Builder not liable for service tax on residential complex construction services for 2009-2011 period

CESTAT Chennai held that a builder/developer was not liable to pay service tax on construction of residential complex services for the disputed period 2009-2011. For the pre-July 2010 period, the tribunal relied on CBEC Circular clarifying no service tax liability existed until July 1, 2010. For the post-July 2010 period, the tribunal found that since the contracts were composite/indivisible involving both materials and services, service tax demand should have been raised under works contract services category rather than residential complex services. The tribunal noted that department's 67% abatement indicated composite nature of contracts. Following precedent, the demand under residential complex services could not sustain. Appeal allowed, impugned order set aside.

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Issues:
Whether the appellant is liable to pay service tax under Construction of Residential Complex Services for the period 2009 to 2011.

Analysis:
The appellant, engaged in providing construction services, entered into a joint development agreement with landowners to construct a residential complex. The appellant paid service tax on their share for flats constructed in phase-I but not on the landowner's share. The jurisdictional officers noted the non-payment of service tax on both builder's share and landowner's share for the period from 2009-10 to 2010-11. The appellant contended that they are not liable to pay service tax based on a Board's Circular. The department issued a show cause notice demanding service tax on both shares along with interest and penalties. The original authority confirmed the demand, leading to the appellant's appeal before the Tribunal.

For the period prior to 01.07.2010, the appellant argued that they are not liable to pay service tax based on the Board's Circular. The Tribunal referred to previous cases and held that prior to 01.07.2010, a promoter/builder/developer is not liable to pay service tax for construction services. The Tribunal also mentioned that after 01.07.2010, the liability arises for such services.

Regarding the period after 01.07.2010, the appellant argued that the works were composite in nature involving both supply of materials and services. The Tribunal considered previous decisions and concluded that demand for service tax on composite contracts can only be made under Works Contract Services, not under Construction of Residential Complex Services. The Tribunal's decision was supported by a case before the Hon'ble Apex Court, leading to the dismissal of the department's appeal. The Tribunal found that the demand of service tax cannot sustain for the period after 01.07.2010 due to the nature of the contracts being composite.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential reliefs.

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