Revenue loses appeal as residential complexes with 12 or fewer units remain exempt from service tax

The CESTAT Hyderabad dismissed Revenue's appeal regarding service tax levy on row houses in a gated community. The tribunal held that construction of residential complexes with 12 or fewer units remains exempt from service tax both before and after July 1, 2012. The respondent sold developed plots and separately contracted to construct individual houses, with plans approved in buyers' names. Following the precedent in MACRO MARVEL PROJECTS LTD., approved by the SC, the tribunal confirmed that only residential complexes exceeding 12 units attract service tax, as lawmakers intended to exempt individual residential unit construction.

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Issues Involved:
1. Liability to pay service tax on row houses in a gated community.
2. Interpretation of "residential complex" under Section 65(91a) and Notification No. 25/2012-ST.
3. Applicability of service tax exemption for single residential units.
4. Validity of common facilities influencing the taxability of residential units.

Summary:

1. Liability to Pay Service Tax on Row Houses in a Gated Community:
The respondent assessee engaged in construction and sale of flats, villas, and plots was issued a show cause notice demanding service tax under the head Works Contract Service for row houses in a gated community. The Learned Commissioner dropped the demand, concluding that the construction activities were exempt from service tax.

2. Interpretation of "Residential Complex" Under Section 65(91a) and Notification No. 25/2012-ST:
The Commissioner observed that the construction of single residential units, as part of a gated community, does not constitute a "residential complex" comprising more than 12 units, thus exempting them from service tax. The definition under Section 65(91a) and Notification No. 25/2012-ST was interpreted to exclude such individual units from the tax net.

3. Applicability of Service Tax Exemption for Single Residential Units:
For the period prior to and after 01.07.2012, it was held that the construction of single residential units for personal use by the buyer, after the transfer of ownership of the plot, is exempt from service tax. Reliance was placed on Board Circular No. 108/2/2009 and the ruling in Macro Marvel Projects Ltd., which clarified that such activities fall outside the purview of service tax.

4. Validity of Common Facilities Influencing the Taxability of Residential Units:
Revenue's appeal argued that the presence of common facilities like gardens, swimming pools, and clubhouses in the gated community should render the construction taxable as a "residential complex." However, the Tribunal found no merit in this argument, upholding that the individual residential units, even with shared amenities, do not qualify as a taxable residential complex.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming that the construction of single residential units in the gated community is exempt from service tax both before and after 01.07.2012. The ruling in Macro Marvel Projects Ltd. and Baba Construction Pvt Ltd., upheld by the Apex Court, was deemed applicable, reinforcing the exemption for such constructions.

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