Tribunal Rules No Service Tax on Construction, Reverse Charge, Education Buildings

The Tribunal ruled in favor of the appellants on all counts, stating that service tax cannot be levied on the construction and sale of flats including undivided share of land, services availed from sub-contractors under Reverse Charge Mechanism, construction of buildings for educational institutions, and one-time maintenance deposits collected from buyers of residential apartments. The Tribunal also confirmed that the appellants were not liable to pay service tax and consequently, the question of Cenvat credit did not arise. The appeal was allowed, and consequential relief was granted to the appellants.

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Issues Involved:

1. Service tax on construction and sale of flats including undivided share of land.
2. Service tax on services availed from sub-contractors under Reverse Charge Mechanism (RCM).
3. Service tax on construction of buildings for educational institutions.
4. Service tax on one-time maintenance deposit collected from buyers of residential apartments.
5. Eligibility for Cenvat Credit.

Issue-wise Detailed Analysis:

1. Service Tax on Construction and Sale of Flats Including Undivided Share of Land:

The appellants argued that the amount collected from prospective buyers included consideration towards an undivided share of land, which in a composite contract involving construction of flats and sale of land, should not be subject to service tax. The Tribunal referenced the Delhi High Court's judgment in Suresh Kumar Bansal Vs Union of India, which held that there is no statutory mechanism to ascertain the value of services in such composite contracts, thereby negating the levy of service tax. The Tribunal concluded that service tax cannot be levied on the appellants for this count.

2. Service Tax on Services Availed from Sub-contractors Under Reverse Charge Mechanism (RCM):

The appellants contended that the sub-contractors had already discharged the service tax liability and they had not availed Cenvat credit for the same. The Tribunal referred to the Karnataka High Court's decision in CCE&ST, Bangalore-II v. Nithesh Estates Ltd, which held that if the sub-contractors have paid the service tax, the principal contractor cannot be taxed again for the same services. The Tribunal agreed with this view and held that the appellants are not liable to pay service tax on the services availed from the sub-contractors under RCM.

3. Service Tax on Construction of Buildings for Educational Institutions:

The appellants argued that the construction of buildings for Rajalakshmi Education Trust and T.A. Pai Management Institute Trust is not taxable as 'Works Contract Service' since these buildings are not used for commerce or industry but for educational purposes. The Tribunal supported this argument by citing the cases of Ratan Das Gupta & Co Vs CCE, Jaipur and Vij Construction Pvt Ltd Vs CCE, New Delhi, which held that buildings used for educational purposes are considered non-commercial. Hence, the Tribunal concluded that the appellants are not liable to pay service tax for this activity.

4. Service Tax on One-time Maintenance Deposit Collected from Buyers of Residential Apartments:

The appellants collected one-time deposits from buyers for future statutory obligations like property tax and water connection charges, which were deposited into a separate account. The Tribunal referred to the case of Kumar Beheray Rathi Vs CCE, Pune-III, which held that such deposits are not towards any service rendered and are held in trust for future use by the Resident Owner/Welfare Association. The Tribunal concluded that no service tax is payable on these deposits.

5. Eligibility for Cenvat Credit:

The appellants claimed eligibility for Cenvat credit for the disputed amount if service tax liability is confirmed. The Tribunal noted that the Commissioner had observed the appellants did not avail Cenvat credit and were eligible for abatement under relevant notifications. However, since the Tribunal held that no service tax is payable on the contested issues, the question of Cenvat credit did not arise.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned order to the extent contested, and granted consequential relief to the appellants, if any. The order was pronounced in Open Court on 19/09/2019.

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