2026 (1) TMI 1525 - AT - Service Tax

Service tax on construction services: no levy before 01.07.2010; post-period demands quashed where construction was for personal use.

Service tax on construction services before 01.07.2010 cannot be levied, so no liability attaches for that period. Classification as works contract ... Levy of service tax on construction services - Classification as Works Contract Service (WCS) vis-à-vis Construction of Residential Complex Service (CRCS) - Exclusion for construction for personal use under definition of residential complex - Non-leviability of service tax prior to 01.07.2010 - Relief from penalty and inapplicability of extended period for assessment in absence of mala fide - Determination of taxable value and exclusion of non-taxable receipts under Rule 5(2) - Requantification of demand under Rule 2A(ii) - Benefit of composition scheme and cum-tax benefit under section 67(2) - HELD THAT:- as service tax liability prior to 01.07.2010 is concerned, there is no dispute, as it is now no longer res integra that no service tax can be levied on construction services irrespective of its being classified under WCS or Construction of Residential Complex Service. It is also not in dispute that in this appeal, the services were provided by the appellant in which material portion was also involved and therefore, it would be appropriately covered under the category of WCS. Therefore, we find that no service tax can be levied for the period prior to 01.07.2010. Insofar as service tax liability beyond 01.07.2010, we find that the appellants have submitted to the adjudicating authority that they, inter alia, first sell the undivided portion of land along with the semi-constructed flat on which applicable stamp duty is also paid. - There were lot of disputes regarding proper classification of such service, as also leviability thereon, which was finally clarified by the Board by various circulars including circular dt.29.01.2009 and circular dt.10.02.2012. Therefore, malafide intent cannot be imputed and therefore, neither extended period can be invoked not penalty can be imposed under section 78 of the Act. Thus, in view of the fact that they have been able to establish that construction was in relation to the personal use of the individuals with whom they had entered into separate agreement in addition to sale of semiconstructed flat, it would not be leviable to service tax. As regards non-leviability of service tax on certain amounts viz., corpus fund and VAT, it is not clear as to how this demand has been confirmed as the entire demand has been confirmed under the category of CRCS. This aspect is not clear, however, as we find that since the entire demand has been made under CRCS and since the entire demand has been found to be not sustainable, as discussed supra, therefore, this aspect is not required to be further discussed separately. Further, as the entire demand is not sustainable, the penalty is also not sustainable and therefore, there is no need to examine the request for waiver of penalty under the provision of section 80 of the Finance Act, 1994. Appeal allowed. Issues: (i) Whether service tax was leviable on the appellant's construction activities prior to 01.07.2010; (ii) Whether service tax was leviable beyond 01.07.2010 having regard to classification as Works Contract Service (WCS) or Construction of Residential Complex Service (CRCS) and the 'personal use' exclusion; (iii) Whether extended period and penalties under sections 76, 77, 78 and waiver under section 80 of the Finance Act, 1994 are sustainable.Issue (i): Whether service tax was leviable on construction services provided by the appellant for the period prior to 01.07.2010.Analysis: The Court examined precedent holding that construction services, whether classified as WCS or CRCS, did not attract service tax prior to 01.07.2010 and noted the appellant's provision of services involving material component falling within WCS.Conclusion: No service tax is leviable for the period prior to 01.07.2010; decision in favour of the assessee.Issue (ii): Whether services beyond 01.07.2010 are taxable, considering classification as WCS versus CRCS and the 'personal use' exclusion under section 65(91a) of the Finance Act, 1994.Analysis: The Court considered the contractual facts showing sale of undivided land with semi-constructed flat and separate construction/completion agreements, relevant Board circulars clarifying classification, and authorities holding that construction for individuals for personal use falls within the exclusion under the definition of residential complex; it also found the SCN framed under CRCS while facts indicate WCS.Conclusion: Services beyond 01.07.2010 are not leviable to service tax on the facts established (classification as WCS and 'personal use' exclusion); decision in favour of the assessee.Issue (iii): Whether extended period of limitation and penalties under sections 76, 77, 78 are invokable and whether penalty waiver under section 80 is applicable.Analysis: The Court noted existing disputes and clarifications by Board circulars during the relevant period, absence of malafide, and that the entire demand was predicated on an incorrect classification (CRCS) which was found unsustainable.Conclusion: Extended period and penalties are not sustainable; penalty not imposed and no need to adjudicate waiver under section 80; decision in favour of the assessee.Final Conclusion: The Tribunal allowed the appeal and set aside the demand and penalties as unsustainable, resulting in full relief to the assessee on the contested tax and penalty issues.Ratio Decidendi: Construction services are not taxable prior to 01.07.2010, and where facts establish supply as works contract and construction for individuals for personal use (with separate agreements), such activity falls within the exclusion for residential complex and is not leviable to service tax; misclassification of the service in the show-cause notice renders the demand and related penalties unsustainable.