9911796707
TMI Blog2024 (12) TMI 1407X X X X Extracts X X X X X X X X Extracts X X X X ..... t, is to be handed over to the customers on completion of the residential complex and full payment having been made, are to be treated as works contracts, it has to be held that during the period of dispute, there was no intention of the Government to tax the activity in terms of such contracts a builder/developer with prospective customers for construction of residential units in a residential complex. Such works contracts involving transfer of immovable property were brought within the purview of taxable service by adding explanation to Section 65(105)(zzzh) w.e.f. 1-7-2010, and therefore, it has to be held that such contracts were not covered by Section 65(105)(zzzh) during the period prior to 1-7-2010.' Further, if the activity of the Appellant is classified under the taxable category of construction of complex service then abatement from the value of services is applicable. This itself demonstrates that the contracts are composite in nature and it would be classifiable as works contract services appropriately. It is also pertinent to note that if the activity of the Appellant is classifiable under the taxable category of works contract services then the question would aros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - MR. RAMESH NAIR, MEMBER (JUDICIAL) AND MR. C L MAHAR, MEMBER (TECHNICAL) Shri Jigar Shah, Advocate with Shri Amber Kumrawat, Advocate appeared for the Appellant Shri Tara Prakash, Deputy Commissioner (AR) appeared for the Respondent ORDER The present appeals are filed against Order in Appeal having number VAD-EXCUS-003-APP-234-235/2017-18 dated 24.07.2017 wherein the demand of service tax of Rs.1,68,97,303/- along with interest and penalty were confirmed and also imposed penalty of Rs.1,00,000/- on Mr. Drarmvirsingh Rajpurohit the partner of the main Appellant firm under Section 78A of the Finance Act, 1994. 1.1 Brief facts leading to the present dispute are that the Appellant is engaged in providing construction of complex services to the potential buyers. The Appellant owns the land which is being developed by them for residential purposes. A search was carried out by Directorate General of Central Excise Intelligence (DGCEI) on 09.01.2014. The above investigation culminated in to issuance of show cause notice dated 29.09.2015 demanding service tax of Rs.1,68,97,303/- for the period 01.07.2010 to 31.03.2014. The show cause notice also proposed to appropriate the sum of Rs.66,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or (c) repair, alteration, renovation or restoration of, or similar services in relation to, residential complex . The expression residential complex was defined in Section 65(91a) of the Finance Act, 1994 as 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 any authority under law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person . There is no dispute that the complex constructed by both the assessees in these appeals ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o agreements, in terms of which the prospective customers were required to make payments for the residential units to be constructed in instalments and the possession of the residential units was to be given to the customers on completion of the complex and full payment having been made, the builder/promoter/developer was to be treated as a deemed provider of construction of residential complex service to his customers. Thus, by this explanation, the scope of the Clause (zzzh) of Section 65(105) has been expanded and this amendment by adding an explanation has been held by this Tribunal in the case of CCE, Chandigarh v. U.B. Construction (P) Ltd. (supra) as prospective amendment. In this regard, para 5 of this judgment is reproduced below :- 5. In Maharashtra Chamber of Housing Industry v. Union of India - 2012 (25) S.T.R. 305 (Bom.), the validity of the Explanation added to Sections 65(105)(zzq) and (zzzh) was challenged on several grounds. The Bombay High Court, also considered the issue whether the explanation was prospective or retrospective in operation and ruled that the explanation inserted by the Finance Act, 2010 brings within the fold of taxable service a construction ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of coordinate bench in case of ETA Constructions of India Ltd. reported in 2024 (7) TMI 996 CESTAT Chennai wherein it is observed as under: 5. The issue to be decided is whether the demand of service tax, interest under Construction of Commercial or Industrial Construction Service for the period prior to 1.7.2012 in the case of works of composite nature is sustainable or not. In the present case, the allegation is that the appellant rendered the services to M/s.Chennai City Holdings Pvt. Ltd. for construction of a commercial complex. As per the quantification of service tax given in para-5 of the SCN, the appellant has been given 67% abatement. This would show that the contracts are composite in nature involving supply of materials as well as rendition of services. The demand under such composite contracts can only be made under the category of WCS. The Tribunal in the case of Real Value Promoters Pvt. Ltd. (supra) had considered the issue as to whether the demand made under CICS / RCS / CCS can sustain for the period prior to 1.7.2012 for composite contracts. The said decision was followed by the Tribunal in the case of Jain Housing Construction Ltd. (supra) whereby the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porated in the project by a developer. Levying a tax on the constituent goods or the land would clearly intrude into the legislative field reserved for the States under List-II of the Seventh Schedule to the Constitution of India. 38 . In Commissioner of Central Excise and Customs v. Larsen Toubro (supra), the Supreme Court clearly explained the necessity for segregating the elements of services and sale of goods in a composite contract in the following words :- At this stage, it is important to note the scheme of taxation under our Constitution. In the lists contained in the 7th Schedule to the Constitution, taxation entries are to be found only in lists I and II. This is for the reason that in our Constitutional scheme, taxation powers of the Centre and the States are mutually exclusive. There is no concurrent power of taxation. This being the case, the moment the levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be struck down. In the present case, the dichotomy is between sales tax leviable by the States and service tax leviable by the Centre. When it comes to composite indivisible works contracts, such contracts can be taxed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble, the same was to be determined in accordance with the Rules made under the Act. 43 . For the purposes of ascertaining the value of services, the Central Government has made Service Tax (Determination of Value) Rules, 2006 (hereafter the Rules ). However none of the rules provides for any machinery for ascertaining the value of services involved in relation to construction of a complex. 44 . Rule 2A of the Rules provides for determination of the value of service in execution of a works contract and prior to 1st July, 2012 the said Rule read as under :- 2A. Determination of value of taxable services involved in the execution of a works contract. - Subject to the provisions of section 67, the value of taxable service involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in clause (8) of section 66E of the Act, shall be determined by the service provider 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constructions; (ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (II) total amount means the sum total of gross amount and the value of all goods, excluding the value added tax, if any, levied on goods and services supplied free of cost for use in or in relation to the execution of works contract, under the same contract or any other contract : Provided that where the value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have closely available resemblance; 45 . Whilst Rule 2A of the Rules provides for mechanism to ascertain the value of services in a composite works contract involving services and goods, the said Rule does not cater to determination 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. 46 . In Mathuram Agrawal v. State of M.P. : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posite contract, the taxable services referred in sub-clauses (g), (zzd), (zzh), (zzq) and (zzzh) of Clause (105) of Section 65 of the Act could only refer to services in relation to a service contract simplicitor and not to composite contracts. The relevant extract of the said decision is quoted below :- A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines taxable service as any service provided . All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, the levy on services referred to in Section 65(105)(zzzh) could only be imposed on contracts of service simplicitor - that is, contracts where the builder has agreed to perform the services of constructing a complex for the buyer - and would not take within its ambit composite works contract which also entail transfer of property in goods as well as immovable property. The measure of tax assumes significance in such contracts as a levy of the service tax taking the gross amount charged by a builder for a composite contract would amount to a levy of service tax not only on the service element but also on the immovable property and the property in goods transferred or intended to be transferred to the ultimate buyer. 51 . In CIT v. B.C. Srinivasa Shetty : (1981) 2 SCC 460, the Supreme Court examined the levy of capital gains tax on sale of goodwill and had noted that the machinery provisions did not provide for calculation of capital gains - which is the measure of tax for imposition of tax on gains from sale of capital assets - where the cost of acquisition was not ascertainable. The Court held that the charging sections and the computation provisions together constitute an inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culars cannot hold the field. As stated in the judgments referred to above, in the absence of any statutory basis for calculation of taxable turnover, the Act remains unworkable. Such gap in the statute cannot be filled up by the circulars which are purely ad hoc and administrative in nature and specially so when it relates to taxing law. It is a well-settled principle that in matters of taxation either the statute or the Rules framed under the statute must cover the entire field. Taxation by way of administrative instructions which are not backed by any authority of law is unreasonable and is contrary to Article 265 of the Constitution of India. Therefore, the impugned circulars are set aside as also the impugned orders of assessment. The assessee s liability to pay tax remains but in order to assess that the State has to act in accordance with the statutory prescription by framing Rules under its rule-making power under Section 29 of the Act and the assessing authority can pass fresh orders of assessment on the basis of such statutory Rules. 53 . As noticed earlier, in the present case, neither the Act nor the Rules framed therein provide for a machinery provision for excluding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners succeed. Accordingly, the concerned officer of respondent No. 1 shall examine whether the builder has collected any amount as service tax from the petitioners for taxable service as defined in Section 65(105)(zzzh) of the Act and has deposited the same with the respondent authorities. Any such amount deposited shall be refunded to the petitioners with interest at the rate of 6% from the date of deposit till the date of refund. 57 . The petitions are disposed of in the aforesaid terms. 3.4 Therefore, on the basis of above, even if the category of service is held as construction of complex services as alleged by the revenue department in the show cause notice dated 29.09.2015 then also the demand of service tax is not sustainable in the facts of the present case. 3.5 We also place reliance on the decision of this Tribunal in case of Adani Estate Management Pvt. Ltd. reported in 2024-VIL-1555-CESTAT-AHM-ST wherein it is observed as under: 4. We have carefully considered the oral submissions made by both the sides and perused the records, including the written synopsis, written submissions and paper book furnished by the appellant. We have also carefully perused the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof in relation to such property. is not fulfilled in the agreement executed by the appellant. Adjudicating Authority also contended that there is no mention of the appellant agreeing to construct villa on behalf of the buyer and thus the agreement was to sale of villa solely and not for the purpose of carrying construction and thus the transaction cannot be classified as works contract. We find that the adjudicating authority has deemed the transaction as that of sale of villa instead of construction whereas the adjudicating authority has classified the transaction under clause (b) which deemed construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority . Needless to elaborate that the very applicability of clause (b) would also require services by way of construction of a complex or building and sale thereof before completion of construction, which apparently and unequivocally transpires from the plain language of clause (b). If the transaction, according to the adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of villa prior to completion of construction and agreeing to construction activity is unacceptable and contrary to settled position of law. We also find force / merit in the argument placed by Shri Rahul Patel that amendment in rule 2A retrospectively by way of section 129 of Finance Act, 2017 shows the clear intention of the government to align the valuation machinery with the law settled by the Supreme Court. Thus, we do not find force / merit in the arguments and averments made by adjudicating authority in the impugned order and find that the classification adopted by the appellant under clause (h) is correct and lawful. 4.4 Another issue which requires due consideration is valuation, wherein the value of land has been included in the value of construction services by the revenue. From the impugned order and the show cause notice, we observe that the value of land was included in the value of construction services, and the taxable value was determined in terms of Sl. No. 12 of Notification No. 26/2012-ST dated 20.06.2012, which pertains to the valuation of construction services classifiable under clause (b) of Section 66E of the Act. Since we have found that the classification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d go to show that the separation of the value of goods contained in the execution of a works contract will have to be determined by working from the value of the entire works contract and deducting therefrom charges towards labour and services. Such deductions are stated by the Constitution Bench to be eight in number. What is important in particular is the deductions which are to be made under sub-paras (f), (g) and (h). Under each of these paras ,a bifurcation has to be made by the charging Section itself so that the cost of establishment of the contractor is bifurcated into what is relatable to supply of labour and services. Similarly, all other expenses have also to be bifurcated insofar as they are relatable to supply of labour and services, and the same goes for the profit that is earned by the contractor. These deductions are ordinarily to be made from the contractor's accounts. However, if it is found that contractors have not maintained proper accounts, or their accounts are found to be not worthy of credence, it is left to the legislature to prescribe a formula on the basis of a fixed percentage of the value of the entire works contract as relatable to the labour and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy contained in a taxing statute transgresses into a prohibited exclusive field, it is liable to be struck down. In the present case, the dichotomyis between sales tax leviable by the States and service tax leviable by the Centre. When it comes to composite indivisible works contracts, such contracts can be taxed by Parliament as well as State legislatures. Parliament can only tax the service element contained in these contracts, and the States can only tax the transfer of property in goods element contained in these contracts. Thus, it becomes very important to segregate the two elements completely for if some element of transfer of property in goods remains when a service tax is levied, the said levy would be found to be constitutionally infirm. This position is well reflected in Bharat Sanchar Nigam Limited v. Union of India, (2006) 3 SCC 1 - 2006-VIL-07-SC-LB, as follows:- No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd therefore the measure shall be construed as divisible in nature. We also find that the appellant had vehemently argued before the adjudicating authority that the value of land agreed upon by the parties in the agreement had not been challenged or disputed by revenue in the show cause notice. Thus, it is not a case of revenue leading to overvaluation of land by the appellant. Accordingly, we hold that the value agreed upon with the buyer with respect to land and indicated in the agreement shall be the value of land required to be separated from the works contract. Accordingly, we find force in the argument that the land value is not includable in the value of works contract irrespective of and regardless of the option exercised by the appellant for valuation of works contract services under rule 2A. Similar view has been taken by this tribunal in case of Commissioner Of CGST Central Excise - CGST Central Excise Ahmedabad Versus Shree Siddhi Infrabuild Pvt Ltd relevant para of which are as follows : 4. We have carefully considered the submission made by both the sides and perused the records. We find that as regard merit of the case the issue is whether in case of 'works contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the works contract shall determine the service tax payable in the following manner, namely:- (A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract; [Provided that where the amount charged for works contract includes the value of goods as well as land or undivided share of land, the service tax shall be payable on thirty per cent. of the total amount charged for the works contract.] From the above Rule 2A(i), it is clear that for the purpose of value of service in the execution of works contract the gross value shall not include the value of land or undivided share of land. In view of this provision the value of land is not includible and service tax demand on this ground is not sustainable on merit. In view of above, the classification made by the revenue in impugned order is rejected and the demand of service tax of Rs. 1,20,74,334/- is accordingly deleted. 3.6 On the basis of above, we hold that the demand of service tax in the present case is not sustainable. 3.7 We also find that the issue involved in the present case is classification of services. From th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and findings in the impugned order start from paragraph 117 but no reason has been given in the impugned order by the Adjudicating Authority for not being able to determine the duty within the stipulated period of one year from the date of issuance of the show cause notice. 13. Learned authorized representative appearing for the department has, however, submitted that the adjudication was completed within nine months from the completion of the last hearing on 24.09.2021. Prior to this hearing, it was incumbent upon the Adjudicating Authority to scrupulously adhere to the principles of natural justice by giving ample opportunities to the noticees to make their written submissions, allow cross-examination and opportunities for personal hearing as contemplated in section 33A of the Central Excise Act. Learned authorized representative submitted that if the adjudication was completed without providing the aforesaid opportunities, Koperek could have raised an issue relating to violation of principles of natural justice. Learned authorized representative also submitted that the time limit of one year specified in sub-section (11) of section 11A is not mandatory in nature, but is merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh five dates for cross-examination were fixed in 2018, four dates were fixed in 2019 and thereafter two dates for cross-examination were fixed in 2021. There is absolutely no reason assigned in the written submissions or in the date and event chart as to why the cross-examination process continued for almost three years from 2018 upto 2021, when the adjudication itself was required to be completed within one year. Three dates for personal hearing were fixed in 2021 at an interval of almost one month and thereafter the show cause notice was adjudicated after nine months from the last date of personal hearing on 14.06.2022. 28. A clear statutory time limit of one year is provided in sub-section (11) of section 11A for the Adjudicating Authority to adjudicate the show cause notice but no reason has been given in the impugned order as to why it was not feasible or practicable for the Adjudicating Authority to adjudicate the show cause notice. It was incumbent upon the Adjudicating Authority to have clearly spelt out the insurmountable exigencies leading to delayed adjudication but none has been pointed out in the impugned order. The Adjudicating Authority has to record reasons in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prevented the Adjudicating Authority from completing the adjudication process within the stipulated term. 32. The aforesaid discussion would lead to the inevitable conclusion that the impugned order would have to be set aside only for the reason that the adjudication was not completed within the time limit prescribed under sub-section (11) of section 11A of the Central Excise Act. 33. It would, therefore, not be necessary to examine the other two contentions raised by the learned counsel for the appellants. 34. The first issue that has been decided also arises for consideration in all the remaining 209 appeals that have been filed by the assessees for setting aside the impugned order. This would be apparent from the chart annexed as Annexure A to this order wherein details of the Excise Appeals, date of show cause notice, and the date of order has been provided. 55. It is evident that in all the 209 cases, the adjudication has taken place beyond the period stipulated in sub-section (11) of section 11A of the Central Excise Act and there is no plausible explanation as to why it was not possible for the Adjudicating Authority to complete the adjudication process within the stipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
