2015 (11) TMI 219 - AT - Service Tax

Construction of Residential Complex Service - whether the appellant is liable to pay service tax in respect of the complex built for ITC - Invocation of extended period of limitation - Held that - From the definition it is quite clear that if the complex is constructed by a person directly engaging any other person for design or planning or layout and such complex is intended for personal use as per the definition, service tax is not attracted. Personal use has been defined as permitting the complex for use as residence by another person on rent or without consideration. In this case what emerges is that ITC intended to provide the accommodation built to their own employees. Therefore it is covered by the definition of personal use in the explanation. If the land owner enters into a contract with a promoter/builder/developer who himself provided service of design, planning and construction and if the property is used for personal use then such activity would not be subject to service tax. It is quite clear that CBE&C also has clarified that in cases like this, service tax need not be paid by the builder/developer who has constructed the complex. If the builder/developer constructs the complex himself, there would be no liability of service tax at all. Further in this case it was different totally, the appellant, has engaged sub-contractors and therefore rightly all the sub-contractors have paid the service tax. In such a situation in our opinion, there is no liability on the appellant to pay the service tax. Appellant could have entertained a bonafide belief and therefore extended period could not have been invoked. CBE&C has issued a clarification in 2010 and appellants had written a letter in October 2008 to CBE&C seeking clarification wherein they had given the details of agreement also. If the Board takes a view after a period of two years just before the amendment and also if that view is applicable to the facts of this case before us, we cannot find fault with the appellant for entertaining such a belief that they are not liable to pay tax. Since the entire demand is beyond the normal period of limitation, the appellants succeed on the ground of limitation also. - Decided in favour of assessee.

Summary

Issues:
1. Liability to pay service tax for construction of residential complex.
2. Invocation of extended period for demand of service tax.
3. Interpretation of definitions of "construction of complex" and "residential complex."
4. Applicability of CBEC Circular on liability for service tax.
5. Bonafide belief of the appellant regarding service tax liability.
6. Liability of main contractor vs. sub-contractors for service tax payment.
7. Conclusion on the liability and limitation period for service tax demand.

Analysis:
1. The appellant, engaged in providing Construction of Residential Complex Service, undertook a project for a company, subcontracting the work to other parties. The demand for service tax of Rs. 1,55,77,725/- was raised for the period from March 2007 to March 2008, along with penalties under Sections 76, 77 & 78 of Finance Act 1994.

2. The appellant claimed a bonafide belief of non-liability for service tax, citing a letter seeking clarification from CBE&C. The issue of invoking the extended period for demand beyond the normal limitation period was raised, emphasizing that all sub-contractors had paid the tax.

3. The definitions of "construction of complex" and "residential complex" were crucial in determining the liability for service tax. The judgment analyzed the definitions to establish whether the complex built for the company fell under the exemption criteria of "personal use" as per the explanation provided.

4. The judgment referred to a CBEC Circular to support the argument that if the builder/developer constructs the complex himself, there would be no liability for service tax. The circular clarified the scenarios where service tax need not be paid by the builder/developer.

5. The appellant's bonafide belief, supported by correspondence with CBE&C seeking clarification, was considered in determining the liability for service tax. The judgment highlighted the importance of the appellant's belief and the subsequent clarification issued by the Board.

6. The argument regarding the liability of the main contractor versus the sub-contractors for service tax payment was discussed. The judgment emphasized that since all sub-contractors had paid the tax, the liability on the main contractor was questioned.

7. In conclusion, the judgment ruled in favor of the appellant, stating that they had made a strong case for their non-liability for service tax. The decision was based on the interpretation of definitions, applicability of CBEC Circular, bonafide belief, and the absence of liability due to sub-contractors fulfilling their tax obligations. The appeal was allowed with consequential relief to the appellants.