2018 (6) TMI 1298 - AT - Service Tax

Service or sale - contractors engaged by appellant for construction of residential flats and subsequent slae of these flats - Construction of Residential Complex Services - whether the activity of subsequent sale of flats would be treated as service or not? - Held that - The Hon ble Gauhati High Court in the case of Magus Construction Pvt. Ltd.vs. UOI And Other 2008 (5) TMI 18 - HIGH COURT OF GAUHATI dealt with identical situation and observed that transaction between the petitioner and the flats purchasers are purely a transaction for sale of the flats/premises and cannot be treated as contract for rendering of services of any nature whatsoever In the present case also, the appellant has engaged contractors for construction of residential flats and paid the entire service tax liability falling upon them. There is no dispute about the said fact. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant is liable to pay service tax for providing "Construction of Residential Complex Services" to future allottees.
2. Whether the transaction between the appellant and flat purchasers constitutes a sale of flats or a contract for rendering services.
3. Applicability of judicial precedents in similar cases to the present situation.

Analysis:
1. The appellant, a builder/developer, entered into a builder's agreement with a landowner, entitling the appellant to 65% of the constructed area while bearing the entire construction cost. The landowner was allotted 35% of the total constructed area, with the appellant having no involvement in the sale of the landowner's share. The Revenue raised a demand for service tax, considering the appellant's activities as "Construction of Residential Complex Services." The impugned order confirmed the demand, interest, and penalty, leading to the present appeal.

2. The Tribunal considered various judicial and quasi-judicial authorities, including the Gauhati High Court's decision in Magus Construction Pvt. Ltd. vs. UOI, which held that transactions between builders and flat purchasers are primarily sales transactions, not service contracts. The court recognized agreements between builders and landowners for constructing flats as "Development Agreements," where builders have the right to construct and sell flats on the land. In the present case, the appellant engaged contractors for construction and paid the service tax liability, similar to the situation in the Gauhati High Court's decision. The Tribunal also referred to the case of CCE Kanpur vs. VEE AAR Developer, where activities of raising flats and subsequent sales under joint agreements were not considered as services of constructing residential complexes.

3. The Revenue's representative agreed that the Gauhati High Court's decision in Magus Construction is applicable to the present case. Consequently, the Tribunal set aside the impugned order, allowing the appeal with consequential relief.

This judgment clarifies that in cases where builders engage in agreements with landowners to construct and sell flats, such transactions are treated as sales rather than services, based on relevant judicial precedents.