2019 (7) TMI 59 - AT - Service Tax

Tribunal rules on service tax for construction activities.

Laxmi Associates and L.R. Associates Versus Commissioner of Central Excise, Pune-I

Laxmi Associates and L.R. Associates Versus Commissioner of Central Excise, Pune-I - 2019 (31) G.S.T.L. J80 (Tri. - Mumbai) Issues Involved:1. Classification of services provided by the appellants.2. Taxability of construction activities prior to entering into agreements with buyers.3. Valuation of taxable services.4. Applicability of service tax on works contracts.5. Invocation of extended period of limitation.6. Imposition of penalties.Detailed Analysis:1. Classification of Services Provided by the Appellants:The appellants provided taxable services under the category of 'Construction of Complex Services' as defined by Section 65(105)(zzzh) of the Finance Act, 1994. The services provided by them in respect of residential complexes were brought under the taxable category effective from 01.07.2010 by an explanation to Clause (zzzh) of sub-section 105 to Section 65. The appellants did not dispute the classification of the services provided by them under this taxable category.2. Taxability of Construction Activities Prior to Entering into Agreements with Buyers:The appellants contended that no service tax is leviable on the construction of complex constructed prior to entering into agreements with buyers, arguing that such activities were services to self. The Tribunal disagreed, stating that the value of taxable service is based on the gross amount received for providing such construction services, and not on the basis of work done prior to entering into agreements for sale.3. Valuation of Taxable Services:The value for determining the service tax payable must be done in terms of Section 67 of the Finance Act, 1994, read with the relevant Valuation Rules, 2006. Notification No. 1/2006-ST, as amended by Notification No. 29/2010-ST, prescribes the value of taxable service for calculating the tax payable at 25% of the gross receipts if the cost of land is included and not separately recovered. The Tribunal upheld this method of valuation, rejecting the appellants' argument for a different valuation based on the portion of work completed before the agreement to sell.4. Applicability of Service Tax on Works Contracts:The appellants argued that their activities were works contracts involving the supply of goods and labor, and relied on the Supreme Court's decision in L&T Ltd. vs. State of Karnataka. The Tribunal noted that both works contract services and construction of complex services were leviable to service tax at the material time. The services provided by the appellants were more specific to construction of complex services and thus classified under that category. The Tribunal emphasized that the measure of levy is to be determined according to the provisions of the taxing statute.5. Invocation of Extended Period of Limitation:The Tribunal found no merit in the appellants' claim of a bona fide belief that their activities were not taxable, noting that the provisions in law and clarifications issued were clear. The appellants' failure to take registration, pay taxes, and file returns in time justified the invocation of the extended period of limitation. The Tribunal also noted that the show cause notices were issued within one year from the date of filing the returns, making the demand not hit by limitation even without invoking the extended period.6. Imposition of Penalties:The Tribunal upheld the penalties imposed under Sections 77(2) and 78 of the Finance Act, 1994, noting that the appellants' failure to fulfill statutory obligations justified the penalties. The Tribunal rejected the appellants' claim for waiver of penalties under Section 80, stating that it was not a license to condone irregularities in tax payment and filing of returns. The Tribunal also noted that the appellants had the option to pay the confirmed tax amount along with interest and 25% of the penalty imposed to avail the benefit under Section 78.Conclusion:- The appeal of Appellant 1 was dismissed.- The appeal of Appellant 2 was disposed of subject to consequential modifications in the impugned order due to wrong computation of Education Cess in the show cause notice. The demand of tax and penalty under Section 78 of the Finance Act, 1994, was modified accordingly.(Order pronounced in the open court on 28.06.2019)