Works contract taxation and leasing of movable fit-outs were held outside service tax for the disputed periods and agreements.

Service tax was not leviable on composite construction of residential complexes for 01.04.2006 to 31.03.2008 where the activity was a works contract, because the works contract levy commenced only from 01.06.2007 and the service element could not be vivisected before that date. The Tribunal also treated the construction of residential complexes as non-taxable on the facts recorded, including the pre-completion and transfer stage. Separate consideration received for leasing fit-outs, furniture and other movable items under distinct agreements was also held outside renting of immovable property, since those items were movable property and VAT had been paid on the same consideration. The demands and penalties were set aside.

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Issues: (i) Whether service tax was payable on construction of residential complexes for the period 01.04.2006 to 31.03.2008 where the activity was in the nature of a works contract. (ii) Whether service tax was payable on amounts received for leasing fit-outs, furniture and other movable items under the head of renting of immovable property service.

Issue (i): Whether service tax was payable on construction of residential complexes for the period 01.04.2006 to 31.03.2008 where the activity was in the nature of a works contract.

Analysis: The levy on works contract service came into force only from 01.06.2007. Prior to that date, a composite works contract could not be vivisected to levy service tax on the service component alone. For the later period also, the Tribunal followed the settled view that residential complex construction remained non-taxable in the circumstances recorded, including the period before completion and transfer to the buyer, and relied on the consistent line of authority and the CBEC circular clarifying the position.

Conclusion: The demand for service tax on the construction activity was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether service tax was payable on amounts received for leasing fit-outs, furniture and other movable items under the head of renting of immovable property service.

Analysis: The fit-outs were leased under separate agreements and were treated as movable property. VAT had been paid on the consideration for such leasing. Service tax and VAT operate in mutually exclusive fields, and consideration for leasing movable assets cannot be brought within renting of immovable property merely because the premises were also let out. The Tribunal followed its earlier decisions on the same issue.

Conclusion: The demand on the lease rent for fit-outs was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The impugned order confirming the demands and penalties was set aside, and the appeal succeeded with consequential relief.

Ratio Decidendi: A composite works contract could not be subjected to service tax for the period before the statutory levy on works contract service, and separate consideration for leasing movable fit-outs under distinct agreements cannot be taxed as renting of immovable property, especially where VAT has been levied on the same consideration.

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