2012 (4) TMI 427 - AT - Service Tax

Whether the respondents were doing any service for the prospective buyers or were doing the construction activity for themselves - Service tax liability confirmed against the Respondents but set aside by the Commissioner (Appeal) Held that - The period involved was prior to enactment of Finance Act, 2010 - the initial agreement between the promoters/builders/ developers and the ultimate owner is in the nature of agreement to sell and the property remains under the ownership of the seller - any service provided by such seller in connection with the construction of residential complex till the execution of final sale deed would be in the nature of self-service and consequently would not attract service tax - decided in the case of Commissioner of Service Tax Versus Shrinandnagar-IV Co. Op. Housing Society Ltd (2011 -TMI - 207838 - GUJARAT HIGH COURT) - against Revenue. Claim refund of service tax paid - Commissioner (Appeal) allowed the appeals as was no unjust enrichment involved Held that - No basis on the Commissioner (Appeal) point that the principle of unjust enrichment was not raised in the SCN and hence it cannot be raised in the adjudication order - No clear evidence is produced to depict that the prices were agreed to with the buyers before they started paying service tax and the price remained the same without any increase on other pretexts till the delivery of the flat to the prospective buyers - that the Respondents were not given opportunity by the adjudicating authority to substantiate their claim that principle of unjust enrichment will not apply - does not propose to decide the issue without any finding by either of the lower authority remand the matter to adjudicating authority for examination of all evidences produced by the Respondents to prove their claim

Summary

Issues Involved:
1. Whether the respondents were providing a taxable service to prospective buyers or merely constructing for themselves.
2. Applicability of the explanation added by Finance Act, 2010, to the definition of taxable service under section 65(105)(zzzh) of the Finance Act, 1994.
3. Consideration of unjust enrichment in the context of refunds.

Detailed Analysis:

1. Whether the respondents were providing a taxable service to prospective buyers or merely constructing for themselves:
The respondents, being builders/promoters, entered into agreements with prospective buyers for the sale of constructed flats. The central question was whether this activity constituted a service to the buyers or if it was a self-service, implying no service tax liability. The Tribunal noted that the period involved was prior to the enactment of the Finance Act, 2010, and various clarifications by CBEC indicated that such construction activities did not constitute a service to the buyers. The Tribunal observed that the construction activities were for the builders' own benefit to meet future sale contracts, and thus, the orders of the Commissioner (Appeal) were proper.

2. Applicability of the explanation added by Finance Act, 2010:
The Revenue argued that the amendment by Finance Act, 2010, which added an explanation to section 65(105)(zzzh), clarified that such construction activities were always intended to be taxable services. However, the Tribunal found that this explanation could not be applied retrospectively. The Supreme Court's ruling in UOI Vs. Martin Lottery Agencies Ltd was cited, emphasizing that explanations causing adverse consequences to the public cannot be interpreted to have retrospective effect. The Tribunal concluded that during the relevant period, the construction activities did not involve any service to prospective buyers, aligning with previous judicial decisions and CBEC clarifications.

3. Consideration of unjust enrichment in the context of refunds:
The Tribunal examined whether the principle of unjust enrichment applied to the refunds claimed by the respondents. The Revenue argued that the principle of unjust enrichment should be considered, even though it was not explicitly mentioned in the Finance Act, 1994. The Tribunal referred to the Supreme Court's decision in Sahakari Khand Udyog Mandal Ltd Vs. CCE, which affirmed that the doctrine of unjust enrichment applies to refund claims, regardless of specific statutory provisions. The Tribunal noted that the respondents were not given an opportunity to substantiate their claim that the principle of unjust enrichment did not apply. Consequently, the matter was remanded to the adjudicating authority for further examination of the evidence provided by the respondents.

Conclusion:
The Tribunal set aside the demand against M/s Shresth Colonisers except for the amount of Rs. 2,50,000/- towards service tax and Rs. 1,44,909/- towards interest, which required further examination. For the other respondents, the issue of refunds and unjust enrichment was remanded to the adjudicating authority for a detailed examination. The Tribunal emphasized the need for clear evidence to determine whether the incidence of taxation had been passed on to the consumers, and the matter was to be re-examined accordingly.