2019 (7) TMI 59 - AT - Service Tax

Construction of Complex Services - levy of service tax on the part of the construction of complex constructed prior to entering into the agreement to sale with the flat buyers/ customers - works contract - levy of VAT - CBEC Circular No 108/02/2009-ST dated 29.01.2009 - Levy of penalty - extended period of limitation. HELD THAT - Appellants are providing taxable service under the category of Construction of Complex Services as defined by Section 65(105) (zzzh). The services provided by them in respect of residential complexes have been brought in the taxable category with effect from 01.07.2010 by insertion of explanation to Clause (zzzh) of sub section 105 to Section 65 - Appellants do not dispute the classification of the services provided by them under this taxable category. However in their appeal memo and during the course of argument they have contended that, the service provided by them is one of work contract, and have relied upon series of case laws to argue that in case of work contracts the VAT was leviable. The issue under consideration is not of classification of services, whether as work contract or under the category of construction of complex services. At the material time both work contract services and construction of complex services were leviable to service tax. Since the services provided by the appellants are more specific to construction of complex services they get classified under that category which is more specific - The dispute in the present case is in relation to valuation of taxable services. Appellants have contended that in view of the above referred decisions the service tax cannot be levied in respect of activities undertaken by them prior to entering into agreement of sale with the buyer of flats. There seem to be no iota of doubt with regards to the value to be taken for determination of the tax payable in respect of the services rendered by the appellants. Appellants have contended that certain portion of the works have been completed by them prior to entering into contract/ agreement of sale of the flats with the buyer. Hence no service tax can be demanded in respect of the works undertaken prior to entering into such agreement of sale - We are not in agreement with the contentions raised because the value of taxable service is not vis a vis the activity done prior to entering into contract/ agreement for sale, but is on the basis of gross amount (Consideration) received for providing the such construction of complex services. The gross consideration received cannot be vivisected into the on the basis of work done prior to and after entering into agreement for sale. If the argument advanced by the appellant was to be accepted then the taxable value for every flat sold in the same complex constructed by the appellant will vary depending on the date of agreement, though the gross amount charged for the same flat from the customer remains the same. In the present case when the measure of levy has been prescribed to be based on 25% of the Gross Receipts then the same cannot be questioned on the basis of considerations such quantum of completed work before the agreement to sell. Extended period of limitation - HELD THAT - The SCN have been issued within a period of one year from the date of filing the returns, hence even without invoking the extended period of limitation the demand would not be hit by limitation. There is no hesitation in upholding the demands of service tax made - However in respect of the Appellant 2, the demand needs to be reworked - interest is also upheld - penalty under Section 78 will also follow - By not furnishing the correct information as required on ST-3, appellant have made themselves liable to penalty under Section 77(2) read with Section 70 of the Act. Hence the penalties under Section 77(2) read with Section 70 of the Act upheld. Appeal dismissed - decided against appellant.

Issues Involved:
1. Classification of services provided by the appellants.
2. Taxability of construction activities prior to entering into agreements with buyers.
3. Valuation of taxable services.
4. Applicability of service tax on works contracts.
5. Invocation of extended period of limitation.
6. Imposition of penalties.

Detailed Analysis:

1. Classification of Services Provided by the Appellants:
The appellants provided taxable services under the category of "Construction of Complex Services" as defined by Section 65(105)(zzzh) of the Finance Act, 1994. The services provided by them in respect of residential complexes were brought under the taxable category effective from 01.07.2010 by an explanation to Clause (zzzh) of sub-section 105 to Section 65. The appellants did not dispute the classification of the services provided by them under this taxable category.

2. Taxability of Construction Activities Prior to Entering into Agreements with Buyers:
The appellants contended that no service tax is leviable on the construction of complex constructed prior to entering into agreements with buyers, arguing that such activities were services to self. The Tribunal disagreed, stating that the value of taxable service is based on the gross amount received for providing such construction services, and not on the basis of work done prior to entering into agreements for sale.

3. Valuation of Taxable Services:
The value for determining the service tax payable must be done in terms of Section 67 of the Finance Act, 1994, read with the relevant Valuation Rules, 2006. Notification No. 1/2006-ST, as amended by Notification No. 29/2010-ST, prescribes the value of taxable service for calculating the tax payable at 25% of the gross receipts if the cost of land is included and not separately recovered. The Tribunal upheld this method of valuation, rejecting the appellants' argument for a different valuation based on the portion of work completed before the agreement to sell.

4. Applicability of Service Tax on Works Contracts:
The appellants argued that their activities were works contracts involving the supply of goods and labor, and relied on the Supreme Court's decision in L&T Ltd. vs. State of Karnataka. The Tribunal noted that both works contract services and construction of complex services were leviable to service tax at the material time. The services provided by the appellants were more specific to construction of complex services and thus classified under that category. The Tribunal emphasized that the measure of levy is to be determined according to the provisions of the taxing statute.

5. Invocation of Extended Period of Limitation:
The Tribunal found no merit in the appellants' claim of a bona fide belief that their activities were not taxable, noting that the provisions in law and clarifications issued were clear. The appellants' failure to take registration, pay taxes, and file returns in time justified the invocation of the extended period of limitation. The Tribunal also noted that the show cause notices were issued within one year from the date of filing the returns, making the demand not hit by limitation even without invoking the extended period.

6. Imposition of Penalties:
The Tribunal upheld the penalties imposed under Sections 77(2) and 78 of the Finance Act, 1994, noting that the appellants' failure to fulfill statutory obligations justified the penalties. The Tribunal rejected the appellants' claim for waiver of penalties under Section 80, stating that it was not a license to condone irregularities in tax payment and filing of returns. The Tribunal also noted that the appellants had the option to pay the confirmed tax amount along with interest and 25% of the penalty imposed to avail the benefit under Section 78.

Conclusion:
- The appeal of Appellant 1 was dismissed.
- The appeal of Appellant 2 was disposed of subject to consequential modifications in the impugned order due to wrong computation of Education Cess in the show cause notice. The demand of tax and penalty under Section 78 of the Finance Act, 1994, was modified accordingly.

(Order pronounced in the open court on 28.06.2019)

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