2010 (10) TMI 504 - AT - Service Tax

Waiver of pre-deposit - Commercial or Industrial Construction Service and Construction of Complex Service - The works were undertaken in terms of agreements between the appellant-company and various beneficiaries - It appears from the relevant agreements that the liability to pay service tax was placed on the contractors - The contractors accordingly paid service tax at the compounded rate of 2.06% as applicable to works contracts . The impugned demand of service tax is on a taxable value on a part of which the contractors paid service tax - Any service provided or to be provided to any person by any other person in relation to commercial or industrial construction and construction of residential complex would be a taxable service with effect from 1-7-2010 by Section 76 of the Finance Act 2010 - the deeming provision contained in the explanation added to Section 65(105)(zzq) and (zzzh) of the Finance Act 1994 will have only prospective effect from 1-7-2010 - A builder cannot be deemed to be service provider providing any service in relation to industrial/commercial or residential complex to the ultimate buyers of the property - Admittedly the entire dispute in the present case lies prior to 1-7-2010 - prima facie case against the impugned demand of service tax - Hence waiver of pre-deposit and stay of recovery .

Summary

Issues:
- Appellant seeks waiver of pre-deposit and stay of recovery for service tax and penalty.
- Dispute regarding liability for service tax on construction works.
- Interpretation of Explanations added to Section 65(105)(zzq) and (zzzh) of the Finance Act, 1994.
- Applicability of deeming provision to make a builder a service provider.

Analysis:

1. The appellant applied for waiver of pre-deposit and stay of recovery for service tax and penalty amounting to over Rs. 8.71 Crores. The dispute arose from the department's demand for service tax on construction works alleging non-payment by the appellant for services related to 'Commercial or Industrial Construction' and 'Construction of Complex' services during a specific period. The appellant argued that the liability to pay service tax was on the contractors based on the agreements, and the contractors had paid service tax at a compounded rate of 2.06% for 'works contracts'.

2. The dispute was adjudicated by the Commissioner, and the matter was appealed to the Tribunal, resulting in a remand order for a fresh adjudication. Subsequently, the Commissioner considered two additional show-cause notices and passed a common order encompassing all three notices. The main challenge was against the demand of service tax covered by these notices.

3. The appellant disowned the tax liability, contending that the contractors had already paid the appropriate service tax, and there was no obligation for the appellant to pay service tax before 1-7-2010. This argument was based on Explanations added to Section 65(105)(zzq) and (zzzh) of the Finance Act, 1994, which deemed the construction of new buildings as a service provided by the builder to the buyer. The appellant claimed that prior to these Explanations coming into effect on 1-7-2010, a builder was not considered a service provider.

4. The Revenue argued for retrospective application of the Explanations, stating they were clarificatory in nature. Reference was made to a Tribunal decision supporting the taxable service definition for construction of residential complexes. However, the Tribunal found merit in the appellant's legal plea, emphasizing that the deeming provision making a builder a service provider would only apply prospectively from 1-7-2010. The Tribunal noted that advances received by the appellant from prospective buyers did not align with the clause in the Explanation, indicating that the appellant could not be deemed a service provider to the buyers before 1-7-2010.

5. Considering the arguments, the Tribunal concluded that the deeming provision in the Explanations would have prospective effect from 1-7-2010. As the dispute pertained to periods before this date, the appellant successfully argued against the demand for service tax and penalty. The Tribunal acknowledged the amount already paid by the appellant and their contractors towards the tax liability, leading to the decision to grant waiver of pre-deposit and stay of recovery for the service tax and penalty amount.