9911796707
TMI Blog2008 (5) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... f the petitioners being, in brief thus : Petitioner No. 1 is a private limited company engaged in the business of development and sale of immovable properties, i.e., real estates. The petitioner-company constructs buildings and sells premises/flats in such buildings. During the course of development of such property and construction of buildings thereon and also after completion of such construction, the petitioner-company enters into "flat purchase agreements" with various premises/flat purchasers, whereunder the petitioner-company allots and sells flat/premises, in such buildings, to the purchasers. The said transaction is a transaction of sale of flats/premises and the consideration is payable to the petitioner-company in instalments as per the terms, which may be mutually agreed upon, though the terms of the agreement are, usually, co-related to the extent and the stage of the development of the constructional work. The agreement for sale of such flats is stamped as sale of flat/premises for the entire consideration. Before accepting money as advance payment or deposit out of the sale price, the petitioner-company enters into an agreement for sale, which is registered. The agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is taxable under "service tax". Hence, the petitioner-company is required to get, as per section 69 of the Finance Act, 1994 read with rule 4 of the Service Tax Rules, 1994 (in short, "the said Rule"), as amended, registered so as to pay the "service tax". (ii) The activities undertaken by the builders for construction of flats/buildings, for and on behalf of prospective buyers, for consideration of cash or deferred payment is covered under "works contract" and not "sale". Although it has been stated by the petitioners that the agreements, signed between the petitioner-company and the prospective purchaser of the flat/building, are termed as "deed of agreement for sale of flat and land", the fact remains that such agreements are of "works contract" and, hence, the petitioner-company is required to get itself registered and pay "service tax". (iii) The petitioner-company agrees that it accepts money as advance or deposit on the basis of agreements for sale. Such an agreement contains various details, price, the area of the flat, the common areas and amenities/facilities that will be available in the flat. Thus, the agreement, in such a case, is basically an agreement for construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are entered into ? 5. In order to ascertain the exact nature of work, which the petitioner-company has been carrying on, a careful scrutiny of the relevant clauses of the agreement, which the petitioner-company enters into with prospective buyers, is necessary. One of such agreements for sale of the flats has been annexed to the writ petition. Some of the relevant clauses of the agreement for sale are extracted below : "1. That the first party agrees to sell and the second party agrees to purchase the flat described in Schedule B along with the proportionate and undivided share of land for a total sale of price of Rs. 7,86,500 (rupees seven lacs eighty six thousand five hundred only) which shall be paid by the second party to the first party as per the payment Schedule below : (a) On booking and agreement Rs. 1,00,000 (b) On or before June 30, 2005 Rs. 3,50,000 (c) On or before December 31, 2005 Rs. 2,50,000 (d) On or before June 30, 2006 Rs. 86,500 2. That the second party shall pay stamp duty and registration fees as per prevailing immovable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities concerned treat these documents as agreements for sale/purchase of flats/premises inasmuch as the consideration is for sale and not for carrying out constructional activities. Stamp duty is, therefore, levied on the sale consideration. 7. Asserting that the petitioner-company does not render any taxable service and is not engaged in any such activities, which can make it liable to pay "service tax", under the Finance Act, 1994, the petitioners, in the present writ application, have challenged, as already indicated above, the legality and validity of the impugned notice and the very jurisdiction of the authority concerned to issue such a notice. 8. It may be pointed out, at the very outset, that tax on services is an "indirect tax" and is a relatively new concept in India. As a matter of fact, Government of India had introduced the levy of "service tax", i.e., tax on the services, for the first time, in the year 1994, borrowing the concept from developed countries. The basic purpose of this levy has been to increase revenue, treating the act(s) of rendering service, as an additional source of revenue. Depending upon its own socio-economic compulsions, each country evolves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining the modalities of levying "service tax" by the Union Government and collection of the proceeds thereof by the Central and the State Governments. By the said amendment, a new entry was inserted in List I of the Seventh Schedule to the Constitution of India, which reads as under : "92-C. Taxes on services". 11. Coupled with the above, a new article, namely, article 268A was also inserted. This article reads as under : "Article 268A(1). Taxes on services shall be levied by the Government of India and such tax shall be collected and appropriated by the Government of India and the States in the manner provided in clause (2) . (2) The proceeds in any financial year of any such tax levied in accordance with the provisions of clause (1) shall be- (a) collected by the Government of India and the State ; (b) appropriated by the Government of India and the States, in accordance with such principles of collection and appropriation as may be formulated by the Parliament by law." 12. A consequential amendment to article 270 of the Constitution was also made enabling thereby the Parliament to formulate, by law, principles for determining the modalities of levying the "se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) Every person liable to pay the service tax under this Chapter or the Rules made thereunder shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise. (2) The Central Government may, by notification in the Official Gazette, specify such other person or class of persons, who shall make an application for registration within such time and in such manner and in such form as may be prescribed." 17. Section 65(105) of the Finance Act, 1994, defines "taxable service". Clause (zzq) of sub-section (105) of section 65, prior to its amendment by the Finance Act of 2005, read as under : "(zzq) service provided or to be provided to any person, by a commercial concern, in relation to construction service" 18. Prior to its amendment by the Finance Act, 2005, clause (30a) of section 65 of the Finance Act, 1994, which contained the definition of "construction service", read as under : "(30a) 'construction service' means- (a) construction of new building or civil structure or a part thereof ; or (b) repair, alteration or restoration of, or similar services in relation to, building o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is- (i) used, or to be used, primarily for ; or (ii) occupied, or to be occupied, primarily with ; or (iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams ;" 23. The Finance Act, 2005, also provides a specific definition of "residential complex" by inclusion of clause (91a) to section 65(105) of the Finance Act, 1994, which reads as under : "(91a) 'residential complex' means any complex comprising of- (i) a building or buildings, having more than twelve residential units ; (ii) a common area ; and (iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of any service free of charge or under a contract of personal service." 27. The term "service", as defined under the Consumer Protection Act, 1986, reads as under : "'service' means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, board or lodging or both, entertainment, amusement or the purveying of news or other information but does not include the rendering of any service free of charge or under a contract or personal service." 28. The Foreign Exchange Management Act, 1999, also defines "service", which reads as under : "Service means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al concern in relation to construction, repairs, alteration or restoration of such building, civil structures or parts thereof which are used, occupied or engaged for the purposes of commerce and industry are covered under this new levy. In this case the service is essentially provided to a person who gets such constructions, etc., done, by a building or civil contractor. Estate builders who construct building/civil structures for themselves (for their own use, renting it out or for selling it subsequently) are not taxable service providers. However, if such real estate owners hire contractor/contractors, the payment made to such contractor would be subjected to 'service tax' under this head. The tax is limited only in case the service is provided by a commercial concern. Thus, service provided by a labourer engaged directly by the property owner, or a contractor who does not have a business establishment would not be subject to 'service tax'." 33. The clarification offered under the abovementioned circular, shall be applicable even after amendment of the Finance Act, 2005, whereby "construction service" includes construction of "residential complex". Thus, constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t restricted to the "works contract" as commonly understood, i.e., a contract to do some work on behalf of someone else. The apex court, therefore, held as under (at page 302 of STC) : ". . . The definition would therefore take within its ambit any type of agreement wherein construction of a building takes place either for cash or deferred payment, or valuable consideration. To be also noted that the definition does not lay down that the construction must be on behalf of an owner of the property or that the construction cannot be by the owner of the property. Thus even if an owner of property enters into an agreement to construct for cash, deferred payment or valuable consideration a building or flats on behalf of anybody else it would be a works contract within the meaning of the term as used under the Finance Act, 1994." 36. In K. Raheja Development Corporation [2005] 5 SCC 162, the agreement provided that K. Raheja Development Corporation, as developers, on its own behalf, and also as developer for those persons, who would, eventually, purchase the flats, do the construction works. Thus, K. Raheja Development Corporation was not only undertaking construction work on its own be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty labour contractors whose total bill does not increase 4.0 lacs in one financial year ? In a case where the builder, promoter or developer builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of such residential complex, the contractor shall be liable to pay "service tax" on the gross amount charged for the construction services provided, to the builder/promoter/developer under "construction of complex" service falling under section 65(105)(zzzh) of the Finance Act, 1994. If no other person is engaged for construction work and the builder/promoter/developer undertakes construction work on his own without engaging the services of any other person, then in such cases in the absence of service provider and service recipient relationship, the question of providing taxable service to any person by any other person does not arise. 38. The quoted portions of the abovementioned circular make it very clear that the activities of the petitioner-company do not fall within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o circulars of the CBDT to which we have just referred are legally binding on the Revenue and this binding character attaches to the two circulars even if they be found not in accordance with the correct interpretation of sub-section (2) and they depart or deviate from such construction. It is now well-settled as a result of two decisions of this court, one in Navnit Lal C. Javeri v. K. K. Sen, AAC of I. T. [1965] 56 ITR 198 and the other in Ellerman Lines Ltd . v. Commissioner of Income-tax [1971] 82 ITR 913 that circulars issued by the CBDT under section 119 of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act . . ." 41. In Ellerman Lines Ltd . v. Commissioner of Income-tax [1971] 82 ITR 913, the Supreme Court pointed out as follows : (at page 921) "Now, coming to the question as to the effect of instructions issued under section 5(8) of the Act, this court observed in Navnit Lal C.Javeri v. K. K. Sen, AAC [1965] 56 ITR 198, 203 : 'It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ". . . The law is fairly settled that the instructions and directions given by the Central Board of Direct Taxes under section 119 of the Act are binding on all the subordinate officers in the execution of the Act. Reference may be invited to the decisions of the Supreme Court in Navnit Lal C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198, Ellerman Lines Ltd . v. Commissioner of Income-tax [1971] 82 ITR 913 and K. P. Varghese v. Income-tax Officer [1981] 131 ITR 597. In Navnit Lal C.Javeri 's case [1965] 56 ITR 198, the instructions given by the Central Board of Direct Taxes ran counter to the provisions of section 2(6A)(e) and section 12(1B) of the Indian Income-tax Act, 1922. Even so, the Supreme Court held that the instructions given by the Central Board of Direct Taxes were binding on the Revenue. Similarly, the instructions contained in the circular, which was considered by the Supreme Court in Ellerman Lines Ltd. 's case [1971] 82 ITR 913, were contrary to the provisions of the Act. Even so, the Supreme Court held that the circular was binding on the officials of the Income-tax Department." 45. In Ranadey Micronutrients v. Collector of Central Excise [1996] 10 SCC 387 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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