Construction company wins appeal: no service tax on residential flats built for personal use

CESTAT Hyderabad allowed the appeal in a service tax case involving residential complex service. The appellant, a construction company, was held liable for service tax on construction activities for personal use of customers and faced penalties for failure to file ST-3 returns regularly. The tribunal ruled in favor of the appellant, following precedent from Grandeur Homes Pvt. Ltd. and other similar cases, holding that no service tax is chargeable for construction services provided to individual flat buyers for personal use, both before and after 01.07.2010. The impugned order was set aside.

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Issues involved:
The issues involved in the judgment are whether the construction and sale of residential houses/units by the Appellant attract service tax liability, specifically in relation to the completion of unfinished units sold to buyers, and whether the exclusion clause under Section 65(91a) of the Finance Act applies to exempt the Appellant from service tax liability.

Summary:

Issue 1: Service Tax Liability on Completion of Unfinished Units
The Appellant sold unfinished units to buyers and entered into agreements for completing the construction. The Revenue contended that service tax is applicable post-sale as a service provider and service receiver relationship exists between the Appellant and customers, attracting service tax under section 65(105)(zzzza). The Appellant argued that the construction for personal use of customers falls within the exclusion clause under Section 65(91a) and hence not liable to service tax. The Tribunal held that no service tax is chargeable for the period prior to 01.07.2010 and after, as the service provided to individual buyers for personal use is excluded from works contract service. Therefore, the Appellant was not liable to any service tax in this regard.

Issue 2: Interpretation of Exclusion Clause under Section 65(91a)
The Appellant contended that the exclusion clause under Section 65(91a) exempts them from service tax liability as the construction was for personal use of customers. The Revenue argued that the exemption is limited to services received for designing or planning of the layout only. The Tribunal held that the exclusion clause applies to service provided to the individual buyer of the flat for personal use, and accordingly, the Appellant was not liable to any service tax.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order, and held that the Appellant was not liable to any service tax. The Appellant was entitled to consequential benefits in accordance with the law.

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