1. MA filed by Revenue for change of cause title is allowed.
2. M/s. Ramaniyam Real Estates Private Ltd., the appellants herein, are engaged in construction of residential and commercial complex During the course of audit, it emerged that appellants had entered into agreement for construction of residential complex as a joint venture project with Dwaraka Colony Welfare Association. The agreement was entered into between the appellants and the Dwaraka association to jointly develop the property of 54 old flats into a new residential complex for construction of 75 flats, out of which 45 flat owners would be entitled for a flat measuring 1000 sq.ft each in lieu of their relinquishing the undivided share of land in favour of the appellant. Appellant paid service tax on the amount collected from the land owners towards the additional area, however no tax was paid for the construction of 45 flats. Department took the view that the appellant is required to discharge service tax in respect of the 45 flats allotted to erstwhile owners on the basis of sale price of remaining 30 flats. Accordingly, SCN dt. 23.09.2008 was issued to the appellants proposing demand of amount of Rs. 81,65,140/- with interest thereon and penalty under Section 76 of the Finance Act, 1994. In adjudication, the Commissioner vide the impugned order dt. 23.12.2009 confirmed the service tax liability of Rs. 76,15,657/- with interest thereon and also imposed penalty under Section 76 ibid. Hence this appeal.
3. Today when the matter came up for hearing, Ld. Advocate Shri M.N. Bharathi made oral and written submissions which can be summarized as under:
i) The case on hand is covered by the very definition of Section 65(91a) and more specifically the exclusion clause wherein it has been held that "but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the lay out and the construction of such complexes is intended for personal as residence by such person", which is exactly the case on hand.
ii) The appellant and the individual of each such apartment had entered into an agreement. As envisaged in such agreement, each owner would get a built up area admeasuring about 1000 sq.ft. There were totally 75 such apartments constructed out of which 30 were sold by the appellants to various individuals. For these 30 apartments, the appropriate tax was discharged and there is no dispute on the same in the impugned proceedings. For the 45 apartments given to the individuals, the adjudicating authority had lost sight of the fact that it is an agreement between individuals and the appellant herein which is nothing but a construction work done for themselves attracting no tax.
iii) The exclusion given in the definition of 'Residential Complex Service' refers to 'construction of complex by a person for his own residential purpose by engaging a contractor'. Hence the word 'person' includes 'persons' also. Hence the construction done by the members of Dwaraka Colony Association for their own residential purpose is totally out of service tax levy by virtue of the Exclusion Clause.
iv) The members of Dwaraka Colony executed a legal power of attorney and authorized the power agent to sell their part of land relinquished by them to any prospective buyeRs. As such, the relinquished land was sold to 30 buyers by executing the sale deed by the power agent and the deed executed by the power agent is considered as 'executed by the members'. Legally, the sale consideration belong to the members of the Dwaraka Colony and the same has been adjusted against consideration for construction by the appellants.
4. On the other hand, Ld. A.R. Shri K.P. Muralidharan supports the impugned order. He draws our attention to para 2.3 of the SCN to point out that where the consideration is not wholly or partly consisting of money, the taxable value is to be calculated on the basis of comparable service or on the basis of cost of provision of service, as per Rule 3 of Service Tax (Determination of Value) Rules, 2006. Ld. AR submits that, for this reason, the consideration received for balance 30 flats would represent the comparable price for the remaining 45 flats for which monetary consideration was received.
5. Heard both sides and have gone through the facts. We have also perused the various Board's circulars and instructions in this regard.
6.1 The period of dispute involved in this appeal is April 2007 to March 2008. Discernibly, the appellant has provided construction services to the 45 flat owners who were also owners of the land on which the old building was situated. As a consideration, appellant has received legal rights of the undivided share of land of these 45 persons who relinquished the same in favour of the appellant. It is also not disputed that in consideration of such land rights, appellant has constructed and provided one flat to each of the 45 elsewhere flat owneRs. Thus, instead of paying consideration in cash to these 45 persons for the land rights, the same has been paid in kind by constructing and handing over the flats. In respect of the remaining 30 flats, as per the agreement entered into with the erstwhile flat owners' association, the appellant was unencumbered and free to sell those flats to other customers at a price. It is not disputed that appellant has discharged service tax liability in respect of the construction of these remaining 30 flats which have been sold by them to other customers for consideration in cash. It appears to reason and business sense that for sale of these 30 flats, appropriate cost of land is included in the value at which they were sold to the new customeRs. It is also manifest that in case of 45 flats, the same were not for sale in the market but for the personal use of the erstwhile flat owneRs.
6.2 In this scenario, we find that there cannot be any tax liability on the appellants for the period prior to 1.7.2010, namely, when the amendments were caused in the relevant provisions relating to the construction of residential complex in the Finance Act, 1994. This is the view as clarified by the CBEC in their Circular No. 151/2/2012-ST dt. 10.02.2012. The relevant portion of the circular is reproduced as under:
"2.1 Tripartite Business Model (Parties in the model : (i) landowner; (ii) builder or developer; and (iii) contractor who undertakes construction) : Issue involved is regarding the liability to pay service tax on flats/houses agreed to be given by builder/developer to the land owner towards the land/development rights and to other buyeRs.
Clarification : Here two important transactions are identifiable : (a) sale of land by the landowner which is not a taxable service; and (b) construction service provided by the builder/developer. The builder/developer receives consideration for the construction service provided by him, from two categories of service receivers: (a) from landowner: in the form of land/development rights; and (b) from other buyers: normally in cash.
(A) Taxability of the construction service:
(i) For the period prior to 1-7-2010 : construction service provided by the builder/developer will not be taxable, in terms of Board's Circular No. 108/2/2009-S.T., dated 29-1-2009 : 2009 (13) S.T.R. C33]."
The Circular No. 108/2/2009-ST dt. 29.01.2009 which has been reiterated in the aforesaid circular dated 10.02.2012, reads as under:
"Circular No. 108/2/2009-S.T, dated 29-1-2009
F. No. 137/12/2006-CX.4
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi
Subject : Imposition of Service tax on Builders - Regarding.
Construction of residential complex was brought under service tax w.e.f. 1-6-2005. Doubts have arisen regarding the applicability of service tax in a case where developer/builder/promoter enters into an agreement, with the ultimate owner for selling a dwelling unit in a residential complex at any stage of construction (or even prior to that) and who makes construction linked payment. The 'Construction of Complex' service has been defined under Section 65(105)(zzzh) of the Finance Act as "any service provided or to be provided to any person, by any other person, in relation to construction of a complex". The 'Construction of Complex' includes construction of a 'new residential complex'. For this purpose, 'residential complex' means any complex of a building or buildings, having more than twelve residential units. A complex constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex intended for personal use as residence by such person has been excluded from the ambit of service tax.
2. A view has been expressed that once an agreement of sale is entered into with the buyer for a unit in a residential complex, he becomes the owner of the residential unit and subsequent activity of a builder for construction of residential unit is a service of 'construction of residential complex' to the customer and hence service tax would be applicable to it. A contrary view has been expressed arguing that where a buyer makes construction linked payment after entering into agreement to sell, the nature of transaction is not a service but that of a sale. Where a buyer enters into an agreement to get a fully constructed residential unit, the transaction of sale is completed only after complete construction of the residential unit. Till the completion of the construction activity, the property belongs to the builder or promoter and any service provided by him towards construction is in the nature of self service. It has also been argued that even if it is taken that service is provided to the customer, a single residential unit bought by the individual customer would not fall in the definition of 'residential complex' as defined for the purposes of levy of service tax and hence construction of it would not attract service tax.
3. The matter has been examined by the Board. Generally, the initial agreement between the promoters/builders/developers and the ultimate owner is in the nature of 'agreement to sell'. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of 'self-service' and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a residential complex with a promoter/builder/developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of 'residential complex'. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax.
4. All pending cases may be disposed of accordingly. Any decision by the Advance Ruling Authority in a specific case, which is contrary to the foregoing views, would have limited application to that case only. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned."
6.3 From a combined reading of the provisions of Section 65(105)(zzzh) of the Act as it was in force during the impugned period and the two Board's circulars dt. 29.01.2009 and 10.02.2012, we are of the considered opinion that there cannot be any service tax liability in respect of the construction of flats provided by the appellants to the erstwhile 45 flat owners in lieu of their relinquishing their undivided share of land.
6.4 While arriving at these conclusions, we also draw sustenance from the decision of the Tribunal vide Final Order No. A/30559/2018 dated 11.0
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5.2018 in the case of Vasantha Green Projects Vs. CCT Rangareddy GST [Appeal No. ST/31095/2017], where on an identical issue it was held that the demand is not sustainable. The relevant portion of the order is reproduced as under: "7. It has to be construed, in the above factual matrix, that construction of villas for the land owners is a consideration towards the land on which villas were constructed and offered for sale to prospective customeRs. It would not be a rocket science to understand that the value which has been arrived at for sale of villas to prospective customers, would include the consideration paid or payable for acquisition of land. It is not a case that appellant has not discharged the service tax liability on the value received for the villas from prospective customeRs. In our view, if the consideration towards the acquisition of the land has been included in the value of the villas sold to prospective customers and appropriate service tax liability has been discharged the same value, it cannot be again made liable to service tax under the premise that sale value of the villas given to land owners is a consideration on which service tax liability was not discharged......" 7. In view thereof, the impugned order cannot then be sustained and requires to be set aside, which we hereby do. Appeal is therefore allowed with consequential relief, if any, as per law.