2022 (9) TMI 217 - AT - Service Tax

Refund of the service tax - construction of individual/independent residential houses - refund is hit by the principles of unjust enrichment or not - reverse charge mechanism - HELD THAT - It is seen that a residential complex has been defined to mean any complex comprising of a building or buildings, having more than twelve residential units; and a residential unit has also been defined in Explanation (b) to mean a single house or a single apartment intended for use as a place of residence - the definition of a residential complex leaves no manner of doubt that it would be a complex comprising of a building or buildings, having more than twelve residential units. In other words a complex may have a building having more than twelve residential units or a complex may have more than one building each having more than twelve residential units. Independent buildings having twelve or less than twelve residential units would not be covered by the definition of residential complex . A Division Bench of the Tribunal in AS SIKARWAR VERSUS COMMISSIONER OF CENTRAL EXCISE, INDORE 2012 (11) TMI 1000 - CESTAT, NEW DELHI also observed that service tax can be demanded only if the building concerned has more than 12 residential units in the building and such levy will not apply in cases where one compound has many buildings, each having not more than 12 residential units. It is true that w.e.f July 01, 2012 construction of complex is a declared service, but the Exemption Notification exempts services by way of construction, erection, commissioning or installation of original works pertaining to a single residential unit otherwise than as a part of a residential complex have been exempted - the Commissioner (Appeals) was not justified in holding that the appellant would not be entitled to the benefit of the Exemption Notification. Principles of unjust enrichment - HELD THAT - The Allahabad High Court in COMMISSIONER OF CUSTOMS CENTRAL EXCISE SERVICE TAX VERSUS M/S. INDIAN FARMERS FERTILIZERS COOPERATIVE LTD. 2014 (7) TMI 891 - ALLAHABAD HIGH COURT held that a refund can be claimed by a person who has borne the incidence of tax. Even in accordance with the Exemption Notification dated June 20, 2012, 50% of the tax to be deposited by the Housing Board under the reverse charge mechanism was deducted by the Housing Board from the amount payable to the appellant. The Commissioner (Appeals) was, therefore, not justified in rejecting the refund claim of the appellant on the ground of unjust enrichment. The order dated June 25, 2018 passed by the Commissioner (Appeals), therefore, cannot be sustained and is set aside. The appellant would be entitled to refund in accordance with law - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Entitlement to refund of service tax on construction of individual/independent residential houses.
2. Applicability of the principles of unjust enrichment.

Issue-wise Detailed Analysis:

1. Entitlement to Refund of Service Tax on Construction of Individual/Independent Residential Houses:

The appellant, M/s Quality Builders & Contractor, constructed individual/independent residential houses as per work orders from the Rajasthan Housing Board. The appellant claimed that these houses were mistakenly subjected to service tax and sought a refund. The Commissioner (Appeals) denied the refund, stating that post-July 01, 2012, the construction of such houses, even as part of a gated community, was taxable under service tax laws. The Commissioner emphasized that the new definition of "residential complex" included row houses, villas, or individual houses within a gated community, making them taxable.

The Tribunal examined the legal position prior to and post-July 01, 2012. It noted that under Section 65(105)(zzzh) of the Finance Act, 1994, "taxable service" included services related to the construction of a complex. A "residential complex" was defined as a building or buildings with more than twelve residential units. The Tribunal found that individual residential houses, each with separate entry and utilities, did not meet this definition and were not taxable.

The Tribunal referenced several judgments, including:
- Macro Marvel Projects Ltd. v/s Commissioner of Service Tax, Chennai: This case clarified that construction of residential complexes with not more than twelve units was not taxable.
- Beriwal Constructions Co. vs Commissioner of Central Excise & Service Tax-II, Agra: It reiterated that construction of individual residential units was not intended to be taxed.
- Shri A.S. Sikarwar vs CCE, Indore: This case supported the view that service tax applies only to buildings with more than twelve residential units.

The Tribunal concluded that the appellant constructed individual residential houses, which did not fall under the taxable category of "residential complex" as defined. Therefore, the appellant was entitled to the benefit of the Exemption Notification dated June 20, 2012, and the service tax paid was refundable.

2. Applicability of the Principles of Unjust Enrichment:

The Commissioner (Appeals) also rejected the refund claim on the grounds of unjust enrichment, arguing that the appellant had passed on the tax burden to the Housing Board. However, the Tribunal found that the work orders explicitly stated that service tax was to be borne by the appellant. The Allahabad High Court in Indian Farmers Fertilizers Coop. Ltd. held that a refund could be claimed by the person who bore the tax incidence. The Tribunal noted that 50% of the tax paid by the Housing Board under the reverse charge mechanism was deducted from the appellant's payment, indicating that the appellant bore the tax burden.

The Tribunal concluded that the principles of unjust enrichment did not apply in this case as the appellant had borne the tax incidence. Consequently, the appellant was entitled to a refund of the service tax paid.

Conclusion:

The Tribunal set aside the order dated June 25, 2018, passed by the Commissioner (Appeals) and allowed the appellant's claim for a refund of the service tax paid, in accordance with the law. The appeal was pronounced in the open court on September 05, 2022.