No demand of service tax could be fastened on construction of complex

Prakash Builders Vs Commissioner, Central Excise, Customs and Service Tax (CESTAT Delhi)

Conclusion: The definition of ‘construction of complex’ and a ‘residential complex’ continued to remain the same after 1 July, 2012 and, therefore, service tax liability could not have been fastened even after 1 July, 2012 under ‘construction of complex’.

Held: Assessee-partnership firm was engaged in civil construction work for some of the Government Departments.  The two show-cause notices were issued wherein the activity was undertaken by assessee was shown to be classifiable and taxable under the category of ‘construction of complex’ under Section 65 (30a) of the Finance Act, 1994 and the liability of assessee for the payment of service tax as a recipient of Goods Transport Agency (GTA). The second show cause notice refered to the work orders issued to the MP Development Board as also the Public Works Department and National Buildings Construction Corporation Ltd. It made reference to GTA. The notice further sought to demand service tax with the penalty and interest. The issue was regarding the classification and taxability of the activity undertaken by assessee under the category of ‘construction of complex’ under Section 65 (30a) of the Finance Act, 1994 and the other issue raised was whether assessee was liable to pay service tax under the Goods Transport Agency (GTA) or not? It was held that the definition of “construction of complex” and a “residential complex” continued to remain the same after 1 July, 2012 and, therefore, service tax liability could not have been fastened even after 1 July, 2012 under “construction of complex”. Thus, the levy of service tax on assessee under ‘construction of complex service’ was not justified. With regard to GTA service, Principal Commissioner had recorded a finding that assessee had not submitted any documentary evidence in support of the contention that transportation of goods was through local cartage and no consignment notes were issued. Though it was a fact that assessee had not produced these receipts in response to the show cause notice but the meager amount paid by assessee for this activity during this period persuaded to remand the matter to the Principal Commissioner for examining this aspect after providing an opportunity to assessee to submit the relevant documents within six weeks from the date of order. Assessee might submit the necessary documents before Principal Commissioner to substantiate that the payment made was for local cartage and not towards GTA Services. Thus, the order to the extent it confirmed the demand of service tax under “construction of complex” services was set aside. However, the matter relating to confirmation of demand of service tax under GTA services was remanded to the Principal Commissioner for a fresh determination in the light of the observations made above.

FULL TEXT OF THE CESTAT JUDGEMENT

This appeal seeks the quashing of the order dated 29 February, 2016 passed by the Principal Commissioner of Customs, Central Excise and Service Tax, Bhopal ¹ by which demand of Rs.26,28,987/- has been confirmed in respect of “construction of complex” services for the period from 1 October, 2007 to 31 March, 2012 and demand of Rs.7,97,641/- has been confirmed for the period 1 April, 2013 to 31 March, 2014. The order further seeks to confirm the demand of Rs.1,12,847/- for ‘goods and transport agency’ ² services for the period 1 October, 2007 to 31 March, 2012 and demand of Rs.1,142/- for the period 1 April, 2013 to 31 March, 2014. Interest and penalty have also been imposed upon the appellant.

2. The appellant, a partnership firm, is engaged in civil construction work for some of the Government Departments. During the period from 1 October, 2007 to 31 March, 2014, the appellant undertook the following works for the Departments:-

3. Two show cause notices were issued to the appellant. The first show cause notice dated 18 April, 2013 was issued for the period 1 October, 2007 to 31 March, 2012, while the second show cause notice dated 22 April, 2015 was issued for the period 1 April, 2013 to 31 March, 2014 The first show cause notice dated 18 April, 2013 mentions that Prakash Wadhwani was allotted a work by MP Housing and Infrastructure Development Board³ but he executed the said work order through his two partnership firms, namely, M/s. Prakash Builders (the appellant) and M/s. J.R. Construction. The show cause notice mentions that the activity undertaken by the appellant appeared to be classifiable and taxable under the category of “construction of complex” services as defined under section 65 (30a) of the Finance Act, 1994⁴. The show cause notice further mentions that the appellant is also liable for payment of service tax as a recipient of GTA service.

4. The second show cause notice dated 22 April, 2015, which was for the period from 1 April, 2013 upto 31 March, 2014, refers to the work orders issued to the MP Development Board as also the Public Works Department and National Buildings Construction Corporation Ltd. It also makes reference to GTA The show cause notice seeks to demand service tax of Rs.7,98,783/- with penalty and interest.

5. The appellant submitted a detailed reply to the aforesaid show cause notice.

6. The Principal Commissioner has confirmed the demand of service tax under “construction of complex” services and GTA in the following manner:-

7. Thus, it is clear that the Principal Commissioner has confirmed the demand of service tax only with regard to the work executed for the MP Development Board and has discharged the demand made for the works carried out for the Public Works Department and National Buildings Construction Corporation Ltd. The demand has also been confirmed for GTA services.

8. Shri Sandeep Mukherjee, learned Chartered Accountant appearing for the appellant has made the following submissions:-

(i) In regard to the work order issued by the MP Development Board, the service tax has been deposited by the MP Development       Board and, therefore, the demand of service tax from the appellant, a contractor, would result in double taxation;

(ii) A “residential complex” means a complex comprising a building or buildings, having more than 12 residential units and since the appellant had constructed buildings that did not have more than 12 residential units, no service tax liability could be fastened upon the appellant;

(iii) The transportation of goods by the appellant was in the nature of local cartage and, therefore, consignment notes were not issued nor transportation service was received through agents. Thus, the appellant could not be held liable to pay service tax under the head of GTA;

(iv) Even otherwise, the amount paid by the appellant for transportation was below the threshold limit specified in the Notification dated 3 December, 2004 and, therefore, no tax liability could be fastened upon the appellant;

(v) The Principal Commissioner could not have levied penalty and interest upon the appellant; and

(vi) The extended period of limitation could not have been invoked in the fact and circumstances of the present case.

9. The learned Authorized Representative of the Department has, however, supported the impugned order and has submitted that no interference is called for in this appeal. It is his submission that the appellant failed to produce any documents before the Principal Commissioner to substantiate the defence taken by the appellant in regard to GTA service and, therefore, it is not open to the appellant to now substantiate the submission by placing reliance upon documents which had not been filed before the Principal Commissioner in reply to the show cause

10. The submissions advanced by the learned Chartered Accountant for the appellant and the learned Authorised Representative of the Department have been considered.

11. The dispute in the present appeal relates to the work undertaken by the appellant for the MP Development Board for construction of duplex Riviera Towne (Phase – I), Bhopal.

12. Section 65 (30a) of the Finance Act deals with ‘construction of complex’ and is defined as follows:‑

65 (30a)- “construction of complex” means –

(a) Construction of a new residential complex or a part thereof; or

(b) Completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or

(c) Repair, alteration, renovation or restoration of, or similar services in relation to, residential complex;

13. The taxable service under section 65 (105) (zzzh) of the Finance Act means any service provided or to be provided to any person, by any other person, in relation to construction of complex;

14. “Residential Complex” has been defined under section 65(91a) of the Finance Act as follows:-

“(91a) “residential complex” means any complex comprising of‑

(i) a building or buildings, having more than twelve residential units;

(ii) a common area; and

(iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person.

Explanation: For the removal of doubts, it is hereby declared that for the purposes of this clause.-

(a) “personal use” includes permitting the complex for use as residence by another person on rent or without consideration;

(b) “residential unit” means a single house or a single apartment intended for use as a place of residence;”

15. The definition of a “residential complex” leaves no manner of doubt that it would be a complex comprising of a building or buildings, having more than twelve residential units. In other words a complex may have a building having more than twelve residential units or a complex may have more than one building each having more than twelve residential units. Independent buildings having twelve or less than twelve residential units would not be covered by the definition of “residential complex”. In the present case, the appellant had constructed independent buildings having one residential unit only. Thus, even if the appellant had constructed more than 12 independent buildings, the nature of activity would not be “construction of complex” and, therefore, the service tax could be levied.

16. In this connection reliance can be placed on a Division Bench judgment of the Principal Bench of the Tribunal in Macro Marvel Projects Ltd. v/s Commissioner of Service Tax, Chennai ⁵ wherein the demand of Service Tax was for the period 16 June, 2005 to November, 2005 under “construction of complex” service under section 65(30a) of the Act. The Bench examined the scope of “construction of complex” and the meaning of ‘residential complex’ under section 65(91a) of the Act and observed as follows:-

“It is abundantly clear from the above provisions that construction of residential complex having not more than 12 residential units is not sought to be taxed under the Finance Act, 1994. For the levy, it should be a residential complex comprising more than 12 residential units. Admittedly, in the present case, the appellants constructed individual residential houses, each being a residential unit, which fact is also clear from the photographs shown to us. In any case, it appears, the law makers did not want construction of individual residential units to be subject to levy of service tax. Unfortunately, this aspect was ignored by the lower authorities and hence the demand of service tax. In this view of the matter, we are also not impressed with the plea made by the appellants that, from 1-6-2007, an activity of the one in question might be covered by the definition of ‘works contract’ in terms of the Explanation to section 65 (105)(zzzza) of the Finance Act, 1994 as amended. ‘According to this Explanation, ‘construction of a new residential complex or a part thereof’ stands included within the scope of ‘works contract’. But, here again, the definition of “residential complex” given under section 65(91a) of the Act has to be looked at. By no stretch of imagination can it be said that individual residential units were intended to be considered as a “residential complex or a part thereof.”

(emphasis supplied)

17. The Civil Appeal filed by the Department to assail the aforesaid order of the Tribunal was dismissed by the Supreme Court on 7 July,

18. The aforesaid decision of the Tribunal in Macro Marvel Projects was subsequently followed by the Tribunal in S. Sikarwar vs. Commissioner of Central Excise, Indore⁶ and the relevant portion of the order is quoted below:-

“In this case, the Appellants have undertaken construction work of 15 residential houses under a contract with M.P. Housing Board. The Revenue was of the view that the Appellants should have paid service tax on the activity under the entry 65(105)(zzzh) for taxing ‘construction of complex’ as defined under Section 65(91a) of Finance Act, 1994. The submission of the appellant is that the entry covers only such building where each of the building has got more than 12 residential units. They have built 15 independent houses and not a complex and hence their activity was not taxable under the entry 65(105)(zzzh) which adopts definition in Section 65(91a). He relied upon the decision of the Tribunal in the case of Macro Marvel Projects Ltd. v. CST, Chennai – 2008 (12) S.T.R.  603 (Tri.-Chennai).

2. The Authorised Representative appearing for the Revenue submits that the explanation under Section 65(91a) of Finance Act, 1994 gives definition of “residential unit” to mean “a house or single apartment intended for use as a place of residence”. Even if the residential units are separate, it will be covered by the definition, according to him.

3. The A.R. further submits that the decision in the case of Macro Marvel Projects Ltd. was with reference to the entry for works contract under Sections 65(105)(zzzza) of Finance Act, 1994 whereas the present case is in respect of construction of residential complex under entry 65(105)(zzzb). He also points out that the Tribunal in para-2 of the order has observed as under :-

“These observations of ours with reference to ‘works contract’ have been occasioned by certain specific grounds of this appeal and the same are not intended to be a binding precedent for the future.”

4. We have considered arguments on both sides. We find that the definition of residential complex as per Section 65(91a) of Finance Act, 1994 is applicable for both the entries under Section 65(105)(zzzh) for levy of tax on construction of residential complex as also for entry under Section 65(105)(zzzza) for works contract. Therefore, there cannot be an argument that the expression ‘residential complex’ has to be interpreted in one manner for works contract and in a different manner for levy of tax on construction of a residential complex.

5. We further note that Revenue being aggrieved by the decision of the Tribunal in the said matter had filed appeal with the Hon’ble Supreme Court and the Hon’ble Supreme Court has dismissed the appeal filed as reported at 2012 (25) S.T.R. 3514 (S.C.). So we consider that this matter is no longer res integra and service tax can be demanded under 65(105)(zzzh) only if the building concerned has more than 12 residential units in the building and such levy will not apply in cases where in one compound has many buildings, each having not more than 12 residential units. Therefore, we set aside the impugned order and allow the appeal.”

[emphasis supplied]

19. It also needs to be noticed that the same view was expressed by a Division Bench of this Tribunal in M/s. Lakhlan & Qureshi Construction Company vs. Commissioner of Central Excise and Service Tax, Jaipur-1⁷.

20. The Principal Commissioner has, however, not accepted the contention of the appellant and the aforesaid decisions have been distinguished. The relevant portions of the order of the Principal Commissioner are reproduced below:-

“34. In the cases mentioned at SI. No.2, 3 and 4 the Noticee has done construction of Duplex Houses at Riviera Towne and Amrawat Khurd. In this regard the contention of the Noticee is that the work done under these contracts is constructions of independent houses. Service tax on the same cannot be demanded and collected as per the definition of Residential Complex defined under Section 65 (91a). The work doen by them is that of construction of buildings that do not have more than 12 residential units. Each building constructed by them contains only 1 residential unit. Under such circumstances, this construction is not construction of a “Residential Complex” since the condition given in para (i) is nto fulfilled. Again in this regard the Noticee relied on the decision of Macro Marvel reported in 2008 (12) S.T.R. 603 (Tri. – Chennai), further affirmed by the Honourable Apex Court in 2012 (25) S.T.R. 3154 (S.C.) and A.S. Sikarwar reported in 2012 (28) S.T.R. 479 (Tri. – Del.).

35. Here it is important to note that the case laws quoted by the Noticees are not applicable in their case in as much as they have done construction of houses development work in complex having more than 12 residential units, common community hall, common parking area, and common part which clearly satisfy the definition of residential complex in Section 65 (91a) of Finance Act, 1994 and service of construction of complex defined in Sections 65 (30a) and 65 (105)(zzzh) ibid – Impugned service clearly covered under construction of complex service liable to service tax – sections 65(91a), 65(30a) and65 (105)/(zzzh) of Finance Act, 1994.”

36. This view is also supported by the decision of CESTAT, Delhi in the case of Madhukar Mittal versus Commissioner of Central Excise, Panchkula reported in 2015(40) S.T.R. 969 (Tri.- Del.) wherein it has been held –

“5. In view of above discussion, the judgments in the case of Macro Mavel Projects Ltd. v. CST, Chennai (supra) and A.S. Sikarwar v. CCE, Indore (supra) are not applicable to the facts of the present case because in those cases individual residential houses were constructed which did not satisfy the definition of residential complex reproduced above. Thus, we hold that impugned service clearly gets covered under construction of complex service liable to service tax.”

[Emphasis supplied].

21. It is not possible to accept the reasoning given by the Principal Commissioner for the simple reason that in the present case also the appellant has not constructed a residential complex having more than 12 residential units. It has constructed independent buildings having one residential unit. Reliance placed by the Principal Commissioner on the decision of the Tribunal in Madhukar Mittal Commissioner of Central Excise, Panchkula⁸ is, therefore, misplaced. The decisions of the Tribunal in Macro Marvel Project and A.S. Sikarwar clearly apply to the facts of the present case.

22. The definition of “construction of complex” and a “residential complex” continue to remain the same after 1 July, 2012 and, therefore, service tax liability could not have been fastened even after 1 July, 2012 under “construction of complex”.

23. Thus, the levy of service tax on the appellant under ‘construction of complex service’ is not justified and, cannot be

24. In regard to the GTA service, it is seen that an amount of 1,12,847/- was confirmed for the period 1 October, 2007 upto 31 March, 2012 and an amount of Rs.1,142/- was confirmed for the period from 1 April, 2013 upto 31 March, 2014. The Principal Commissioner has recorded a finding that the appellant had not submitted any documentary evidence in support of the contention that transportation of goods was through local cartage and no consignment notes were issued. The relevant finding of the Principal Commissioner is reproduced below:-

“41. Thus, in respect of service tax payable by the Noticees under reverse charge Mechanism on ‘Goods Transport Agency’ service, the contention of the Noticees is that in their case the transportation of goods was in the nature of local cartage and no consignment notes were issued and the amounts paid for the transportation were below the threshold limit specified in Notification No. 34/2004-ST dated 03.12.2004. However, the Noticees have not submitted any documentary evidence in support of their contention. Further, it is also important to mention that in case where serviced tax is required to be paid by the recipient of the service under reverse charge mechanism the benefit of threshold limit is not available. Consequently the Noticees are also liable to pay service tax on GTA services. As such they are liable to pay service tax on GTA services.”

25. The learned Chartered Accountant for the appellant has referred to receipts to substantiate that it was a case of local cartage and not a case of transportation by GTA. Though it is a fact that the appellant had not produced these receipts before the Principal Commissioner in response to the show cause notice but the meager amount paid by the appellant for this activity during this period persuades us to remand the matter to the Principal Commissioner for examining this aspect after providing an opportunity to the appellant to submit the relevant documents within six weeks from the date of order. The appellant may submit the necessary documents before the Principal Commissioner to substantiate that the payment made was for local cartage and not towards GTA Services.

26. Thus, for all the reasons stated above, the order to the extent it confirms the demand of service tax under “construction of complex” services is set aside. However, the matter relating to confirmation of demand of service tax under GTA services is remanded to the Principal Commissioner for a fresh determination in the light of the observations made above.

27. The appeal is, accordingly, allowed to the extent indicated above.