Jay Pee Enterprises Vs Commissioner of CGST & Central Excise (CESTAT Chennai)
Summary: The Customs, Excise and Service Tax Appellate Tribunal, Chennai Regional Bench, comprising Technical Member Shri Vasa Seshagiri Rao and Judicial Member Shri Ajayan T.V., allowed two connected appeals filed by Jay Pee Enterprises and Jay Pee Developers against orders confirming service tax demands on construction of individual residential houses and, in one appeal, alleged real estate agent services. The dispute covered the period from 1 April 2009 to 31 March 2013. The adjudicating authorities had treated independently constructed villas situated within gated layouts as taxable construction of residential complexes under Sections 65(91a), 65(30a) and 65(105)(zzzh) of the Finance Act, 1994. The Tribunal held that the statutory requirements for a residential complex were not satisfied merely because individual houses were situated within a common gated development containing roads, parks and other amenities.
Jay Pee Enterprises constructed individual villas for purchasers who separately acquired registered plots of land and thereafter entered into construction agreements with the builder. Following a departmental survey, the authorities alleged that the individual houses collectively formed a residential complex consisting of more than twelve units with common facilities. A show cause notice dated 21 October 2014 proposed recovery of ₹51,98,095 as service tax, together with interest and penalties, invoking the extended period of limitation. The Commissioner confirmed the proposed demand through Order-in-Original No. 04/2015 (ST) dated 12 February 2015.
Jay Pee Developers was engaged in real estate activities and construction of residential houses in the Hosur area. In addition to treating its construction activities as taxable residential complex services, the Department alleged that land development charges of ₹30,42,500 collected during Financial Year 2010-11 represented consideration for real estate agent services under Sections 65(88) and 65(89). Show Cause Notice No. 41/2014 (ST) dated 21 October 2014 proposed an aggregate demand of ₹1,13,21,408 for the disputed period. This demand, interest and penalties were confirmed through Order-in-Original No. 05/2015 (ST) dated 13 February 2015. The combined disputed demands in the two appeals amounted to ₹1,65,19,503.
The appellants contended that they had not constructed any single building or collection of buildings containing more than twelve residential units within the meaning of Section 65(91a). Instead, each buyer purchased a distinct plot and commissioned an independent residential house according to an individual plan. The presence of common roads, lighting, drainage or other development facilities did not alter the nature of the underlying construction contracts. They relied upon Macro Marvel Projects Ltd. Vs CST, Chennai, affirmed by the Supreme Court, together with Alliance Infrastructure Projects Pvt. Ltd., Sikarwar, Naveen Kumar and K.B. & Co.. They also invoked CBEC Circular No. 108/2/2009-ST, the statutory exemption for a single residential unit and the distinction between construction services and works contracts.
The Tribunal closely examined the statutory definitions in Section 65 of the Finance Act, 1994. It explained that a residential complex contemplated a building or buildings having more than twelve residential units, together with a common area and one or more specified common facilities. These were cumulative statutory requirements. The Tribunal found, on the basis of the appeal records and photographs, that the appellants had constructed individual houses, not a building or buildings satisfying the first condition. Accordingly, the construction activities fell outside the definition of a residential complex, irrespective of the fact that the independent houses were located within gated developments.
The Tribunal followed Macro Marvel Projects Ltd. and the other decisions relied upon by the appellants. It further considered the Supreme Court’s ruling in CCE Vs Larsen & Toubro Ltd., which distinguished composite works contracts from services simpliciter under the pre-negative-list regime. For the period following 1 July 2012, the Tribunal recognised the availability of the exemption under Entry 14(b) of Notification No. 25/2012-ST, covering construction of a single residential unit otherwise than as part of a residential complex. It therefore held that the construction service demands for the entire disputed period were unsustainable.
As regards the separate demand against Jay Pee Developers for real estate agent services, the Tribunal found a fundamental defect in the show cause notice. The notice reproduced the statutory definitions of real estate agent and real estate consultant but failed to identify the particular activities allegedly performed by the appellant as an agent, adviser or consultant. The adjudicating authority had subsequently relied upon the terms of a customer’s power of attorney to reach conclusions not specifically alleged in the notice. The Tribunal held that this approach rendered the demand defective because the adjudication travelled beyond the show cause notice. It also observed that the alleged land development charges represented, according to the notice’s own annexure, the difference between guidance value and actual sale value, indicating consideration for sale of immovable property rather than a taxable agency service.
The Tribunal therefore concluded that neither appellant had rendered taxable construction of residential complex services as alleged and that the separate real estate agent service demand against Jay Pee Developers was also unsustainable. Consequently, both impugned orders were set aside in their entirety, including the demands of service tax, interest and penalties. The appeals were allowed with consequential relief in accordance with law through Final Order Nos. 40488-40489/2025 dated 2 May 2025. The ruling is particularly relevant to independent-villa developments, the cumulative conditions in the former service tax definition of residential complex, the exemption for single residential units and the requirement that a show cause notice clearly identify the taxable activity alleged.
Cases Discussed
1. Macro Marvel Projects Ltd. Vs Commissioner of Service Tax, Chennai — 2008 (12) S.T.R. 603 (Tri.-Chennai). Affirmed in Commissioner Vs Macro Marvel Projects Ltd., 2012 (25) S.T.R. J154 (SC). Relied upon and followed for the exclusion of independent residential houses from the definition of residential complex. The linked TaxGuru judgment reproduces and discusses the precedent.
2. Commissioner of Central Excise & Service Tax, Bengaluru-I Vs Alliance Infrastructure Projects Pvt. Ltd. — 2022 (56) G.S.T.L. 3 (Karnataka High Court). Followed on the scope of residential complex services and independent residential units.
3. Sikarwar Vs CCE, Indore — 2012 (28) S.T.R. 479 (Tri.-Delhi). Followed on the distinction between individual houses and construction of residential complexes.
4. Naveen Kumar Vs CCE, Jaipur-I — 2017 (49) S.T.R. 175 (Tri.-Delhi). Followed on the taxability of individual residential units.
5. K.B. & Co. Vs Commissioner of GST & Central Excise, Tirunelveli — Final Order No. 40124/2025 dated 27/01/2025; CESTAT Chennai. Relied upon as a recent coordinate Bench decision on the same issue.
6. Commissioner of Central Excise Vs Larsen & Toubro Ltd. — 2015 (39) S.T.R. 913 (SC). Applied in paragraph 13 to distinguish composite works contracts from construction services simpliciter during the relevant service tax period.
FULL TEXT OF THE ORDER OF CESTAT CHENNAI
These two appeals preferred by the appellants M/s. Jay Pee Enterprises and M/s. Jay Pee Developers, involving common issue of demand of service tax, inter-alia, under ‘Construction of Residential Complex’ services, were taken up for hearing together and are being decided by this common order. We have heard Learned Consultants Shri. Sudhir V.S. & Mr. Akbar Basha for the appellant and Shri M. Selvakumar, Authorised Representative and their contentions are reflected infra. We have also perused the records of both the appeals and appeal wise the facts are stated as hereinunder.
Appeal No. E/41405/2015
2) M/s. Jay Pee Enterprises, the appellant herein has preferred this appeal assailing the impugned Order in Original No.04/2015 (ST) dated 12.02.2015 whereby the adjudicating authority has confirmed the demand along with interest and penalties for alleged nonpayment of service tax under “Construction of Residential Complex Services” for the period from 01-04-2009 to 31.03.2013 invoking the extended period of limitation.
3) The facts, in brief, are that M/s Jay Pee Enterprises are engaged in Construction of Residential Complex and have built a number of housing projects in and around Hosur. On a survey, Department found that they were rendering the taxable service of “Construction of Residential Complex Service“, have neither registered themselves with Service tax department nor paid any service tax. Upon details being called the appellant vide its letter dated 10.02.2014, stated that they are constructing individual residential units nomenclature as “villas” to individual customers who purchased land from the owners of the land, got it registered in their name and then entered into an agreement for construction with the appellant consequent to which the appellant carries out construction of the individual villa. The appellant provided sample copy of the sale deed of vacant land and construction agreement in respect of one individual residential unit purchased by one of their customers. The Department, after perusing the said documents as well as recording statement from the proprietor of the appellant found that the houses constructed by the appellant are within a gated community with compound wall and have common facilities such as park, play area, sewerage systems etc. The Department was of the view that, though the appellant had built individual houses, the appellant had constructed residential complexes consisting of more than 12 units with common area and common facilities for which the appellant had collected amount separately apart from the construction cost and hence the services rendered by the appellant fell under the category of “Construction of residential complex services under Section 65 (105) (zzzh) of Finance Act. Accordingly, a show cause notice no.40/2014 (ST) dated 21.10.2014 was issued proposing classification of the services rendered by the appellant under “Construction of Residential Complex under Section 65 (30a)/91(a) of the Finance Act, 1994 and demanding service tax of Rs.51,98,095/- (Rupees Fifty one Lakhs ninety eight thousands and ninety five only) being the service tax payable for the period from 01.04.2009 to 31.03.13 under proviso to section 73(1) of Finance Act. 1994 along with proposal for demand of interest as well as imposition of penalties under section 76,77 and 78 of the Finance Act. Consequent to the reply received, the appellant was granted a personal hearing and thereafter the adjudicating authority passed the impugned order in original aforementioned. Hence this appeal.
Appeal No. E/41411/2015
4) M/s. Jay Pee Developers, the appellant herein has preferred this appeal assailing the impugned Order in Original No.05/2015 (ST) dated 13.02.2015 whereby the adjudicating authority has confirmed the demand along with interest and penalties for alleged nonpayment of service tax under “Construction of Residential Complex Services” under Section 65(91a) and under Real Estate Agent’s services under Section 65(88) and 65(89) of the Finance Act, 1994 for the period from 01-04-2009 to 31.03.2013 invoking the extended period of limitation.
5) The facts, in brief are that M/s. Jay Pee Developers, the appellant herein, are engaged in Real estate business and Construction of Residential Complex and have built a number of housing projects in and around Hosur. On a survey, Department found that they were rendering the taxable service of “Construction of Residential Complex Service” and “real estate agent service” and have neither registered themselves with Service tax department nor paid any service tax. Upon details being called the appellant vide its letter dated 24.12.2013 furnished the balance sheet & profit and loss account as well as a list of projects undertaken together with sample copies of sale and construction agreements. The Department was of the view that, though the appellant had built individual houses, the appellant had constructed residential complexes consisting of more than 12 units with common area and common facilities for which the appellant had collected amount separately apart from the construction cost and hence the services rendered by the appellant fell under the category of “Construction of residential complex services under Section 65 (105) (zzzh) of Finance Act. Further it was noticed that during the Financial year 2010-11, the appellant had collected land Development charges to the tune of Rs.30,42,500/- from their customers. The Department being of the view that Land developmental charges are taxable under the service Real estate agency service was of the view that the appellant had rendered “real estate agents service” under Section 65(89)(v) of the Finance Act. Accordingly, a show cause notice no.41/2014 (ST) dated 21.10.2014 was issued to the appellant proposing classification of the services rendered by the appellant under “Construction of residential complex” and “Real Estate Agents” and demanding Rs. 1,13,21,408/- being the service tax payable for the period from 01.04.2009 to 31.03.13 as detailed in Annexure under proviso to section 73(1) of Finance Act. 1994 along with proposal for demand of interest as well as imposition of penalties under section 76,77 and 78 of the Finance Act. Consequent to the reply received, the appellant was granted a personal hearing and thereafter the adjudicating authority passed the impugned order in original aforementioned. Hence this appeal.
6) Shri. Sudhir V.S. along with Mr. Akbar Basha, Learned Consultants appeared and argued for the appellants. The following submissions were made:
a) The SCNs and the impugned OIOs clearly accept that the appellants had built individual houses. Construction of individual houses cannot be equated with residential complexes.
b) The definition of “residential complex” under Section 65(91a) does not cover construction of individual houses.
c) The appellants have not constructed any building or buildings having more than twelve residential units and were in fact constructing individual houses for the buyers.
d) That the adjudicating authority has not appreciated the difference between sale of plot and construction service and all development activities are in association with sale of plot. The adjudicating authority has failed to appreciate the photos, copies of agreements, sanctioned plans submitted which reveal the essence of the transactions undertaken and that the common amenties such as street light, drainage system are all that are associated with the sale of plot.
e) That the construction of independent houses based on individual house plans undertaken by the appellant do not have any common facilities such as lift or DG common to all houses.
f) That construction of individual houses for personal use are not taxable even as per the Department Circular No.108/2/2009-ST dated 29.01.2009 and TRU letter F.No.B1/6/2005-TRU dated 27-05-2005.
g) Thus prior to 01-07-2012 as well as post 01-07-2012 construction of individual houses being single residential units cannot be made taxable under “construction of residential complex” services as proposed since even the mega exemption notification No.25/2012 dated 20.06.2012 at entry No.14 exempts construction of a single residential unit otherwise than as a part of a residential complex from levy of service tax. That there are numerous decisions in the appellant’s favor and reliance is placed, among others, on the decisions in:
i. Macro Marvel Projects Ltd v CST, Chennai, 2008 (12) STR 603 (Tri-Chennai) affirmed in Commissioner v Marco Marvel Projects Ltd, 2012 (25) STR J 154 (SC)
ii. Commr. Of C.Ex & ST, Bengaluru I Commissionerate v Alliance Infrastructure Projects Pvt Ltd, 2022 (56) GSTL 3 (Kar)
iii. Sikarwar v CCE, Indore, 2012 (28) STR 479 (Tri-Del)
iv. Naveen Kumar v CCE, Jaipur-I, 2017 (49)STR 175 (Tri-Del)
v. Final Order No.40124/2025 dated 27.01.2025 of this Tribunal in M/s.K.B & Co v The Commissioner of GST & Central Excise, Tirunelveli.
h) That the appellant has not rendered any services as an intermediary or otherwise to fall under real estate agent service and that the scope of real estate agent service covers the activity of intermediary in the capacity of an agent and not the actual performance of buying and selling land. That even otherwise the SCN merely extracts the definition of real estate agent service and does not explain or state which activity of the appellant is considered as falling under the said service and is thus issued on an assumption. That the appellant has not rendered any services to any other person in relation to sale or has provided any advice, consultancy or technical assistance so as to get covered under the said definition. That assuming without admitting that there is a service, even then the said service is self service and a transaction that is sale of immovable property which is exempt from levy as clarified in Circular No. B1/6/2005-TRU dated 27-07-2005 and Circular No.151/2/2012-ST dated 10.02.2012 and further the definition of service under Section 65B(44) itself specifically excludes an activity which constitute a transfer of title in immovable property.
i) That invoking extended period is incorrect as these are interpretational issues and litigation was prevailing over taxability of the activity of the appellant and in the absence of any malafide penalties are also not imposable.
7) Shri. M. Selvakumar, Ld. Authorised Representative, appeared for the Respondent and reiterated the findings of the appellate authority in the impugned OIOs.
8) Heard both sides and perused the appeal records as well as the citations submitted as relied upon.
9) Indisputably, from the appeal records it is seen that the show cause notices issued to the appellants concede the fact that the appellant had built individual houses. Nevertheless, the Department was of the view that the appellant had constructed residential complexes consisting of more than 12 units with common area and common facilities and would come within the ambit of the definition of ” Residential Complex” under Section 65 (91a) of the Finance Act, 1994.
10) We note that the applicable statutory provisions of the Finance Act, 1994, during the relevant period, were as under:
65(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;
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;
65(105) (zzzh): “taxable service” means any service provided or to be provided to any person, by any other person, in relation to construction of complex
Explanation (Inserted w.e.f. 01.07.2010 by s. 76 of the Finance Act, 2010 (14 of 2010))- For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorised by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer.
11) We find that, to come within the ambit of the definition of “residential complex” as defined in Section 65(91a), the complex should comprise of a building having more than twelve residential units, or the complex should comprise of buildings having more than twelve residential units. Such building or buildings having more than twelve residential units should have a common area and any one or more of the facilities stipulated therein. That the building or buildings should have more than twelve residential units, should have a common area and should have any one or more of the facilities stipulated therein are cumulative requirements. The definition also states what is excluded. A complex may satisfy all the requirements as stated above, yet if the complex 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, then such a complex is excluded from being considered a “residential complex” under Section 65(91a). From the appeal records, it is also evident from the photographs produced that these are individual houses that were constructed by both the appellants and not building or buildings having more than twelve residential units. Therefore, by virtue of these individual houses not being a building or buildings having more than twelve residential units, they do not satisfy clause (i) of Section 65 (91a) and are therefore straightaway ousted from the ambit of the definition.
12) We find that a view on similar line had earlier been taken by this Tribunal in Macro Marvel Projects Ltd v CST, Chennai, 2008 (12) STR 603 (Tri-Chennai) which stood affirmed in Commissioner v Marco Marvel Projects Ltd, 2012 (25) STR J 154 (SC). The same ratio emanates from a catena of decisions as can be seen from Commr. Of C.Ex & ST, Bengaluru I Commissionerate v Alliance Infrastructure Projects Pvt Ltd, 2022 (56) GSTL 3 (Kar), Sikarwar v CCE, Indore, 2012 (28) STR 479 (Tri-Del), Naveen Kumar v CCE, Jaipur-I, 2017 (49)STR 175 (Tri-Del), and Final Order No.40124/2025 dated 27.01.2025 of this Tribunal in M/s.K.B & Co v The Commissioner of GST & Central Excise, Tirunelveli. We refrain from citing other decisions in the similar vein, in the interest of avoiding prolixity.
13) It is also pertinent that the impugned OIOs, have proposed to confirm the demands only under Construction of Complex Services for the period from 01-04-2009 to 31.03.2013, though the period is after 01-06-2007, the date from which the definition of works contract service has come into effect. Given that the definition of Construction of complex under Section 65(30a), along with the definition of residential complex under Section 65(91a), and definition of taxable service of construction of complex under Section 65(105)(zzzh), continued to be in the statute even after 01-06-2007 till 01-07-2012, in light of the decision of the Honourable Apex Court in CCE v. Larsen and Toubro reported in 2015 (39) S.T.R. 913 (SC) the effect would be that the “service provided in relation to construction of complex” that would come within the ambit of Section 65(105)(zzzh) for this period from 01-06-2007 to 30-06-2012, could only be contract of services simpliciter. It is only by virtue of notification No.20/2012-ST dated 20-06-2012 that provisions of Section 65 ceased to apply from 01-07-2012. Therefore, even for the period upto 30-06-2012, the services rendered by both the appellants in these appeals, were outside the ambit of taxable service as provided in Section 65(105) (zzzh). For the period, after 01-07-2012, the appellanst have claimed the benefit of Sl.No.14(b) of the Mega Exemption Notification 25/2012 dated 20-06-2012 which we find exempts services by way of construction pertaining to a single residential unit otherwise than as a part of a residential complex, from the whole of service tax leviable under Section 66B, and therefore rightly enure to the benefit of the appellants.
14) We are therefore of the considered view that the appellants in both the appeals under our consideration, cannot be considered to have rendered the services of construction of “residential complex”, during the period under dispute, so as to come within the ambit of the definitions under Section 65(91a) and Section 65(30a). We therefore hold that the appellants cannot be considered to have rendered a taxable service in relation to construction of complex as stipulated in Section 65(105) (zzzh), thereby rendering the demand made on this count in the impugned OIOs wholly unsustainable.
15) As regards the demand of service tax made on the appellant in Appeal No. E/41411/2015, we find that the SCN, after reproducing definitions of “real estate agent” under section 65(88) and “real estate consultant” under Section 65 (89) has merely gone on to allege that the appellant has rendered “real estate agent services” and does not specify which activity or activities, as a real estate agent or that as a real estate consultant, is that/or are those, which the Department is seeking to consider as the service/services rendered by the appellant, particularly when the definition states that “real estate agent” means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting of real estate and includes a real estate consultant and the definition of real estate consultant states that “real estate consultant” means a person who renders in any manner, either directly or indirectly, advice, consultancy or technical assistance, in relation to evaluation, conception, design. Development, construction, implementation, supervision, maintenance, marketing, acquisition or management, of real estate. We find that in the impugned OIO, the adjudicating authority has merely cited terms of a power of attorney given by a customer to the appellant to hold that the appellant has rendered all the services as stated in the power of attorney and that they are undertaken in relation to sale of land. However, when the notice does not put the appellant to such an allegation as held by the adjudicating authority, we are of the view that not only does the SCN suffer from the vice of vagueness, but also the adjudicating authority has traversed beyond the SCN. In any event, we also notice that the SCN does not rely on any invoices specifying the nature of services that the appellant has rendered as evidence for such real estate agent services that the appellant is alleged to have rendered and only alleges that during the financial year 2010-11, the appellant has collected land development charges from their customers. Further, the annexure to the SCN indicates that the land development charges is the difference between guidance value and actual sale value and if that be so, in our view, it only indicates amounts collected towards sale of immovable property, and thus outside the ambit of levy of service tax. In such circumstances, for the above reasons, we find that the demand made on the appellant in the impugned OIO on the allegation of having rendered “real estate agent services”, cannot sustain.
16) In view of our analysis and discussions above, we find that the demands made in the impugned OIOs of both the appeals are untenable and consequently the demands of interest as well as the penalties imposed therein also cannot sustain. We hereby set aside the impugned orders in original in their entirety.
The appeals are allowed with consequential relief in law, if any.
(Order pronounced in open court on 02.05.2025)
