Valuation for construction services: Board guidance treats allotted flats as valued like sold flats, preventing additional service-tax demands.

Whether service tax applies to flats allotted free to existing society members in redevelopment projects was decided by applying service-tax valuation law and departmental guidance: valuation must follow valuation provisions and the Board Circular of 10.02.2012 as reconciled by the 20.01.2016 instruction, treating flats allotted to landowners/members as valued equivalent to similar flats sold to buyers. Because the service provider discharged tax on the gross consideration from sales, imposing an additional demand for allotted flats would produce double taxation; accordingly the departmental demand was held unsustainable and set aside in favour of the assessee by CESTAT.

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Issues: Whether service tax demand on construction services in redevelopment transactions, specifically tax on flats allotted to existing society members (provided free of cost under development agreements), is sustainable after introduction of the negative list/declared services regime effective 01.07.2012.

Analysis: Applicable provisions identified include Section 65(105)(zzzh) and Section 66E(b) of the Finance Act, 1994 together with valuation rules under Section 67 and Rule 3(a) of the Service Tax (Determination of Value) Rules, 2006. The issue requires comparison of the pre- and post-01.07.2012 scheme and application of departmental guidance on valuation. The Board Circular No. 151/2/2012-ST dated 10.02.2012 addresses valuation in tri-partite/joint development models and prescribes that value of flats given to landowners/first category receivers be determined in terms of section 67 read with rule 3(a), i.e., be equated to value of similar flats sold to other buyers. The Board instruction F. No. 354/311/2015-TRU dated 20.01.2016 reconciles divergence between the Education Guide and the Circular and directs that Circular dated 10.02.2012 be followed post 01.07.2012. Where the service provider has discharged service tax liability on the gross amount charged (including consideration from sale of flats to new buyers), invoking additional demand for flats allotted free to existing members would result in double taxation. Prior case authorities and circulars cited concerning barter/valuation and abatement are considered in light of the facts and the departmental instruction affirming applicability of the Circular dated 10.02.2012.

Conclusion: The demand for service tax in respect of flats allotted to existing society members under the redevelopment agreements is not sustainable after application of the Board Circular No. 151/2/2012-ST dated 10.02.2012 as affirmed by F. No. 354/311/2015-TRU dated 20.01.2016; since the service tax liability on the gross amounts charged has been discharged, the revenue appeal is dismissed and the demand is set aside in favour of the assessee.

Ratio Decidendi: Where departmental guidance (CBEC Circular dated 10.02.2012) on valuation in joint development models is affirmed by a subsequent Board instruction, valuation for service-tax purposes of flats allotted to landowners/members is to be determined under section 67 read with rule 3(a) of the Service Tax (Determination of Value) Rules, 2006, and recovery of additional service tax after gross tax has been discharged would amount to double taxation.

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