2014 (9) TMI 152 - HC - Service Tax

Court waives pre-deposit, restores appeals on financial hardship grounds.

Jain Housing Versus The Commissioner of Service Tax

The High Court concluded that the Tribunal's directive for pre-deposit and dismissal of appeals for non-compliance were unjustified. It waived the balance ... Waiver of pre-deposit - Levy of service tax on Development of residential projects - taxability prior to 1.7.2010 - Finance Act, 2010, with effect from 1.7.2010, introduced an explanation to Section 65(105)(zzzh) - Construction of Complex service - Held that:- The view of the Department that Circular No.108/2/2009-S.T., dated 29.1.2009 is in their favour, is, prima facie, not tenable. The applicability of the said circular can be divided into two limbs. The first limb states that ..... 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. The second limb of the said circular states that 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. If the department accepts that the sale in favour of the ultimate owner, even then by virtue of the prior agreements for construction and sale of undivided share, it would fall under the second limb of paragraph (3) of the circular dated 29.1.2009 and to that extent the appellant has a prima facie case. The circular further makes it clear that in both the situations, if services of any profession like contractor, designer or a similar service provider are received, then such a person is liable to pay service tax. That clarifies the stand of the assessee that in the nature of the transaction entered into in the present case, there is no liability to pay service tax up to 1.7.2010. On and from 1.7.2010 the explanation to Section 65(105)(zzzh) of the Finance Act, 1994 makes the present transaction liable to service tax and we are not on that issue. At present, we are concerned with the period prior to 1.7.2010. The Tribunal has unfortunately not considered the said factor which prima facie enures to the benefit of the appellant. Stay granted - appeal restored before the tribunal. - Decided in favor of assessee. Issues Involved:1. Liability to service tax under the category of 'Construction of Complex service.'2. Applicability of various circulars and amendments regarding service tax.3. Tribunal's directive for pre-deposit without considering limitation and financial hardship.4. Tribunal's dismissal of appeals for non-compliance with pre-deposit order.5. Interpretation of agreements and ownership status in relation to service tax liability.Detailed Analysis:1. Liability to Service Tax under 'Construction of Complex Service':The appellant, engaged in developing residential projects, was issued show cause notices by the Department proposing to levy service tax under 'Construction of Complex service' as per Section 65(30a) of the Finance Act, 1994. The appellant contended that their activities were in the nature of works contract under Section 65(105)(zzzza) and relied on various circulars and decisions to argue that their transactions were not liable to service tax. The Department, however, confirmed the demand of service tax, directing the appellant to pay Rs. 11,28,85,825/-.2. Applicability of Various Circulars and Amendments:The appellant relied on Circular F.No.332/25/2006-TRU, dated 1.8.2006, which stated that if a builder constructs a residential complex without engaging other contractors, there is no service provider-recipient relationship, and thus no service tax liability arises. They also cited Circular No.96/7/2007-S.T., dated 23.8.2007, which reiterated this position. However, the Tribunal placed reliance on Circular No.108/2/2009-S.T., dated 29.1.2009, which suggested that service tax would apply if the builder remains the owner until the sale deed execution. The Tribunal's interpretation was that the initial transfer of undivided share was complete, making the appellant liable for service tax.3. Tribunal's Directive for Pre-deposit:The Tribunal directed the appellant to make a pre-deposit of Rs. 4,50,00,000/-, which was challenged on grounds of financial hardship and limitation. The appellant argued that the Tribunal ignored precedents and circulars that supported their case. The High Court noted that the appellant had already paid a significant portion of the demand and was facing undue financial hardship. The court found that there was a prima facie case on merits and waived the balance pre-deposit.4. Tribunal's Dismissal of Appeals for Non-compliance:The Tribunal dismissed the appellant's appeals for non-compliance with the pre-deposit order. The appellant argued that the dismissal was unjustified as their challenge to the pre-deposit order was pending before the High Court. The High Court set aside the Tribunal's dismissal order, restored the appeals, and waived the balance pre-deposit, emphasizing the need to consider undue hardship and safeguard the interests of revenue.5. Interpretation of Agreements and Ownership Status:The appellant entered into agreements for construction and sale of undivided shares with intending purchasers. The Tribunal's view was that upon selling the undivided share, the purchaser became the legal owner, making the construction service taxable. The appellant argued that the agreements did not transfer ownership until the completion of construction and full payment, thus constituting self-service, which is not taxable. The High Court found merit in the appellant's argument, noting that the agreements and circulars supported the view that the transaction did not attract service tax prior to 1.7.2010.Conclusion:The High Court concluded that the Tribunal was not justified in ordering the pre-deposit and dismissing the appeals for non-compliance. It waived the balance pre-deposit, set aside the dismissal order, and restored the appeals, recognizing the appellant's financial hardship and prima facie case on merits. The court emphasized the importance of considering undue hardship and safeguarding revenue interests in such cases.