Service tax refund granted for construction of four residential units under twelve-unit threshold requirement

CESTAT Chennai allowed the appeal regarding service tax refund for construction of residential complex. The appellant constructed only four residential units, which did not fall under the definition of "residential complex" requiring more than twelve units. Following the Hyderabad Bench precedent in Vasantha Green Projects, the tribunal held there was no tax liability for construction with less than 12 units prior to 01.07.2010. The revenue's rejection of the refund claim was erroneous, and the impugned order was set aside with refund granted.

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Issues Involved:
1. Whether the rejection of the refund application by the revenue is in order.

Summary:

The appeal was filed against the Order in Appeal No. 274/2019 (CTA - II) dated 25.9.2019 by the Commissioner of Central Tax (Appeals - II), Chennai.

Issue 1: Rejection of Refund Application

The appellant, a landowner, entered into a development agreement on 02.05.2008 with a developer for constructing a residential complex/apartment and paid Rs. . 29,31,752 towards service tax. Believing there was no tax liability, the appellant filed a refund application, which led to a show cause notice and subsequent rejection by the adjudicating authority per Order in Original No. 03/2019 (RF/RB)-Legacy dated 14.6.2019. The original authority held that the service tax was correctly paid towards works contract service.

Aggrieved, the appellant appealed to the first appellate authority, which upheld the rejection, stating that the appellant was a service recipient and the service was provided after 01.07.2012, aligning with the point of taxation rules, 2011. The FAA noted the service tax was paid at the applicable rate of service contract and dismissed the argument that the construction fell under residential complex service due to the number of units being less than 12.

The appellant argued that the development agreement dated 02.05.2008 predated the explanation inserted to tax works contract service effective from 01.07.2010. They cited Notification No. 36/2010-ST dated 28.06.2010 and Circular No. 151/2/2012-ST dated 10.2.2012, which exempted tax liability on amounts received before 01.07.2010 for services provided after that date. They also contended that the construction was for personal use and thus excluded from service tax u/s 65(91)(a) of the Finance Act, 1994.

In support, the appellant referenced several CESTAT orders, including Ramaniyam Real Estates Pvt. Ltd. Vs. Commissioner of Service Tax, Chennai, and Vasantha Green Projects Vs. Commissioner of Central Tax, which held that there was no service tax liability for construction services provided before 01.07.2010.

Upon review, the Tribunal found that only four residential units were constructed, not meeting the definition of a residential complex (which requires more than 12 units). Additionally, the Tribunal agreed with the appellant that there was no tax liability for the units constructed prior to 01.07.2010. Consequently, the Tribunal concluded that the refund claim was valid, setting aside the impugned order and allowing the appeal with consequential benefits as per law.

(Order pronounced in open court on 08.04.2024)

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