2024 (5) TMI 416 - AT - Service Tax

Developer not liable for service tax on land owner share before July 1, 2010

M/s. Chaitanya Builders & Leading Pvt. Ltd. Versus Commissioner of CGST & Central Excise, Chennai

CESTAT Chennai held that developer/builder/promoter is not liable to pay service tax on construction services for land owner share prior to 1.7.2010, ... Service tax not discharged correctly - Residential Complex Service, Commercial or Industrial Construction and Works Contract Services - discharged service tax in respect of the land owner share on 33% after availing abatement, whereas department was of the view that the appellant has to discharge service tax on the entire amount in respect of land owner share - levy of service tax on Site Formation, Clearance and Excavating Services - appellant had no intention of providing Site Formation Service - extended period of limitation - suppression of facts or not. Whether the demand raised under Construction of Residential Complex Service / Commercial or Industrial Construction Service / Works Contract Service on the Land Owner Share is subject to levy of service tax or not? - period involved in this appeal is prior to 1.7.2010? - HELD THAT:- The Board vide CBEC Circular No.108/2/2009-ST dated 29.01.2009 has clarified that developer/builder/promoter is not required to pay service tax on these construction services prior to 1.7.2010 - The Tribunal 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] has applied Board’s circular and discussed the very same issue after taking note of the Explanation introduced in Section 65 (105) (zzzh) of the Finance Act, 1994. The Board has specifically stated that developer/builder/promoter would be liable to pay service tax only after 1.7.2010. The demand of service tax on the consideration received from land owner (land owner’s built up area) are demanded for various residential projects under construction of Residential Complex Services and Works Contract Services. The issue as to whether promoter/builder/developer is liable to pay service tax prior to 1.7.2010 was examined in the case of M/s.Krishna Homes and also followed and elaborately discussed in the case of COMMISSIONER OF CUSTOMS, CENTRAL EXCISE & SERVICE TAX, VISAKHAPATNAM - I VERSUS M/S PRAGATI EDIFICE PVT LTD (VICE-VERSA) [2019 (9) TMI 792 - CESTAT HYDERABAD]. The Board Circular also clarifies the same. The other demand is under Commercial Construction Service. The Tribunal in the case of REAL VALUE PROMOTERS PVT. LTD., CEEBROS PROPERTY DEVELOPMENT, PRIME DEVELOPERS VERSUS COMMISSIONER OF GST & CENTRAL EXCISE, CHENNAI [2018 (9) TMI 1149 - CESTAT CHENNAI] had held that the demand cannot be raised under CCS, RCS, of CICS for the period prior to 1.7.2012. This view was followed in M/S. JAIN HOUSING & CONSTRUCTION LIMITED VERSUS COMMISSIONER OF SERVICE TAX, CHENNAI [2023 (2) TMI 1044 - CESTAT CHENNAI] which has been upheld by Hon’ble Apex Court in THE COMMISSIONER OF SERVICE TAX VERSUS M/S. JAIN HOUSING AND CONSTRUCTION LTD. [2023 (9) TMI 816 - SC ORDER]. The demand of service tax under construction of Residential Complex Services, Commercial Complex Services, or Works Contract Services cannot therefore be sustained and requires to be set aside. Site Formation Service - HELD THAT:- There is no case for the Department that appellant is engaged in Site Formation activities. They have collected developer charges from the customers as part of the JV. When the agreement itself is for JV so as to provide construction of residential complex and construction of commercial complex, the demand cannot be raised under Site Formation service by taking out a small amount received as consideration towards construction activities. On the set of facts, the demand cannot sustain - the developer charges cannot be subject to service tax under Site Formation Service. Extended period of limitation - HELD THAT:- During the relevant period, the issue of demand of service tax on the promoter/builder/developer for various construction activities was pending before various forum. The situation necessitated the Board to issue a Circular to clarify as to whether developer is liable to pay service tax - All these would go to show that the issue was debatable and interpretational in nature. Further the appellant has already discharged service tax on the 33% of the consideration received on the land owner share (flats). All these would establish that there was no suppression of facts with an intent to evade payment of service tax. The demand invoking extended period cannot sustain. The issue on limitation is also answered in favour of the appellant. The impugned order is set aside - Appeal is allowed. Issues Involved:1. Whether the demand raised under Construction of Residential Complex Service / Commercial or Industrial Construction Service / Works Contract Service on the Land Owner Share is subject to levy of service tax or not.2. Whether the demand raised under Site Formation Service is valid.3. Whether the extended period for demand invocation is applicable.Summary:1. Demand under Construction Services:The first issue is whether the demand raised under Construction of Residential Complex Service, Commercial or Industrial Construction Service, and Works Contract Service on the Land Owner Share is subject to service tax. The period involved is prior to 1.7.2010. The Board's circular clarified that developers/builders/promoters are not required to pay service tax on these construction services prior to 1.7.2010. The Tribunal in the case of Krishna Homes applied the Board's circular, stating that such contracts were not covered by Section 65(105)(zzzh) during the period prior to 1.7.2010. The demand of service tax on the consideration received from the land owner for various residential projects under these services cannot be sustained and requires to be set aside.2. Demand under Site Formation Service:The second issue concerns whether the appellant is engaged in Site Formation activities. The appellant collected developer charges from customers as part of the JV for construction activities. The Tribunal in the case of Hallmark Infrastructure Pvt. Ltd. held that site formation and clearance activities undertaken before the sale of land are self-service and not liable for service tax. The developer charges cannot be subject to service tax under Site Formation Service.3. Applicability of Extended Period:The issue of demand of service tax on the promoter/builder/developer for various construction activities was pending before various forums, leading to the issuance of a Board Circular. The appellant had already discharged service tax on 33% of the consideration received on the land owner share. The issue was debatable and interpretational in nature, indicating no suppression of facts with intent to evade payment of service tax. Therefore, the demand invoking the extended period cannot sustain.Conclusion:The impugned order is set aside, and the appeal is allowed with consequential relief, if any.