2014 (1) TMI 1002 - AT - Service Tax

Demand of service tax - Construction of residential complex - Service tax liability of Developer - Held that - Tribunal has been consistently holding that where UDS is sold first and then construction is done for the land owners, there is a service involved which fact is confirmed by the fact that there is no sale of constructed flats. Construction done after sale of UDS cannot be considered as a business of sale of flats but only as a business of providing service to the person to whom UDS was sold - prima facie there is a relationship of service provider and service recipient in this case and the clarifications issued by the CBEC are not applicable to the facts of the present case - Conditional Stay granted.

Summary

Issues:
1. Applicability of service tax on construction of residential complexes.
2. Interpretation of CBEC circulars regarding service tax on construction activities.
3. Invocation of extended period for demand of service tax.
4. Pre-deposit requirement for admission of appeals.

Analysis:
1. The judgment dealt with the applicability of service tax on the construction of residential complexes. The appellant, engaged in construction, argued that they were not liable to pay service tax as they considered themselves as developers based on CBEC circulars. The Revenue contended that the circulars were not applicable in cases where construction was undertaken on property belonging to someone else, as in the present case. The Tribunal noted that the construction was done after selling the Undivided Share (UDS) of the land, establishing a service provider and service recipient relationship, leading to the demand for service tax.

2. Regarding the interpretation of CBEC circulars, the appellant relied on Circulars stating that developers on their land need not pay service tax. However, the Revenue argued that in cases where UDS was sold first and then construction was done, a service provider and service recipient relationship existed, making the demand for service tax valid. The Tribunal found the CBEC circulars inapplicable to the facts of the case, emphasizing the service nature of the construction activity after selling UDS.

3. The invocation of the extended period for the demand of service tax was contested by the appellant, claiming that as registered assesses, they had paid service tax initially, and the department was aware of the construction activities. The Revenue justified the extended period citing lack of information disclosure and subsequent audit findings. The Tribunal decided to examine the time bar issue during the final hearing, emphasizing the need for a pre-deposit for admission of the appeals.

4. The judgment addressed the pre-deposit requirement for admission of appeals, considering arguments from both sides. The Tribunal referred to a previous case and called for a pre-deposit of Rs. 45 lakhs within 8 weeks, with further directions for compliance and waiver of the balance amount upon deposit. The pre-deposit was deemed necessary pending the final hearing, ensuring the stay of recovery until the appeal's disposal.