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

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, following CBEC Circular No.108/2/2009-ST and precedent cases. The demand under Residential Complex Service, Commercial Construction Service, and Works Contract Service was set aside. Site Formation Service demand was rejected as appellant was engaged in joint venture construction activities, not site formation. Extended limitation period was not applicable as the issue was interpretational and appellant had already discharged service tax on 33% consideration, showing no suppression of facts. Appeal allowed, impugned order set aside.

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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.

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