Builder not liable for service tax on residential project advances before July 2010, additional works qualify as composite contracts

CESTAT Chennai ruled in favor of the appellant regarding service tax on construction advances and additional works. The tribunal held that promoter/builder/developer is not liable for service tax on advances received for residential projects prior to 01.07.2010, citing Board Circular No.108/2/2009 and precedent from Krishna Homes case. For additional works, the tribunal found these were composite contracts requiring materials and services, not service simplicitor. Following Real Value Promoters precedent, such composite contracts fall under Works Contract Services, not Construction of Residential Complex Services. The demand was unsustainable and set aside, with appeal allowed.

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Issues involved:
The issues involved in the judgment are:
1. Whether the demand of service tax on advances received by the appellant for construction of residential projects is subject to levy of service tax prior to 01.07.2010.
2. Whether the demand raised on amounts received for carrying out additional works in existing projects under Construction of Residential Complex Services is sustainable.

Issue 1 - Demand of Service Tax on Advances for Construction of Residential Projects:
The appellant, engaged in promoting residential projects, received advances for ensuing projects and additional works at existing flats without paying service tax. The Show Cause Notice proposed service tax under 'Construction of Residential Complex Services'. The appellant argued that as a developer, they are not liable to pay service tax for the period before 01.07.2010 as per Board Circular No.108/2/2009. The demand was for the period from August 2005 to October 2008. The Tribunal referred to a similar case and held that the demand of service tax against the promoter/builder/developer cannot sustain for the period before 01.07.2010. The demand on advances received for construction of residential projects was deemed unsustainable.

Issue 2 - Demand on Amounts for Additional Works in Existing Projects:
The second issue pertained to the demand raised on amounts received for additional works in existing projects under Construction of Residential Complex Services. The appellant argued that the works were composite in nature involving both supply of materials and services. The Commissioner (Appeals) allowed abatement after considering the use of materials, indicating the composite nature of the works. Citing a previous case, the Tribunal held that demand for composite contracts can only be made under Works Contract Services, not under Construction of Residential Complex Services. Therefore, the demand on amounts received for additional works in existing projects was set aside.

In conclusion, the impugned order was set aside, and the appeal was allowed with consequential reliefs, if any.

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