CESTAT sets aside service tax demand on residential units built by cooperative society for members

CESTAT Ahmedabad allowed the appeal, setting aside service tax demand confirmed by lower authorities. The SCN suffered from incurable deficiency as it was issued solely based on Income Tax data shared by IT authorities without independent inquiry by Central Excise officers. The demand under Construction of Residential Complex was improper since the SCN failed to specify the applicable taxable service clause. The tribunal held that residential units constructed by cooperative society for members' personal use under development agreement fall under exclusion clause of section 65(91a) of Finance Act 1994, making service tax inapplicable. Citing SC precedent regarding club-member relationship, the tribunal ruled no service tax was payable on residential units created by cooperative society for members' mutual benefit.

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Issues Involved:
1. Whether the Appellant is liable to pay Service Tax Demand of Rs. 18,10,742/- with interest and penalty.
2. Validity of the Show Cause Notice (SCN) based on Income Tax data without independent inquiry.
3. Applicability of Service Tax on the development of residential units for a Co-Operative housing society.
4. Whether the construction of residential units falls under the definition of "Residential Complex" under Section 65(91a) of the Finance Act, 1994.
5. Consideration of limitation and malafide intention to evade Service Tax.

Summary:

1. Liability to Pay Service Tax Demand:
The Tribunal examined whether the Appellant is liable for the Service Tax Demand of Rs. 18,10,742/- with interest and penalties as upheld by the Commissioner (Appeals). The Tribunal found that the demand was not sustainable.

2. Validity of Show Cause Notice:
The SCN issued on 25-03-2021 was based solely on Income Tax data shared by the Income Tax authorities without any independent inquiry by Central Excise officers. The Tribunal found that the SCN suffered from an "incurable deficiency" and that the Service Tax demand cannot be raised without independent evidence.

3. Applicability of Service Tax on Co-Operative Housing Society:
The Appellant developed land for "Radhe Villa Co-Operative housing society" and "Sharnam Villa" under agreements with landowners. The Tribunal noted that the Appellant did not sell any residential units and that the services provided to a registered Co-Operative housing society for its members are considered services to self. Therefore, no Service Tax liability arises under the Construction of Residential Complex services.

4. Definition of "Residential Complex" under Section 65(91a):
The Tribunal found that the construction activities carried out by the Appellant did not fall under the definition of "Residential Complex" as per Section 65(91a) of the Finance Act, 1994. The Tribunal referred to various judgments, including those involving similarly placed assessees, to support this view. The Tribunal concluded that the residential units developed for personal use by the members of the Co-Operative society are excluded from Service Tax.

5. Limitation and Malafide Intention:
Since the demand for Service Tax was found to be unsustainable on its merits, the Tribunal did not address the issue of limitation or the malafide intention to evade Service Tax.

Conclusion:
The Tribunal set aside the Service Tax demand of Rs. 18,10,742/- with interest and penalties, allowing the appeal filed by the Appellant with consequential relief in accordance with the law.

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