Taxability of construction services depends on whether payments or development rights were received before issuance of completion certificate.

The note addresses taxability of construction-of-residential-complex services and the landowner's share under the Explanation to Section 65(105)(zzzh) and relevant Board circulars, prescribing that receipts relating to projects completed prior to 01.07.2010 are not taxable; for receipts on or after that date taxability hinges on whether payments or development rights were received before issuance of the completion certificate, requiring verification. The matter was remanded for de novo adjudication limited to receipts on or after 01.07.2010 and completion-certificate verification. Small residential projects comprising twelve units are exempt and certain penalties were set aside while others were upheld.

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Issues: (i) Whether the appellant is liable to pay service tax on income received from construction services for the period April 2008 to March 2012; (ii) Whether the appellant is liable to pay service tax on the value of the landowner's share during the said period.

Issue (i): Whether the appellant is liable to pay service tax on income received from construction services for the period April 2008 to March 2012.

Analysis: The Tribunal examined the effect of the Explanation to Section 65(105)(zzzh) of the Finance Act, 1994 introduced w.e.f. 01.07.2010 and the Board's Circulars (Circular No.108/2/2009-ST dated 29.01.2009 and Circular No.151/2/2012-ST dated 10.02.2012). The Tribunal held that services for periods prior to 01.07.2010 are not taxable in view of the Board's Circular No.108/2/2009-ST and that for the period on or after 01.07.2010 taxability depends on whether payment or development rights were received before issuance of the completion certificate. The adjudicating authority had not verified which receipts related to payments received on or after 01.07.2010; accordingly the Tribunal remanded the matter for de novo verification limited to payments received on or after 01.07.2010 and directed a fresh adjudication within three months, while recording that projects comprising 12 units are exempt under Section 65(91a) of the Finance Act, 1994.

Conclusion: Partly in favour of Assessee. Amounts related to construction services for periods prior to 01.07.2010 are not taxable; amounts received on or after 01.07.2010 require verification and fresh adjudication.

Issue (ii): Whether the appellant is liable to pay service tax on the value of the landowner's share during the said period.

Analysis: Applying the same statutory explanation and Board circulars, the Tribunal found that where projects were completed prior to 01.07.2010 the landowner's share is not liable to service tax, subject to verification of completion certificates. For projects or receipts occurring on or after 01.07.2010 taxability on landowner's share arises if development rights/payments were received before issuance of completion certificate. The Tribunal noted specific project positions (e.g., El Palazzo exempt; Brentwood commenced after 01.07.2010 and taxable) and remanded verification of completion certificates and receipts to the original authority.

Conclusion: Partly in favour of Assessee. Landowner's share for projects completed prior to 01.07.2010 is not liable to service tax; liability for projects/receipts on or after 01.07.2010 to be determined on remand.

Final Conclusion: The appeal is allowed by way of remand limited to verification and de novo adjudication of receipts/payments on or after 01.07.2010 and verification of completion certificates; demands for periods prior to 01.07.2010 are not sustainable and certain penalties under Section 76 were set aside while penalties under Sections 70 and 77 were upheld as applicable.

Ratio Decidendi: For construction-of-residential-complex services, amounts related to projects completed prior to 01.07.2010 are not taxable; for amounts/payments or development rights received before issuance of completion certificate on or after 01.07.2010 service tax is chargeable in terms of Section 65(105)(zzzh) of the Finance Act, 1994 as clarified by Circular No.108/2/2009-ST and Circular No.151/2/2012-ST.

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