2019 (9) TMI 793 - AT - Service Tax

Tribunal rules on service tax demands for construction, renting, and maintenance services

The Tribunal set aside the demand for service tax on the construction of residential complexes and landowners' portion of construction services before ... Construction services - construction of residential complexes - Landowners portion of Construction of Complex Services - Renting of Immovable Property - Management, Maintenance or Repair Services - demand of service tax alongwith interest - imposition of penalties as well. Construction of residential complexes - Landowners portion of Construction of Complex Services - HELD THAT:- The established legal position is that ‘Works Contract Service’ can be charged as ‘works contracts’ only under Section 65 (105) (zzzza) and only with effect from 1.6.2007. In the case of REAL VALUE PROMOTERS PVT. LTD., CEEBROS PROPERTY DEVELOPMENT, PRIME DEVELOPERS VERSUS COMMISSIONER OF GST & CENTRAL EXCISE, CHENNAI [2018 (9) TMI 1149 - CESTAT CHENNAI], the question which arose was whether a demand can be made on ‘commercial and industrial construction service’ under Section 65 (105) (zzzh) of the Finance Act, 1994 after 1.6.2007 where the nature of contract is a composite contract involving both supply of materials and rendition of services. It has been held that “ For the period post 1.6.2007, service tax liability under the category of ‘commercial or industrial construction service’ under Section 65 (105) (zzzh), ‘Construction of complex service’ under Section 65 (105(zzzq) will continue to be attracted only if the activities are in the nature of services simpliciter. Thus, if the services rendered are in the nature of composite works contracts, they cannot be charged to service tax prior to 1.6.2007 and can be charged post this date only under this head 65 (105) (zzzza) and not under any other head. Thus, as far as service tax, under ‘construction of complex service’ in respect of residential complexes is concerned, prior to 1.7.2010 (when the explanation was inserted), no tax could be levied. This was also clarified by the CBEC in circular No. 108/2/2009-ST dated 29.1.2009 - thus, with respect to construction of complex services were rendered prior to 01.7.2010, no service tax is chargeable and the demand to this extent needs to be set aside. Renting of Immovable Property Service - the relevant period is 2007-08 to 2009-10 and the SCN was issued on 22.10.2010 invoking extended period of limitation - HELD THAT:- Renting of immovable property per se was not taxable prior to 08.5.2010 but only services rendered in relation to renting of immovable property. After the amendment, renting itself became taxable with retrospective effect from 01.6.2007 itself. When the law itself did not cover taxation of renting of immovable property services, it is inconceivable that the assessee could have anticipated the retrospective amendment and paid service tax accordingly. Failure to pay service tax in this manner cannot be alleged to be fraud or collusion or wilful misstatement or suppression of facts with intent to evade payment of service tax - the demand on this head is not sustainable beyond the normal period of limitation. Management, maintenance or repair services - HELD THAT:- This demand was made based on the information available in the books of accounts of the appellant themselves and their ledgers which show the amounts as having been received from management services. The audited balance sheets of the appellant themselves show that they have earned income on maintenance and repair services. They cannot now claim that the income is not so - Learned counsel for the appellant tried to impress upon the bench that the income is actually income from interest etc. However, from the papers presented before us, he could not establish that the income which was recorded in their audited balance sheets as maintenance and repair services was not so and in fact, it has been misdeclared by their auditor and it pertains to interest income. It is also not in dispute that the appellants have neither declared these amounts as services rendered by them nor have they paid service tax nor have they filed their ST-3 returns with these amounts - the demand under the head management, maintenance and repair services invoking extended period of limitation is sustainable. Extended period of limitation - Interest - penalty - HELD THAT:- Extended period is invokable in the case of management, maintenance and repair services and is irrelevant in respect of the construction of residential complex services and construction of complex services as the same has been held to be not taxable at all - As far as renting of immovable property is concerned, the extended period of limitation, cannot be invoked - Consequently, the amount on interest, if any, is payable and the penalties under Section 77 & 78 also need to be upheld. Appeal is remanded to the original authority for the limited purpose of re-computation of liability - appeal allowed by way of remand. Issues Involved:1. Construction of Residential Complex Services2. Landowners' portion of Construction of Complex Services3. Renting of Immovable Property4. Management, Maintenance, or Repair ServicesIssue-wise Detailed Analysis:1. Construction of Residential Complex Services:The appellant argued that service tax on construction of residential complexes is chargeable only from 01.07.2010, following the insertion of an explanation under Section 65(105)(zzzh) of the Finance Act, 1994. They contended that prior advances are exempted by notification 36/2010-ST. The Tribunal referred to the Supreme Court's decision in Larsen & Toubro Ltd [2015 (39) STR 913 (SC)], which established that composite works contracts involving both services and materials could only be taxed under 'works contract service' from 1.6.2007. Therefore, for services rendered before 01.07.2010, no service tax is chargeable. The demand under this head was set aside.2. Landowners' portion of Construction of Complex Services:Similar to the first issue, the appellant argued that these services should be taxed under works contract service if at all. The Tribunal held that prior to 01.07.2010, no service tax is chargeable for such services, and the demand was set aside.3. Renting of Immovable Property:The appellant contended that renting of immovable property became taxable with retrospective effect from 01.6.2007 per Section 65(105)(zzzz) as amended by the Finance Act, 2010. They argued that extended period of limitation could not be invoked as the assessee could not have anticipated the retrospective legislative change. The Tribunal agreed, citing case laws including Shri Thadi Satya Ramalinga Reddy and M/s Nagpal Traders, and held that the demand is not sustainable beyond the normal period of limitation. The demand within the normal period was upheld.4. Management, Maintenance, or Repair Services:The appellant claimed that the income shown in their books as management services was incorrectly classified and included other incomes like interest. However, the Tribunal found that the appellant failed to substantiate this claim and upheld the demand based on the appellant's own records. The extended period of limitation was invoked and upheld for this demand.Conclusion:1. The demand under Construction of Residential Complex Services is set aside.2. The demand under the head of Construction of Complex Services on the Landowners' portion is set aside.3. The demand of service tax on Renting of immovable property is upheld within the normal period of limitation, and the extended period is set aside.4. The demand on Management, Maintenance, or Repair Services is upheld for the extended period of limitation.5. Interest is upheld on the modified demands.6. Penalty under Section 78 needs to be recalculated.7. Penalty under Section 77 is reduced to Rs. 20,000.The appeal was remanded to the original authority for computation based on these findings.