2026 (3) TMI 1448 - AT - Service Tax

Residential complex service tax fails when statutory unit threshold is unmet and demand lacks independent verification.

Service tax on construction of a residential complex was said to be inapplicable where the project comprised only four residential units, because the ... Taxability of construction of residential complex service - statutory definition of residential complex - Independent verification of taxable service - demand raised merely on comparison of ST-3 returns and bank statements, without independent verification of the nature of service - Extended period of limitation - Appropriation of tax already paid. Construction activity relating to a building consisting of only four flats - HELD THAT: - The Tribunal found from the development agreement that the appellant had constructed only four residential units. Applying the statutory definition of residential complex, it held that service tax under this category arises only where the complex comprises more than twelve residential units. Since the project involved only four units, the activity fell outside the levy and the demand under this category could not be sustained. [Paras 8] The demand under construction of residential complex service, along with consequential interest and penalties, was set aside. Appropriation of tax already paid - Commercial and industrial construction service - Penalty waiver on voluntary payment - HELD THAT:- The Tribunal accepted the Chartered Accountant's certificate certifying payment of service tax on the invoices raised for the relevant services, noting that the Revenue had produced no contrary material to dislodge it. On that basis, it held that the appellant had discharged the liability for commercial and industrial construction service, and the amount already paid towards short payment had to be appropriated. As the short payment had been voluntarily made good before adjudication, penalty on that amount was also found unwarranted. [Paras 9] The amount already paid was appropriated towards the appellant's liability under commercial and industrial construction service, and penalty in respect of that amount was set aside. Demand based on comparison of ST-3 returns and bank statements - Independent verification of taxability - HELD THAT: - The Tribunal found that the show cause notice proceeded only on a comparison between the figures in the ST-3 returns and the bank statements, without verifying the nature of the service rendered or establishing that the receipts related to taxable services. It held that such comparison, in the absence of independent verification or substantive evidence of taxability, was insufficient in law to sustain the demand. Therefore, the demand over and above the amount already paid and admitted by the appellant was liable to be set aside on this ground as well. [Paras 10] The balance demand founded solely on comparison of ST-3 returns and bank statements was held unsustainable and was set aside. Extended period of limitation - Wilful suppression of facts - HELD THAT: - The Tribunal noted that the appellant was registered, had been filing ST-3 returns regularly, had informed the Department about stoppage of operations, and had furnished records during audit. It also noted that the short-paid amount had been voluntarily paid before adjudication. In the absence of corroborative evidence showing wilful misstatement or suppression with intent to evade tax, the essential basis for invoking the extended period was not made out. The demand beyond the amount already paid and admitted was therefore unsustainable on limitation as well. [Paras 11] The invocation of the extended period was held invalid, and the remaining demand was set aside on limitation also. Final Conclusion: The appeal was disposed of by setting aside the demand under construction of residential complex service in full, appropriating the service tax already paid towards commercial and industrial construction service, and deleting the related penalty. The remaining demand, beyond the amount already paid and admitted, was set aside both for want of independent verification of taxability and because the extended period of limitation was not invocable. Issues: (i) Whether construction of a residential complex consisting of only four flats attracted service tax under the category of construction of residential complex service; (ii) Whether the demand raised merely on comparison of ST-3 returns and bank statements, without independent verification of the nature of service, was sustainable; (iii) Whether invocation of the extended period of limitation was justified.Issue (i): Whether construction of a residential complex consisting of only four flats attracted service tax under the category of construction of residential complex service.Analysis: The statutory definition of residential complex applies to a complex comprising a building or buildings having more than twelve residential units, along with the prescribed common facilities. The documentary record, including the development agreement, showed construction of only four residential units. On those facts, the activity did not satisfy the statutory threshold for levy under this category.Conclusion: The demand under construction of residential complex service was not leviable and was rightly set aside, in favour of the assessee.Issue (ii): Whether the demand raised merely on comparison of ST-3 returns and bank statements, without independent verification of the nature of service, was sustainable.Analysis: The demand was based on a comparison of amounts reflected in ST-3 returns and bank statements, without establishing by independent evidence that the receipts were attributable to taxable services. Mere arithmetical comparison, without verifying the nature and taxability of the underlying activity, was held insufficient to sustain a service tax demand.Conclusion: The demand over and above the amount already admitted and paid was unsustainable on this basis and was set aside, in favour of the assessee.Issue (iii): Whether invocation of the extended period of limitation was justified.Analysis: The assessee was registered, had been filing ST-3 returns, had informed the department about cessation of operations, and had already paid the short-paid amount before adjudication. No corroborative material established wilful suppression, misstatement, or intention to evade tax. In the absence of such foundational facts, the extended limitation period could not be invoked.Conclusion: Invocation of the extended period was unsustainable and the additional demand was set aside, in favour of the assessee.Final Conclusion: The appeal resulted in deletion of the disputed service tax demand apart from appropriation of the amount already paid, with the related interest and penalties also not surviving.Ratio Decidendi: Service tax liability cannot be fastened on a residential construction activity unless the statutory threshold is met, and a demand cannot be sustained solely on comparison of return figures and bank entries without independent verification and proof of taxability; absent wilful suppression, the extended period of limitation is not invocable.