Residential complex construction exempted from service tax after Cenvat credit reversal with interest

The CESTAT Allahabad allowed the appeal, setting aside service tax demands on construction of residential complex where the appellant had already reversed Cenvat credit before the show cause notice. The tribunal held that exemption under Notification 01/2006 could not be denied once credit was reversed with interest. Demands on sinking fund and electricity supply through DG set were also set aside, following established precedents that such collections are not taxable. The demand for disallowed Cenvat credit was barred by limitation. The order emphasized that proceedings cannot exceed the scope of the show cause notice.

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Issues Involved:

1. Demand of service tax on construction of Residential Complex.
2. Disallowance of CENVAT credit.
3. Demand of service tax on sinking fund.
4. Demand of service tax on supply of electricity through DG Set.

Issue-wise Detailed Analysis:

1. Demand of Service Tax on Construction of Residential Complex:

The core issue was whether the appellant was eligible for the benefit of abatement under Notification No. 01/2006 despite availing CENVAT credit. The Show Cause Notice (SCN) alleged that the appellant availed abatement while also taking CENVAT credit, which was not permissible. The appellant reversed the CENVAT credit of Rs. 44,22,221/- before the issuance of the SCN. The tribunal found that the appellant had reversed the entire credit and held that the benefit of Notification No. 01/2006 could not be denied. It was emphasized that findings beyond the scope of the SCN, such as the inclusion of land cost, were not permissible. The tribunal relied on the precedent that reversal of credit effectively nullifies the credit taken, thus allowing the benefit of the exemption notification. Consequently, the demand of Rs. 3,18,92,285/- was set aside.

2. Disallowance of CENVAT Credit:

The demand concerning the disallowance of CENVAT credit amounting to Rs. 48.93 lakhs was deemed time-barred as it pertained to the period from July to September 2012. The tribunal refrained from discussing the merits of the issue due to the limitation period, thus setting aside the demand.

3. Demand of Service Tax on Sinking Fund:

The SCNs contended that amounts collected as sinking funds should be taxable under management, maintenance, or repair services. The tribunal, however, noted that the sinking fund was a liability and was transferred to the Resident Welfare Association (RWA) as interest-free maintenance security. Citing precedents, the tribunal held that such collections are not taxable, as they are not for services provided but are refundable security deposits. The demand of Rs. 5,96,360/- was thus set aside.

4. Demand of Service Tax on Supply of Electricity through DG Set:

The tribunal examined whether the supply of electricity through DG Set constituted a taxable service. It was concluded that electricity is classified as goods and not a service. The tribunal referenced previous rulings that exempted electricity charges from service tax, asserting that electricity supply is a sale of goods. Thus, the demand for service tax on electricity supplied through DG Set was set aside.

Conclusion:

The tribunal set aside the entire demand of service tax amounting to Rs. 3,82,52,113/- in Appeal No. ST/70795/2016 and Rs. 52,831/- in Appeal No. ST/71101/2018. Both appeals were allowed with consequential relief as per law, emphasizing the importance of adhering to the scope of SCNs and the principles of limitation.

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