2012 (9) TMI 851 - AT - Service Tax

Construction of residential complexes on own land and sale thereof of residential units - non-payment of service tax on ground that building was being constructed on their own land - Revenue contended that though the sale of the flats took place after completion, the respondents had taken advances from the respective buyers, hence it fall under Construction of complex u/s 65(105)(zzzh) of Finance Act, 1994 - assessee placing reliance on circular No. 332/35/2006-TRU and No. 19/7/07-ST issued by CBEC clarifying that when flats were constructed on the land belonging to a builder and flats are sold after completion of construction, no service tax will be leviable - period 16.6.05 to 25.3.06 - Held that - High Court in case of Magus Construction Pvt Ltd. vs UOI (2008 (5) TMI 18 - HIGH COURT OF GAUHATI) held that department is binding by the circular issued by Board and hence activity in question is not subject to service tax. In view of aforesaid, during the impugned period, the activity in question could not be considered as service and subjected to service tax - Decided in favor of assessee.

Summary

Issues:
Interpretation of service tax liability on construction of residential complexes for own benefit without service to customers.

Analysis:
The case involved three appeals by Revenue against different respondents for not paying service tax on constructing residential complexes and selling units to customers. Revenue argued that the construction activity was for the benefit of buyers and should be taxed under "construction of complex" as per section 65(105)(zzzh) of Finance Act, 1994. The respondents contended that no service was rendered to buyers as the construction was on their own land. The Commissioner (Appeals) sided with the respondents, leading to Revenue's appeals.

Revenue claimed that taking advances from buyers constituted a service, citing legal precedents. Respondents referred to CBEC circulars exempting service tax when flats are sold after completion on the builder's land. They argued that the explanation added in 2010 should not have retrospective effect, relying on a Supreme Court decision. They contended that demands for service tax were unjustified due to the CBEC clarification.

The Tribunal analyzed various court decisions on similar issues. The Punjab & Haryana High Court addressed the constitutional validity of the explanation but not its retrospective effect. The Tribunal noted a decision favoring Revenue in a refund case and an Advance Ruling Authority decision in Revenue's favor. However, the Gauhati High Court and Allahabad High Court decisions were against Revenue, creating conflicting judgments.

Considering conflicting decisions, the Tribunal held that during the period in question, the activity did not amount to a taxable service. Following the hierarchy of courts, the Tribunal ruled that the activity was not subject to service tax, rejecting Revenue's appeals.