2018 (7) TMI 1797 - AT - Service Tax

Residential Complex Service - Renting of Immovable Property Service - Construction of residential units - the appellant undertook construction of residential units and received consideration for the same - appellant also constructed shops which were leased to successful bidders in the auction process. Such lease was for a period of 99 years and various amounts were recovered - demand of service tax on both the above services - time limitation - penalty. Construction of Complex Service - activity undertaken by RHB includes the development of land and construction of residential units on the land made available by the Rajasthan Government - demand contested on the ground that they have undertaken construction of independent houses/ residential units and not of any complex with more than twelve such units - Held that - From a few photographs enclosed with appeal it is noted that RHB has undertaken construction of row houses. Each house shares a wall with the houses on either side and perhaps with the one in front / behind. For the activity to be covered by the definition of residential complex it should comprise of more than twelve residential units. These should be situated within one building or more than one building. Further the requirement is that these residential units should have common area and also water supply/ affluent treatment system and other common facilities such as park lift common parking space etc. All these facilities should be located within a premises and the layout of such premises should be approved by an authority under any law for the time being in force - From the findings recorded by the Adjudicating Authority it does not appear that he has examined the situation in terms of satisfying the condition specified in the definition in respect of each and every cluster of houses constructed by RHB and for which demand of service tax has been made - the matter remanded to the Adjudicating Authority for re-examination and denovo decision. Renting of Immovable Property - The RHB has constructed various commercial buildings/ shops which have been allotted on the basis of auction on a 99 years Perpetual Lease. From such allottees various amounts were recovered by RHB as lease charges - demand of service tax on such lease charges - Held that - RHB will be liable for payment of service tax on the lease amounts recovered by them from the allottee of commercial properties and shops by whatever name. But no service tax levied can be upheld in respect of such lease amounts recovered for allotment of residential units - reliance placed in the case of Greater Noida Industrial Development Authority vs. CCE&ST Noida 2014 (9) TMI 306 - CESTAT NEW DELHI - demand upheld. Time limitation - RHB is an instrumentality of the State Government - no suppression of facts - Held that - The appellant entertained a bonafide belief that such lease of commercial property/ shops may not be liable for payment of service tax under the category of Renting of Immovable Property - the Department is not justified in invoking the extended period of time limit for demanding the tax - demand for normal period upheld. Penalties - Held that - The appellant is an instrumentality of Rajasthan Government and performing statutory functions in accordance with the Rajasthan Housing Board Act and they were under the bonafide belief that the activity would not attract service tax this is a fit case to waive penalty in terms of Section 80 of the Finance Act 1994 - penalty set aside. Part matter on remand partly decided in favor and partly against assessee.

Summary

Issues Involved:
1. Liability of service tax under the category of "Construction of Complex Service."
2. Liability of service tax under the category of "Renting of Immovable Property Service."
3. Applicability of extended time limit for demanding service tax.
4. Waiver of penalty under Section 80 of the Finance Act, 1994.

Detailed Analysis:

1. Construction of Complex Service:

The appellant, Rajasthan Housing Board (RHB), challenged the demand for service tax under the "Construction of Complex Service" category. The main argument was that RHB constructed row houses and independent houses, which do not fall under the definition of "Residential Complex" as per Section 65(91a) of the Finance Act, 1994. The definition specifies that a residential complex must comprise more than twelve residential units with common areas and facilities. The adjudicating authority's findings were not clear on whether each cluster of houses met these criteria. The Tribunal noted that without examining the layout plans of the residential units, it is not possible to uphold the demand for service tax. Therefore, the demand was set aside and remanded to the Adjudicating Authority for re-examination.

2. Renting of Immovable Property Service:

RHB also contested the service tax demand on lease charges for commercial buildings/shops leased for 99 years, arguing that such long-term leases are akin to sales and thus not subject to service tax. The Tribunal referred to the case of Greater Noida Industrial Development Authority vs. CCE&ST, where it was held that long-term leases, including those in perpetuity, fall within the definition of "Renting of Immovable Property" under Section 65(90a) and are subject to service tax. The Tribunal affirmed this view, holding that RHB is liable for service tax on lease amounts recovered from commercial properties and shops but not on residential units.

3. Applicability of Extended Time Limit for Demanding Service Tax:

RHB argued that the demand was time-barred, as they are a state instrumentality and did not suppress facts to evade tax. The Adjudicating Authority had invoked the extended time limit under Section 73, citing non-compliance with service tax laws by RHB. The Tribunal found that RHB had a bona fide belief that long-term leases were not subject to service tax and thus held that the extended time limit was not justified. However, the Tribunal ordered the payment of service tax along with interest for the period within the normal time limit for commercial properties and shops.

4. Waiver of Penalty under Section 80:

Considering that RHB is a state instrumentality performing statutory functions under the Rajasthan Housing Board Act and had a bona fide belief regarding the non-applicability of service tax, the Tribunal found it appropriate to waive the penalty under Section 80 of the Finance Act, 1994.

Conclusion:

The appeal was disposed of with the following directions:
- The demand for service tax under "Construction of Complex Service" was set aside and remanded for re-examination.
- RHB was held liable for service tax on commercial properties and shops leased for 99 years but not on residential units.
- The extended time limit for demanding service tax was not justified; only the normal time limit applies.
- Penalty was waived under Section 80 of the Finance Act, 1994.