2019 (12) TMI 123 - AT - Service Tax

Classification of services - service of construction of residential complex or not - construction of residential quarters - case of appellant is that all quarters constructed by the appellant were for personal use of the employees of the organizations on payment of rent and therefore the said quarters were for personal use and therefore the construction activity undertaken by the appellant was not for construction of residential complex - burden to prove - HELD THAT - As per provision of law the ultimate use of the constructed residential unit is having bearing of levy of service tax. The law has very clearly provided that if the residential unit is intended for personal use or it is being used by other persons on rent then such unit is not covered by the definition of residential complex and therefore not eligible to be subjected to levy of service tax under construction of residential complex service. Further, this being a case of demand, the onus was on revenue to establish that the residential units constructed by the appellant were covered by the definition of residential complex to raise the demand. Revenue has not produced any evidence in the proceedings to establish that the residential units constructed by appellant were not for personal use. The said onus was not discharged by Revenue to establish that the residential units constructed were liable to levy of service tax. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether the appellant provided service of construction of residential complex?
- Interpretation of the definition of residential complex for levy of service tax.
- Burden of proof on the Revenue to establish liability for service tax.

Analysis:

The appeal challenged an Order-In-Original passed by the Commissioner, CGST Commissionerate, Ghaziabad, demanding service tax from the appellants for the construction of residential quarters for defense personnel and university staff. The issue revolved around whether the construction undertaken by the appellants qualified as a service of construction of a residential complex, thereby attracting service tax liability. The appellants contended that the constructed quarters were for personal use of the organizations, such as the Ministry of Defence and Gautam Budh University, and hence did not fall under the definition of a residential complex as per the Finance Act, 1994. They argued that the structures were intended for personal use, including renting out to employees, and relied on relevant legal precedents to support their position.

The Revenue, however, maintained that since the construction was not directly undertaken by organizations like RITES, IRCON, and GNIDA, the demand for service tax was justified. The Tribunal examined the submissions from both sides and emphasized that the ultimate use of the constructed residential units was crucial in determining the applicability of service tax. Referring to the precedent set by the case of Khurana Engineering Limited, where the construction was meant for renting out to employees, the Tribunal concluded that if the residential units were intended for personal use or rental, they did not fall under the definition of a residential complex for service tax purposes.

In the absence of evidence presented by the Revenue to establish that the constructed residential units were not for personal use, the Tribunal held that the impugned order was unsustainable. It was noted that the burden of proof rested on the Revenue to demonstrate that the construction was liable for service tax, which they failed to discharge. Consequently, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellants.

In conclusion, the judgment clarified the interpretation of the definition of a residential complex for the levy of service tax, emphasizing the importance of the ultimate use of the constructed units. It highlighted the necessity for the Revenue to provide evidence to establish liability for service tax and upheld the principle that constructions intended for personal use or rental were not subject to service tax under the construction of residential complex service.