2020 (3) TMI 1481 - AT - Service Tax

Service tax cannot be levied on construction activities before July 2010 and separate land-construction agreements exclude works contract service

Modi Ventures, Versus The Commissioner of Central Tax, Hyderabad

CESTAT Hyderabad held that no service tax could be levied on appellant's construction activities for periods prior to 01.07.2010 and from 01.07.2010 to ... Levy of service tax on the appellant's activities prior to 01.07.2010 as well as period from 01.07.2010 to 31.12.2010 - construction of complex service - extended period of limitation - interest and penalties. HELD THAT:- The legislative competence to tax has been enlarged by the 46th Constitutional amendment and to that extent, the scope of the residual clause entry 97 of the Union List was truncated. In other words, prior to 46th amendment, tax on composite works contract could be levied by the Union (although they never levied it) and after 46th amendment, the Union was competent to levy the tax only on such contracts to the extent they did not represent deemed sale or purchase of goods under Article 366(29A). The legislative competence of the Union to tax “works contracts” per se was never in doubt. The question as to whether taxation of works contracts is covered by the charging section of the service tax provisions (Finance Act 1994) or otherwise was examined by the Hon’ble Supreme Court in the case of COMMISSIONER, CENTRAL EXCISE & CUSTOMS VERSUS M/S LARSEN & TOUBRO LTD. AND OTHERS [2015 (8) TMI 749 - SUPREME COURT] - The Hon’ble Apex Court has decided that service contracts are a separate specie of contracts known to the trade and they cannot be equated with contracts for service simpliciter. Therefore such contracts can be charged to service tax only with effect from 01.07.2007 and as works contract service (when works contracts were brought under charging Section 66). As far as service tax under “construction of complex services” is concerned, prior to 01.07.2010 (when the explanation was inserted), no tax could be levied. This was also clarified by the CBEC in Circular No. 108/2/2009/ST dated 29.01.2009. The question before the Tribunal Principal Bench in the case of M/S KRISHNA HOMES VERSUS CCE, BHOPAL AND CCE, BHOPAL VERSUS M/S RAJ HOMES [2014 (3) TMI 694 - CESTAT AHMEDABAD] was whether this limitation on taxation prior to 01.07.2010 also extends to cases where such services were rendered not as “construction of complex services” but as “works contract services” and it was answered in affirmative. Thus, no service tax could be charged from the appellant in respect of the services rendered by them as works contract services for the period 01.06.2007 to 01.07.2010. Period from 01.07.2010 to 31.12.2010 - HELD THAT:- The undisputed fact is that appellant had entered into two contracts one for sale of land and the second construction agreement for the flat with individual buyers. For a tax to be levied under works contract service, in the first place, it must be either construction of a new residential complex or a part thereof or completion of unfinished services related to it. The term “residential complex” under Section 65(91a) specifically excludes any construction for personal use by an individual. This builder has planned his business with a separate construction agreement entered into with individual flat owners. Hence they get excluded from the definition of works contract service. Therefore no service tax can be levied even for the period post 01.07.2010. Thus, the entire demand needs to be set aside along with interest and penalties - appeal allowed. Issues Involved:1. Applicability of service tax on the appellant's activities prior to 01.07.2010.2. Exclusion of construction services provided for personal use from the definition of 'construction of residential complex service.'3. Inclusion of certain amounts (corpus fund, electricity charges, etc.) in the taxable amount.4. Invoking the extended period of limitation.5. Imposition of interest and penalties.Issue-wise Detailed Analysis:1. Applicability of Service Tax Prior to 01.07.2010:The appellant argued that prior to 01.07.2010, no service tax could be levied on their activities. The Tribunal examined the legal provisions and relevant case law, including the decision in Larsen & Toubro Ltd, which clarified that service tax on works contracts could only be levied from 01.07.2007 under 'works contract service.' However, for construction of residential complexes, services rendered before the issuance of a completion certificate and transfer to the buyer were not taxable as they were considered self-service. The Tribunal concluded that no service tax could be charged for the period 01.06.2007 to 01.07.2010.2. Exclusion for Personal Use:The appellant contended that construction services for personal use are excluded from the definition of 'construction of residential complex service.' The Tribunal referred to Section 65(91a), which excludes constructions intended for personal use. The appellant's business model involved separate construction agreements with individual flat owners, thereby excluding them from the definition of works contract service. Consequently, no service tax was applicable even after 01.07.2010.3. Inclusion of Certain Amounts in Taxable Amount:The appellant challenged the inclusion of amounts such as corpus fund, electricity charges, stamp duty, registration charges, and VAT in the taxable amount. The Tribunal did not specifically address this issue in detail, as the primary determination was that no service tax was applicable on the appellant's activities during the relevant periods.4. Extended Period of Limitation:The appellant argued against the invocation of the extended period of limitation. The Tribunal's decision to set aside the entire demand, including interest and penalties, implicitly addressed this issue by determining that no service tax was applicable for the periods in question, rendering the extended period moot.5. Imposition of Interest and Penalties:The appellant contested the imposition of interest and penalties. The Tribunal, having found that no service tax was chargeable for the relevant periods, set aside the entire demand, including interest and penalties, thus ruling in favor of the appellant on this issue.Conclusion:The Tribunal allowed the appeal, setting aside the impugned order and the entire demand of service tax, interest, and penalties. The Tribunal's decision was based on the interpretation of legal provisions and case law, particularly concerning the applicability of service tax on works contracts and the exclusion for personal use. The operative portion of the order was pronounced in open court.