Builder-buyer apartment construction not taxable as residential complex service before the statutory explanation; penalty waiver granted on related demand.

Prior to the statutory explanation deeming builder-to-buyer construction taxable, separate apartments constructed under individual builder-buyer agreements were not taxable as residential complex service under section 65(105)(zzzh), and the principal demand, interest and penalty were set aside. For the smaller demand relating to industrial or commercial complex service, the tax and interest were upheld, but penalty was waived under section 80 because the tribunal accepted that the levy could have caused genuine confusion and exercised discretion accordingly.

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Issues: (i) Whether construction of individual apartments under builder-buyer agreements, for periods prior to the introduction of the relevant explanation, was taxable as residential complex service under section 65(105)(zzzh) of the Finance Act, 1994; (ii) whether penalty could be waived under section 80 of the Finance Act, 1994 in respect of the smaller demand relating to industrial or commercial complex service.

Issue (i): Whether construction of individual apartments under builder-buyer agreements, for periods prior to the introduction of the relevant explanation, was taxable as residential complex service under section 65(105)(zzzh) of the Finance Act, 1994.

Analysis: The demand for residential complex service arose from projects in which the landowners sold undivided share of land and the appellant then entered into construction agreements with individual buyers. The relevant explanation deeming such construction to be a taxable service was introduced later, and the tribunal followed the line of decisions holding that construction of separate apartments for individual buyers on such terms was not the construction of a residential complex for a service recipient. The clarification in Circular No. 108/2/2009 dated 29.01.2009 also supported the appellant's case.

Conclusion: The demand, interest, and penalty relating to residential complex service were set aside in favour of the assessee.

Issue (ii): Whether penalty could be waived under section 80 of the Finance Act, 1994 in respect of the smaller demand relating to industrial or commercial complex service.

Analysis: For the smaller demand, the amount involved was limited and the appellant accepted the tax and interest liability while seeking waiver of penalty. The tribunal considered the circumstances, including the possibility of confusion in the minds of assessees regarding a newly introduced levy, and held the case fit for exercise of discretion under section 80.

Conclusion: Penalty was waived under section 80, while the tax and interest on that demand were upheld.

Final Conclusion: The principal demand relating to residential complex service failed, the smaller demand relating to industrial or commercial complex service survived, and the penalties were set aside.

Ratio Decidendi: Prior to the statutory explanation deeming builder-to-buyer construction as a taxable service, construction of separate apartments for individual buyers under such agreements was not taxable as residential complex service.

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