2019 (11) TMI 679 - AT - Service Tax

Appellant's Activities Not Taxable; Service Tax Demands Invalid

The Tribunal held that the appellant's activities constituted indivisible works contracts taxable only from 1.6.2007. The demands for service tax on ... Construction services - Construction of Complex Service - appellant had a strong belief that they are not liable to pay service tax but still they calculated the service tax liability and interest for the period from 16.6.2005 to 31.3.2006 after applying the abatement provided under Notification No.1/2006-ST for ‘Construction of Complex Service’ - demand of service tax - Health Club and Fitness Centre Service - Real Estate Agent Service - Interior Decoration Service - Maintenance or Repair Service - CENVAT credit - credit utilization in excess of 20% or not. HELD THAT:- It is not in dispute that the entire activity of the appellant is construction of residential apartments and such activity is in the nature of indivisible works contract involving transfer of property in goods along with provision of service. The appellants are paying VAT under the State Government by treating the said transaction as works contract - it is settled law that indivisible works contract is taxable only with effect from 1.6.2007 with the introduction of separate taxable service of works contract under Section 65(105)(zzzza). The Hon’ble Supreme Court in the case of COMMISSIONER, CENTRAL EXCISE & CUSTOMS VERSUS M/S LARSEN & TOUBRO LTD. AND OTHERS [2015 (8) TMI 749 - SUPREME COURT] had held that prior to 1.6.2007, there was no charging section to specifically levy service tax on works contract on service and in the present case, the entire period is prior to 1.6.2007 - therefore, the appellants are not liable to pay service tax on the entire activity of raising the construction and providing the various category of services viz., Health and Fitness Centre Service, Maintenance or Repair Service or Real Estate Agent Service. CENVAT Credit - demand of excess 20% as per rule 6 - Applicability of Rule 6 of CCR - contention of the Department in demanding excess of 20% is that the appellants are providing both taxable as well as exempted service and therefore, hit by Rule 6(3)(c) of CENVAT Credit Rules, 2004 - HELD THAT:- In the present case, the appellant give full constructed apartment to the owner of the land and this by no stretch of imagination can be seen as a service provided by the appellant to the land owners. Co-developers do not provide any service to each other and this has further been clarified by the CBEC in Circular No.108/02/2009 dated 29.1.2009 - the preliminary requirement to fall within the definition of exempted service is that the activity undertaken should be service whereas the activity undertaken by the appellant in the present case is not defined to be a taxable service. Appeal allowed - decided in favor of appellant. Issues Involved:1. Demand of service tax on various services (Health Club and Fitness Centre Service, Real Estate Agent Service, Maintenance or Repair Service).2. Demand of Rs. 36,41,830/- being the CENVAT credit utilized in excess of 20%.Issue-Wise Detailed Analysis:1. Demand of Service Tax on Various Services:The appellant, a developer and builder, was engaged in the construction of residential complexes and selling them. They applied for registration under 'Commercial or Industrial Construction Service' and 'Construction of Complex Service' and paid service tax from 16.6.2005. The Commissioner confirmed the demand on various services, including Health Club and Fitness Centre Service, Real Estate Agent Service, and Maintenance or Repair Service.The appellant contended that their activities were indivisible works contracts involving the transfer of property in goods along with services. They argued that service tax on works contracts was only applicable from 1.6.2007, following the Supreme Court's decision in Commissioner of Central Excise and Cus. Kerala vs. Larsen & Toubro Ltd. (2015). The Tribunal agreed, stating that prior to 1.6.2007, there was no charging section to levy service tax on works contracts.Regarding Health Club and Fitness Centre Service, the appellant argued that they only constructed the club house and handed it over to the owners' association, without operating it or providing any physical wellbeing services. The Tribunal found that the appellant's activities did not fit the definition of Health and Fitness Centre Service under the Finance Act.For Real Estate Agent Service, the appellant contended that they only charged transfer fees for updating records when a buyer sold their right to a third person. The Tribunal agreed that this did not constitute an agency function as defined under Real Estate Agent Service.Regarding Maintenance or Repair Service, the appellant collected advance maintenance charges for common expenses, which were pooled and spent for the maintenance of common areas. The Tribunal ruled that this did not constitute a service, referencing decisions such as Adarsh Developers vs. CCE (2018).2. Demand of Rs. 36,41,830/- Being the CENVAT Credit Utilized in Excess of 20%:The show-cause notice also demanded service tax on the ground that the appellant provided both taxable and exempted services without maintaining separate accounts for inputs and input services, thus exceeding the 20% credit utilization limit. The appellant argued that the demand was unsustainable as the construction of residential complexes was not taxable prior to 1.6.2007.The Tribunal found that Rule 6 of the CENVAT Credit Rules, 2004, was not applicable as the appellant's activities were not defined as taxable services. The activity of providing constructed apartments to landowners in joint development agreements did not constitute a service. This was further clarified by CBEC Circular No. 108/02/2009 dated 29.1.2009.Conclusion:The Tribunal concluded that the entire activity of the appellant was in the nature of indivisible works contracts, taxable only from 1.6.2007. The demands for service tax on Health Club and Fitness Centre Service, Real Estate Agent Service, and Maintenance or Repair Service were unsustainable. Additionally, the demand for excess utilization of CENVAT credit was invalid as the appellant's activities were not taxable services. Consequently, the impugned order was set aside, and the appeal was allowed.(Order was pronounced in Open Court on 14/11/2019.)