Construction of residential complex taxability clarified: no service tax before July 1, 2010; revenue appeal dismissed

Classification of services concerns whether construction activity constitutes Construction of Residential Complex Service or Works Contract Service and whether service tax was leviable before 1 July 2010. The legal reasoning rests on settled precedent that construction of a residential complex, whether characterized as service simpliciter or as a works contract, was not subject to service tax prior to 1-7-2010; therefore the prior demand was correctly treated as non-leviable and the impugned order dropping the demand was upheld, resulting in dismissal of the Revenue appeal.

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Issues: Whether service tax was leviable on the respondent's activities classified as 'Construction of Residential Complex Service' and 'Works Contract Service' for the period 01-04-2009 to 31-03-2010 (i.e., prior to 01-07-2010).

Analysis: The question turns on the scope of 'construction of residential complex' and 'works contract' services under Section 65(105)(zzzh) of the Finance Act, read with Board Circular No.108/2/2009-ST dated 29-01-2009 and Circular No.151/2/2012-ST dated 10-02-2012. The relevant principles are: (a) an initial agreement to sell does not transfer ownership until completion and execution of sale deed; (b) where construction is for the builder/promoter's own property or prior to transfer of ownership, the activity is in the nature of self-service and not taxable; (c) works contracts involving transfer of immovable property were explicitly brought within the taxable ambit by explanation to Section 65(105)(zzzh) w.e.f. 01-07-2010; and (d) therefore, construction-related receipts received before 01-07-2010, in circumstances of agreement to sell and construction-linked payments prior to transfer, are not chargeable to service tax. The cited Board circulars and Tribunal precedent apply these principles to facts where possession and ownership transfer occur only on completion and full payment, and where construction occurred prior to issuance of completion certificate.

Conclusion: The appeal is dismissed and the impugned order upholding that no service tax was leviable for the period 01-04-2009 to 31-03-2010 is affirmed. The result is in favour of the assessee.

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