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of <h1>Service tax demands set aside for construction, works contract, property rental and transport services due to exemptions and interpretational issues</h1> CESTAT Hyderabad allowed the appeal and set aside the impugned order demanding service tax on various services. The tribunal held that construction of ... Levy of service tax - Construction of Complex service for the period 01.04.2006 to 31.05.2007 - Works Contract service for the period 01.06.2007 to 31.03.2011 - Renting of Immovable Property service for the period 01.06.2007 to 31.03.2011 - Management, Maintenance or Repair service during the period 01.04.2006 to 31.03.2011 - Transport of goods by Road service during the period 01.04.2006 to 31.03.2011 - Extended period of limitation - suppression of facts or not - penalties. Construction of complex service for the period 01.04.2006 to 31.05.2007 - HELD THAT:- Construction of complex service is not taxable for the period prior to 01.07.2010 as clarified vide Board Circulars read with amendment in the definition of ‘construction of complex service’ – Sec 65(105)(zzzh) read with Sec 65(91a) of the Finance Act, particularly, Circular No. 108/02/2009-ST dt.29.01.2009. In this Circular, it has been clarified that in spite of agreement of sale entered into between the developer/builder and the prospective buyer, no right accrues to the buyer till the time sale deed for transfer of property is entered or executed - the construction of residential complex, under whichever head i.e., ‘Construction of Complex’ or WCS is taxable only when pursuant to a contract, amount is received by the builder/developer from the intended buyer during construction stage, i.e., prior to grant of completion certificate by the competent authority. In other words, a sale, post construction (after grant of completion certificate) will not come within the scope of service tax. Accordingly, the demand of Rs.2,12,03,687/- is set aside. Works Contract service for the period 01.06.2007 to 31.03.2011 - HELD THAT:- No service tax is payable for the period up to 30.06.2010. So far the demand for the period 01.07.2010 to 31.03.2011 is concerned, the Appellant states that they dispute the reclassification of the same service under the head WCS. However, as per the Notification No. 29/2010 amending the earlier Notification No. 01/2006-ST, keeping in view the value of land also involved, which is being transferred, 75% abatement of the gross value has been prescribed. Accordingly, the Appellant is required to pay service tax on only 25% of the gross value, after abatement. As the effective rate of service tax was 10.3%, thus, 25% of the same works out to 2.575%. The Appellant has already deposited service tax of Rs.1,42,75,289/- Thus, on the gross value relating to this period i.e., Rs.24,88,85,692/-, tax works out to Rs.64,08,807/-. Thus, Appellant has already paid more tax than payable - As the Appellant has already paid the tax in accordance with law for the period 01.07.2010 to 31.03.2011 on the gross value as aforementioned, this ground is allowed and the demand of Rs.8,16,39,119/- set aside. The payment of tax is also supported by the appropriation made from the deposits already made, in the Impugned Order. Renting of Immovable Property - Appellant has urged that they have already paid the admitted service tax of Rs.3,21,680/- prior to the issue of SCN, which has been appropriated - HELD THAT:- The Adjudicating Authority has erred by not considering that the amount of rent, being the gross amount, includes service tax amount also. Evidently, during the relevant period, levy of service tax under this head was highly disputed and had been declared ultra vires by the Hon’ble Delhi High Court in the case of Home Solutions Retail (India) Ltd and Others [2011 (9) TMI 46 - DELHI HIGH COURT]. Thereafter, the said tax was again levied with retrospective effect by re-enacting the provisions. When the amount actually received is considered as gross amount and no other amount is admittedly collected towards service tax, then the gross amount becomes cum-tax value as provided under Sec 67(2) of the Finance Act, 1994. The Adjudicating Authority has erred in not giving cum-tax benefit. If the gross amount is taken as cum-tax value and service tax is calculated on this basis, the amount already paid as tax, tallies - Learned AR has not been able to dispute this contention - the demand in excess of Rs.3,21,680/- set aside. Demand of Rs.3,31,699/- on Goods Transport Agency service - HELD THAT:- As the Appellant has not paid the freight, they are not liable to pay any service tax on the same under Sec 68(2) of the Finance Act read with Rule 2(1)(d)(v) of Service Tax Rules. Some times, in case of business exigency, freight amount has been paid by the Appellant on behalf of the supplier initially, which has been remibursed by the supplier or reduced from the amount of the bill for purchase - Revenue has not disputed the factual aspect in this matter and accordingly, the ground taken is correct and thus, the demand of Rs.3,31,699/- set aside. Extended period of limitation - suppression of facts or not - HELD THAT:- The Appellant is registered with the Department and has maintained proper Books of Accounts, which is evident from the list of relied upon documents in the SCN. Further, there is no allegation of suppression, misdeclaration or other act for evading payment of service tax. Accordingly, extended period of limitation is also not available to the Revenue. Penalties - HELD RHAT:- The issue herein is wholly interpretational in nature and SCN has been issued by way of change of opinion, without finding the ST3 Returns filed to be wrong or erroneous. Accordingly, all penalties imposed are set aside. The impugned order set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether 'Construction of Complex service' was taxable for the period prior to 01.07.2010 where amounts were received from buyers before grant of completion certificate. 2. Whether amounts received pursuant to construction contracts for residential complexes for the period 01.07.2010 to 31.03.2011 are correctly taxable as Works Contract Service (WCS) and if so, the correct taxable value after abatement/composition and whether tax deposited suffices. 3. Whether amounts collected in respect of projects completed before 01.07.2010 but realized after that date should be included in gross turnover for computation of service tax for the post-01.07.2010 period. 4. Whether the gross rent receipts claimed under 'Renting of Immovable Property service' should be treated as cum-tax value under Section 67(2) for computing tax and whether pre-deposit/appropriations were properly accounted. 5. Whether the appellant was liable to pay service tax on Goods Transport Agency (GTA)/transport of goods by road services where freight was contractually payable by suppliers and not paid by the appellant. 6. Whether extended period of limitation and penalties under Sections 77/78 are maintainable in circumstances where returns were filed and there is no allegation of suppression or evasion (i.e., whether assessment arose from change of opinion). ISSUE-WISE DETAILED ANALYSIS Issue 1: Taxability of 'Construction of Complex service' prior to 01.07.2010 Legal framework: Definition of 'construction of complex service' (Sec. 65(105)(zzzh) read with Sec. 65(91a)) as amended and clarified by Board Circulars which explain that no right accrues to buyer until sale deed executed; explanation inserted effective 01.07.2010 deeming construction intended for sale to be service only where amounts are received before grant of completion certificate. Precedent treatment: The Court relied on the Board Circular clarification and statutory amendment/explanation effective 01.07.2010; no contrary binding authority was applied to displace that interpretation. Interpretation and reasoning: The Court interpreted the statutory text and circular to mean that construction-of-complex activity intended for sale attracts service tax only if amounts are received from or on behalf of prospective buyers prior to grant of completion certificate. Sale effected post-construction (after completion certificate) falls outside service tax scope. Ratio vs. Obiter: Ratio - taxation of construction-of-complex prior to 01.07.2010 requires receipt of money prior to completion certificate; pre-01.07.2010 claims without such receipts do not attract tax. This is central to the decision and not obiter. Conclusion: Demand under 'Construction of Complex service' for period prior to 01.07.2010 set aside. Issue 2: Reclassification as Works Contract Service for 01.07.2010-31.03.2011 and correct tax computation Legal framework: Post-amendment notifications and rules treating transfer of immovable property in certain transactions as WCS for service tax, with prescribed abatement (Notification prescribing 75% abatement) and applicable effective service tax rate (10.3% effective; abated taxable portion 25% => effective 2.575%). Composition scheme alternative at 1.42% available for notified cases. Precedent treatment: The Court applied the notification prescribing abatement and composition scheme provisions; no precedent was distinguished or overruled. Interpretation and reasoning: The Tribunal accepted that even if the service were reclassified as WCS, the statutory abatement reduces taxable value to 25% of gross; applying the effective rate yields a lower tax liability than amounts deposited. The Tribunal also computed tax under composition scheme for argument's sake and found deposited tax exceeded liabilities in both computations. Ratio vs. Obiter: Ratio - when notification prescribes abatement/composition, taxable liability must be computed on abated value or composition rate; payments already made must be matched against correct liability. This is central and binding for the facts. Conclusion: Demand for the WCS period 01.07.2010-31.03.2011 set aside as tax already paid exceeded statutory liability; appropriation from deposits was correctly supported. Issue 3: Inclusion/exclusion of receipts from projects completed before 01.07.2010 in gross turnover for post-01.07.2010 period Legal framework: Taxable gross value must exclude receipts attributable to completed projects (i.e., where completion and handing over certificates precede taxable period), as taxability depends on timing of service and receipt vis-à-vis completion certificate. Precedent treatment: The Tribunal accepted documentary proof (completion certificates, handing over letters) and accounting entries, distinguishing amounts realized post-01.07.2010 that relate to projects completed earlier and, where collected by an affiliated group company, treated as not the appellant's receipts. Interpretation and reasoning: The Tribunal examined annexures, accounting entries and proof that certain collections related to nine projects completed prior to 01.07.2010 and that a group company received and accounted for another project's receipts; these amounts were to be deducted from gross turnover for the relevant period. The recalculated gross turnover was accepted. Ratio vs. Obiter: Ratio - gross turnover for taxation must exclude post-period receipts that relate to services rendered/completed prior to the taxable period and receipts belonging to other entities; documentary evidence establishing completion and correct accounting controls exclusion. This holding is dispositive for computation. Conclusion: Revenue's inclusion of such amounts was erroneous; gross turnover for 01.07.2010-31.03.2011 recalculated and accepted as lower figure. Issue 4: Treatment of gross receipts for Renting of Immovable Property service and cum-tax valuation Legal framework: Section 67(2) concept of cum-tax value where gross amount received includes service tax; judicial pronouncements had earlier declared levy ultra vires in respect of certain rent receipts and subsequent re-enactments affected retrospective coverage. Precedent treatment: The Tribunal noted earlier judicial invalidation of the levy and subsequent legislative re-enactment with retrospective effect; it applied statutory provision for cum-tax valuation when gross amount includes service tax but no separate collection towards tax is made. Interpretation and reasoning: Where rent receipts are inclusive of tax and no separate tax amount is collected, the gross receipts constitute cum-tax value under Section 67(2); computing tax on cum-tax basis and accounting for taxes already paid/appropriated results in no additional liability beyond already appropriated amounts. Ratio vs. Obiter: Ratio - where gross rent receipts are cum-tax and no separate tax is shown, cum-tax valuation under Section 67(2) must be applied; earlier judicial invalidation and re-enactment are relevant contextual facts but the valuation principle is central. Conclusion: Demand in excess of amounts already paid/appropriated was set aside; appropriate cum-tax computation brings payable tax in line with deposits. Issue 5: Liability for service tax on Goods Transport Agency/transport of goods by road where freight payable by suppliers Legal framework: Rule 2(1)(d)(v) of Service Tax Rules and Section 68(2) specify that person liable in respect of notified transport services is the body corporate which pays or is liable to pay freight either himself or through agent. Precedent treatment: The Tribunal applied the statutory rule to contract documents (purchase orders) demonstrating contractual incidence of freight payment on suppliers; factual admissions by Revenue were noted. Interpretation and reasoning: If contractual documents show the price inclusive of freight and freight legally payable by supplier (i.e., appellant did not pay freight), the appellant is not the person liable under Section 68(2) and Rule 2(1)(d)(v). Instances of temporary payment with subsequent reimbursement do not create enduring liability if reimbursed/adjusted. Ratio vs. Obiter: Ratio - liability for GTA service tax attaches only to person who pays or is liable to pay freight; documentary evidence of contractual liability supersedes Revenue's assertion. This is decisive. Conclusion: Demand on transport services set aside. Issue 6: Extended limitation and penalties where returns filed and no suppression/fraud alleged (change of opinion) Legal framework: Statutory provisions permit extended limitation where suppression/fraud exists; penalties under Sections 77/78 are attracted on statutory non-compliance unless assessment arises from change of opinion and there is absence of suppression. Precedent treatment: The Tribunal found the appellant was registered, maintained books, filed ST-3 returns, and there was no allegation of suppression, misdeclaration or evasion. The SCN arose from verification and change of opinion rather than demonstrable concealment. Interpretation and reasoning: In such factual matrix, extended period of limitation is not invocable and penalties premised on concealment or suppression cannot be sustained. Where issue is interpretational and returns are not shown to be false, levying penalties violates the statutory scheme. Ratio vs. Obiter: Ratio - extended limitation and penalties are not available where there is no suppression/misdeclaration and the dispute is interpretational, constituting a change of opinion. This is a binding conclusion for the facts. Conclusion: Extended period of limitation not available; all penalties imposed set aside. Appellant entitled to consequential relief in accordance with law.
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