CESTAT Bangalore: Builder's Service Tax Victory on Works Contract Classification

The Appellate Tribunal CESTAT Bangalore ruled in favor of the appellant, a builder/developer, in a case concerning the classification of their services as works contract service for service tax payment purposes. The Tribunal held that the appellant's activities met the characteristics of a works contract, even though individual agreements were involved in selling flats. Referring to relevant definitions and precedents, the Tribunal concluded that the appellant was eligible for the composition scheme under works contract, setting aside the recovery demand of Rs. 14,09,78,092/- with interest and penalties. The appeal was allowed with any consequential relief to the appellants.

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Issues:
1. Consideration of waiver of predeposit and stay against recovery.

Analysis:
The judgment by the Appellate Tribunal CESTAT Bangalore involved a case concerning a builder/developer of commercial and residential complexes, specifically related to a project named "Project Celestia" in Hyderabad. The appellant had registered under state VAT law and the Finance Act, 1994 for payment of VAT and Service Tax on works contract service from April 2009 onwards. The issue revolved around the classification of the appellant's service as works contract service for the purpose of service tax payment. The proceedings initiated for recovery of service tax culminated in a demand of Rs. 14,09,78,092/- with interest and penalties under Sections 77 and 78 of the Finance Act. The appellant claimed that they were constructing residential complexes and selling individual flats to buyers, emphasizing that their services could not be classified as works contract service due to the nature of their agreements with buyers.

The Tribunal examined the definitions of "residential complex" and "construction of complex" under the Finance Act, 1994. After amendments, liability arose even when flats were sold to individual buyers, and the definition of construction of residential complex applied to cases with more than 12 apartments in a single complex. The Tribunal disagreed with the Commissioner's observation that the service went out of the definition of works contract due to individual agreements, stating that the characteristics of works contract were present in the appellant's activities. The Tribunal referred to the Supreme Court decision in Larsen and Toubro Ltd. case, which held that construction of residential complexes and transfer of individual flats constituted works contract for VAT purposes.

The Tribunal further addressed the issue of the appellant's eligibility for the composition scheme under works contract. The appellant had availed CENVAT credit on inputs and paid tax at the normal rate in 2009, but the payment was allocated towards preferential allocation and development service, not residential complex service. The Tribunal concluded that the appellant's payment of service tax under the composition scheme was in accordance with the law, setting aside the impugned order and allowing the appeal with any consequential relief to the appellants.

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