Real Value Promoters Pvt. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
Summary: The CESTAT Chennai Bench, in Real Value Promoters Pvt. Ltd. Vs Commissioner of GST & Central Excise, considered three appeals arising from service tax demands concerning commercial property rentals and construction activities. During an internal audit, the Department identified alleged non-payment of service tax on commercial rental income under Renting of Immovable Property Service (RIPS) for September 2008 to September 2009 and on construction activities under Construction Service (CS) and Commercial Complex Service (CCS) for April 2009 to September 2009. Following issuance of show cause notices, the assessee disputed the proposed demands but paid the service tax relating to RIPS. The adjudicating authority nevertheless confirmed the demands and imposed penalties under Sections 76 and 77 of the Finance Act, 1994. Before the Tribunal, the appellant restricted its challenge concerning RIPS to the penalties, while contesting the construction-related service tax demands.
The appellant argued that its construction activities arose from composite contracts involving both transfer of goods and materials and provision of construction services. Accordingly, the contracts were in the nature of works contracts rather than independent construction services. Relying upon Larsen & Toubro and Others Vs State of Karnataka and Others and Krishna Homes Vs Commissioner of Central Excise, Bhopal, the appellant contended that agreements between builders and prospective purchasers involving construction of residential units and transfer of property were not covered by the relevant construction-of-complex service provision before 1 July 2010. Since the disputed construction demands concerned April to September 2009, the appellant maintained that the levy could not be sustained.
The Tribunal examined the decision in Krishna Homes Vs Commissioner of Central Excise, Bhopal, 2014 (34) S.T.R. 881 (Tri.-Del.), which followed the Supreme Court’s decision in Larsen & Toubro and Others Vs State of Karnataka and Others, 2014 (34) S.T.R. 481 (S.C.). It noted that the relevant statutory explanation bringing such builder-buyer arrangements within the construction-of-complex service framework became effective from 1 July 2010. The Tribunal also referred to Pragati Edifice Pvt. Ltd. Vs Commissioner of Customs, Central Excise & Service Tax, Visakhapatnam-I, Final Order Nos. A/31010–31011/2019 dated 18 September 2019, concerning the distinction between composite works contracts and construction services simpliciter. Applying these authorities, the Tribunal set aside the impugned orders insofar as they concerned construction-related service tax demands.
Regarding penalties associated with Renting of Immovable Property Service, the Tribunal observed that the taxability of commercial property rentals had been subject to substantial legal uncertainty. The Delhi High Court had earlier held that renting of immovable property was not liable to service tax, following which a legislative amendment was introduced. The Tribunal also recorded that the issue remained pending before the Supreme Court at the time of its decision. Considering the interpretational nature of the dispute, it found the case appropriate for relief under Section 80 and held that the penalties could not be sustained. Consequently, the Tribunal set aside the impugned orders and allowed all three appeals with consequential benefits, if any, in accordance with law.
Cases Discussed
- Larsen & Toubro and Others Vs State of Karnataka and Others (Supreme Court); 2014 (34) S.T.R. 481 (S.C.): Relied upon, through Krishna Homes, for the treatment of composite builder-buyer construction agreements as works contracts involving transfer of property in goods.
- Krishna Homes Vs Commissioner of Central Excise, Bhopal (CESTAT Delhi); 2014 (34) S.T.R. 881 (Tri.-Del.): Followed for holding that the relevant builder-buyer construction contracts were not covered by Section 65(105)(zzzh) before 1 July 2010.
- Pragati Edifice Pvt. Ltd. Vs Commissioner of Customs, Central Excise & Service Tax, Visakhapatnam-I (CESTAT Hyderabad); Final Order Nos. A/31010–31011/2019; 18/09/2019: Referred to for distinguishing composite works contracts from construction services simpliciter.
FULL TEXT OF THE ORIGINAL ORDER OF CESTAT CHENNAI
These appeals are filed by the tax payer against Order-in-Original 31/2012 dated 17.10.2012 and Order in Original No. 121 & 122/2012 dated 28.11.2012 passed by the Commissioner of Service Tax, Chennai.
2. The case of the Revenue is that during the internal audit of accounts of the assessee, they appeared to have noticed;
(a) Non-payment of Service tax on commercial rental income under immovable property service (RIPS) for the period from September 2008 to September 2009, and
(b) Non-payment of Service tax under Construction Service (CS) and Commercial Complex Service (CCS) for the period from April 2009 to September 2009.
3. Consequently, Show Cause Notices were issued proposing to demand service tax as above, apart from interest under Section 75 of the Finance Tax Act, 1994 and penalty under Ss. 76 and 77 ibid. It appears that the assessee filed a detailed reply to the above Show Cause Notices, there by denying liability to service tax, but however, chose to pay the service tax in so far as RIPS was concerned. The Original Authority having considered the reply of the appellant, in adjudication, proceeded to pass the impugned Orders-in-Original, thereby confirming the proposed demand in the Show Cause Notices. Against these orders, the present appeals have been filed before this forum.
4. Heard Shri G. Natarajan, Learned Advocate for the appellant, he contends at the outset that since common issue is involved in all the appeals, all the appeals may be considered for common disposal; he would also submit that insofar as the disputed demand under RIPS is concerned, the appellant is only aggrieved by the penalty imposed. The scope of appeals with respect to CS/CCS is against the demand of service tax confirmed under residential complex service, for the period involved is April 2009 to September 2009. He would further contend that the decision of Hon’ble Apex Court in the case of Larsen and Toubro would squarely cover the issue and hence, the demand as confirmed in the impugned orders cannot survive.
4.1 To elaborate further, he would submit that in respect of construction activity undertaken by the appellant, the same was as per the composite contracts/works contracts entered into between the appellant and its customer, which involved both transfer of materials/goods required for construction as well as providing the construction services, which are indivisible in nature and, hence, the same was appropriately classifiable under Works Contract Service. Therefore, going by the decision of Apex Court in Larsen and Toubro (supra), the liability under Works Contract Service would be taxable only from 1.7.2010 and hence the present demands would not survive.
5. Per Contra, Shri M. Ambe, Deputy Commissioner, relied on the findings of the Original Authority.
6. We have considered rival contentions and we have also carefully perused the impugned orders and the documents placed on record and we find that the following issues arise for our consideration;
(1) whether the Revenue is justified in levying penalty under Sections 76 & 77 for RIPS? and
(2) whether the demand of service tax in respect of CS/CCS is correct for the period from April 2001 to September 2009?
7. The Principal Bench of CESTAT in the case of Krishna Homes Vs. Commissioner of Central Excise, Bhopal, reported in 2014 (34) STR 881 (Delhi) has held, following judgement in Larsen & Toubro and Others Vs. State of Karnataka, 2014 (34) STR 481 (S.C.) as under:
“9. In view of the above, though in view of the Apex Court judgment in the case of M/s. Larsen & Toubro Limited and Others v. State of Karnataka & Others (supra), the agreements entered into by a builder/promoter/developer with prospective buyers for construction of residential units in a residential complex against payments being made by the prospective buyers in instalments during construction and in terms of which the possession of the residential unit, is to be handed over to the customers on completion of the residential complex and full payment having been made, are to be treated as works contracts, it has to be held that during the period of dispute, there was no intention of the Government to tax the activity in terms of such contracts a builder/developer with prospective customers for construction of residential units in a residential complex. Such works contracts involving transfer of immovable property were brought within the purview of taxable service by adding explanation to Section 65(105)(zzzh) w.e.f. 1.7.2010, and therefore, it has to be held that such contracts were not covered by Section 65(105)(zzzh) during the period prior to 1.7.2010.”
(emphasis supplied)
8. Further, to tax a particular service, the liability under that head shall only be prospective and not applicable for any period prior to that date, i.e. 01.07.2010 as in the case on hand. Hence, service tax could not be levied under works contract service prior to 01.07.2010; and the levy could only be under CRCS/CCS simplicitor as the case may be. Further, as held by the Hyderabad Bench of the Tribunal vide Final Order No. A/31010 to 31011/2019 dated 18.9.2019 in the case of Pragati Edifice Pvt. Ltd. Vs. Commissioner of Customs, Central Excise & Service Tax, Visakhapatnam – I, after 1.6.2007, the chargeability to works contract arises only if it is a composite contract and under construction of complex service if it is a service simplicitor.
8.1 We note that the learned Advocate has relied on a number of orders of CESTAT Benches wherein similar views have been expressed, we set aside the impugned orders to the above extent and allow the appeals insofar as with grounds relating to CCS and CRCS are concerned.
8.2 Insofar as the penalty under RIPS is concerned, we find that the issue involved interpretation in as much as, the High Court of Delhi held that there was no liability to service tax insofar as the renting of immovable property was concerned and therefore, an amendment was brought in, to overcome the above judgement. Further, we find that even as on date the issue is pending before Hon’ble Apex Court. Hence, we find that it is a fit case where provisions of Section 80 of the Finance Act, 2012 could be exercised.
9. For the above reasons, we are of view that the penalties imposed on the appellant also cannot sustain and hence, we set aside the impugned orders, insofar as the penalty is concerned and allow the appeals to this extent also.
10. Resultantly, the impugned orders are set aside and the appeals are allowed with consequential benefits, if any, as per law.
(Order pronounced in open court on 04.04.2024)
