2023 (12) TMI 1109 - AT - Service Tax

Levy of service tax - construction of complex service - construction of flats at Uttar Pradesh Awas Vikas Yojna - demand dropped by the Commissioner on the ground that they were constructed by the Government for their personal use and hence were exempted from service tax - HELD THAT - The assessee did not pay service tax on the plea that there were not more than 12 dwelling units in one block constructed by them. According to the Revenue, block and complex are not one and the same. As per the letter issued by the UP Awas Vikas Yojna to the assessee there were five separate agreements for construction of 42 blocks comprising 504 residential units in total at different locations in Gonda District for providing accommodation to weaker sections. There was no specific exemption to the services rendered by the assessee and, therefore, the Commissioner should have confirmed the demand on the services under construction of complex service. Business of construction of civil structures either residential or commercial - demand dropped holding that the income declared to the income tax department has no co-relation with the service provided - HELD THAT - The land in question was agricultural land. It was not converted into non-agricultural land. In some cases the agreements specifically provided that the site formation was meant for agricultural purposes. It, therefore, appears that the assessee had rendered these services on agricultural land for the real estate developers. The case of the assessee is that the intention of the client is irrelevant to taxability and as long as the service is rendered on agricultural land, it is non-taxable. On the other hand, according to the revenue, the demand on site formation service has been correctly confirmed in the impugned order because although the land was agricultural land during the relevant period, the nature of the contracts makes it abundantly clear that it was rendered to real estate developers for investment purpose which is undisputed. Whether the services rendered by the appellant are excluded as being provided in relation to agriculture? - HELD THAT - Nothing in the records suggests that the service recipient builders were engaged in agriculture, although the land was during the relevant period was agricultural land. Evidently, the land was meant for developing into real estate although such development can take place only after the land was is got converted into non-agricultural land by the land revenue authorities. Unsurprisingly, the contracts do not mention that the site formation must be done by the appellant for non-agricultural purposes because non-agricultural activities could not have been taken up on the land before it was converted to non-agricultural land. Seeing the contracts as a whole, it is evident that the purpose of site formation was for the builder to develop it into real estate and it was not for agricultural purposes - the demand cannot be sustained and hence needs to be set aside. Dropping of service tax under three heads. Under commercial or a industrial construction service - demand was dropped on the construction of three buildings for Aligarh, Muslim University, hostels at IIT Roorkee and construction in respect of Tehri Hydro development corporation - HELD THAT - Section 65 (25b) is very clear. Commercial or Industrial construction means the service which is rendered for construction, prepare alteration etc., of a building which is used or is to be used, occupied or is to be occupied or engaged or is to be engaged primarily in commerce and industry or works intended for commerce or industry . By no stretch of imagination can we call the amounts collected by the Aligarh Muslim University when the buildings are used for campus recruitment as commercial activity. Even if it is considered as a commercial activity, the building is not primarily for commerce or industry. Similarly universities, as a matter of course, provide consultancy services as a part of their extension programmes and do collect some consultancy fee when such services are provided. That does not make them organizations primarily engaged in commerce or industry nor can a building which is used for providing such consultancies be considered as a building primarily for commerce or industry. The contention of the Revenue that the hostels in IIT constructed by the assessee should be considered as buildings primarily for commerce or industry simply because some hostel fees is collected from students by the IITs. Similarly, Tehri Hydro Electric Development Corporation is national project meant for generating hydro electricity and supplying it - The buildings in hydro electric project cannot, therefore, also be considered as buildings primarily meant for commerce or industry - there are no error in the Commissioner s order dropping the demand with respect to the commerce or industrial construction service. Construction of complex service - demand to the extent the services were rendered to Uttar Pradesh Avas Vikas Yojna for construction of residential complexes for weaker sections dropped - HELD THAT - If there are several buildings and each one fewer than 12 residential units and the total number of residential units in all the buildings together is more than 12, such complexes does not fall under section 65(91a). Therefore, no service tax can be levied on such complex - It is found that the Commissioner committed no error in dropping the demand on construction of complex services on the buildings which the appellant constructed for UP Avas Vikas Yojna. Demand of service tax on the declaration made to the income tax during survey operation - HELD THAT - According to the Revenue, the Commissioner had erred in not appreciating the declaration by the Director of the appellant that the amount was collected from various investors for real estate projects to be launched. However, this statement was not considered is not correct as the balance sheet of the noticee for the relevant period revealed that they were into construction of business only and were not developers. Further, even if the statement of the Director is held to be correct, the amounts so collected would have been squarely covered as amounts collected for service to be provided under section 65 (105) of the Finance Act, 1994 - Several services were rendered by the appellant which were exempted from payment of service tax. If Revenue alleges the service tax has to be paid on this income received by the appellant, it has to establish that this income is earned by rendering a taxable service. Revenue has not done so, therefore, the demand was correctly dropped under this head by the Commissioner in the impugned order. Appeals disposed off.

Summary

Issues Involved:
1. Confirmation of demand on "site formation service".
2. Dropping of demand under "Commercial and Industrial Construction Service".
3. Dropping of demand under "Construction of Complex Service".
4. Dropping of demand based on Income Tax declaration in survey operation.

Issue-wise Summary:

1. Confirmation of Demand on "Site Formation Service":

The assessee contested the demand on "site formation service" under Section 65(105)(zzza) of the Finance Act, arguing that the service rendered on agricultural land is not taxable. The Commissioner confirmed the demand, holding that the service was for investment purposes by real estate developers. The Tribunal found that the services were indeed rendered on agricultural land and followed the precedent set in ASSOTECH Limited vs. Commissioner of Central Excise & Service Tax, Meerut-I, where similar services were not chargeable to service tax. Thus, the Tribunal set aside the demand on this head, allowing the assessee's appeal.

2. Dropping of Demand under "Commercial and Industrial Construction Service":

The Revenue appealed against the dropping of demand for services rendered to educational institutions and Tehri Hydro Development Corporation. The Tribunal upheld the Commissioner's decision, stating that educational institutions and hydroelectric projects do not primarily engage in commerce or industry. The Tribunal emphasized that buildings used for educational purposes or national projects like hydroelectricity generation do not fall under "commercial or industrial construction" as defined in Section 65(25b).

3. Dropping of Demand under "Construction of Complex Service":

The Commissioner dropped the demand for services rendered to Uttar Pradesh Avas Vikas Yojna, interpreting that the construction did not meet the criteria of having more than 12 dwelling units in one block. The Revenue contended that the total number of units in the complex should be considered. The Tribunal upheld the Commissioner's decision, referencing multiple orders that established each building must have more than 12 units to fall under Section 65(91a). Thus, the demand under "construction of complex service" was correctly dropped.

4. Dropping of Demand Based on Income Tax Declaration in Survey Operation:

The Revenue argued that the income declared by the assessee during an income tax survey should be deemed as earned from taxable construction services. The Tribunal found that the Revenue failed to establish that the declared income was from taxable services. The Commissioner's decision to drop the demand was upheld, as the Revenue's presumption was insufficient without concrete evidence linking the income to taxable services.

Conclusion:

The Tribunal allowed the assessee's appeal regarding the "site formation service" and dismissed the Revenue's appeal on all other counts, providing consequential relief to the assessee. The judgment emphasized the necessity of concrete evidence over presumptions in taxability matters.