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2025 (4) TMI 1064 - AT - Service TaxLevy of service tax on construction of residential complexes particularly the period prior to and beyond 01.07.2010 - Demand calculation under the composition scheme as amended retrospectively by the Finance Act 2017 - invocation of extended period of limitation. Levy of service tax on construction of residential complexes particularly the period prior to and beyond 01.07.2010 - HELD THAT - The matter is no longer res-integra and demand will not sustain on this ground itself. Reliance is placed on various judgments cited by the appellant. For the period beyond 01.07.2010 it is on record that in terms of the amendment brought in Rule 2A retrospectively amended for the period beyond 01.07.2010 the amount payable would have to be re-calculated. Admittedly this provision has not been taken into account while calculating the duty liability for the appellant during the relevant period. Therefore we consider that this aspect needs to be remanded back to the Adjudicating Authority who shall take into account the amendment provision and recalculate the amount of duty recoverable from the appellant. Further if any amount has been paid towards duty liabilities for the period for which the demand has been made this also needs to be adjusted against recalculated demand. Time Limitation - HELD THAT - The appellant has a case in as much as during that period apart from the fact that there were certain confusion about the leviability of service tax on construction services as well as on rental service and differing judgments mode of calculation allowing for composition scheme etc. were posing interpretational issues. Therefore there was a genuine confusion prevailing during the relevant period. This gets further manifested when the Government itself brought retrospective amendment for the same period. In view of the same it is found that in the absence of any other cogent and strong evidence clearly indicating any deliberate intent or attempt to evade the tax the extended period is not invokable in the facts of the case. Renting of immovable property - HELD THAT - In respect of demand on renting of immovable property many changes occurred in taxation of renting of immovable property during the relevant period. In many decisions including the Home Solutions Retail India Ltd. Vs Union of India decision of Hon ble Delhi High Court 2009 (4) TMI 14 - DELHI HIGH COURT it is held that Section 65(105)(zzzz) does not in terms entail that the renting out of immovable property for use in the course or furtherance of business of commerce would by itself constitute a taxable service and be exigible to service tax under the said Act. The obvious consequence of this finding is that the interpretation placed by the impugned notification and circular on the said provision is not correct. Consequently the same are ultra vires the said Act and to the extent that they authorize the levy of service tax on renting of immovable property per se they are set aside. Conclusion - i) Service tax was not leviable on construction of residential complexes prior to 01.07.2010 and retrospective amendments must be considered for the period thereafter. ii) Where retrospective amendments clarify legislative intent amid judicial conflict extended limitation periods cannot be invoked absent evidence of deliberate evasion. iii) Renting of immovable property was not taxable service per se until retrospective amendments were introduced and upheld thus demands and penalties for the disputed period are barred by limitation. iv) Recalculation of demand must reflect the amended valuation rules and adjust payments already made. The invocation of extended period cannot be sustained and therefore the demand has to be restricted within the normal period along with interest applicable thereon - appeal disposed off by way of remand.
The core legal questions considered in this appeal involve: (i) the applicability of service tax on construction of residential complexes, particularly the period prior to and beyond 01.07.2010; (ii) the correctness of demand calculation under the composition scheme as amended retrospectively by the Finance Act, 2017; (iii) the issue of limitation for raising service tax demands and the invocability of extended period of limitation; and (iv) the liability and penalty relating to service tax on renting of immovable property during the disputed period.
Regarding the first issue on service tax liability for construction services prior to 01.07.2010, the Court acknowledged that the question is no longer res-integra. Reliance was placed on multiple precedents which uniformly held that service tax was not leviable on construction of residential complexes before 01.07.2010. Thus, the demand for this period was unsustainable. The appellant's contention that the adjudicating authority failed to consider the retrospective amendment to Rule 2A of the Service Tax (Determination of Value) Rules, 2006, effective from 01.07.2010 to 30.06.2012, was accepted. The Court found that the adjudicating authority did not recalculate the demand in accordance with the amended Rule 2A inserted by the Finance Act, 2017, which prescribed a composition scheme for works contract services. Consequently, the matter was remanded for recalculation of the demand for the period beyond 01.07.2010, taking into account the retrospective amendment. The Court also directed adjustment of any payments already made by the appellant against the recalculated demand. On the limitation issue, the Court observed that during the relevant period, there was considerable confusion and conflicting judicial pronouncements regarding the levy of service tax on construction and renting services. The Government itself introduced retrospective amendments to clarify legislative intent, indicating the unsettled nature of the law. In the absence of cogent evidence of deliberate tax evasion, the Court held that the extended period of limitation under Section 73 of the Finance Act could not be invoked. Therefore, demands raised beyond the normal limitation period were not sustainable. Concerning the renting of immovable property, the appellant did not contest the demand on merits but challenged the penalty under Section 78. The Court examined the legal landscape prevailing during the relevant period, noting the conflicting judicial views, including the landmark decision of the Delhi High Court in Home Solutions Retail India Ltd. Vs Union of India, which held that renting of immovable property per se was not a taxable service under the Finance Act. The Court highlighted that the Department itself acknowledged the precarious position of landlords following this judgment and introduced retrospective amendments to clarify the taxable nature of renting services. The Court further noted that the retrospective amendments were upheld by the Larger Bench of the Delhi High Court, confirming the legislative intent. Given the confusion and uncertainty in law during the relevant period, the Court ruled that the extended period of limitation could not be invoked for demanding service tax or imposing penalties under Section 78 on renting of immovable property. Reliance was also placed on a recent decision which recognized the prolonged judicial disputes and consequent retrospective amendments as a basis for rejecting extended limitation claims. Specifically, for the demand relating to renting of immovable property for the period 01.04.2008 to 31.03.2009, the Court held that the demand was barred by limitation. The relevant date for limitation calculation was the due date for filing the return, 25.04.2009, and the show cause notice was issued on 21.10.2011, well beyond the one-year limitation period. Accordingly, the demand for this period was set aside. The Court concluded that the invocation of the extended period of limitation was not sustainable in the facts of the case, and demands had to be restricted to the normal limitation period with applicable interest. The appeal was disposed of by remanding the matter to the original adjudicating authority for recalculation of the total demand in light of the observations and directions given. Significant holdings include the following verbatim excerpt from the Delhi High Court's Home Solutions judgment, which was pivotal in the analysis of renting of immovable property: "36. In view of the foregoing discussion, we hold that Section 65(105)(zzzz) does not in terms entail that the renting out of immovable property for use in the course or furtherance of business of commerce would by itself constitute a taxable service and be exigible to service tax under the said Act. The obvious consequence of this finding is that the interpretation placed by the impugned notification and circular on the said provision is not correct. Consequently, the same are ultra vires the said Act and to the extent that they authorize the levy of service tax on renting of immovable property per se, they are set aside." The Court established the following core principles:
Final determinations were that the demand for service tax prior to 01.07.2010 was unsustainable; the demand for the period beyond that date must be recalculated as per the retrospective amendment; the extended period of limitation was not invokable for either works contract or renting services due to genuine legal uncertainty; and the demand and penalty for renting of immovable property for the period 2008-09 were barred by limitation and thus set aside.
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