2009 (7) TMI 135 - AT - Service Tax

Refund of erroneous payment of service tax - All the appellants paid service tax initially. However, subsequently, they formed an opinion that they were not liable to service tax on the services rendered by them under the category of construction of complex and accordingly filed refund claim and all the refund claims were rejected by the lower authorities held that - in the absence of a contractor hired by Society and nature of the transaction between the parties and in the light of definition of service and its liability for service tax, the transaction in this case cannot be considered taxable. Therefore, all the appeals are allowed. However, the matter is remanded to the original adjudicating authority in view of the fact that unjust enrichment aspect will have to be examined before granting refund and also for verification of the correctness of the claim.

Summary

Issues:
Service tax liability on construction of residential complexes by cooperative societies and developers.

Analysis:
The case involved multiple appellants engaged in the construction of residential complexes. The issue revolved around the service tax liability on the services rendered by them under the category of construction of complex. The appellants initially paid service tax but later filed refund claims as they believed they were not liable to pay service tax. The main argument put forth by the appellants was that they were not providing services to other builders or contractors but were directly providing residential units to the members of the societies. They relied on the definition of residential complex under Section 65 and various circulars to support their contention that the services rendered by them were not liable to service tax.

The Joint Commissioner of Central Excise and Customs, representing the respondent, cited a Tribunal decision to argue that the development included the construction of residential complexes and that the appellants' claim of merely owning properties and providing them to the members was not acceptable. The lower authorities had also rejected the refund claims of the appellants.

The Member of the Tribunal analyzed the submissions made by both sides. It was noted that the transaction in question was between the members of the society and either the society or the developer. The circular issued by the Board clarified that if a builder constructs a residential complex without engaging any other person, the question of providing taxable service does not arise. Additionally, a clarification issued by the Board emphasized that until the completion of construction and full payment, any service provided by the seller in connection with the construction of a residential complex would be considered as 'self-service' and would not attract service tax.

Based on the analysis and the legal provisions, the Member allowed all the appeals, concluding that the transaction in this case could not be considered taxable. However, the matter was remanded to the original adjudicating authority for further examination of the unjust enrichment aspect before granting the refund and for verification of the correctness of the claim. The judgment was pronounced on 3-7-2009.