2019 (10) TMI 171 - AT - Service Tax

Works contract service - construction of residential complex service or nor - demand of service tax on row houses which they have constructed and sold to individuals under the project name Nilgiri Homes - HELD THAT - The appellant has taken a piece of land and developed that into a complex of individual residential units in the form of row houses with some common areas for parking roads etc. We have also seen the photographs produced by the appellant. These clearly indicate that they are row houses with some common boundaries along with roads and other facilities. Residential complex or otherwise? - HELD THAT - The only logical understanding of the residential complex is that there should be 12 or more residential units either in the form of flats or as single houses in the entire complex. Evidently in this particular case the complex comprises of row houses as a gated community along with some common facilities and has more than 12 residential units. For this reason we find that the project Nilgiri Homes qualifies as residential complex. It is not in dispute that the services were rendered in the form of works contract and therefore are chargeable to service tax in the works contract service. Nature of the contract on which service tax is proposed to be charged - HELD THAT - The explanation to section 65(91a) categorically states that personal use includes permitting the complex for use as residence by another person on rent or without consideration. Therefore it does not matter whether the individual buyer uses the flat himself or rents it out. There is nothing on record to establish that the individual buyers do not fall under the aforesaid explanation - thus no service tax is chargeable from the appellant on the agreements entered into by them with individual buyers for completion of their buildings as has been alleged in the SCN. Consequently the demand needs to be set aside - Accordingly the demands for interest and imposition of penalties also need to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Applicability of service tax on construction services for individual houses versus residential complexes.
2. Taxability of construction services provided prior to 01.07.2010.
3. Correct computation of service tax demand.
4. Imposition of interest and penalties.

Issue-wise Detailed Analysis:

1. Applicability of Service Tax on Individual Houses versus Residential Complexes:
The appellants argued that they were constructing individual houses, not residential complexes, and thus were not liable for service tax. They referred to Section 65(91a) of the Finance Act, 1994, which defines a "residential complex" as a building or buildings with more than twelve residential units. They cited the Tribunal's decision in Macro Marvel Projects Ltd and Baba Constructions Pvt Ltd, which held that individual houses do not qualify as residential complexes. The department countered that the entire area, "Nilgiri Homes," qualifies as a residential complex due to common areas and facilities, and that individual houses are included in the definition of residential units. The Tribunal found that the earlier judgments did not consider the full definition, including the explanation that a "residential unit" includes a single house. Thus, the Tribunal concluded that "Nilgiri Homes" qualifies as a residential complex with more than twelve residential units, making it subject to service tax.

2. Taxability of Construction Services Provided Prior to 01.07.2010:
The appellants contended that no service tax is chargeable for construction services provided before 01.07.2010. The Tribunal acknowledged this argument and noted that part of the demand for the period January 2010 to December 2010 falls before 01.07.2010. Consequently, no service tax is applicable for services rendered prior to this date.

3. Correct Computation of Service Tax Demand:
The appellants argued that the demand was incorrectly computed on the sale deed value, including non-taxable receipts like the sale of land, VAT, and registration charges. The first appellate authority had already remanded the matter for re-computation of the demand. The Tribunal upheld this remand for accurate re-computation, excluding non-taxable receipts.

4. Imposition of Interest and Penalties:
The appellants argued against the imposition of interest and penalties. Given the Tribunal's findings that no service tax is chargeable on agreements entered into with individual buyers for completion of their buildings, the demands for interest and penalties were also set aside.

Conclusion:
The Tribunal concluded that "Nilgiri Homes" qualifies as a residential complex and is subject to service tax under the works contract service. However, no service tax is chargeable for services rendered prior to 01.07.2010. The matter was remanded for re-computation of the demand, excluding non-taxable receipts. Consequently, the demands for interest and penalties were set aside. The impugned order was set aside, and the appeal was allowed with consequential relief.