Builder not liable for service tax on construction services before July 2010 due to composite contract nature

CESTAT Chennai held that a builder/developer was not liable for service tax on construction services for residential complexes prior to 01.07.2010, following established precedent. The tribunal found construction works were composite contracts involving both material supply and services, making service tax demands unsustainable. The department's allowance of abatement under Notification No. 1/2006 confirmed the composite nature of contracts. Demands for both residential and commercial construction services were set aside for the entire period from October 2006 to March 2011. Appeal allowed.

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Issues:
1. Whether the appellant is liable to pay service tax for construction of residential and commercial complexes.
2. Whether the demand for service tax under Construction of Residential Complex Service and Commercial or Industrial Construction Services can be sustained.
3. Whether the construction services provided by the appellant are composite in nature involving both supply of materials and services.

Analysis:
Issue 1:
The appellant, a partnership firm engaged in construction activities, received a Show Cause Notice for not discharging appropriate service tax on construction services provided. The Original Authority confirmed the demand, interest, and penalties, leading the appellant to appeal before the Tribunal.

Issue 2:
The appellant contended that the construction services provided were in the nature of self-service until the execution of sale deeds, as clarified by CBEC Circular No. 108/02/2009-ST. The appellant argued that an Explanation inserted with effect from 01.07.2010 to the definition of Construction of residential/commercial complex should apply prospectively. The Tribunal found that the demand under Construction of Residential Complex Service for composite contracts cannot sustain, as per the decision in Real Value Promoters Pvt. Ltd. The Tribunal also noted that the construction works were indivisible contracts involving both supply of materials and services.

Issue 3:
The Department argued that the construction of residential projects fell under the taxable service of Construction of Residential Complex, citing common areas available for use by more than one person. The Department countered the appellant's reliance on Board Circular No. 108/02/2009-ST, stating that the situation in respect of landowners was different. The Tribunal concluded that the demand for the entire period could not sustain as the construction works were composite contracts.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential reliefs. The decision was based on the nature of the construction services provided by the appellant and the applicability of relevant legal precedents.

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