2008 (4) TMI 18 - AAR - Service Tax

Court rules applicant liable for service tax on activities related to construction under Finance Act, 1994

Re. M/s Harekrishna Developers

The court ruled in favor of the Revenue, holding that the applicant is liable to pay service tax in respect of the proposed activities 1 and 2 under ... Booking of the residential units to be undertaking by the applicant is a taxable service. This service is liable to be taxed under section 65(105(105) i.e. 'Construction of Complex Service'. Issues Involved:1. Taxability of booking residential units under section 65(105) of the Finance Act, 1994.2. Liability of service tax under section 65(105)(zzzh) for construction of complex in proposed activity No.1.3. Liability of service tax under section 65(105)(zzzh) for construction of complex in proposed activity No.2.Detailed Analysis:Issue 1: Taxability of Booking Residential UnitsThe applicant questioned whether the activity of booking residential units is a taxable service liable to service tax under section 65(105) of the Finance Act, 1994. The judgment clarified that the question, as framed, lacks clarity and is confined to the first step of 'booking' the residential unit but not the series of activities that follow the booking and entering into the agreement. The court concluded that the proposed activities 1 and 2 undertaken in accordance with the terms of the draft agreement attract service tax liability under section 65(105)(zzzh) of the Finance Act, 1994. Therefore, it was unnecessary to give a separate ruling on this question.Issue 2: Liability of Service Tax for Construction of Complex in Proposed Activity No.1The applicant contended that it is not providing any 'taxable service' within the ambit of section 65(105) of the Act, arguing that it is developing the residential complex on its own land, utilizing its own material, and the ownership and possession remain with the applicant until the unit is handed over upon completion and receipt of the entire consideration. The applicant relied on CBEC's circular no. 96/7/2007-ST and the decision in Assotech Realty case.The Department argued that the construction and allied activities amount to 'service in relation to the construction of residential complex' under sub-clause (zzzh) of section 65(105). The court held that the words 'construction of complex' in (zzzh) are qualified by the phrase 'in relation to,' which is of wide import, and includes correlated and incidental services. The court noted that the whole purpose of inserting sub-clause (zzzh) was to bring services in connection with the construction of residential complexes by developers/promoters within the net of taxable services. The court concluded that the applicant is liable to pay service tax under sub-clause (zzzh) of section 65(105) for proposed activity No.1, as the activities constitute 'services provided or to be provided' by the applicant.Issue 3: Liability of Service Tax for Construction of Complex in Proposed Activity No.2The court noted that there is no material difference between proposed activity No.1 and No.2, except that in activity No.2, the applicant will be sub-contracting the work. The applicant remains accountable to the bookers/buyers and is a service provider vis-`a-vis the buyer. The engagement of sub-contractors does not absolve the applicant of the responsibility of providing services in relation to the construction of residential units agreed to be sold to the customer. The court concluded that the applicant is liable to pay service tax under sub-clause (zzzh) of section 65(105) for proposed activity No.2 as well.Conclusion:The court ruled in favor of the Revenue, holding that the applicant is liable to pay service tax in respect of the proposed activities 1 and 2 under sub-clause (zzzh) of section 65(105) of the Finance Act, 1994. The first question was not specifically answered as it was deemed unnecessary. The judgment emphasized the comprehensive nature of the term 'in relation to' and the intent of the legislature to include all correlated and incidental services within the scope of taxable services related to the construction of residential complexes.