2022 (3) TMI 9 - AT - Service Tax

Tribunal grants appeal, rejects service tax demands, emphasizes proper classification

The Tribunal allowed the appeal, setting aside most demands and penalties imposed by the Revenue. The only upheld demand was for service tax on rental ... Construction of residential complex - It appeared to Revenue that the appellant is also collecting one time Preferential Location Charges, Car Parking Charges, Club Membership Charges, Interest Free Maintenance Security charges (IFMS), Internal or External Development Charges, Electrical charges, Power Back up charges etc. from their buyers over and above the basic price of flat - alleged additional amount collected from the customers would be taxable at full rate of service tax without even classifying and mentioning the category of service under which the same will be taxable or not - financial year 2013-14 to 2016-17 - abatement under Notification No. 26/2012-ST as amended - Circular TRU/CBEC letter dt. 20.02.2010 - HELD THAT:- The service tax law was revamped w.e.f. 01.07.2012 by bringing in various changes. It is also noticed that TRU/CBEC letter dt. 20.02.2010 regarding the scope of valuation of taxable amount in respect of residential complex service, which was introduced in the year, 2010. With effect from 01.07.2012, Section 66F have been added to the Finance Act, which deals with classification of service in case of bundled services. Section 66 F (1) provides that - unless otherwise specified, reference to a service (hereinafter referred to as main service) shall not include – reference to a service which is used for providing main service. Further, where a service is capable of differential treatment for any purposes based on its description, the most specific description shall be preferred over a general description. From the facts on record and on perusal of the RUDs, it is found that although the appellant may have prepared a price list showing preferential location charges, car parking charges etc. separately, but it is evident from the buyer-agreements (sample buyer agreement produced at the time of hearing), that the appellant have charged the negotiated sales price per sq. ft. and in addition have charged IFMS and EDC/IDC per sq. ft. basis. In addition, there is power back up charges in some of the cases. Evidently, it is found that Revenue have calculated preferential location charges, IFMS charges, EDC/IDC, power back up charges based on the price list. It is found that there is no such mention in the buyer agreement, nor there is any amount collected towards such heads in the books of accounts maintained by the appellant, as is evident from their balance sheet/ P&L account/ trial balance. Thus, the service tax is not payable on such hypothetical calculation, there being no actual consideration towards these, which is an admitted fact. Security charges - HELD THAT:- This is actually interest free maintenance security charges collected from the prospective buyer of the flat, which are separately shown in the builder buyer agreement and the sale deed, and appellant have maintained separate ledger relating to such collection customer-wise. Such charges are collected by the appellant / builder as a trustee of the flat buyers and such total amount of a project of a building, is handed over to the maintenance committee or RWA at the time of handing over the maintenance alongwith accrued interest etc. if any - the appellant is not liable to pay service tax on such receipts which are not part of consideration towards any service. Accordingly, we set aside the demand of ₹ 1,44,599/-. Electrical charges - HELD THAT:- Such amount have been maintained in a separate ledger called electrical ledger. The appellant have explained that such charges are collected on behalf of the customer or buyer of the flat, as the trustee, for getting electrical connection in the name of the buyer of the flat from the electrical supply company, for which connection charges, and security deposit have to be given for obtaining the connection - such amount is not collected towards providing any service by the appellant. The amount collected is as a pure agent for disbursing the expenses and amount of security deposit for obtaining the electrical connection in flat buyer’s name. Accordingly, the appellant is not liable to pay service tax on the electrical charges. Thus, the demand of ₹ 27,30,298/- is set aside. Rental income - HELD THAT:- The appellant have received rent both for renting of residential flat as well as for commercial space. The appellant have admitted the liability under this head. However, as stated that they are not paying service tax on the rent received from renting of residential flat. As the appellant has not given the break-up of the rent received from residential flats and commercial space, it is confirmed demand under this head of ₹ 1,57,467/-. It is further evident from the record that the appellant has not collected any service tax on this account. Short payment of tax in respect of advance received from the customer for buying the flats - HELD THAT:- The appellant has paid the service tax on the full consideration received at the time of finalisation of the sale or execution of sale deed, on the total consideration received. However, in view of the tax liability which arises on the event of receipt of advance consideration, there is only case of deferment in deposit of tax. Thus, the appellant is only liable for interest on the delay deposit of tax in respect of advance received, in accordance with law. Excess abatement claim as per Notification No. 26/2012-ST - HELD THAT:- From perusal of the purchase deed and other documents produced before us, we find that the purchase agreement and the sale deed mentions the area sold as super area in sq. ft, and not the carpet area. Whereas the rate of abatement under the said notification is based on two criteria (i) carpet area not more than 2000 sq. ft. and (ii) sale consideration not more than ₹ 1 crore. We find that the submissions of the appellant in this regard that they have not sold any flat in excess of 2000 sq. ft. as supported by Chartered Engineer certificate, have not been found to be untrue or false. Thus, evidently the Commissioner have erred in considering the super area as carpet area and have drawn erroneous conclusion - the carpet area is the area on which carpet may be spread within a house. Whereas built up area or super area includes also the space occupied by the walls and may also include loading by the builder towards profit or other amenities provided or to be provided. The impugned order is modified - appeal allowed in part. Issues Involved:1. Service tax liability on Preferential Location Charges, Car Parking Charges, Club Membership Charges, Interest Free Maintenance Security Charges, Internal and External Development Charges, Electrical Charges, and Power Back-up Charges.2. Service tax on rental income.3. Service tax on advances received from buyers.4. Short payment of service tax due to excess abatement claimed under Notification No. 26/2012-ST.Issue-wise Detailed Analysis:1. Service Tax Liability on Additional Charges:The appellant argued that the additional charges such as Preferential Location Charges, Car Parking Charges, Club Membership Charges, IFMS, Internal and External Development Charges, Electrical Charges, and Power Back-up Charges were not separately collected but were bundled in the basic sale price of the flats. The Tribunal found that the Revenue's calculation of these charges based on a price list was incorrect as there was no actual receipt of consideration under these heads. The Tribunal held that service tax is not payable on hypothetical calculations when there is no actual consideration received. The demand for service tax on these charges was set aside.2. Service Tax on Rental Income:The appellant admitted liability for service tax on rental income but contended that rent from residential flats should not be taxed. The Tribunal confirmed the demand for service tax on rental income amounting to Rs. 1,57,467/- due to the lack of a clear break-up between residential and commercial rent. The Tribunal noted that the appellant had not collected any service tax on this account.3. Service Tax on Advances Received from Buyers:The appellant contended that service tax had already been paid on the full consideration received at the time of the final sale. The Tribunal held that while the appellant was liable for interest on the delayed deposit of tax on advances received, there was no case for double taxation on the same amount. Thus, the demand for service tax on advances was limited to the interest for delayed payment.4. Short Payment of Service Tax Due to Excess Abatement Claimed:The Revenue argued that the appellant claimed excess abatement by misclassifying flats with super areas exceeding 2000 sq. ft. as having carpet areas less than 2000 sq. ft. The appellant provided a Chartered Engineer certificate confirming that no flat had a carpet area exceeding 2000 sq. ft. The Tribunal found that the Commissioner erred in considering super area as carpet area. The demand for service tax due to excess abatement claimed was set aside.Conclusion:The Tribunal allowed the appeal and set aside the majority of the demands and penalties imposed by the Revenue. The only confirmed demand was for service tax on rental income due to the lack of a clear break-up. The Tribunal emphasized the importance of actual receipts and proper classification in determining service tax liability. The appellant was granted consequential benefits in accordance with the law.