2024 (4) TMI 393 - AT - Service Tax

Non-payment of service tax - Construction of Residential Complex Services - Works Contract Services - activity of development and construction of flats and villas - Extended period of Limitation - HELD THAT - It is satisfying in view of the explanation introduced in section 65(105)(zzzh) w.e.f. 01.07.2010 and clarification issued by the Board vide Circular No. 151/2/2012-ST dt.10.02.2012 that there is no tax liability to service tax for the construction activity of residential nature prior to 01.07.2010. Even otherwise it is found that the land owner and the appellant as developer have worked on principal to principal basis and there is no relation of service provider and service recipient between them. The impugned order is set aside - appeal allowed.

Summary

Issues involved: Service tax liability on construction activities u/s 65(105)(zzzza) of the Finance Act 1994 for the period 2005 to June 2009, demand of Rs.3,18,64,753/- along with penalty u/s 78.

Summary:

Issue 1: Service Tax Liability on Flats Belonging to Land Owner's Share
The Appellant, engaged in construction activities, was alleged to have not paid service tax on flats belonging to the land owner's share. The Revenue invoked the extended period of limitation and issued a Show Cause Notice (SCN) based on audit findings. The dispute revolved around the classification of services as 'Construction of Residential Complex Services' and 'Works Contract Services'. The Appellant had paid service tax on their share of flats under 'Construction of Complex service' prior to 01.06.2007, impacting the benefit of Composition Scheme for the land owner's share.

Issue 2: Valuation of Services Rendered to Land Owner
The valuation of services rendered to the land owner was a key aspect of the dispute, determined in accordance with section 67 of the Finance Act read with Rule 3 of Service Tax (Determination of Value) Rules 2006. The Appellant's total cost of construction and the area handed over to the land owner were crucial in calculating the service tax liability of Rs.3,18,64,753/- under the head of Works Contract Services (WCS), with a proposed penalty under section 78 of the Act.

Issue 3: Interpretation of Circulars and Amendments
The Appellant argued that construction activities completed before 01.07.2010 were not taxable under WCS, citing Board Circular No. 151/2/2012-ST and an explanation added to section 65(105)(zzzh) w.e.f. 01.07.2010. The Tribunal referred to a previous ruling highlighting the taxability of construction services based on the nature of the contract and the timeline of service provision.

Conclusion:
After considering the arguments and relevant circulars, the Tribunal found no tax liability for construction activities of a residential nature before 01.07.2010. It was determined that the Appellant and the land owner operated on a principal-to-principal basis, without the relationship of service provider and recipient. The appeal was allowed, setting aside the impugned order and granting the Appellant consequential benefits, leaving the question of limitation open.