Appeal allowed: Service tax demand on construction services ruled unsustainable

The Tribunal allowed the appeal, finding the confirmed demand on construction of complex and work contract service for the period April 2005 to February 2008 unsustainable. It was held that no service tax was payable as the builders executed sale deeds to allottees/customers after completing the flats, indicating no service was provided before the sale. The Tribunal distinguished between works contract and construction of complex services, ruling that even if considered a works contract, service tax could only be demanded from a later date. The impugned order confirming the service tax demand was deemed not sustainable, and the appeal was allowed with consequential relief.

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Issues:
Appeal against confirmed demand on construction of complex and work contract service for the period April 2005 to February 2008.

Analysis:
The appellant, engaged in construction of complex services, was registered with the Central Excise department. The appellant constructed multiple apartments in a common area and sold them to allottees/customers. A show cause notice was issued to demand service tax under construction of complex services. The demand was confirmed, but penalty was dropped. The appellant contended they were not providing services to allottees/customers but were engaged in selling flats. The Circular No.108/2 of 2009-ST clarified that until the sale deed is executed, the builders are considered owners. The appellant argued that no service tax was payable. They cited precedents like Skynet Builders and Bairathi Developers Pvt. Ltd. to support their case.

The respondent argued that the activity of building flats for customers falls under works contract, not sale. Referring to the Raheja Developers Corporation case, it was stated that builders constructing flats for customers fall under works contract. The Tribunal considered the submissions and found that the appellant executed sale deeds to allottees/customers after completing the flats, indicating no service was provided before the sale. Precedents like Skynet Builders and Bairathi Developers Pvt. Ltd. supported this view. The Circular No.108/2 of 2009-ST clarified that any service by a builder before the sale of flats is self-service and not subject to service tax. The judgment in the Raheja case was deemed irrelevant due to the circular and subsequent Supreme Court cases.

The Tribunal noted that even if the contract was considered a works contract, service tax could only be demanded under Works Contract Service from a later date. The demand under Construction of Complex Services was found unsustainable due to the nature of works contracts being distinct. The judgment concluded that the impugned order confirming the service tax demand was not sustainable and allowed the appeal with consequential relief.

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