2019 (12) TMI 14 - AT - Service Tax

Tribunal rules in favor of appellants on service tax liabilities, penalties.

M/s. Adarsh Developers Versus Commissioner Of Central Tax, Bangalore North

The tribunal ruled in favor of the appellants on various issues related to service tax liabilities. They were not liable for service tax on construction ... Levy of service tax - constructions of complex services - Consulting Engineer Service - period 01.04.2007 to 31.03.2012 - time limitation - HELD THAT:- The present SCN is issued on 19.10.2012. The explanation was added on 1-7-2010, the services rendered by the appellants before the issuance of completion certificate were not taxable as they were deemed to be services rendered by the builder to himself. CBECD circular dated 29-1-2009 and the trade Facility notice No 1/2011 dated 15-2-2011 issued by Pune Commissionerate have amply clarified that same - As submitted by the appellants, the tribunal has consistently taken the stand that the explanation inserted in 2010 cannot be retrospective. Under the circumstances, it is to be held that such service was not liable to service tax before 1-7-2010. Extended period of limitation - HELD THAT:- Department was well aware of the activities and transactions while issuing the first show cause notice itself. Therefore, no suppression could be held against the Appellants and invoked while raising demand for the subsequent period - extended period cannot be invoked in subsequent SCN, more so, when the first SCN itself was issued invoking extended period. Classification of services - Construction of Residential Complex service or not - construction of villas - HELD THAT:- The construction of villas would not fall within the ambit of ‘construction of residential complex service’ and no service would be liable to be paid on villa receipts. Regarding the activity of construction undertaken by the appellant in respect of other residential complexes, we find that the appellants have submitted various decisions. They appear to be diverse and the issue has not reached finality - the demand on this count if any is sustainable for the normal period i.e. 1-4-2011 to 31-3-2012. Learned Counsel further submits that the Commissioner has not considered their submissions in the impugned order - the case needs to go back to the original authority, to appreciate the evidence submitted by the appellants and to re-quantify the duty liability for the period 1-4-2011 to 31-3-2012. Consulting Engineer Service - penalty - appellants have submitted that they are not contesting the duty paid by them in respect of ‘Consulting Engineer’s Service’. However, they submit that the penalty may be set aside on the ground that entire tax was paid before the issuance of Show Cause Notice - HELD THAT:- In respect of ‘Construction of Residential Complex’, we hold that most of the demand has been held to be barred by limitation. Consequentially, the penalty also is not imposable for the period. Moreover, looking in to the facts and circumstances of the case, where the issue is mired by frequent changes in law, clarifications and judicial pronouncements, it is not proper to allege that the appellants had a mens rea in the case. Therefore, for extended period penalty is not imposable. For normal period also, there are enough conditions to waive penalty in terms of Section 80 of Finance Act, 1994 - In respect of ‘Consulting Engineer’s Service’ as the demanded duty is paid before the issuance of notice, no penalty can be imposed - penalty set aside. Appeal allowed in part. Issues Involved:1. Liability to pay service tax on 'Construction of Residential Complex Services' and 'Consulting Engineer Service' for the period 01.04.2007 to 31.03.2012.2. Whether the Show Cause Notice (SCN) is time-barred.3. Applicability of service tax on the construction of villas.4. Valuation mechanism for composite transactions involving land, material, and labor.5. Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.Detailed Analysis:1. Liability to Pay Service Tax on 'Construction of Residential Complex Services' and 'Consulting Engineer Service':The appellants contended that the issue was settled by a prior decision, which ruled that service tax was not applicable before 01.07.2010. They argued that the explanation inserted to Section 65(105) (zzzh) w.e.f. 01.07.2010 was prospective and not retrospective. The tribunal upheld this view, stating, 'the explanation inserted in 2010 cannot be retrospective.' Consequently, the appellants were not liable for service tax on construction services before 01.07.2010.2. Whether the Show Cause Notice (SCN) is Time-Barred:The appellants argued that the extended period could not be invoked, as a prior SCN had already been issued for the same activities. The tribunal agreed, citing, 'extended period cannot be invoked in subsequent SCN, more so, when the first SCN itself was issued invoking extended period,' and relied on the precedent set by Nizam Sugar Factory Vs CCE, A.P. 2008 (9) STR 314 (SC). Thus, the demand for the period 01.04.2007 to 31.03.2011 was deemed unsustainable due to being time-barred.3. Applicability of Service Tax on the Construction of Villas:The appellants argued that villas do not fall under the definition of 'Construction of Residential Complex' as per Section 65(91a) of the Finance Act, 1994, which requires a complex to have more than twelve residential units. The tribunal concurred, stating, 'Villa is a single residential unit and the entire project would not have a building with more than twelve residential units to fall within the ambit of definition of ‘residential complex’.' Therefore, no service tax was liable on villa receipts.4. Valuation Mechanism for Composite Transactions:The appellants contended that there was no statutory mechanism to exclude the value of land and materials in composite transactions. The tribunal noted that 'there was no valuation machinery in service tax law on composite transactions,' as held by the Delhi High Court in Suresh Kumar Bansal. The tribunal remanded the case to the original authority to re-quantify the duty liability for the period 01.04.2011 to 31.03.2012, considering the appellants' submissions regarding accounting practices, exclusion of land value, and cum-duty benefit.5. Imposition of Penalties:The appellants requested the waiver of penalties, arguing that they had paid the service tax for 'Consulting Engineer Service' before the issuance of the SCN. The tribunal found that 'penalty under Section 78 of Finance Act, 1994 is set aside' due to the lack of mens rea and the frequent changes in law. However, the penalty under Section 76 was sustained.Conclusion:1. The demand under 'Construction of Residential Complex' for the period 01.04.2007 to 31.03.2011 is time-barred.2. The demand for the construction of villas is set aside.3. The demand for 'Construction of Residential Complex' for the period 01.04.2011 to 31.03.2012 is remanded for re-quantification.4. The demand under 'Consulting Engineer Service' is accepted.5. The penalty under Section 78 is set aside, while the penalty under Section 76 is sustained.