Builder not liable for service tax on residential complexes before July 1 2010

CESTAT Chennai held that a builder/promoter is not liable to pay service tax on construction of residential complexes for the period prior to 1.7.2010. Following precedents in Krishna Homes and Jain Housing Construction Ltd., the tribunal ruled that composite contracts involving both materials and services cannot be subjected to service tax levy under residential complex services before 1.7.2010. The demand for service tax, interest and penalties for the pre-1.7.2010 period was set aside, while appropriation of amount paid for post-1.7.2010 period remained undisturbed. Appeal allowed.

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Issues Involved:
1. Liability to pay service tax for the construction of residential complexes for the period January 2009 to September 2009 and October 2009 to September 2010.
2. Applicability of Board's Circular No.108/02/2009-ST dated 29.01.2009.
3. Classification of services under "Construction of Residential Complex Services" versus "Works Contract Services".
4. Appropriation of service tax paid for the period July 2010 to September 2010.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax for the Construction of Residential Complexes:
The appellant, a partnership firm engaged in providing construction services, was audited by the Service Tax Commissionerate, Chennai. It was noted that they had paid service tax for 166 units constructed up to December 2008 but did not pay for the remaining period. The appellant contended that they were not liable to pay service tax for the 6 flats sold after obtaining the completion certificate. The Tribunal referred to the case of Krishna Homes Vs CCE Bhopal - 2015 (34) STR 881 (Tri.-Del.), which held that builders/promoters/developers are not liable to pay service tax for the period prior to 1.7.2010. The Tribunal concluded that the demand for the period prior to 1.7.2010 cannot sustain and requires to be set aside.

2. Applicability of Board's Circular No.108/02/2009-ST dated 29.01.2009:
The appellant relied on the Board's Circular No.108/02/2009-ST dated 29.01.2009, which clarified that a builder/promoter/developer is not required to pay service tax up to 1.7.2010. The Tribunal acknowledged this circular and noted that the adjudicating authority had considered it. The Tribunal affirmed that the circular supports the appellant's position that no service tax is payable for the period before 1.7.2010.

3. Classification of Services under "Construction of Residential Complex Services" versus "Works Contract Services":
The appellant argued that the construction services were composite in nature, involving both materials and services, and thus should be classified under "Works Contract Services" rather than "Construction of Residential Complex Services". The Tribunal referred to the decision in Jain Housing & Construction Ltd. Vs CST - 2023 (10) Centax 170 (Tri.-Mad), which was upheld by the Supreme Court, confirming that composite contracts cannot be subjected to service tax under "Construction of Residential Complex Services" prior to 1.7.2010. The Tribunal agreed with this classification and set aside the demand for the period up to 1.7.2010.

4. Appropriation of Service Tax Paid for the Period July 2010 to September 2010:
The appellant had paid Rs.67,77,193/- as service tax for the period from July 2010 to September 2010, which was appropriated by the adjudicating authority. The appellant did not contest this amount. The Tribunal noted that the demand in the SCN was for the balance amount after considering the paid amount. The Tribunal did not interfere with the order of appropriation of the paid amount and acknowledged that the appellant is liable for the service tax for the period after 1.7.2010.

Conclusion:
The Tribunal set aside the demand of service tax, interest, and penalties for the period up to 1.7.2010, based on the applicability of the Board's Circular and the classification of services. The appropriation of the service tax paid for the period from July 2010 to September 2010 was upheld. The appeal was allowed with consequential relief, if any.

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