Promoter not liable for service tax on residential complex construction services before July 1, 2010

CESTAT Chennai held that promoter/developer/builder is not liable for service tax on residential complex construction services up to 01.07.2010, following Board Circular No.108/2/2009 and precedent in Krishna Homes case. Demand, interest and penalties for pre-01.07.2010 period set aside. Post-01.07.2010 demand remanded to adjudicating authority for re-quantification. Penalties under Sections 76 and 78 of Finance Act 1994 waived under Section 80 considering transitional period confusion and appellant's partial compliance. Appeal allowed in part.

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Issues Involved:
1. Liability to pay service tax under Works Contract Services for the period up to 01.07.2010.
2. Liability to pay service tax under Works Contract Services for the period from 01.07.2010 to September 2011.
3. Correct quantification of service tax for the period from 01.07.2010 to September 2011.
4. Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.

Detailed Analysis:
1. Liability to Pay Service Tax Up to 01.07.2010:
The core issue was whether the appellant, as a promoter/developer/builder, was liable to pay service tax on construction of residential complex services for the period up to 01.07.2010. The Tribunal referred to the Board’s Circular No.108/2/2009 ST dated 29.01.2009 and the decision in the case of M/s. Krishna Homes vs. C.C.E., which clarified that the promoter/developer/builder is not liable to pay service tax for this period. The Tribunal quoted the relevant sections and definitions from the Finance Act, 1994 and noted that the explanation added to Section 65(105)(zzzh) effective from 01.07.2010 was prospective in nature. Consequently, the Tribunal concluded that the demand, interest, and penalties for the period up to 01.07.2010 could not be sustained and required to be set aside.

2. Liability to Pay Service Tax from 01.07.2010 to September 2011:
For the period post 01.07.2010, the appellant conceded the liability to pay service tax. The Tribunal upheld this liability but noted the appellant's contention regarding the incorrect quantification of the service tax demand. The appellant argued that the adjudicating authority had used the value mentioned in an earlier agreement rather than the supplemental agreement, which stated a lower value for the landowner's share. The Tribunal agreed that this issue needed reconsideration and remanded the case to the adjudicating authority for re-quantification of the service tax demand based on the supplemental agreement.

3. Correct Quantification of Service Tax:
The appellant contested the quantification of the service tax, arguing that the value of the landowner’s share used by the department was incorrect. The Tribunal directed the adjudicating authority to re-quantify the service tax demand for the period from 01.07.2010 to September 2011 after considering the supplemental agreement, which indicated a lower value. The appellant was held liable to pay the re-determined service tax along with interest.

4. Imposition of Penalties:
Regarding the penalties imposed under Sections 76 and 78 of the Finance Act, 1994, the appellant argued that there was significant litigation and confusion about the liability of promoters/developers/builders to pay service tax on the landowner's share. The Tribunal noted that the appellant had discharged the service tax on their share and had not paid the tax on the landowner’s share due to a bona fide belief. Considering the transitional period and the appellant's compliance for their share, the Tribunal invoked Section 80 of the Finance Act, 1994, and set aside the penalties for the period from 01.07.2010 to September 2011.

Conclusion:
The Tribunal modified the impugned order as follows:
- The demand, interest, and penalties for the period up to 30.06.2010 were entirely set aside.
- The liability to pay service tax for the period from 01.07.2010 to September 2011 was upheld, but the issue was remanded to the adjudicating authority for re-quantification of the service tax demand. The appellant is liable to pay the re-quantified service tax with interest.
- The penalties imposed for the period from 01.07.2010 to September 2011 were entirely set aside.

The appeal was partly allowed with consequential reliefs, if any.

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