2023 (9) TMI 1374 - AT - Service Tax

Levy of service tax on construction of residential complex overturned; refund allowed after demand set aside

Construction of residential complex provided with materials was held to fall within works contract service and was not taxable prior to 01.07.2010; ... Levy of Service Tax - Residential Complex Service - carrying out activity of Construction of Residential Complex (With material) as a developer, where the contract was executed before 01.06.2007 and where services were provided before and after 01.06.2007 - refund of service tax paid during investigation - refund is barred by Section 73 (3) of Finance Act, 1994 or not. Whether the construction of residential complex with material is taxable before 01.06.2007? - HELD THAT:- In this case undisputedly the construction of residential complex was provided by the appellant along with material which stands established and admitted as per the show cause notice wherein the demand was raised after extending the abatement of 67% which is given only when the service is provided along with material. Therefore, the fact that the construction was provided along with material is not under dispute. If this is be so then the service is clearly classifiable under works contract service and up to 01.06.2007, the service tax was not leviable on works contract service was held by the Hon’ble Supreme Court in the case of Total Environment Building System P. Ltd [2022 (8) TMI 168 - SUPREME COURT]. As regard the period post 01.06.2007, the demand is not sustainable on the ground that despite the service of works contract service, the demand was raised under construction of residential complex. Since the service tax of works contract service demanded under different head i.e. Construction of Residential Complex the same is not legal and correct. It is found that as per the Board Circular No. 108/02/2009 dated 29.01.2009, the construction service provided by the builder/developer was not taxable up to 01.07.2010. This particular issue has been considered by this Tribunal in the case of COMMISSIONER OF CUSTOMS, CENTRAL EXCISE & SERVICE TAX, VISAKHAPATNAM - I VERSUS M/S PRAGATI EDIFICE PVT LTD (VICE-VERSA) [2019 (9) TMI 792 - CESTAT HYDERABAD] where it was held that It is well settled legal position that whether the service is rendered as service simpliciter or as a works contract, no service tax can be levied on construction of residential complex prior to 01.7.2010. Thus, up to 01.07.2010 there was no service tax on the Construction of Residential Complex. Therefore, for this reason also the demand is not sustainable, hence, the same is set aside. Refund in respect of the deposit made against the aforesaid demand - HELD THAT:- Since the demand itself is set aside, the appellant is entitled for the refund as consequential benefit. The contention of the revenue is that the deposit made by the appellant is covered by the provision of Section 73 (3) of Finance Act, 1994 - It is found that in case of payment made under 73 (3), firstly the assessee is required to pay the amount of service tax along with interest and same need to be intimated to the department and simultaneously the department is not supposed to issue the show cause notice - In the present case admittedly the appellants were issued show cause notice demanding service tax, therefore, this case is not covered by provision of 73 (3) of the Finance Act, 1994. Hence, the rejection of refund on that count is baseless and not tenable. The demand of service tax is set aside. Consequently, the appellants are entitled for the refund - Appeal allowed. The issues involved in the present appeals are:(i) Whether carrying out activity of Construction of Residential Complex (with material) as a developer, where the contract was executed before 01.06.2007 and where services were provided before and after 01.06.2007, is liable to service tax for the period up to 01.06.2007 at all, and after such date under 'Residential Complex Service'.(ii) In connection with the demand on the above issue in respect of the amount of service tax paid during the investigation, whether the appellant is entitled to a refund or otherwise and whether refund is barred by Section 73 (3) of Finance Act, 1994 as upheld in the impugned orders.Issue (i): Liability to Service Tax on Construction of Residential ComplexThe appellant argued that the construction service provided along with material falls under the category of works contract service, not under the Construction of Residential Complex. The show cause notice itself admitted this by extending a 67% abatement, which is only available when the service is provided along with material. It was contended that works contract service was not taxable until 01.06.2007, and even post this date, the demand under the Construction of Residential Complex category is unsustainable. The appellant also cited CBIC Circulars and judgments to support the claim that no service tax was applicable on developers of residential complexes until 01.07.2010.The Tribunal found that the construction of residential complex with material is classifiable under works contract service, which was not taxable up to 01.06.2007 as per the Supreme Court judgment in Total Environment Building System P. Ltd. For the period post 01.06.2007, the demand was not sustainable as it was raised under the wrong category. Additionally, as per the Board Circular No. 108/02/2009 dated 29.01.2009, construction service provided by the builder/developer was not taxable up to 01.07.2010.Issue (ii): Entitlement to Refund of Service Tax Paid During InvestigationThe appellant argued that the refund is due for the service tax deposited during the investigation since the demand itself is not sustainable. The lower authorities denied the refund based on Section 73 (3) of the Finance Act, 1994, which the appellant contended was not applicable as a show cause notice was issued. The Tribunal agreed, stating that Section 73 (3) applies only when service tax is paid along with interest and no show cause notice is issued. Since a show cause notice was issued in this case, the rejection of the refund was deemed baseless and untenable.ConclusionThe Tribunal set aside the demand of service tax and allowed the appellant's entitlement to the refund as a consequential benefit. All the appeals were allowed accordingly.(Pronounced in the open court on 21.07.2023)