TaxTMI 
TaxTMI 
2026 (10) TMI 572
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....ly stated, are that the appellant, a partnership firm engaged in construction of residential complexes and other buildings, including projects undertaken on its own land and under joint development arrangements, was registered under "Construction of Residential Complex Service" and had filed ST-3 returns up to September 2009. On scrutiny of its records, the Department alleged non-payment of Service Tax on constructions undertaken for individual flat buyers, landowners in Project Hitha, KVP School, Ms. Beena and M/s. Aavishkar, and on-site development for Shri T. Ramraj. Consequently, Show Cause Notice dated 16.10.2014 was accordingly issued proposing a demand of Service Tax of Rs.2,95,40,927/- with interest and for imposition of penalties. The adjudicating authority classified the construction activities under Works Contract Service up to 30.06.2012 and under Section 66E(h) thereafter, and the site development activity under Section 65(97a), and confirmed the demand with interest and penalties. The appellant disputed the taxability, valuation, limitation and penalties and also sought rectification under Section 74, inter alia relying upon Notification No.01/2006-ST, G.D. Builders, ....
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..... It was submitted that the appellant had used materials in execution of the contracts and paid VAT on transfer of property in goods and that the contracts consequently answered the description of Works Contract Service. It was further submitted that the appellant had failed to file ST-3 returns after September 2009. As regards the composition scheme, reliance was placed upon Rule 3(3) and the requirement that the option be exercised before payment of Service Tax. The adjudicating authority had also relied upon Sant Lal Gupta v. Modern Co-operative Group Housing Society, 2010 (262) E.L.T. 6 (S.C.), Sormaiya Organics, 2001 (130) E.L.T. 3 (S.C.) and Hindusthan Malleables & Forgings Ltd., 1992 (58) E.L.T. 516 (H.C.). 5. Upon consideration of the rival submissions and the records, the following two questions arise for determination: - i. Whether the construction and site formation activities, wholly or partly, were liable to Service Tax during the respective statutory periods? ii. If so, whether the surviving demand has been correctly valued and whether the extended period, interest, penalties and rejection of the application under Section 74 are sustainable? 6.....
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....of the property, was in the nature of self-service and did not attract Service Tax in the circumstances stated therein. The circular is relevant as evidence of the Department's understanding of the statutory position prevailing before 01.07.2010. 12. We therefore hold that construction of residential units for individual purchasers cannot be subjected to Service Tax for the period prior to 01.07.2010 merely because the contracts involved transfer of property in goods. The demand relatable to such construction for the period prior to 01.07.2010 is accordingly set aside. Project Hitha 13. The appellant's reliance upon Circular No.108/2/2009-ST dated 29.01.2009 and Circular No.151/2/2012-ST dated 10.02.2012 is also material. These clarifications support the distinction between construction undertaken by a developer for the ultimate owner prior to completion/transfer and the taxable position introduced from 01.07.2010. Since Project Hitha was completed in April 2010, the principle underlying these clarifications supports exclusion of the landowners' share from the pre-01.07.2010 demand. 14. The mere fact that flats were constructed and transferred to landowners ....
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....ed any independent finding based on the actual nature or use of the KVP School building establishing that it was primarily intended for commerce or industry. The reasoning based essentially upon Bangalore Water Supply is therefore insufficient. The demand of service tax relating to construction service provided to KVP School is accordingly set aside. Beena, Aavishkar and Site Formation 20. The construction undertaken for Ms. Beena and M/s. Aa1vishkar stands on a different footing. The records indicate construction of a complex building for Ms. Beena and a godown for M/s. Aavishkar, involving transfer of property in goods. The appellant has not placed sufficient material to establish that these activities fall wholly outside the applicable taxable entry. The finding of taxability is therefore not interfered with, subject to determination of the applicable period, taxable entry and taxable value in accordance with the law. 21. As regards the site development undertaken for Shri T. Ramraj, the appellant's letters dated 15.09.2014 and 22.09.2014 disclosed receipts of Rs.15,90,000/- during 2010-11 for development of the site. The Department classified the activity under Sec....
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.... 26. In Nagarjuna Construction Co. Ltd. v. Union of India, (2013) 1 SCC 721, the Hon'ble Supreme Court upheld the statutory requirement contained in Rule 3(3) of Works Contract (Composition Scheme for payment of Service Tax), Rules, 2007. The requirement is therefore binding. However, whether it was attracted to each of the appellant's contracts cannot be decided merely from the dates of receipt of consideration; the actual Service Tax payments in respect of the respective contracts have to be examined. 27. The appellant exercised the composition option by letter dated 28.09.2015. The fact that consideration had been received earlier does not, by itself, establish that Service Tax had already been paid in respect of the relevant works contracts. The adjudicating authority shall therefore verify the ST-3 returns, challans and other payment records contract-wise. Where Service Tax had already been paid before exercise of the option, Rule 3(3) would preclude the subsequent option; where no such payment had been made, the option cannot be rejected merely because consideration had earlier been received. 28. The Tribunal in Aruna Constructions v. Commissioner of Central Exci....
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.... of the gross amount in the specified cases, subject to the prescribed conditions. 31. In M/s. Vijayadeepa Constructions Pvt. Ltd. v. Commissioner of CGST & Central Excise, Coimbatore, Final Order No.40536/2024 dated 08.05.2024, the Tribunal held that denial of the applicable abatement in respect of composite construction activity was not sustainable. The decision also relied upon on Heavy Engineering Corporation Ltd. v. CCGST, 2023 (8) Centax 287 (Tri.-Cal.), wherein entitlement to Notification No.01/2006-ST was considered; the decision was noted as having been upheld by the Hon'ble Supreme Court in Civil Appeal Nos. 4244-4245/2023 decided on 06.07.2023. Post-01.07.2012 valuation 32. With effect from 01.07.2012, Rule 2A of the Service Tax (Determination of Value) Rules, 2006 was substituted by Notification No.24/2012-ST dated 06.06.2012. The substituted rule prescribed percentages for determining the service portion in execution of works contracts, including 40% for original works, subject to the statutory definitions and conditions. 33. Notification No.26/2012-ST dated 20.06.2012 also prescribed abatement for specified construction services, including construction of ....
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....2010 residential construction. The separately classified site formation activity shall, however, be valued under the provisions applicable to that service and period and the works-contract valuation mechanism shall not be mechanically applied to it. 38. Credit shall be given for Rs.1,59,685/- already paid and appropriated. The adjudicating authority shall verify, as necessary, the VAT records, project-wise agreements, carpet area and amount charged per residential unit, inclusion of land/undivided share of land, CENVAT credit position, dates of commencement and completion and dates and amounts of receipts for correctly determining the surviving liability. 39. The composition claim is therefore not finally accepted or rejected at this stage. It shall be examined contract-wise with reference to Rule 3(3) of Works Contract (Composition Scheme for payment of Service Tax), Rules, 2007 and actual Service Tax payments made before 28.09.2015. Irrespective of the result on composition, the surviving works-contract demand shall not be quantified on gross receipts without applying the valuation mechanism legally applicable to the relevant activity and period. Limitation, Interest and....
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....025, the Tribunal treated the levy on composite works contracts during the disputed period as involving an interpretational dispute and found the extended period and consequential penalty unsustainable in the absence of mala fide. In Aruna Constructions, Final Order No.A/30164-30166/2026 dated 13.03.2026, divergent views and retrospective statutory intervention, without cogent evidence of deliberate intent to evade, were held insufficient to invoke the extended period. 44. The present case stands on the same legal footing. The appellant was registered, had disclosed its construction activity and had filed ST-3 returns up to September 2009. The dispute arose principally from the interpretation of successive statutory provisions, classification of construction activities and determination of the taxable service portion of composite contracts. In the absence of evidence of deliberate concealment of receipts or a positive act with intent to evade Service Tax, the extended period under the proviso to Section 73(1) is therefore not invocable. 45. Interest under Section 75 is consequential upon a legally established and delayed tax liability. Since the demand has been partly set asi....
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....d; it does not convert Section 74 into a substitute for the statutory appeal. In the present proceedings, the Tribunal is exercising its appellate jurisdiction under Section 86 and can therefore independently correct the valuation and tax consequences in accordance with law, even if the earlier application under Section 74 was rejected. 51. Revenue relied upon Sant Lal Gupta v. Modern Co-operative Group Housing Society, 2010 (262) E.L.T. 6 (S.C.), Sormaiya Organics, 2001 (130) E.L.T. 3 (S.C.) and Hindusthan Malleables & Forgings Ltd., 1992 (58) E.L.T. 516 (H.C.). These decisions correctly recognise that rectification is not a substitute for appeal and that a debatable issue requiring a long-drawn process of reasoning ordinarily cannot be treated as an error apparent. That principle, however, does not prevent this Tribunal, in exercise of its appellate jurisdiction under Section 86, from examining whether the tax demand as confirmed is legally sustainable. 52. The distinction is material. The appellant's request to exercise the composition option retrospectively cannot be accepted contrary to Rule 3(3) where Service Tax had already been paid in respect of the relevant work....
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....ons legally applicable to the relevant period, including the retrospective amendment to Rule 2A effective from 08.05.2013 wherever its conditions are satisfied. 57. The surviving demand shall be recomputed project-wise and period-wise after excluding the activities held non-taxable by this order, applying the correct valuation provisions for each period, considering Notification No.01/2006-ST and its amendments where applicable, Notification No.26/2012-ST and its amendments for the post-01.07.2012 period where applicable, giving credit for Service Tax already paid and verifying the relevant VAT and other documentary records. 58. The invocation of the extended period under the proviso to Section 73(1) is set aside. Consequently, the penalty of Rs.2,95,40,927/- imposed under Section 78 is set aside. Interest under Section 75 shall be recomputed only on the tax liability, if any, finally determined for the normal period. Penalties under Section 77 shall be reconsidered consequentially in accordance with law. 59. Order No. V/CRCS/15/137/2014-ST Adj. dated 14.03.2016, passed under Section 74 of the Finance Act, 1994, read with Order-in-Original No.33/2015-Commr. dated 31.12.201....