The Vardhman Developers Vs Commissioner, Central Goods and Service Tax (CESTAT Delhi)
We take notice that service tax law was revamped w.e.f. 01.07.2012 by bringing in various changes. We also take notice of the TRU/CBEC letter dt. 20.02.2010 regarding the scope of valuation of taxable amount in respect of residential complex service, which was introduced in the year, 2010. With effect from 01.07.2012, Section 66F have been added to the Finance Act, which deals with classification of service in case of bundled services. Section 66 F (1) provides that – unless otherwise specified, reference to a service (hereinafter referred to as main service) shall not include – reference to a service which is used for providing main service. Further, where a service is capable of differential treatment for any purposes based on its description, the most specific description shall be preferred over a general description. Further, sub section 3 provides – the taxability of a bundled service shall be determined, if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service, which give such bundle its essential character. Section 66F shall prevail over any clarification etc. given by the CBEC/ TRU, prior to 01.07.2012.
From the facts on record and on perusal of the RUDs, we find that although the appellant may have prepared a price list showing preferential location charges, car parking charges etc. separately, but it is evident from the buyer-agreements (sample buyer agreement produced at the time of hearing), that the appellant have charged the negotiated sales price per sq. ft. and in addition have charged IFMS and EDC/IDC per sq. ft. basis. In addition, there is power back up charges in some of the cases. Evidently, we find that Revenue have calculated preferential location charges, IFMS charges, EDC/IDC, power back up charges based on the price list. We find that there is no such mention in the buyer agreement, nor there is any amount collected towards such heads in the books of accounts maintained by the appellant, as is evident from their balance sheet/ P&L account/ trial balance. Thus, we hold that service tax is not payable on such hypothetical calculation, there being no actual consideration towards these, which is an admitted fact.
FULL TEXT OF THE CESTAT DELHI ORDER
Brief facts of the case are that as per the show cause notice the appellant is engaged in construction and sale of residential house property (Flats). They are registered with the Department under the head „Construction of residential complex‟. Revenue undertook audit for the period October, 2011 to March, 2014. Revenue also undertook investigation and called for the several documents, copy of sale deed executed by the appellant to the buyer of flat, copy of flat buyer agreement, copy of final allotment letter, audited balance sheet alongwith schedule and details for the financial years 2011-12 to 2015-16. The appellant on being asked also filed copy of individual partywise sales ledger against the sale deeds submitted by them being 39 in number. They also submitted their price list for various categories of apartment like villas, plots, luxury condominiums & duplex apartments.
2.Thereafter, the officers also visited the premises of the appellant on 20.09.2018 and after inspection also issued summons calling for various information and documents like copy of price list, buyers agreement, customer ledger, sale deed, agreement for car parking charges, preferential location charges and club membership charges, upto June, 2017, copy of trial balance, copy of Form-26AS etc. The statement of Sh. K. K. Parashar, who was working as Manager (Accounts) was also recorded under Section 14 of the Excise Act, who inter alia stated that M/s Vardhman Developers is a HUF and filed IT returns and maintains proper books of accounts. When flat is booked and agreement is made with the customer, a customer ledger is opened. The amount received from the customer is credited to his account and debited to the concerned bank. On receipt of complete / final payment from the customer, the sales ledger is credited and customer ledger is debited. The amount received from the customer under the head namely deposit, IFMS charges (Interest Free main charges), External & Internal development charges, are not included in the total cost of the flat shown in the ledger. Further, he also provided copy of balance sheet and sales ledger for the financial year 2013-14 to 2016-17 as well as copy of four buyer agreements and customer ledger details and details regarding number of flats sold during the period under enquiry. The officer also obtained the current price list for the various categories of flats. In the price list there appeared to be separate charges for covered car parking, power back up, club membership and preferential location charges.
3. Further, in compliance to summons the appellant filed written submissions vide letter dated 27.09.2018, inter alia mentioning – there is no possibility to issue of price list in the real estate sector as the rate of properties depends on many factors like rate of land and materials being used, purchaser capacity, rates offered by competitors and Government policy, etc. They have only one buyer agreement for the flat and where the agreement is cancelled and no sale deed is executed, then the amount is refunded. Further, sale deed covers all the clauses mentioning the buyer agreement. Further, the amount charged separately by them from the buyer, which shown are separately in the sale deed. Sample copy of buyer agreement was also filed.
4. It was categorically mentioned that they do not collect charges for car parking, preferential location or club membership. Hence, there is no separate agreement for these heads or charges. They also provided unitwise sale value mentioning that determination of unit cost is not possible, as all the units are covered in one project and construction is a continuous process. Thus, only the cost of project can be seen from the books of accounts. It was categorically mentioned that they do not sell car parking space, completion certificate was also enclosed. Trial balance for the period April, 2017 to 30th June was also provided alongwith copy of Form 26AS, and the details of flats sold during the financial year 2013-14 till 2016-17.
5. Subsequently, by letter dated 11.10.2018, the appellant further submitted more documents like buyer agreement for financial year 2017-18 floor-wise details of flat sold miscellaneous income ledger, IFMS ledger and also consolidated ledger under three heads-
(i) Receipts from customer for the financial year 2013-14 to 2017-18.
(ii) JCW society (customer security) ledger.
(iii) JCW society (DMA for financial year 2012-13).
They also submitted electrical ledger and ledger of advance from customer for the period under enquiry.
6. It appeared to Revenue that the appellant is also collecting one time Preferential Location Charges, Car Parking Charges, Club Membership Charges, Interest Free Maintenance Security charges (IFMS), Internal or External Development Charges, Electrical charges, Power Back up charges etc. from their buyers over and above the basic price of flat. On perusal of ST-3 filed by the party, it is observed that the party has not paid service tax on the consideration received by them from their prospective buyers towards these services.
7. It further appeared that w.e.f. 01.07.2012, the term “Service” is defined under Section 65B (44) means any activity carried out for consideration, includes a declared service. Further, under Section 66E clause (b) it appeared that services specified include construction of complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority.
8. Accordingly, based on the price list it appeared to Revenue that appellant is liable to pay service tax on Preferential Location service, Car parking service, Club Membership service, Security deposit, Interest Free Maintenance Security service (IFMS), Internal or External Development service, Electrical service, Power Back up service etc. provided by the party to their prospective buyers. Revenue also referred to TRU letter D.O.F. No. 334/1/2020-TRU dt. 25.02.2010, where it is observed that the Preferential Location service/ service provided by builder to their buyer, is a taxable service. Accordingly, the Preferential Location service, Car Parking service, Club Membership service, Security deposit, Interest Free Maintenance Security Service (IFMS), Internal or External Development service, Electrical service, Power Back up service, calculated on the sale of number of flats during a particular financial year on the basis of the amount reflected in the price list, thus calculated service tax payable as follows:-
