Developer escapes service tax liability for construction services before July 2010 following Krishna Homes precedent

CESTAT Chennai allowed the appeal regarding service tax liability under Construction of Residential Complex Services and Works Contract Service for June 2007 to May 2008. Following the precedent in Krishna Homes case, the Tribunal held that service tax demand against promoter/developer/builder cannot sustain for the period prior to 01.07.2010. The impugned order was set aside regarding confirmation of service tax demand and interest, with the appeal being allowed.

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Issues Involved:
1. Liability to pay service tax under Construction of Residential Complex Services and Works Contract Services for the period from June 2007 to May 2008.
2. Validity of the demand for service tax prior to 01.06.2007.
3. Whether the demand can be confirmed under Works Contract Services when initially proposed under different categories.
4. Applicability of service tax to promoter/developer/builder prior to 01.07.2010.
5. Invocation of the extended period for raising the demand.
6. Imposition of penalties under Section 78 of the Finance Act, 1994.

Issue-Wise Detailed Analysis:

1. Liability to Pay Service Tax under Construction of Residential Complex Services and Works Contract Services for the Period from June 2007 to May 2008:
The Tribunal examined whether the appellant is liable to pay service tax under the Construction of Residential Complex Services and Works Contract Services for the period from June 2007 to May 2008. The show cause notice demanded service tax for different projects under these categories. However, the Commissioner (Appeals) confirmed the demands under Works Contract Services, which was beyond the scope of the show cause notice.

2. Validity of the Demand for Service Tax Prior to 01.06.2007:
The Commissioner (Appeals) set aside the demand for the period prior to 01.06.2007. The appeal was limited to the period from June 2007 to May 2008. The Tribunal noted that the Commissioner (Appeals) erred in confirming the entire demand under Works Contract Services, which was not proposed in the show cause notice.

3. Whether the Demand Can Be Confirmed under Works Contract Services When Initially Proposed under Different Categories:
The Tribunal emphasized that the foundation of a proceeding is the show cause notice. The original authority confirmed the demand under the categories proposed in the show cause notice. The Commissioner (Appeals) confirmed the demands under Works Contract Services, which was erroneous as it traveled beyond the show cause notice.

4. Applicability of Service Tax to Promoter/Developer/Builder Prior to 01.07.2010:
The Tribunal referred to the Board Circular and the decision in the case of M/s. Krishna Homes, which held that there is no liability for promoter/developer/builder to pay service tax prior to 01.07.2010. The Tribunal followed this precedent and observed that the demand of service tax against a promoter, developer, builder cannot sustain for the period prior to 01.07.2010.

5. Invocation of the Extended Period for Raising the Demand:
The assessee argued that the entire demand was raised based on figures accounted by them and there was no specific act of suppression alleged in the show cause notice. The department was fully aware of the transactions, and there were communications during the disputed period. The Tribunal found that the vague allegation in the show cause notice cannot be the basis for invoking the extended period.

6. Imposition of Penalties under Section 78 of the Finance Act, 1994:
The Commissioner (Appeals) had set aside the penalty imposed under Section 78, and the department appealed against this decision. Since the Tribunal set aside the demand and interest, the appeal filed by the department for imposing the penalty did not survive.

Conclusion:
The Tribunal set aside the impugned order to the extent of confirming the demand of service tax and interest. The appeal filed by the assessee was allowed with consequential reliefs, if any. The department's appeal for imposing the penalty was dismissed. The Tribunal remanded the matter to the original authority for the limited purpose of calculating the service tax liability and interest, following the principles of natural justice.

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