2025 (1) TMI 842 - AT - Service Tax

Liability of builder to pay service tax - builder is liable to pay service tax on receipt of entire considerations from the buyer after issuance of occupancy certificate when the term used is Completion Certificate in the exception provided in Section 66E(b) of the Finance Act, 1994 or not - HELD THAT - The main reason for issuance of clarification by the Ministry of Finance dated 26.10.2015 is that after the issuance of occupancy certificate by the Brihanmumbai Municipal Corporation (BMC) the sale of flats/dwelling etc. is mere transfer of title in immovable property and does not amount to any service and hence falls outside the purview of Section 65B (44) of the Finance Act, 1994. The press release is confined to the cases pertaining to BMC as it has been issued in response to a representation made by the Real Estate Developers of Mumbai to the Ministry of Finance claiming exemption in cases where the Occupancy Certificate were issued by BMC without there being any completion certificate. But the clarification cannot be said to confine only to BMC as it clarifies the provision and hence we have no doubt in holding that the clarification is equally applicable on the Vasai-Virar Municipal Corporation as well, since the said clarification is qua the provision of Finance Act, 1994 which is applicable on everyone whether it is BMC or any other Municipal Corporation. In the case in hand the Occupancy Certificate is not disputed and its issuance by Vasai-Virar Municipal Corporation is also an admitted fact. The Revenue i.e. the appellant herein is not casting any doubt on the said certificate and their only concern is that the said Occupancy certificate has not been issued by BMC but by a different Municipal Corporation, therefore the clarification issued by Ministry of Finance will not be applicable which, in our view, is totally unfounded. The expression used in Section 66E(b) ibid is after issuance of completion certificate which, in our view, can t be limited to only the completion certificate - it can be said that the pre-condition for issuance of occupancy certificate is the completion of building and its inspection by Commissioner of concerned Municipal Corporation being the competent authority or anybody on his behalf. Conclusion - Having received the occupancy certificate from competent authority i.e. Vasai-Virar City Municipal Corporation and having sold the units/flats in issue subsequent to the date of issue of the said occupancy certificate, the appellant is not providing the declared services of construction of complex/building, etc. to any of such buyers and therefore the same falls within the exception provided in Section 66E(b) ibid. The respondent was not liable for service tax on the sale of flats where the consideration was received after the issuance of an occupancy certificate. Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal question in this judgment is whether a builder is liable to pay service tax on the entire consideration received from the buyer after the issuance of an "occupancy certificate" when the statutory term used is "completion certificate" as per the exception provided in Section 66E(b) of the Finance Act, 1994.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

Section 66E(b) of the Finance Act, 1994, classifies the construction of a complex, building, or civil structure intended for sale to a buyer as a declared service, except where the entire consideration is received after the issuance of a completion certificate by the competent authority. The explanation to this section specifies that a competent authority could be an architect, chartered engineer, or licensed surveyor.

Court's interpretation and reasoning:

The court interpreted the provision by considering the purpose behind the issuance of a completion certificate. It reasoned that after the issuance of an occupancy certificate, the sale of flats is merely a transfer of title in immovable property, which does not constitute a service under the Finance Act, 1994. The court also referenced a press release by the Ministry of Finance, which clarified that the sale of flats after the issuance of an occupancy certificate is exempt from service tax, as it does not fall within the definition of "service" under Section 65B(44) of the Finance Act, 1994.

Key evidence and findings:

The court noted that the respondent had received an occupancy certificate from the Vasai-Virar Municipal Corporation. The court found that the occupancy certificate was issued after the completion of the building as per the approved plans, and the issuance of the certificate was not disputed by the Revenue.

Application of law to facts:

The court applied the law by determining that the issuance of an occupancy certificate by the Vasai-Virar Municipal Corporation effectively served the same purpose as a completion certificate. It concluded that the sale of flats after receiving the occupancy certificate did not amount to providing a declared service, thus falling within the exception in Section 66E(b).

Treatment of competing arguments:

The Revenue argued that the statutory requirement was for a completion certificate, not an occupancy certificate, and that the exemption should not apply. The court rejected this argument, emphasizing the practical equivalence of the two certificates in the context of the statutory provision and the intent behind the Finance Act, 1994. The court also dismissed the notion that different standards could apply between different municipal corporations within the same state.

Conclusions:

The court concluded that the respondent was not liable to pay service tax on the sale of flats where the entire consideration was received after the issuance of the occupancy certificate. The appeal by the Revenue was dismissed, and the impugned order was upheld.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"The main reason for issuance of clarification by the Ministry of Finance dated 26.10.2015 is that after the issuance of occupancy certificate by the Brihanmumbai Municipal Corporation (BMC) the sale of flats/dwelling etc. is mere transfer of title in immovable property and does not amount to any service and hence falls outside the purview of Section 65B (44) of the Finance Act, 1994."

Core principles established:

The court established that the issuance of an occupancy certificate can be considered equivalent to a completion certificate for the purposes of the exemption in Section 66E(b) of the Finance Act, 1994. This interpretation aligns with the legislative intent to exclude mere transfers of title in immovable property from the scope of service tax.

Final determinations on each issue:

The court determined that the respondent was not liable for service tax on the sale of flats where the consideration was received after the issuance of an occupancy certificate, thus affirming the decision to drop the proceedings initiated by the show cause notice.

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