2018 (11) TMI 1152 - AT - Service Tax

Construction services - appellants provided construction activities to land owners in lieu of relinquishment of their right over the UDS in land as per the agreement - liability of service tax - Held that - The period involved in the present case is from October 2004 to March 2009. The demand has been raised in the show cause notice under construction of residential complex services. The contracts entered between the appellant and the service recipient is a composite contract which involves both supply of materials as well as rendering of service. The Tribunal in the case of Real Value Promoters Ltd. 2018 (9) TMI 1149 - CESTAT CHENNAI had occasion to analyse the issue regarding demand of service tax under construction of residential complex services, commercial or industrial construction service and construction of complex service. The Tribunal has held that prior to 1.6.2007, levy of service tax can be under the above categories only for contracts which are purely for services. That after 1.6.2007, the above categories would be applicable only if the contracts are purely services and which are not composite contracts. Further, it was held that after 1.6.2007, demand in respect of composite contracts would fall under works contract service only. The demand of service tax under commercial or industrial construction service (residential complex) cannot sustain after the period 1.6.2007 - The levy of service tax prior to 1.6.2007 cannot also sustain in view of decision in the case of Larsen Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT . Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Liability of service tax on construction services provided in joint venture projects.
2. Applicability of service tax on composite contracts prior to and after 1.6.2007.
3. Classification of services under different categories such as 'Commercial or Industrial Construction Service', 'Construction of Complex Service', and 'Works Contract Service'.
4. Validity of the demand raised in show cause notices and adjudication orders.

Detailed Analysis:

1. Liability of Service Tax on Construction Services Provided in Joint Venture Projects:
The appellants were investigated for not paying service tax on construction services provided in joint venture projects. The projects included Meadows – Nolambur (residential complex/joint venture), Pacifica Tech Park (commercial complex/joint venture), and Blessings, Kelambakkam (residential complex). It was found that the appellants provided construction services to landowners in exchange for relinquishment of their rights over the Undivided Share (UDS) in land. The department argued that the appellants were liable to pay service tax on the landowner's share of construction, which they had not done. The appellants contended that they had already discharged service tax on the land value collected for the portion sold to individual buyers and were not liable to pay service tax separately for the landowner's share.

2. Applicability of Service Tax on Composite Contracts Prior to and After 1.6.2007:
The period of dispute was from October 2004 to March 2009. The Tribunal analyzed the applicability of service tax on composite contracts, which involve both supply of materials and rendering of services. It referred to the Hon’ble Supreme Court’s decision in Larsen & Toubro Ltd. (2015) and the Tribunal’s decision in Real Value Promoters Ltd. (2018), which held that prior to 1.6.2007, service tax could not be levied on composite contracts. After 1.6.2007, only contracts that were purely services without supply of goods could be taxed under specific service categories, while composite contracts would fall under 'Works Contract Service'.

3. Classification of Services Under Different Categories:
The Tribunal emphasized that the classification of services should be based on the nature of the contract. For composite contracts, the appropriate classification post 1.6.2007 would be under 'Works Contract Service' as defined in Section 65(105)(zzzza). The Tribunal cited multiple cases, including Swadeshi Construction Company (2018), Skyway Infra Projects Pvt. Ltd. (2018), URC Construction (P) Ltd. (2017), and Logos Construction Pvt. Ltd. (2018), to support its conclusion that composite contracts should not be taxed under 'Commercial or Industrial Construction Service' or 'Construction of Complex Service'.

4. Validity of the Demand Raised in Show Cause Notices and Adjudication Orders:
The Tribunal concluded that the demands raised in the show cause notices and adjudication orders were not sustainable. It held that for the period prior to 1.6.2007, service tax on composite contracts could not be levied under 'Commercial or Industrial Construction Service' or 'Construction of Complex Service'. For the period after 1.6.2007, such contracts should be classified under 'Works Contract Service'. Consequently, the Tribunal set aside the impugned order and allowed the appeal with consequential relief.

Conclusion:
The Tribunal's decision clarified that the demand for service tax on construction services provided in joint venture projects was not sustainable under the categories of 'Commercial or Industrial Construction Service' or 'Construction of Complex Service' for the periods both prior to and after 1.6.2007. The appropriate classification for composite contracts post 1.6.2007 would be under 'Works Contract Service'. The appeal was allowed, and the impugned order was set aside.

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