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TMI Blog2024 (8) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... hanism (RCM) on legal services, manpower supply services and works contract services. 1.2 Two appeals i.e. ST/60163/2020 & ST/60164/2020 have been filed by the department against the impugned order dated 20.02.2020 whereby the learned Commissioner has dropped the demand under RCM on manpower supply services and works contract services. 1.3 Since the issues involved in all these six appeals are identical and there is only one appellant/assessee namely M/s The Housing Board Haryana, therefore, all six appeals are taken up together for discussion and decision. For the sake of convenience, the facts of the Appeal No. ST/60139/2016 are taken up as a lead case because the extended period of limitation has also been invoked in this appeal only. 2. Briefly stated facts of the case are that the appellant/assessee M/s The Housing Board Haryana, a government authority, was created on 14.05.1971 under the Housing Board Act, 1971 with a view to satisfy need of housing accommodation of general public. The main activity of the appellant is to construct and sell Houses/Flats of various categories and various types to general public. For the purpose of carrying out its activities, the land is ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant has made the following submissions: A.1 That the Board (appellant) formulates various schemes for constructions of houses below 60 meters and each and every such scheme has sanction of the appropriate authority of Govt of Haryana, as envisaged under Sections 23 and 24 of the Housing Board Haryana Act, 1971. It is undisputed fact that the Appellant sells the houses including the rights in the land. The Appellant is not engaged in pure construction or works contract services on the land under the ownership of any other person. Further, the activity undertaken/ consideration involved include the value of land and material in the sale/ transfer of the houses to the individual buyers. A.2 That the demand has been confirmed with respect to the levy of service tax on services in relation to 'construction of complex' as defined under Section 65(105)(zzzh) of the Finance Act, 1994. A.3 That with effect from 1st July, 2012, the Act has been amended and service tax was imposed on all services other than those specified in the negative list. The services covered under Section 65(105)(zzzh) are thereafter sought to be taxed by virtue of Section 66E(b) read with Section 65B(22) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which admittedly is not chargeable to service tax. A.7 That the service tax is essentially a tax on the services as distinct from a tax on the value added by manufacturing goods/ trading. Construction of a complex essentially has three broad components, namely, (i) land on which the complex is constructed; (ii) goods which are used in construction; and (iii) various activities which are undertaken by the builder directly or through other contractors. The object of taxing services in relation to construction of complex is essentially to tax the various activities that are involved in the construction of a complex and the resultant value created by such activities. A.8 That it is also essential to understand the measure of tax used for the levy on the service portion of the contract. The measure of tax must have a nexus with the object of tax and it would be impermissible to expand the measure of service tax to include elements such as the value of goods or value of land for the purpose of the levy of service tax. A.9 That Section 67 of the Act provides for valuation of taxable services. The said section as amended by Finance Act, 2010 reads as under: "Section 67 : Valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the following manner, namely :- (i) Value of works contract service shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. Explanation. - For the purposes of this clause, - (a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract; (b) value of works contract service shall include, - (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect's fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel used in the execution of the works contract; (vi) cost of establishment of the contractor relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the service provider rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mination of value of services in case of a composite contract which also involves sale of land. The gross consideration charged by a builder/promoter of a project from a buyer would not only include an element of goods and services but also the value of undivided share of land which would be acquired by the buyer. A.14 Though Notification No. 1/2006-ST dated 01.03.2006 (as amended by Notification No. 29/2010-ST dated 22.06.2010) and Notification No 26/2012-ST dated 20.06.2012 provide for abatement to the extent of 75%. In this regard it is submitted that no machinery provision is provided under the Act or the Rules to determine the service value in construction of houses. The issue has been decided against the Revenue by the judgment in the case of Commissioner of Central Excise v. Larsen and Toubro Limited. In that case, the Supreme Court had affirmed the decision of the Orissa High Court in Larsen and Toubro Limited Vs State of Orissa and Ors. : (2008) 12 VST 31 (Orissa), wherein the Court held that Circulars or other instructions could not provide the machinery provisions for levy of tax. The charging provisions as well as the machinery for its computation must be provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al estate agent" means a person who is engaged in rendering any service in relation to sale, purchase, leasing or renting of real estate and includes a real estate consultant; (89) "real estate consultant" means a person who renders in any manner, either directly or indirectly, advice, consultancy or technical assistance , in Relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management of real estate;" B.4 That analysis of provision of Section 65(88)/65(89) reveals that the real estate agent/consultant means a person, who is engaged in rendering any service in relation to sale, purchase, leasing or renting of real estate and includes a real estate consultant and a "Real estate Consultant" is one who provides advice, consultancy or technical assistance in relation to evaluation, conception, development, construction, implementation, supervision, maintenance, marketing, acquisition or management of real estate. B.5 The appellant in no manner render advice or consultancy or technical assistance in respect of Sale or purchase of real estate. The Board is not acting as a real Estate Agent hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arging Administrative fee and Transfer Fee as a condition of the allotment of the immovable property and maintains its own records as required by the Housing Board Haryana Act, 1971 and Regulations referred above. Housing Board Haryana does not carry out any activity for the owners of property in reciprocate of Administrative fee and Transfer Fee received from them. In absence of activity, the provision of service as defined under the Finance Act, 1994 could not be alleged. Without prejudice to the submissions made above, even if it is assumed, though not accepted, that there is an activity undertaken by the Appellant, then the same fall within the exclusions to the definition of "service" as defined under Section 65B(44) of the Finance Act, 1994. As any activity which merely constitutes transfer of immovable property is excluded from the definition of "service" as defined under Section 65B (44) of the Finance Act, 1994. In the present case, Housing Board Haryana (Appellant) changes the name of the owner in the records as required by the Housing Board Haryana Act, 1971 and Regulations and which results into the transfer of title of immovable property in the records of Housing Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest is compensation fixed by an agreement or allowed by law for use or detention of money or for loss of money by one who is entitled its use. Interest cannot be considered as consideration for rendering any service. B.9 In this regard reliance is placed on the following decisions wherein it has been held by the Tribunal that charges collected by builder for authorizing transfer of allotment of property before sale, as part of sale agreement is on principal to principal basis and no service is provided to any person in relation to sale, purchase, leasing or renting of any real estate and therefore such charges are not covered under head of "Real Estate Agent services". * Ansal Buildwell Ltd Vs Commissioner of Service Tax, New Delhi - 2019 (25) GSTL 96 (Tri. - Del.) * Ajay Enterprises Pvt Ltd Vs Commissioner of Service Tax, Delhi - 2016 (42) STR 471 (Tri. -Del.) * Commissioner of S.T., New Delhi Vs Ansal Properties and Infrastructures Ltd - 2018 (8) GSTL 58 (Tri. - Del.) B.10 In light of the above mentioned facts and provisions of law along with the description of receipt/income stated above reveals that none of the receipts/income of the Appellants fall under the scope o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994, To any business entity located in the taxable territory; ............................................................. (v) provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers to any person who is not in the similar line of business or supply of manpower for any purpose or service portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory; C.5 That the department has made the allegations on the appellant that the appellant has not discharged service tax liability on Legal charges, man power supply and works contract services received by the appellant which are liable to be taxed under reverse charge mechanism. It is further submitted that the reverse charge mechanism is not applicable on the appellant, the same has been demonstrated in subsequent paragraphs. The appellant is not a business entity C.6 The common condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.06.2012, it can be said that in the case of manpower and works contract, service tax is payable under reverse charge mechanism only when the service receiver is a business entity registered as body corporate. C.13 That though the Housing Board is a body corporate constituted under Housing Board Act, 1971, but it is not a body corporate registered as such under any Act with any such authority viz. Registrar of Companies, where such registration is required. Since the Housing Board is not registered as a body corporate, it does not come under the purview of the Notification No. 30/2012-ST ibid as the notification stipulates that the service to be provided to 'a business entity registered as body corporate', hence, the appellant is not liable to pay Service Tax under the Reverse Charge Mechanism for the Work Contract Services or any other services received by them, which are covered under the ambit of above Notification. C.14 From the above, it is clear that Haryana Housing Board, being (a) a Governmental Authority and (b) being a body corporate constituted under the Housing Board Act of Haryana Government, but not 'registered' with any Department including Registrar of Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of limitation, the learned Counsel for the appellant submits that the entire demand in the case is barred by limitation because the first show cause notice has proposed to demand service tax for the period from 2009-10 to 2012-13 although the show cause notice was issued on 21.10.2014. He further submits that as per the provisions of Section 73 of the Act, the authorities can issue a show cause notice in case duty has not been levied or paid or has been short levied or short paid or erroneously refunded, within eighteen months from the relevant date. He further submits that extended period of limitation i.e. 5 years can be invoked only if there is evasion of tax due to fraud or collusion or wilful miss-statement or suppression of facts or contravention of any of the provisions of the Act or the rules made there under with intent to evade payment of duty. He further submits that the appellant has maintained proper accounts which have been duly audited by the office of the Accountant General and all the receipts of construction and sale of houses, administrative charges and transfer fees etc are duly disclosed in the Financial Statements, which are audited by the office of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in the case of M/s Ajay Enterprises Pvt Ltd vs. CST, Delhi - 2016 (42) STR 471 (Tri. Delhi). 5.3 As regards service tax liability under 'Reverse Charge Mechanism', the learned AR submits that in respect of show cause notices dated 21.10.2014 and 20.02.2015 the adjudicating authority has held that the appellant is liable to pay service tax under RCM in respect of various services i.e. legal charges, manpower supply services and works contract services in terms of Notification No. 30/2012-ST dated 20.06.2012. He further submits that in respect of show cause notices dated 19.04.2016 and 17.04.2018 the adjudicating authority has confirmed the demand only in respect of legal charges and dropped the demand in respect of other services viz. works contract services and manpower supply services by holding that the Housing Board is established by the Housing Board Act, 1971 is a business entity and a body corporate by the statute that created it, but cannot be held to be a business entity registered as body corporate and does not qualify as a person who is required to pay service tax under RCM and Entry 12 of the Notification No. 30/2012-ST dated 20.06.2012. Against the said drop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r expenditure on framing and execution of such housing schemes as may be considered necessary from time to time or as may be entrusted to it by the State Government. Every year, the Board is to prepare a budget in advance for the next year and place it before the State Government for its approval. After sanction is granted by the State Government, the same is published in the Official Gazette. The Board is authorized to borrow money for implementation of the projects, as approved with prior approval of the State Government. Section 72 of the Act provides that the State Government shall exercise superintendence and control over the Board and its officers. The aforesaid provisions of the Act clearly show that the Board is a governmental authority, as it is fully under the control of the State Government." 7.2 Further, we find that by virtue of Finance Act, 2010, an explanation was added to Section 65(105)(zzzh) and the same expands the scope of taxable service as envisaged in sub-clause (zzzh) of the Act. By a legal fiction, construction of complex which is intended for sale by a builder or any person authorized by him before, during or after construction is deemed to be a service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Rules, as has been held by several judgments referred to above, any assessment under the said Act cannot be enforced even if such an assessment order is made by an authority under the Act purportedly in accordance with the provisions of the Act. The inherent infirmity of an assessment order passed on the basis of circulars which have no statutory sanction cannot be cured by an appellate order. In other words, if the assessment order itself is not sustainable on account of unworkability of the provisions under which they are purportedly made, no purpose would be served by filing appeal against the said order and this question cannot be decided by the appellate authority under the Act. In the instant case, both the assessing officer and the appellate authority are bound to follow the instructions contained in the circulars. Therefore, no purpose would be served by filing appeal before the appellate authority. In order to constitute valid basis for taxation, the rate of deduction, specially a flat rate of deduction cannot be applied to calculate the taxable turnover in works contract. So those circulars cannot hold the field. As stated in the judgments referred to above, in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her facilities provide in the complex, etc. As stated earlier, service tax is a tax on value addition and charges for preferential location in one sense embody the value of the satisfaction derived by a customer from certain additional attributes of the property developed. Such charges cannot be traced directly to the value of any goods or value of land but are as a result of the development of the complex as a whole and the position of a particular unit in the context of the complex. 55. In view of the above, we negate the challenge to insertion of sub-clause (zzzzu) in Clause (105) of Section 65 of the Act. However, we accept the petitioners contention that no service tax under Section 66 of the Act read with Section 65(105)(zzzh) of the Act could be charged in respect of composite contracts such as the ones entered into by the petitioners with the builder. The impugned explanation to the extent that it seeks to include composite contracts for purchase of units in a complex within the scope of taxable service is set aside." 7.5 We further find that the Revenue has filed an appeal against the above said decision of the Delhi High Court before the Hon'ble Apex Court, but no st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided to any person in relation to sale, purchase, leasing, renting of any real estate and therefore, such charges are not covered under the head of 'Real Estate Agent Services'. 8.5 Further, we find that the Tribunal in the case of Commissioner of Service Tax, New Delhi vs. Ansal Properties and Infrastructures Ltd (supra) has held in para 10 as under: "10. The Revenue contended that the respondent received certain considerations for change of name of the owners of the flats, by way of substitution of the name by new buyer in place of earlier owner of the flat, was in relation to sale or purchase of such property and accordingly liable to service tax. To levy service tax first of all the provider of service should be a real estate agent and second while acting as such agent the person concerned should have provided service in relation to sale, purchase, leasing or renting of real estate. There is nothing in the show cause notice or the relied upon documents to show that the respondent acted in a capacity of "real estate agent" between the earlier owner and the new buyer of the flat. The changes made in the records of the respondent are not causative factors for such sale or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is not a Government company within the meaning of Section 617 of the Companies Act, 1956 not can the Companies Act, 1956 be said to apply to the Corporation because under the provisions contained in Section 616 of the Companies Act that Act will apply to a company governed by any special Act except in so far as the provisions of the Companies Act are inconsistent with the provisions of such special Act. The provisions of the Act in the present case in regard to incorporation, functions, powers and dissolution of the Corporation show that the purposes and objects of the Act and the functions and powers of the Corporation are like the wharf and weft of the fabric of development of industries by the State. 19. There are two provisions of the Act which are not to be found in any trading Corporation. In the first place, the sums payable by any person to the Corporation are recoverable by it under this Act as an arrear of land revenue on the application of the Corporation. Secondly, on dissolution of the Corporation the assets vest in and the liabilities become enforceable against the State Government. 20. The underlying concept of a trading Corporation is buying and selling. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aming and execution of such housing schemes as may be considered necessary from time to time or as may be entrusted to it by the State Government. Every year, the Board is to prepare a budget in advance for the next year and place it before the State Government for its approval. After sanction is granted by the State Government, the same is published in the Official Gazette. The Board is authorized to borrow money for implementation of the projects, as approved with prior approval of the State Government. Section 72 of the Act provides that the State Government shall exercise superintendence and control over the Board and its officers. The aforesaid provisions of the Act clearly show that the Board is a governmental authority, as it is fully under the control of the State Government. 15. The issue sought to be raised by the petitioners is that they are contractors engaged by the Board for construction of BPL houses from time to time. In all the cases, except two, the contract was entered into after 1-7-2012. There is no dispute about the period prior thereto as the petitioners in most of the petitions have categorically stated that service tax for that period was paid by them. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian Institute of Technology was held to be a governmental authority and the contract for construction was opined to be falling in the exemption clause. The notice issued for levy of service tax was quashed. 21. In view of our aforesaid discussion, it can safely be opined that for the kind of contract entered into between the petitioners and the Board, no service tax is leviable, hence, the action of the Board in deducting part of the service tax, though payable in the hands of the Board, if tax is leviable, from the bills of the petitioners is declared to be illegal." 9.4 We also find that the in the above cited case, the department which was also a party before the Hon'ble High Court of Punjab & Haryana, has accepted the said decision and refunds have been granted to the contractors by the department. 9.5 In view of our discussion on this issue, we hold that the demand of service tax under 'Reverse Charge Mechanism' is not sustainable. 10.1 As regards extended period of limitation, we find that the appellant, which is a governmental authority constituted under the Housing Board Act, 1971, has provided all the information as required by the department. Moreover, being a stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the records, we find force in the submissions of the learned Advocate on limitation. It is seen that the appellant is a registered society having no profit motive. They were undertaking the job to help the Government bodies. The Commissioner (Appeals) set aside the penalties imposed under Section 80 of the Act considering the facts and circumstances of the case. The demand of tax vide show cause notice dated 22-11-2005 for extended period cannot be sustainable. 6. In view of the above discussion, we set aside the demand of tax on scientific or technical consultancy and technical testing and analysis as barred by limitation. The appeal is allowed." 10.6 We find that in the present case, the department has failed to establish any of the ingredients which are required to prove in order to invoke extended period of limitation; therefore, we hold that the entire demand is barred by limitation. 11. In view of our discussions and findings on all the issues cited supra, and by following the ratios of the various decisions cited supra, we are of the considered opinion that the impugned orders are not sustainable in law, accordingly, we set aside the impugned orders by allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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