2024 (4) TMI 558 - AT - Service Tax

Service tax refund appeal dismissed for residential complex construction due to insufficient documentary evidence

Pramod & Others Versus Commissioner of Service Tax Bangalore Service Tax – I

The CESTAT Bangalore dismissed an appeal for refund of service tax paid on construction of residential complexes. The appellant claimed they were engaged ... Refund of service tax paid - Construction of Residential Complexes Service - rejection on the grounds of non-submission of the required documents despite seeking time for submission of the same - HELD THAT:- Commissioner (Appeals) in the impugned order has upheld the order of the original authority on the ground that no documentary proof to satisfy that their service/activity falls within the purview of Board Circular 96/2007-ST dated 23.08.2007 was submitted. The contention of the appellant that their service would fall under ‘Works Contract’ was also not considered by Commissioner (Appeals) as they have not taken any registration under ‘Works Contract’ and discharged appropriate service tax. In this case the appellant contends that they are not in the activity of ‘Construction of Residential Complexes’ to attract levy of service tax. They have contended that they are purchasing land, building flats and selling them to the customers. They are in the business of buying and selling of flats and hence they are not liable for service tax.Nonetheless they have registered and paid service tax, realizing that they ought not to have paid service tax they have filed a refund claim for the service tax paid. However, since the required documents as proof of payment of service tax as well as non-collection of same from the buyers was not produced by way of documents, their refund claim was rejected by the original authority as well as by the first appellate authority. The required documents are not brought on record even in the appeal before this Tribunal and the appellant has not appeared for hearing on the last three occasions - the appeal filed by the appellant is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether service tax paid under the category 'Construction of Residential Complexes' is refundable where the respondent's activity is asserted to be purchase and sale of flats (buying land, constructing and selling) and not providing construction services to others. 2. Whether Board Circular No. 96/2007-ST (clarification that service tax on construction of complexes is leviable on contractors and not on builders/promoters who self-construct) applies to the respondent's facts and entitles them to refund. 3. Whether non-production of prescribed documents (original challans, sale deeds, declarations/affidavits from purchasers) and filing of xerox copies or agreements in lieu of sale deeds justifies rejection of a refund claim under the statutory refund procedure. 4. Whether the appellant's failure to register under the 'Works Contract' category and not discharging tax under that head is relevant to the refund claim and to the characterization of services. 5. Whether alleged non-collection of service tax from purchasers and payment of tax out of sale consideration defeats the defence of unjust enrichment where purchaser declarations are not furnished. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Refundability where activity is sale of flats and not provision of construction services to others Legal framework: Service tax liability arises on provision of taxable services as defined under the Finance Act, including 'construction of residential complexes' where a taxable service provider renders construction services to a recipient. Distinction exists between (a) a contractor providing construction services to a builder/promoter and (b) a builder/promoter undertaking construction through self-supply (no service provider-recipient relationship). Precedent treatment: The Tribunal relied on the Board's consolidated clarifications which distinguish between contractors (liable to pay service tax) and builders/promoters who self-construct (treated as self-supply where service tax is not leviable in the absence of a service provider-recipient relationship). Interpretation and reasoning: The Court considered the appellant's plea that their transaction is sale/purchase of immovable property and they do not construct for purchasers. The Tribunal noted that the appellant had nonetheless registered and paid service tax but failed to place on record documents proving the factual character of their activity (sale deeds, purchaser declarations). On available records, the Tribunal found no documentary proof to establish that the activity falls within the Board Circular's ambit (i.e., that they were only sellers and not service providers to purchasers). Ratio vs. Obiter: Ratio - Where an applicant claiming refund for service tax paid on 'Construction of Residential Complexes' fails to establish, by documentary evidence, that their activity does not amount to provision of taxable construction services to recipients, refund cannot be granted. Obiter - Observations on the conceptual distinction between buying/selling and construction where evidence is otherwise available. Conclusion: Refund denied for want of evidence proving the asserted non-taxable character of the appellant's activity. Issue 2 - Applicability and effect of Board Circular No. 96/2007-ST Legal framework: The Master Circular consolidating earlier clarifications (Board Circular No. 96/2007-ST) supersedes prior technical clarifications and sets out coding and specific clarifications, including that contractors are liable where engaged by builders/promoters and that self-construction is not taxably supplied to another. Precedent treatment: The Circular was applied as the controlling administrative clarification on scope and classification of taxable services; the Tribunal treated it as determinative on the conceptual question of when service tax is leviable under the 'construction of complex' category. Interpretation and reasoning: The Court accepted the consolidated Circular's position that where a builder/promoter engages a contractor, the contractor is liable; where the builder self-constructs, no service provider-recipient relationship exists. However, the Tribunal required evidence showing that the present facts fall within the Circular's non-taxable scenario (self-supply/sale of immovable property). The absence of corroborating documents meant the Circular could not be applied to grant refund on the appellant's unproven assertion. Ratio vs. Obiter: Ratio - Administrative clarifications are applicable but must be proven factually by the claimant to obtain relief; inability to show that the Circular's non-taxable scenario applies defeats the refund. Obiter - Commentary on the supersession effect of the Circular on earlier clarifications. Conclusion: The Circular would permit refund where its conditions are satisfied, but the appellant failed to demonstrate those conditions; hence the Circular did not entitle the appellant to refund on the record. Issue 3 - Effect of non-production of prescribed documents on refund claims Legal framework: Statutory refund procedure requires filing prescribed documents (original challans, sale deeds, purchaser declarations etc.) as proof of payment and entitlement. Procedural non-compliance may be curable in some contexts but may also justify rejection where essential proof is absent. Precedent treatment: The Tribunal recognized the general principle (as cited from higher court jurisprudence) distinguishing substantive provisions from procedural/technical ones; substantive non-compliance disentitles relief while purely procedural defects may be curable. The Tribunal nonetheless emphasized documentary proof of entitlement as necessary for refund adjudication. Interpretation and reasoning: The appellant submitted xerox copies of challans and agreements in place of sale deeds and failed to furnish purchaser declarations/affidavits despite being granted time. The original authority rejected the claim for non-submission and the appellate authority upheld that finding because the appellant did not produce documentary proof that their activity fell within the non-taxable classification. The Tribunal observed that required documents were not produced even before it and that repeated non-appearance compounded the failure to cure defects. Ratio vs. Obiter: Ratio - Non-submission of essential documentary evidence required under the refund procedure constitutes valid ground for rejection; where the claimant fails to produce such documents within the opportunity granted, refund may be refused. Obiter - Procedural deficiencies that are curable should be given opportunity to be remedied, but this principle does not protect continued non-compliance. Conclusion: Rejection of refund on account of non-production of required documents was justified given absence of essential proof and failure to avail granted opportunities. Issue 4 - Relevance of non-registration under 'Works Contract' and characterization of service Legal framework: Classification of services (e.g., works contract) and registration/returning of tax under the appropriate tariff/category are material to tax liability and evidence of the taxpayer's own position. Precedent treatment: The Commissioner (Appeals) noted that the appellant's contention that activities fall under 'Works Contract' was not substantiated by registration or discharge of tax under that category; the Tribunal treated absence of registration and discharge under a different taxable category as relevant to the credibility of the alternate characterization. Interpretation and reasoning: The Tribunal found the respondent had not registered or paid tax under 'Works Contract' and therefore could not rely on that alternate classification to establish entitlement to refund of tax actually paid under 'Construction of Residential Complexes.' The absence of self-consistent tax compliance undermined the appellant's claim. Ratio vs. Obiter: Ratio - A claimant's failure to have registered and discharged tax under an alternate category weakens its entitlement to treat the activity as falling under that category for refund purposes. Obiter - Classification disputes require documentary and registration support. Conclusion: Non-registration under 'Works Contract' was a relevant factor against allowing the refund claim. Issue 5 - Unjust enrichment and burden of proof concerning non-collection from purchasers Legal framework: Refund may be denied on grounds of unjust enrichment where the claimant has passed on the tax to others; conversely, claimants asserting they bore the incidence must prove non-recovery from purchasers (declarations, sale deed entries) to negate unjust enrichment. Precedent treatment: The authorities required declarations/affidavits from purchasers or documentary evidence that service tax was not collected separately to dispel unjust enrichment concerns. Interpretation and reasoning: The appellant submitted a blanket declaration that they had not collected service tax, but failed to produce purchaser declarations or sale deed references corroborating non-collection. Given absence of purchaser affidavits and sale deeds, the competent authorities were entitled to find that unjust enrichment could not be ruled out. The Tribunal noted that the appellant sought time but did not furnish the material within the opportunities granted and did not appear for hearings. Ratio vs. Obiter: Ratio - Where a claimant alleges non-collection of service tax and asserts it bore the incidence, the claimant bears the burden of proof; absence of purchaser declarations or sale deed evidence permits denial of refund on unjust enrichment grounds. Obiter - Single declarations by the claimant are inadequate without supporting corroboration. Conclusion: The claim of non-collection and absence of unjust enrichment was not substantiated; unjust enrichment concern supported denial of refund. Final Disposition The Court dismissed the appeal on the ground that the appellant failed to produce essential documentary evidence (original challans, sale deeds, purchaser declarations), failed to avail opportunities to cure defects, and did not appear for hearings; consequently the refund claim could not be sustained on the record.