2019 (9) TMI 889 - AT - Service Tax

Liability of service tax - amount received from the prospective buyers where such amount includes consideration towards undivided share of land within the period 2010-11 to 2014-15 - services availed from two sub-contractors in undertaking construction activity when these sub-contractors have discharged the service tax liability - construction activity undertaken for educational institutions and on the deposits collected from all the buyers of residential apartment towards resident/owner welfare association to be used for future payments. Demand of service tax - amount received from the prospective buyers where such amount includes consideration towards undivided share of land within the period 2010-11 to 2014-15 - HELD THAT - The learned Commissioner held that the appellant has collected sums from the buyers before the receipt of the occupancy certificate/completion certificate and therefore provided taxable service as per Section 65(105) (zzzh) of the Finance Act 1994. He also relied upon the Board Circular 151/2/2012-ST dated 10.02.2012 - reliance placed in the case of GS. PROMOTERS VERSUS UOI 2010 (12) TMI 34 - PUNJAB AND HARYANA HIGH COURT where it was held that the levy of tax is on service and not on service provider and construction services are certainly provided even when a constructed flat is sold. Taxing of such transaction is not outside the purview of the Union Legislature as the same does not fall in any of the taxing entries of State list - service tax cannot be levied. Demand of service tax - reverse charge mechanism on the services availed by them from two sub-contractors - HELD THAT - Karnataka High Court in the case of COMMISSIONER OF CENTRAL EXCISE SERVICE TAX CUSTOMS, BANGALORE-II VERSUS NITHESH ESTATES LTD., 2018 (7) TMI 1135 - KARNATAKA HIGH COURT where it was held that the appellants are not liable to pay any service tax as the building constructed by them is not for the use of Commerce or Industry - no service tax is liable to be paid by the appellants in this regard. CENVAT Credit - the service provider has not furnished Cenvat credit documents to the Department for verification and thus failed to comply with the provisions of Rule 6 of the Cenvat Credit Rules - HELD THAT - In terms of N/N. 21/2014-CE (NT) of Cenvat Credit Rules, 2004 the service provider shall not take credit after 6 months of date of issue of any documents specified in sub-rule (1) of Rule 9. However, learned counsel for the appellants submits that the credit was due to them prior to 11.07.2014 i.e the date of amendment of Rule and therefore, they are not barred from taking credit. However, it is held that no service tax is payable by the appellants on the issues raised in the impugned order we are not going into the issue of credit. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:

1. Service tax on construction and sale of flats including undivided share of land.
2. Service tax on services availed from sub-contractors under Reverse Charge Mechanism (RCM).
3. Service tax on construction of buildings for educational institutions.
4. Service tax on one-time maintenance deposit collected from buyers of residential apartments.
5. Eligibility for Cenvat Credit.

Issue-wise Detailed Analysis:

1. Service Tax on Construction and Sale of Flats Including Undivided Share of Land:

The appellants argued that the amount collected from prospective buyers included consideration towards an undivided share of land, which in a composite contract involving construction of flats and sale of land, should not be subject to service tax. The Tribunal referenced the Delhi High Court's judgment in Suresh Kumar Bansal Vs Union of India, which held that there is no statutory mechanism to ascertain the value of services in such composite contracts, thereby negating the levy of service tax. The Tribunal concluded that service tax cannot be levied on the appellants for this count.

2. Service Tax on Services Availed from Sub-contractors Under Reverse Charge Mechanism (RCM):

The appellants contended that the sub-contractors had already discharged the service tax liability and they had not availed Cenvat credit for the same. The Tribunal referred to the Karnataka High Court's decision in CCE&ST, Bangalore-II v. Nithesh Estates Ltd, which held that if the sub-contractors have paid the service tax, the principal contractor cannot be taxed again for the same services. The Tribunal agreed with this view and held that the appellants are not liable to pay service tax on the services availed from the sub-contractors under RCM.

3. Service Tax on Construction of Buildings for Educational Institutions:

The appellants argued that the construction of buildings for Rajalakshmi Education Trust and T.A. Pai Management Institute Trust is not taxable as 'Works Contract Service' since these buildings are not used for commerce or industry but for educational purposes. The Tribunal supported this argument by citing the cases of Ratan Das Gupta & Co Vs CCE, Jaipur and Vij Construction Pvt Ltd Vs CCE, New Delhi, which held that buildings used for educational purposes are considered non-commercial. Hence, the Tribunal concluded that the appellants are not liable to pay service tax for this activity.

4. Service Tax on One-time Maintenance Deposit Collected from Buyers of Residential Apartments:

The appellants collected one-time deposits from buyers for future statutory obligations like property tax and water connection charges, which were deposited into a separate account. The Tribunal referred to the case of Kumar Beheray Rathi Vs CCE, Pune-III, which held that such deposits are not towards any service rendered and are held in trust for future use by the Resident Owner/Welfare Association. The Tribunal concluded that no service tax is payable on these deposits.

5. Eligibility for Cenvat Credit:

The appellants claimed eligibility for Cenvat credit for the disputed amount if service tax liability is confirmed. The Tribunal noted that the Commissioner had observed the appellants did not avail Cenvat credit and were eligible for abatement under relevant notifications. However, since the Tribunal held that no service tax is payable on the contested issues, the question of Cenvat credit did not arise.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned order to the extent contested, and granted consequential relief to the appellants, if any. The order was pronounced in Open Court on 19/09/2019.