2021 (11) TMI 601 - AT - Service Tax

Refund of service tax - purchase of under-construction flats/floors to the builder(s) - composite contracts - HELD THAT - Levy of service tax on composite contract for purchase of under construction complex, as defined under Section 65(105)(zzzh) of the Finance Act, 1994, was the subject matter of dispute before the Hon ble Delhi High Court - In the case of SURESH KUMAR BANSAL ANUJ GOYAL ORS. VERSUS UNION OF INDIA ORS. 2016 (6) TMI 192 - DELHI HIGH COURT , the Hon ble Delhi High Court has held that no service tax shall be levied on composite contracts. From a plain reading of the Section 65(105)(zzzh), it is evident that there is no legal mandate to bifurcate the elements of a composite contract as to service component and material component and /or land component and thus, in absence of such mandate, the value of a composite contract cannot be disintegrated for the purpose of service tax levy as held by the Hon ble Supreme Court in the case of COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT - in spite of retrospective amendment in Rule 2 A of the Service Tax (Determination of Value) Rules, 2006, service tax cannot be charged for the services defined under Section 65(105)(zzzh). Revenue is directed to refund the amount of ₹ 3,53,821/- paid through the builder to the Government exchequer within a period of 45 days from the date of receipt/service of copy of this order along with interest @ of 6% from the date of deposit of the tax, till the date of refund - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellant is entitled to a refund of service tax paid for under-construction flats/floors.

Analysis:
The appellant entered into a home buyer agreement with a builder for an under-construction floor. The agreement included payment milestones with service tax to be paid by the appellant. The appellant filed a refund claim, arguing that the levy of service tax on under-construction property was improper. The appellant relied on a Delhi High Court judgment and filed a refund claim of ?3,53,852. A deficiency memo was issued citing retrospective amendments in service tax rules, leading to the rejection of the refund claim.

The refund claim was rejected based on the distinction of facts from the Delhi High Court judgment and the amendment in Service Tax rules. The appellant appealed, citing the High Court's direction to refund service tax with interest if deposited by the builder. The High Court's stance on the sustainability of service tax on construction services without a valuation mechanism was highlighted. The appellant also referenced a review petition filed by the Revenue in a similar case.

The Tribunal heard both sides and analyzed the levy of service tax on composite contracts for under-construction complexes. Referring to the Delhi High Court judgment, the Tribunal noted that service tax cannot be levied on composite contracts under Section 65(105)(zzzh). The Tribunal emphasized that the elements of a composite contract cannot be bifurcated for service tax levy. Despite retrospective amendments, service tax cannot be charged for services under Section 65(105)(zzzh). The impugned order was set aside, and the appeal was allowed, directing the Revenue to refund the amount paid with interest.

In conclusion, the Tribunal allowed the appeal, setting aside the impugned order and directing the Revenue to refund the service tax amount paid by the appellant through the builder, along with interest.