2026 (1) TMI 516 - AT - Service Tax

Service tax on residential complex construction upheld with Rule 6 interest; RWA deposits and lease rent demands set aside

Service tax liability under Construction of Residential Complex Service was held to arise by operation of the Finance Act, 1994 and not on collection from ... Liability of interest on Construction of Residential Complex Service - tax was collected from home buyers only with the final instalment and therefore could not be deposited earlier - Management, Maintenance and Repair services were rendered or not - amount collected under Renting of Immovable Property Service or not - penalties. Liability of interest on Construction of Residential Complex Service - HELD THAT:- The obligation to pay the service tax arises on account of the charge in the Finance Act, 1994 and is not dependent on whether or not the assessee had collected service tax from its clients. This principle applies to any indirect tax. Central Excise duty, VAT, Sales Tax etc., can be recovered from the buyers/clients/ customers by the assessee but payment of these duties and taxes within time is responsibility of the assessee. The assessee cannot delay paying service tax on the ground that it had not yet collected the service tax. Rule 6 of the Service Tax Rules, 1994 makes it clear that the service tax has to be paid on the sixth day of the month following the month in which the service was provided or deemed to be provided. The appellant had, therefore, to pay service tax every month and could not have delayed paying service tax. Since there was a delay in paying service tax, interest needs to be paid. In view of the above, the demand of service tax under ‘Construction of Residential Complex service’ needs to be upheld and is upheld along with applicable interest. Management, Maintenance and Repair services - amounts collected from home buyers or not - HELD THAT:- Evidently, the appellant had collected amounts from home buyers and retained as deposit to further pass it on to the RWA, it is not a consideration received by the appellant for Management, Maintenance and Repair services. Therefore, the demand of service tax under this head needs to be set aside and is set aside. Renting of Immovable Property Service - lease rent collected from home buyers and remitted to the State Government - HELD THAT:- The lease rent said to have been collected by the appellant is not for leasing of any immovable property by the appellant but is the lease rent charged by the Government of Madhya Pradesh ( since all land on which the houses were built were on lease hold basis). Therefore, the demand of service tax under the head of renting of immovable property service cannot sustain and needs to be set aside. Penalties - HELD THAT:- The appellant is a Government entity engaged in providing housing service and he could have, albeit wrongly, resumed that the service tax had to be paid only when it has been collected from the client and not before. During the relevant period, section 80 of the Finance Act, provided for penalty not being imposed for reasonable cause for failure. Invoking section 80 of the Finance Act, the penalties imposed on the appellant set aside. The appeals are partly allowed upholding the confirmation of demand under construction of complex services along with interest and any amounts already paid may be adjusted towards this demand. Rest of the impugned orders are set aside. Issues: (i) Whether service tax demand and interest on 'Construction of Residential Complex' service for the specified periods is sustainable; (ii) Whether service tax demand for 'Management, Maintenance and Repair' service is sustainable; (iii) Whether service tax demand for 'Renting of Immovable Property' service is sustainable; (iv) Whether penalties under Sections 76, 77 and 78 of the Finance Act, 1994 are sustainable.Issue (i): Whether service tax and interest are payable on Construction of Residential Complex service for the stated periods.Analysis: Service tax liability is determined by statutory chargeability and the time limits in the Service Tax Rules, 1994. Section 67 establishes valuation for taxable services where consideration is in money. Rule 6 prescribes the time for payment to Government (monthly due dates following the month in which service is provided or deemed to be provided). Payment obligation is statutory and does not depend on collection from recipients; delayed deposit attracts interest under the relevant charging provisions and rules.Conclusion: The demand for service tax on Construction of Residential Complex service is sustained and interest for delayed payment is payable; amounts already paid may be adjusted against the demand.Issue (ii): Whether amounts collected and retained as maintenance corpus constitute consideration for Management, Maintenance and Repair service attracting service tax.Analysis: Where amounts merely represent deposits collected to be handed over to a Residents' Welfare Association and were retained/transferred as corpus rather than received as consideration for services rendered by the collector, such receipts do not constitute taxable consideration for Management, Maintenance and Repair service. The statutory chargeability requires an assessment of whether consideration was received for a taxable service.Conclusion: The demand for service tax under Management, Maintenance and Repair service is set aside.Issue (iii): Whether lease rent collected from house buyers constitutes consideration for Renting of Immovable Property service by the collector.Analysis: Where lease rent is payable to and collected on behalf of a third party (here, the State for leasehold land) and the collector did not lease out any immovable property to customers, the receipts characterised as lease rent are not consideration for the collector's renting-out of immovable property. Chargeability for renting service requires the service provider to be the one leasing out immovable property for consideration.Conclusion: The demand for service tax under Renting of Immovable Property service is set aside.Issue (iv): Whether penalties under Sections 76, 77 and 78 are imposable on the taxpayer for the failures found.Analysis: Penalty imposition under the Finance Act is subject to statutory exceptions for reasonable cause. During the relevant period Section 80 provided for non-imposition of penalty where failure was for reasonable cause. A government housing entity that reasonably believed tax would be discharged only when collected may fall within that exception, removing the basis for imposing penalties.Conclusion: Penalties under Sections 76, 77 and 78 are set aside invoking Section 80 for reasonable cause.Final Conclusion: The decision confirms service tax and interest for Construction of Residential Complex service while setting aside demands for Management, Maintenance and Repair and Renting of Immovable Property services and quashing the penalties; the operative effect is a mixed disposal addressing tax liability, interest and penalty relief in accordance with the statutory framework for chargeability, timing of payment and penalty exceptions.Ratio Decidendi: Liability to pay service tax arises independently of actual collection from recipients and must be discharged as per the point-of-taxation rules; receipts held as deposits or collected on behalf of a third party do not constitute taxable consideration for a service provider.