2012 (6) TMI 363 - AT - Service Tax

Construction of residential complexes - appellant under Joint Development Agreements with land owners assigned portion of the constructed area, in the form of flats / houses, in favor of the land owners and sold remaining constructed area, in the form of flats/houses, to various buyers - dispute in the nature of non-payment of tax in respect of flats handed over to land owners - Held that - Relationship of service provider and service receiver - In instant case, since UDS is registered in name of land owners and then the Developer constructs flats for the original Land Owner, becoming UDS holder after registering UDS in his name. Hence it is clearly outside the scope of the clarification given by CBEC and there is a service provided to the UDS holders including the original Land Owners. Also, residential complexes in question were not constructed for personal use of the owners of the land. It was predominantly for sale to individual buyers and was thus covered by the definition of the service. On contention that that there was no provision in law prior to 19-04-2006 to tax consideration received other than in the form of money it is held that once it is decided that tax was payable on the activity, the liability cannot be set to naught because the section dealing with valuation specified only amounts received. It is well-settled that the court would construe the statute in such a manner so as to make the machinery workable. Valuation of flats given to land owners - assessee contending different valuation on ground of point of time of transfer of land - Held that - Since flats handed over to the land owners were not different from what were sold to the individual buyers, hence it does not warrant assessment of a different value for services in respect of flats handed over to land owners as compared to flat sold to individual buyers. Time bar - Since there has been persistent resistance on the part of the appellant in providing the required information, hence appellant cannot claim benefit of bonafide belief and argue that demand for a period of one year from relevant date only will apply. Flats sold to Individual buyers - assessee contended that flats are constructed and sold and hence the construction service is for self - applicability of circular dated 29-01-2009 issued by CBEC - Held that - Since UDS was first registered and then an agreement to construct was entered into. Therefore the clarification dated 29-01-2009 issued by CBEC does not apply in this case. Registration fees and stamp duty paid by the appellant and recovered from the buyers - held that - the expenses relating to stamp duty and registration charges cannot be considered as expenses incurred in the course of providing the service. These are not reimbursed expenses incurred on behalf of the clients and in our view the expenses are outside the scope of the expression of reimbursable expenses very commonly used in the context of value of services. - to be excluded subject of verification. Applicability of definition of a residential complex only to cases where one building has more than twelve flats or will extent to cases where different buildings in the same compound totally having more than twelve flats - Held that - Expression residential complex will apply only in case of buildings which have more than twelve residential units.It is an agreed fact that this was not the case in respect of Kamakotivilasam project. So we are of the view that the demand in respect of Kamakotivilasam project is not sustainable and the same is set aside.

Issues Involved:
1. Non-payment of tax on constructed flats/houses handed over to landowners.
2. Short payment of tax on constructed flats/houses sold to individual buyers due to undervaluation.
3. Non-payment of tax on the Kamakotivilasam Project.

Issue-wise Detailed Analysis:

1. Non-payment of tax on constructed flats/houses handed over to landowners:

a. Relationship of Service Provider and Service Recipient:
The appellant argued that there was no service provider and service recipient relationship between the developer and the landowner, claiming it was a joint venture for profit. However, the Tribunal found that the Joint Development Agreement did not indicate any joint risk-taking or common activity. The landowner transferred part of his rights in the land and received constructed flats in return, which included the value of materials and services provided by the developer.

b. Nature of Contracts as Work Contracts:
The appellant contended that the contracts were works contracts and taxable only from 01-06-2007. The Tribunal rejected this argument, stating that the entry for works contracts in section 65 (105) (zzzza) of the Finance Act, 1994, covered services already taxable under other entries before and after the new entry's introduction. The Tribunal noted that accepting the appellant's argument would render previous taxes levied on such services as unauthorized.

c. Flats for Personal Use:
The appellant argued that the flats handed over to landowners were for personal use and thus excluded from the definition of residential complex under Section 65 (91a). The Tribunal rejected this argument, noting that the residential complexes were predominantly for sale and not for personal use by the landowners. The exclusion in the definition of the service applies to the entire complex intended for personal use, not individual flats.

d. Consideration in Non-Monetary Form:
The appellant argued that there was no provision in law prior to 19-04-2006 to tax consideration received in the form of land. The Tribunal disagreed, stating that service provided from 16-06-2005 was taxable even if the consideration was received earlier. The Tribunal cited section 67, which provided for valuing taxable services for charging service tax, including consideration not wholly in money.

e. Improper Quantification of Demand:
The appellant contended that the value of services should be based on the guideline values of land rather than the prices at which flats were sold to independent buyers. The Tribunal found more merit in the Revenue's argument that the value indicated in the agreement was not correct and rejected the appellant's argument.

f. Time Bar:
The appellant argued that the demand was time-barred, citing a bona fide belief that they were not required to pay tax. The Tribunal rejected this argument, noting persistent resistance from the appellant in providing required information and concluding that the extended period of limitation was applicable.

2. Short payment of tax on constructed flats/houses sold to individual buyers:

a. Construction Service for Self:
The appellant argued that the flats were constructed and sold, and thus the construction service was for self. The Tribunal rejected this argument, noting that the UDS was first registered, and then an agreement to construct was entered into, making the clarification dated 29-01-2009 inapplicable.

b. Reimbursable Expenses:
The appellant argued that reimbursed expenses like registration charges and stamp duty should not form part of the taxable value. The Tribunal agreed in principle but noted that the appellant had not provided evidence to prove that the amounts claimed from buyers were actuals. The Tribunal allowed the appellant to submit sample documents to prove the expenses.

3. Non-payment of tax on the Kamakotivilasam Project:

a. Definition of Residential Complex:
The appellant argued that the Kamakotivilasam project did not qualify as a residential complex under Section 65 (91a) because each plot housed less than 12 residential units and lacked common facilities. The Tribunal agreed, noting that the definition of residential complex applies only to buildings with more than twelve residential units. The Tribunal set aside the demand for the Kamakotivilasam project.

b. Time Bar:
The appellant argued that the demand was time-barred, citing a letter dated 23-12-2005 to the departmental authorities. The Tribunal did not find it necessary to record a finding on this argument, having decided the issue on merits.

Conclusion:
The appeal was disposed of with directions for the adjudicating authority to re-quantify the demand under various heads based on the Tribunal's decisions and to decide the penalty that may be imposed.

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