2018 (2) TMI 1056 - HC - Service Tax

Levy of service tax - maintenance charges for upkeep of the apartment or premises - whether the CESTAT was right in holding that the assessee was not providing Management, Maintenance or Repair Service by collecting amount from prospective flat buyers, for maintaining the building, in the guise of deposits which is not returnable? - Whether the CESTAT has erred in holding that assessee is providing statutory service and has rendered definition provided under Section 65(105)(zzg) of Finance Act as null and void by accepting that he is not providing Management, Maintenance or repair service by maintaining the building and collecting amount for that or not? - interest - penalty. Held that - management, maintenance or repair means any service provided by any person under a contract or an agreement, or a manufacturer or any person authorised by him, in relation to, the management of properties, whether immovable or not, maintenance or repair of properties, whether immovable or not, or maintenance or repair including reconditioning on restoration, or servicing of any goods, excluding a motor vehicle. Then, there is an explanation which clears doubts and it declares that for the purposes of this clause, namely, 65 (64), goods includes computer software and properties include information technology software. The words Taxable service is defined in Section 65, Clause (105) to mean any service provided or to be provided to any person by any person in relation to management, maintenance or repair. Since the MOFA has been referred by the counsel appearing before us, we would be required to make a reference to its provisions. The MOFA is an Act to regulate in the State of Maharashtra, the promotion of the construction of the sale and management, and the transfer of Flats on ownership basis. It was brought to the notice of the State Government that, consequent on the acute shortage of housing in several areas of the State of Maharashtra, sundry abuses, malpractices and difficulties relating to the promotion of construction, and the sale and management and transfer of Flats taken on ownership basis exist and are increasing. The Act must, therefore, receive an interpretation consistent with its object and purpose. This Court, on several occasions, had emphasised the aims and objects of the Act. The deposit or the monies themselves are held and appropriated towards payment of taxes, etc., popularly known as outgoings. The building and the Flats therein has to stand intact till all the Flats or units are sold and the statutory obligations are fully discharged. This is not a service of the nature understood by Section 65 (64) of the Finance Act, 1994. It is not a contractor simplicitor of maintenance of immovable property. It is not as if there is a existing building comprising of Flats, fully occupied, the maintenance and upkeep of which is handed over under a contract. It is a statutory obligation superimposed on a contract to sell a Flat/unit in a building to be constructed on a piece or parcel of land. That cannot be confused with a taxable service as defined under the Finance Act, 1994. The day-to-day upkeep, maintenance and repair is till the statutory duty is fully performed. The Revenue does not wish to take into consideration the background in which buildings are maintained and till they are conveyed with complete title to even the land beneath. Thus, the provisions of Sections 5 and 6 and eventually the further provisions right upto Section 13 of the MOFA would make it clear that builder and developer maintains and repairs the property till it is conveyed or the title in the same is conveyed to the Flat purchasers or the legal entity which would ultimately be formed by him. Thus, a cooperative housing society or a company would have to be formed of all those Flat purchasers who have purchased the Flats prior to or under construction, namely, subsequently purchased Flats. The completion of the building or it being rendered fit for occupation is one of the duties and obligation of the builder and promoter under this law. For them to be conveyed he has to maintain the property. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Whether the CESTAT was right in holding that the assessee was not providing Management, Maintenance, or Repair Service by collecting amounts from prospective flat buyers for maintaining the building.
2. Whether the CESTAT was right in setting aside the interest and penalty on the assessee.

Issue-wise Detailed Analysis:

1. Management, Maintenance, or Repair Service:
The primary issue in this case was whether the amounts collected by the assessee from prospective flat buyers for maintaining the building constituted a taxable service under "Management, Maintenance or Repair Service" as defined in Section 65(105)(zzg) of the Finance Act, 1994.

The CESTAT held that the assessee could not be called upon to pay service tax on amounts collected as maintenance charges for the upkeep of the apartment or premises. This conclusion was based on prior orders which had settled the issue in favor of the assessee and against the Revenue. The Tribunal found that the assessee, being a builder and developer, was not providing a taxable service under the category of "Management, Maintenance or Repair Service" by collecting maintenance charges.

The High Court examined the factual allegations and noted that the assessee was engaged in providing works contract service during the period October 2008 to March 2013 without discharging the service tax liability. The assessee had collected substantial amounts as maintenance charges but did not pay service tax on these amounts, claiming ignorance of the tax liability.

The Revenue argued that the CESTAT's conclusion was erroneous and that the amounts collected by the assessee were indeed for providing a taxable service. The Revenue contended that the agreements between the assessee and the flat buyers indicated that the amounts were received for maintenance and repairs, thereby constituting a taxable service.

The High Court referred to the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOFA) and emphasized that the assessee's obligations under MOFA were statutory and not contractual. The Court held that the amounts collected for maintenance were towards fulfilling statutory obligations under MOFA, and not for providing a taxable service under the Finance Act, 1994. The Court concluded that the Tribunal's findings were consistent with the provisions of MOFA and dismissed the Revenue's appeal on this issue.

2. Setting Aside Interest and Penalty:
The second issue was whether the CESTAT was right in setting aside the interest and penalty imposed on the assessee.

The Tribunal had set aside the interest and penalty on the grounds that the service tax was not leviable on the amounts collected as maintenance charges. The High Court noted that the Tribunal's decision was based on its finding that the amounts collected were not for providing a taxable service under the Finance Act, 1994.

The High Court upheld the Tribunal's decision to set aside the interest and penalty, reiterating that the amounts collected by the assessee were towards fulfilling statutory obligations under MOFA and not for providing a taxable service. The Court found no error in the Tribunal's conclusion and dismissed the Revenue's appeal on this issue as well.

Conclusion:
The High Court dismissed the Revenue's appeals, answering the substantial questions of law in favor of the assessee and against the Revenue. The Court upheld the Tribunal's findings that the assessee was not providing a taxable service under "Management, Maintenance or Repair Service" and that the interest and penalty imposed on the assessee were rightly set aside. The Court emphasized the statutory obligations of the assessee under MOFA and concluded that the amounts collected for maintenance were not subject to service tax.

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