No service tax on maintenance services provided by builder under Statutory Obligation

Commissioner of Service Tax Vs. M/s. Shri Krishna Chaitanya Enterprises (Bombay High Court)

Issue under Consideration

Whether the CESTAT was right in holding that the assessee was not providing Management, Maintenance or Repair Service by collecting amount from prospective flat buyers, for maintaining the building, in the guise of deposits which is not returnable? Whether the CESTAT has erred in holding that assessee is providing statutory service and has rendered definition provided under Section 65(105)(zzg) of Finance Act as null and void by accepting that he is not providing Management, Maintenance or repair service by maintaining the building and collecting amount for that or not?

Held by Hon’ble High Court

True that while defining the term “Service” in the Consumer Protection Act, 1986, the Legislature did not exclude construction or building activity and therefore provided that the definition under that {Section 2(o)} means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, board or loading or both, and by amendment housing construction is also included in the inclusionary part of the definition. We are not concerned with the definition of service under the Consumer Protection Act, 1986 and that would not control the provisions of the Finance Act, 1994, for the simple reason that interest and rights of a consumer are protected and safeguarded by law so as to enable him to complain about deficiency and defect in the service by approaching the Forum under the Consumer Protection Act, 1986 and that law has a distinct objective and purpose. As noted by the Hon’ble Supreme Court in the case of Lucknow Development Authority Vs. M.K. Gupta, reported in AIR 1994 SC 787, the building and construction activity is a service covered by the expression Service as defined in the Consumer Protection Act, 1986 but that law is not a taxing or fiscal statute. Hence, that definition is of no assistance in construing similar expression in the Finance Act, 1994. The backdrop, setting and the context in which the word or expression and its definition appears is thus different. We are concerned here with a taxable service. The service of maintenance, management or repair, rendered by any person to any other person is a taxable service but in the context and backdrop in which the issue arises before us, we do not think that a taxable service is rendered. The Revenue does not wish to take into consideration the background in which buildings are maintained and till they are conveyed with complete title to even the land beneath. Thus, the provisions of Sections 5 and 6 and eventually the further provisions right up to Section 13 of the MOFA would make it clear that builder and developer maintains and repairs the property till it is conveyed or the title in the same is conveyed to the Flat purchasers or the legal entity which would ultimately be formed by him. Thus, a co­operative housing society or a company would have to be formed of all those Flat purchasers who have purchased the Flats prior to or under construction, namely, subsequently purchased Flats. The completion of the building or it being rendered fit for occupation is one of the duties and obligation of the builder and promoter under this law. For them to be conveyed he has to maintain the property. His liability is in terms of the statute itself. It is towards that end that money is collected and paid over to the statutory authorities in the form of charges and taxes as it is the builder’s obligation to collect these amounts from individual Flat takers and make it over to these authorities. After formation of the legal entity, the obligation ceases and it is taken over by the co­operative housing society or the company. Until that takes place, the promoter continues to be liable. If this aspect is ignored, then, the narrow or restricted construction placed on the provision by the Revenue can be accepted. The tax then can be justified on the ground that it is a taxable service provided by the builder. However, if all this has been seen not de hors the MOFA by the Tribunal, then, it has not committed any error of law apparent on the face of the record, or perversity. It has construed the definition of the above provision consistent with the provisions of MOFA and mindful of the same. When such is the exercise undertaken by the Tribunal, we do not think that its conclusions are so vitiated or perverse so as to enable us to interfere therewith in our further appellate jurisdiction.

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