2018 (11) TMI 984 - AT - Service Tax

Valuation - Construction of Residential Complex Service - inclusion of amount collected by the appellant as Interest Free Maintenance Security in assessable value - demand of service tax on External Development Charges. Inclusion of the amount collected by the appellant as IFMS - whether fall under the category of Management Maintenance and Repair Services or otherwise? - Held that - The amount is refundable in case of termination of the ownership agreement and if no such termination has taken place till date, the amount would not be refunded. As long as the provisions for refund of the said amount in the agreement itself is there, it has to be considered that the said amount is refundable and was towards security deposits and was not for the purpose of providing any services, so as to levy tax on the same - reliance placed in the case of CCE ST, Jaipur vs. Sand Dunes Construction Pvt. Ltd. 2018 (7) TMI 1383 - CESTAT NEW DELHI , where it was held that the security deposits collected by the Builder for providing maintenance to immovable property services would not be taxable under the category of Management Maintenance or Repairs Services - demand set aside. Special services provided by Builder - demand of service tax on External Development Charges‟ - Circular No.334/1/2010-TRU dated 26/02/2010 - Held that - Being a part of the State Government, the payment made to the Development Authority are required to be considered as having been made to State Governments - Admittedly Ghaziabad Development Authority has been constituted under Uttar Pradesh Urban Planning and Development Act, 1973 and money collected by the appellant stands paid to them for obtaining the facilities. As such nothing stand collected by the appellant from their customers for providing any taxable service - demand not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues: Valuation of services regarding "Interest Free Maintenance Security" (IFMS) and "External Development Charges" (EDC)

Issue 1: Valuation of IFMS
The appellant, engaged in providing taxable services under "Construction of Residential Complex," faced a dispute regarding the inclusion of charges collected for IFMS in the valuation of services. The Revenue argued that IFMS falls under "Management Maintenance and Repair Services" and should be separately taxed. The appellant collected IFMS as security for maintenance and default payments by flat owners, refundable within six months of agreement termination. The Adjudicating Authority doubted the refund terms' genuineness but failed to consider that the amount was refundable only upon agreement termination. Precedent decisions supported that security deposits for maintenance services are not taxable. The Tribunal upheld this view, setting aside the demand and penalty.

Issue 2: Valuation of EDC
The second issue involved the demand of service tax on EDC received by the appellant from flat owners, taxed under "Special services provided by Builder" introduced in 2010. The Adjudicating Authority acknowledged the funds were given to Ghaziabad Development Authority but deemed it taxable as the Authority was not considered part of the government. The Circular clarified that development charges paid to state governments or local bodies are excluded from taxable value. The appellant argued that the Authority, under the Uttar Pradesh Urban Planning and Development Act, is part of the state government, making the payments equivalent to state government payments. The Tribunal agreed, holding that the demand was not sustainable. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief to the appellant.