2013 (4) TMI 271 - AT - Service Tax

Services of constructing the flat - demand has arisen due to the order-in-revision passed by the Commissioner - Held that - The agreement is a combined agreement for sale of undivided share of land and subsequent building of the flat in the same land belonging to the prospective buyer. It has not been shown that the flat as such is being sold to the individual clients. It appears to be a case where undivided share of land alone is registered on sale and the constructed flat is merely handed over. Therefore, the merits of the case are arguable in nature. However, in view of the apparently contradicting clarifications of the Board, the invocation of extended period of limitation may not be justified. It was submitted that about Rs.13.5 lakhs was the demand within the normal period of limitation. Thus taking into account plea of financial hardship, the appellant directed to pre-deposit a sum of Rs.6,00,000/- within six weeks from today and report compliance to the Assistant Registrar on 7.8.2012 and Assistant Registrar to report to the Bench on 13.8.2012.

Summary

Issues:
1. Demand of Service Tax on a builder/developer for construction of residential flats.
2. Applicability of service tax on advance payments received before completion of the project.
3. Interpretation of circulars issued by the Board in relation to service tax liability.
4. Whether the service component of constructing and selling flats is liable to tax.

Analysis:
1. The appellant, a builder/developer, constructed a residential complex and entered into agreements with buyers for the sale of undivided land share and subsequent flat construction. A show-cause notice was issued proposing a demand of Service Tax for a specific period, which was later confirmed by the Commissioner along with penalties.

2. The appellant argued that since the sale deed was executed only after the completion of the complex and the flat was ready for occupation, they were not liable to pay service tax during the relevant period. Reference was made to circulars issued by the Board supporting their stance. The appellant also contended that a significant part of the demand was time-barred based on clarifications favoring the assessee.

3. The department, represented by the Superintendent (AR), maintained that the appellant was selling undivided land shares and providing construction services for the flats, citing a court decision suggesting retrospective application of an amendment to tax the service component of flat construction even after sale.

4. The Tribunal observed that the original authority had initially dropped the proceedings, and the demand arose from the Commissioner's order-in-revision. It noted that the agreement involved the sale of undivided land share and subsequent flat construction on the same land, indicating an arguable case. Considering conflicting Board clarifications, the Tribunal found the invocation of the extended limitation period unjustified. A partial pre-deposit was directed, taking into account financial hardship, and the balance of dues was stayed pending appeal disposal.

5. In conclusion, the Tribunal directed the appellant to pre-deposit a specific amount within a set timeframe, waived the pre-deposit of the remaining dues, and stayed the recovery pending appeal resolution. The judgment highlighted the complexity of the case, the conflicting interpretations of the law, and the consideration of financial circumstances in determining the pre-deposit amount.