c. For activities of construction of new building or civil structure or new residential complex etc. involving indivisible composite contract, such services will require to be exigible to service tax liabilities under “Works Contract Service’ as defined under section 65(105)(zzzza) ibid.
d. The show cause notices in all these cases prior to 1-6-2007 and subsequent to that date for the periods in dispute, proposing service tax liability on the impugned services involving composite works contract, under ‘Commercial or Industrial Construction Service’ or ‘Construction of Complex’ Service, cannot therefore sustain. In respect of any contract which is a composite contract, service tax cannot be demanded under CICS/CCS for the periods also after 1-6- 2007 for the periods in dispute in these appeals. For this very reason, the proceedings in all these appeals cannot sustain.”
5.2 We find that the above ruling of the Chennai Bench of the CESTAT covers the periods both prior to 1-6-2007 and post 1-6-2007 and we are satisfied that the ratio laid down therein applies to the case on hand. Therefore, we accept the submissions of the Learned Advocate for the appellant that the issue is settled in favour of the appellant.”
(emphasis supplied)
10. It is seen that the above decision has been confirmed by the Hon’ble Supreme Court in the case of Commissioner of Service Tax Vs. Jain Housing and Construction Ltd. [2023 (10) CENTAX 171 (SC)]. In the present case, as observed supra, the appellate authority has summarily brushed aside the contention of the appellant that the activity of the appellant is covered under works contract service on the ground that the said service has come into force only after the relevant period. Pertinently, the appellate authority has not controverted the appellant’s contention that its activity was covered under works contract service. The period involved in the instant case being prior to 01.06.2007, the ratio of these decisions are applicable on all fours to the present case.
12. We also take cognizance of the finding in para 7 of the impugned order in appeal that in the present appeal the taxability of ‘renting of immovable property for commercial use service’ was not at all contested and that the entire service tax demand alongwith appropriate interest has since been paid before passing of the impugned order in original and hence we make it clear that no liability on this count remains to be demanded and recovered from the appellant.
13. In light of our discussions above, respectfully adhering to the aforementioned decisions, we hold that the impugned No. 181/2015 (STA-II) dated 05.08.2015 is unsustainable and is liable to be set aside. Ordered accordingly. The appeal is allowed with consequential relief, if any, as per law.
(Order pronounced in the open court on 06.11.2025)
