2025 (4) TMI 68 - AT - Service Tax

Service tax demand under Residential Complex Service unsustainable for composite contract services following precedent decision

CESTAT Chennai held that service tax demand under Residential Complex Service was not sustainable for appellants providing composite contract services. ... Classification of service - Works Contract Services or Construction of Residential Complex Service? - appellants rendering service as composite contracts - HELD THAT:- It is found that the Department, based on the documents submitted by the same Appellant, had in the de-novo proceedings dated 26.06.2014 held that demand of service tax under Residential Complex Service was not sustainable and dropped further proceedings. After appreciating the facts as obtaining in this appeal where the Statement of Demand No. 25/2013 dated 01.10.2013 was issued involving the same projects for the period from October 2011 to July 2012 and following the decision of the denovo Order dated 26.06.2024 of the Original Adjudicating Authority dropping the proceedings against the Appellant, the impugned Order-in-Appeal No. 72/2015 (STA-I) dated 25.03.2015 cannot be sustained and so, ordered to be set aside. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this appeal is whether the services rendered by the appellant, M/s. Cotton City Developers Private Limited, fall under the category of 'Works Contract Services' or 'Construction of Residential Complex Service' for the purpose of service tax liability. The determination of the correct classification impacts the applicability of service tax and the associated penalties.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe appellant contended that their construction activities, which involved both the transfer of property in goods and construction services, should be classified under 'Works Contract Services' as opposed to 'Construction of Residential Complex Service.' The appellant cited several precedents, including decisions in CCE vs. L & T Ltd., Real Value Promoters Pvt. Ltd. vs. CCE, and others, to support their argument that composite contracts involving the transfer of goods should be taxed under works contract services.Court's Interpretation and ReasoningThe Tribunal noted that the issue was previously addressed in a similar case involving the same appellant for an earlier period. In that instance, the Tribunal had remanded the matter to the adjudicating authority for a determination on whether the services rendered were indeed works contracts, as claimed by the appellant. The Tribunal emphasized the necessity of providing documentary evidence to substantiate the claim of works contract services.Key Evidence and FindingsThe appellant referred to a previous denovo order where the adjudicating authority had dropped the demand for service tax under the category of 'Residential Complex Service' for the same projects, after verifying the documents submitted by the appellant. This prior decision was pivotal in the Tribunal's consideration of the current appeal.Application of Law to FactsThe Tribunal applied the principles established in the prior proceedings involving the same appellant. It was noted that the appellant's failure to provide adequate documentary evidence in earlier proceedings had led to multiple litigations. However, in the denovo proceedings, the appellant successfully demonstrated that the services qualified as works contracts, leading to the dropping of the service tax demand.Treatment of Competing ArgumentsThe Department argued that the appellant was liable to pay service tax under 'Residential Complex Service.' However, the Tribunal found that the appellant's submission of documents in the denovo proceedings, which resulted in the dropping of the demand, was a compelling factor. The Tribunal concluded that the appellant's services should be classified under 'Works Contract Services' based on the evidence provided in the denovo proceedings.ConclusionsThe Tribunal concluded that the impugned order, which upheld the demand of service tax under 'Construction of Residential Complex Service,' could not be sustained. The Tribunal set aside the order, allowing the appeal with consequential benefits to the appellant.SIGNIFICANT HOLDINGSThe Tribunal's decision reinforced the principle that the classification of services for tax purposes must be based on the nature of the contract and the evidence provided. It highlighted the importance of documentary evidence in establishing whether a contract qualifies as a works contract. The Tribunal's final determination was to allow the appeal, setting aside the previous order and recognizing the services as works contracts.Core Principles EstablishedThe Tribunal reiterated that composite contracts involving both the supply of goods and services should be evaluated under the works contract category, provided sufficient evidence is submitted. This decision aligns with the broader legal framework distinguishing between different types of service contracts for tax purposes.Final Determinations on Each IssueThe Tribunal's final determination was to allow the appeal, setting aside the previous order and recognizing the services as works contracts. The decision underscored the necessity for appellants to provide comprehensive evidence to support their claims regarding the nature of their service contracts.