Case Law Details
Royal Shelter Vs Commissioner of GST & Central Excise (CESTAT Chennai)
The department was of the view that the appellants are liable to pay service tax on the taxable services of construction of residential complex rendered by them. Show Cause Notice demanding service tax for the period January 2009 to January 2010 was issued to the appellant.
In para 6.9 of the Order in Original, the adjudicating authority after considering the Board Circular dated 29.1.2009 has also looked into the clarification of the Board issued vide Circular No. 151/2/2012-ST dated 10.2.2012. In the said circular, it is stated that prior to 1.7.2010, construction service provided by the builder / developer will not be taxable in terms of Board circular dated 29.1.2009. It was observed in para 6.7 that the appellant had rendered the construction service after selling the land to the customers. Thus, the land belonged to the customers and not the builder / developer while rendering the service. On such ground, the adjudicating authority held that the construction being rendered to an individual, it is not taxable as per the Board circular.
it is not in dispute that the construction services are composite in nature involving both supply of goods and rendering service. The definition of works contract was introduced under sec. 65(105)(zzzza) with effect from 1.6.2007. The service portion in the composite work contract was specifically made taxable under works contract service with effect from 1.6.2007. The manner of determination of the value of such service portion is prescribed vide Rule 2(A) of Service Tax (Determination of Value) Rules, 2006 framed under sec. 94(2) of the Act. Alternatively in the form of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was introduced to pay service tax at a lesser rate on the gross amount (including the value of transfer of property in the goods). The issue as to whether a composite contract which has both transfer of property in goods as well as rendering of service would fall under CICS / CCS / CRCS was examined and finally settled by the Hon’ble Supreme Court in the case of Larsen & Toubro Ltd. reported in 2015 (39) STR 913 (SC). The Hon’ble Supreme Court observed that the service classified under CICS and CCS as defined under clause (zzzq) and (zzzh) of section 65(105) would cover only pure service contracts which does not involve any transfer of property in goods. The Tribunal in the case of Real Value Promoters Pvt. Ltd. (supra) following the decision of the Hon’ble Supreme Court held that the demand prior to 2012 cannot sustain under the heads Commercial or Industrial Construction Service, or Construction of Complex Service if the contracts are composite in nature.
CESTAT held that that the demand under construction of residential complex service cannot sustain and requires to be set aside.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts are that the appellants were engaged in providing taxable service of construction of residential complex service and goods transport service. They were discharging their service tax liability in respect of the above services till December 2008 and from January 2009 onwards they stopped paying service tax on the ground that the activities undertaken by them for the construction of residential flats for individuals fall within the clarification issued by the Board vide Circular No. 108/2/2009-ST dated 29.1.2009. The department was of the view that the appellants are liable to pay service tax on the taxable services of construction of residential complex rendered by them. Show Cause Notice demanding service tax for the period January 2009 to January 2010 was issued to the appellant. After due process of law, the adjudicating authority dropped the proceedings initiated in the Show Cause Notice accepting the contention of the appellant that they are not liable to pay service tax. Against such order, department preferred appeal before Commissioner (Appeals) and vide the order impugned, the Commissioner (Appeals) confirmed the demand proposed in the Show Cause Notice. Hence this appeal by the appellants.
2. The learned counsel Shri M.N. Bharathi appeared and argued on behalf of the appellant. He submitted that the appellant was discharging their service tax liability till December 2008. However, from January 2009 onwards, as per the clarification issued by the Board vide circular dated 29.1.2009, the appellant was under the belief that they are not liable to pay service tax on the construction of flats for individuals. The adjudicating authority dropped the proceedings based on the Circular as well as the submissions advanced by the appellant. The Commissioner (Appeals) has misconstrued the circular and wrongly concluded that the circular is not applicable to the appellant. The said circular is squarely applicable and the relevant para of the Board Circular dated 29.1.2009 is as under:-
“3. The matter has been examined by the Board. Generally, the initial agreement between the promoters / builders / developers and the ultimate owner is in the nature of ‘agreement to sell’. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/ developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a residential complex with a promoter / builder / developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of ‘residential complex’. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax.”
3. He further argued that the demand in the Show Cause Notice is to pay service tax under the classification construction of residential complex service. The services rendered by the appellant are composite in nature as it involves both supply of goods as well as element of service. For construction activities involving composite contracts which are indivisible, the services would fall under works contract as defined under section 65(105)(zzzza) of the Finance Act, 1994. He relied upon the decision in the case of Real Value Promoters Pvt. Ltd. Vs. CCE, Chennai reported in 2018 (9) TMI 1149 – CESTAT Chennai to argue that for the period prior to 2012, demand of service tax under Commercial or Industrial Construction Service (CICS) or Construction of Complex Service (CCS) or Construction of Residential Complex Service (CRCS) cannot sustain when they involve composite contracts which have both supply of goods and rendering of service. He prayed that the appeal may be allowed.
4. The learned AR Ms. Sridevi Tritula supported the findings in the impugned order.
5. Heard both sides and perused the records.
6. On going through the records, it is seen that the original authority has dropped the demand accepting the contention of the appellant that the Circular issued by the Board dated 29.1.2009 is applicable to the taxable service of construction of individual flats rendered by the appellant. In para 6.9 of the Order in Original, the adjudicating authority after considering the Board Circular dated 29.1.2009 has also looked into the clarification of the Board issued vide Circular No. 151/2/2012-ST dated 10.2.2012. In the said circular, it is stated that prior to 1.7.2010, construction service provided by the builder / developer will not be taxable in terms of Board circular dated 29.1.2009. It was observed in para 6.7 that the appellant had rendered the construction service after selling the land to the customers. Thus, the land belonged to the customers and not the builder / developer while rendering the service. On such ground, the adjudicating authority held that the construction being rendered to an individual, it is not taxable as per the Board circular.
7. Be that as it may, it is not in dispute that the construction services are composite in nature involving both supply of goods and rendering service. The definition of works contract was introduced under sec. 65(105)(zzzza) with effect from 1.6.2007. The service portion in the composite work contract was specifically made taxable under works contract service with effect from 1.6.2007. The manner of determination of the value of such service portion is prescribed vide Rule 2(A) of Service Tax (Determination of Value) Rules, 2006 framed under sec. 94(2) of the Act. Alternatively in the form of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was introduced to pay service tax at a lesser rate on the gross amount (including the value of transfer of property in the goods). The issue as to whether a composite contract which has both transfer of property in goods as well as rendering of service would fall under CICS / CCS / CRCS was examined and finally settled by the Hon’ble Supreme Court in the case of Larsen & Toubro Ltd. reported in 2015 (39) STR 913 (SC). The Hon’ble Supreme Court observed that the service classified under CICS and CCS as defined under clause (zzzq) and (zzzh) of section 65(105) would cover only pure service contracts which does not involve any transfer of property in goods. The Tribunal in the case of Real Value Promoters Pvt. Ltd. (supra) following the decision of the Hon’ble Supreme Court held that the demand prior to 2012 cannot sustain under the heads Commercial or Industrial Construction Service, or Construction of Complex Service if the contracts are composite in nature. The relevant paragraph is noticed 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.”
(Emphasis supplied)
8. Following the above decisions and considering the facts and evidences, we are of the considered opinion that the demand under construction of residential complex service cannot sustain and requires to be set aside, which we hereby do.
9. In the result, the impugned order is set aside. The appeal is
allowed with consequential relief, if any.
(Pronounced in open court on 27.1.2022)
