2025 (9) TMI 1638 - AT - Service Tax

Partial Completion Certificate equals Completion Certificate under Section 66E(b); sale proceeds not liable to service tax, demand set aside

M/s. Smifs Capital Markets Limited Versus Commissioner of C.G.S.T. and Central Excise, Kolkata

CESTAT held that a partial completion certificate (PCC) issued by the competent municipal authority is equivalent to a completion certificate for purposes ... Liability of service tax on the consideration received for the sale of flat No. 15C - appellant had received the advance amount before issuing the completion certificate by the proper authority - partial completion certificate should be considered at par with completion certificate issued on full completion or not - Invocation of extended period of limitation - interest - penalty - HELD THAT:- As per Clause (b) of Section 66E of the Finance Act, 1994, the sale of a flat where the entire consideration is received after the issuance of a 'completion certificate' by the competent authority does not qualify as a declared service, and hence no service tax is leviable. It is found that the above provision does not distinguish between a PCC and CC. In the present case, it is observed that the competent authority for issuance of completion certificates is the Kolkata Municipal Corporation (KMC), which issues both partial completion certificates and completion certificates without drawing any distinction between the two. The Service Tax law also does not differentiate between a partial completion certificate and a completion certificate. It simply provides that exemption shall apply where the entire consideration is received after obtaining a completion certificate from the competent authority - the partial completion certificate dated 04.06.2016 was obtained by the appellant in terms of Rule 29 of the Kolkata Municipal Corporation rules (KMC Rules). The Completion certificate dated 20.08.2016 was obtained in terms of Rule 28 of the KMC Rules. For obtaining such certificates under both the Rules, a notice of completion was given to the authority under rule 27 of the KMC Rules, duly certified by the Architect, who is a competent authority under specific circumstances, in terms of the provisions of Clause (b) of Section 66E. The booking of Flat No. 15C on 15th Floor was accepted on 27.07.2016 i.e. after completion of the project and issue of PCC on 04.06.2016. Hence, the booking was made after completion of project and hence no service tax is payable for the sale proceeds received for the sale of Flat 15C. Accordingly, the demand of service tax confirmed in the impugned order is not sustainable and hence I set aside the same. Invocation of extended period of limitation - HELD THAT:- It is observed that invocation of the extended period under the proviso to Section 73 requires the existence of wilful misstatement or suppression of facts with intent to evade duty. In the instant case, the demand has been raised purely based on information already available in the statutory returns furnished by the appellant. No fresh discovery of facts or concealment on the part of the appellant has been demonstrated. Therefore, the essential ingredients for invoking the extended period are absent in this case - the demand confirmed in the impugned order is not sustainable on the ground of limitation also and hence set aside. Interest - penalty - HELD THAT:- As the demand itself is not sustainable, the question of demanding interest or imposing penalty does not arise. The demand of Service Tax along with interest and penalty, confirmed in the impugned order set aside on merits as well as on the ground of limitation - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a Partial Completion Certificate (PCC) issued by the competent municipal authority can be equated with a Completion Certificate (CC) for purposes of exemption from service tax under Clause (b) of Section 66E of the Finance Act, 1994 when the entire consideration for sale of an apartment is received after issuance of the PCC. 2. Whether invocation of the extended period of limitation under Section 73 of the Finance Act, 1994 is permissible where the demand arises from audit findings and there is no evidence of wilful misstatement or suppression of facts with intent to evade duty. 3. Consequential question whether interest and penalty can be sustained where the principal demand is set aside on merits and/or on limitation grounds. ISSUE-WISE DETAILED ANALYSIS Issue 1: Treatability of Partial Completion Certificate (PCC) as Completion Certificate (CC) for exemption under Section 66E(b) Legal framework: Clause (b) of Section 66E (Finance Act, 1994) exempts from declared service classification the sale of a flat where the entire consideration is received after issuance of a 'completion certificate' by the competent authority. Municipal rules (KMC Building Rules, Rules 27-29) govern issuance of completion and partial completion certificates. Precedent treatment: No binding distinction in Service Tax law between a PCC and CC was found in the text; the Tribunal relied on statutory scheme and municipal rule provisions rather than distinguishing or overruling precedent. Interpretation and reasoning: The Tribunal examined Rules 27-29 of the KMC Building Rules and the form and documentary prerequisites for both PCC and CC (structural stability certificate, architect/surveyor certificate, NOC from Fire Department, electricity certificate, lift installation certificate, etc.). Both PCC and CC are issued in Schedule XIII form and are based on substantially the same documentary satisfaction of completion for the specified portion. Rule 28 prevents municipal services connections until CC is issued, but Rule 29 permits connections where a PCC has been issued for the specified portion, indicating municipal recognition of habitability/fit-for-occupation for that portion. A combined reading of Rules 27-29 shows PCC signifies completion of the specified portion in all material respects and enables handover/occupation. Ratio vs. Obiter: Ratio - PCC, when issued under the municipal rules upon satisfaction of required documentary and inspection conditions, constitutes a 'completion certificate' in respect of the specified portion for purposes of Clause (b) of Section 66E. Obiter - observations on administrative practices of KMC and the equivalence in form and documentary requirements. Conclusions: The Tribunal held that the PCC dated 04.06.2016 constituted a completion certificate insofar as the specified portion (including Flat No. 15C on 15th Floor) was concerned; consequently, receipts of the entire consideration after issuance of that PCC fall outside the ambit of declared service under Section 66E(b), and no service tax is leviable on such sale proceeds. Issue 2: Invoking extended period of limitation where demand arises from audit findings and absence of wilful misstatement / suppression Legal framework: Section 73 of the Finance Act, 1994 prescribes limitation periods for issuing a notice to determine service tax liability; proviso allows extended period only where there is a wilful misstatement or suppression of facts with intent to evade duty. Statutory limitation period: notice within thirty months from the relevant date (due date for filing return). Precedent treatment: The Tribunal applied settled principles that extended period cannot be invoked where demand arises solely from audit findings and relied on relevant tribunal/high court authorities recognizing that invocation of the proviso requires clear demonstration of concealment/wilful misstatement. Interpretation and reasoning: The Tribunal computed the thirty-month period from the relevant due date (due date for filing returns for Oct-Mar 2017 being 25.04.2017, making thirty months expire on 25.10.2019). The Show Cause Notice issued on 13.04.2021 was thus beyond the thirty-month period. The demand emerged from an audit and from information already available in statutory returns; there was no fresh discovery of concealed facts nor any demonstration of wilful misstatement or suppression with intent to evade duty. Hence the proviso to Section 73 could not be invoked. Ratio vs. Obiter: Ratio - where demand arises solely from audit findings and no wilful concealment is shown, the extended period under Section 73 proviso is not invokable and a notice issued after the statutory period is time-barred. Obiter - reliance on particular precedents cited for analogous propositions. Conclusions: The Tribunal held the Show Cause Notice to be barred by limitation and that statutory conditions for invoking the extended period were absent; therefore the demand could not be sustained on limitation grounds independent of the merit decision on PCC/CC. Issue 3: Sustenance of interest and penalty where principal demand is unsustainable Legal framework: Interest and penalty are consequential on a valid tax demand; statutory imposition presupposes an assessable liability. Precedent treatment: The Tribunal applied the settled proposition that interest and penalty cannot survive if the principal demand is annulled. Interpretation and reasoning: Since the Tribunal set aside the principal demand both on merits (PCC deemed CC under Section 66E(b)) and on limitation grounds (notice time-barred), there is no subsisting liability to attract interest or penalty. The ingredients necessary for imposing penalty (such as wilful evasion) were not present. Ratio vs. Obiter: Ratio - where the tax demand is held unsustainable, consequential interest and penalty cannot be lawfully levied. Obiter - none significant beyond application to facts. Conclusions: The Tribunal held that interest and penalty could not be sustained and set aside such charges along with the demand. Cross-reference The findings on Issue 1 (PCC as CC under Section 66E(b)) and Issue 2 (limitation bar) are alternative and cumulative grounds for allowing the appeal; the Tribunal set aside the demand on both merits and limitation, and consequently quashed interest and penalty (Issue 3).