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TMI Blog2024 (12) TMI 1407X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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.66,56,702/- paid by the Appellant during the course of investigation. The show cause notice demanded the above service tax along with interest and also penalty under Section 77 and 78 of the Finance Act, 1994. 1.2 The Appellant being unsuccessful before the adjudicating authority and also before the first appellate authority is before us in the present appeals. 2. We have heard Mr. Jigar Shah learned Advocate with Shri Amber Kumrawat, Advocate for the Appellants and Mr. Tara Prakash, Ld. Deputy Commissioner and Authorized Representative of the Revenue Department. 3. Filtering out unnecessary facts for the determination of the present dispute and as points raised by the Ld. Advocate for the Appellant, the main issue to be decided in the present case is that whether the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 are covered by the definition of "residential complex" as given in Section 65(91a). There is also no dispute that both the assessees had engaged contractors for construction of the complexes. The dispute in these appeals is as to whether the assessees would be liable to pay Service Tax on the amounts charged by them from their customers with whom they had entered into agreements for construction of the residential units and whose possession was to be handed over on completion of the construction and full payment having been made by the customers. It is seen that on this point, the Tax Research Unit of the Central Board of Excise & Customs, which is a wing of the C.B.E. & C. dealing with legislation work, had vide Circular No. 332/35/2006-TRU, dated 1-8- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "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 service provided by the builder to a buyer where there is an intended sale between the parties whether before, during or after construction; that the 'Explanation' was specifically legislated upon to expand the concept of taxable service; that prior to the explanation, the view taken was that since a mere agreement to sell does not create any interest in the property and the title to the property continues to remain with the builder, no service was provided to the buyer; that the service, if any, would be in the nature of a service rendered by the builder to himself; that the explanation expands the scope of the taxable service, provided by builders to buyers pursuant to an intended sale of immovable property before, during or after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lving 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 Tribunal set aside the demand following the decision in the case of Real Value Promoters Pvt. Ltd. (supra). The decision of the Tribunal was maintained by the Hon'ble Apex Court by dismissing the appeal filed by the Department as reported in (2023) 10 Centax 171 (SC). 6. The Tribunal has taken similar view in the case of Sri Rosh Properties Pvt. Ltd. Vs CCE & ST vide Final Order No.40217/2014 dated 01.03.2024. 7. Following these decisions, we are of the considered opinion that the demand cannot sustain. In the result, the impugned order is set aside. The appeal is allowed with consequential relief, if any." 3.3 It is also pertinent to note that if the activity of the Appellant is classifiable under the taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur 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 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." 39. In the present case, we find that there is no machinery provision for ascertaining the service element involved in the composite contract. In order to sustain the levy of service tax on services, it is essential that the machinery provisions provide for a mec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions 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 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 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. : (1999) 8 SCC 667, the Supreme Court held as under :- "In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. The statute should clearly and unambi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 not composite works contracts, such as are contained on the facts of the present cases. It will also be noticed that no attempt to remove the non-service elements from the composite works contracts has been made by any of the aforesaid sections by deducting from the gross value of the works contract the value of property in goods transferred in the execution of a works contract." 49. The Supreme Court further overruled the decision of this Court in G.D. Builders (supra), wherein this Court had, inter alia, held that sub-clauses (g), (zzd), (zzh), (zzq) and (zzzh) of Clause (105) of Section 65 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 integrated code and the transaction to which the computation provisions cannot be applied must be regarded as never intended to be subjected to charge of tax. 52. It was stated that an assessee is entitled to abatement to the extent of 75% and only 25% of the gross amount charged by a builder from a flat buyer is charged to service tax. It was suggested on behalf of the Revenue that this indicated that the value of the immovable property as well as the property in goods incorporated in the works would stood excluded. In our view, this issue also stands concluded against the Revenue by the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 all components other than service components for ascertaining the measure of service tax. The abatement to the extent of 75% by a notification or a circular cannot substitute the lack of statutory machinery provisions to ascertain the value of services involved in a composite contract. 54. Insofar as the challenge to the levy of service tax on taxable services as defined under Section 65(105)(zzzzu) is concerned, we do not find any merit in the contention that there is no element of service involved in the preferential location charges levied by a builder. We are unable to accept tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 facts presented in the impugned order and show cause notice and averments made by the revenue therein. We find from the records, facts and averments made by both the sides that the construction activities, other than sale of land, undertaken by the appellant by way of construction of frameworks and constructions of balance works, were involving transfer of property in goods by the appellant and thus constituted indivisible arrangement insofar as goods and services by way of construction of building concerned. We find that the revenue has not disputed that the appellant has u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 adjudicating authority, is limited to that of sale of villa and not involving agreement to construct the same, the same cannot fall within the scope of clause (b) whereas the adjudicating authority has classified the transaction under clause (b). Thus, we find that the arguments and averments made by adjudicating authority in the impugned order to declassify the transactions under works contract and to classify them under the construction services are self-contradictory as well as preposterous. 4.2 We find that the definition of "works contract" provided under section 65B(5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lassification 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 of works contract under clause (h) is correct and accordingly the value was to be determined as per rule 2A of Service Tax (Determination of Value) Rules, 2006 which is correctly determined by the appellant, valuation determined by revenue in terms of Notification No. 26/2012-ST has become infructuous in nature and thus liable to be dismissed. Since there is no contention in the impugned order or allegation in the show cause notice to re-determine the value of works contract services under rule 2A to include the value of land, value determined by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 service element of it. This judgment, therefore, clearly and unmistakably holds that unless the splitting of an indivisible works contract is done taking into account the eight heads of deduction, the charge to tax that would be made would otherwise contain, apart from other things, the entire cost of establishment, other expenses, and profit earned by the contractor and would transgress into forbidden territory namely into such portion of such cost, expenses and profit as would be attributable in the works contract to the transfer of prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. As was said in Larsen & Toubro v. Union of India[(1993) 1 SCC 364] : (SCC p. 395, para 47) :- "The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contract service' the value of land is includable or otherwise. To decide this issue, it is necessary to go through valuation provision as regard the works contract service. Hence, provision of Rule 2 A (i) is reproduced below:- "[2A. Determination of value of service portion in the execution of a works contract.: Subject to the provisions of section 67, the value of service portion in the execution of a works contract, referred to in clause (h) of section 66E of the Act, shall be determined in the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged 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 the above observation it is clear that the very same issue has come up before this Tribunal and higher judicial forums and the issues involved are pure interpretation of complex legal provisions. Therefore, the demand of service tax would be hit by limitation as well. We hold that the extended period of limitation is also not invocable in the facts of the present case. 3.8 Ld. Advocate for the Appellant also brought to our notice the recent decision of Principal Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 directory which is explicit from the use of the words "where it is possible to do so". Learned authorized representative also placed reliance upon certain decisions, to which reference shall be made at the appropriate stage. 14. Learned counsel for Kopertek, however, submitted that the department has not been able to substantiate that the Adjudicating Authority was prevented by "such circumstances or insurmountable exigencies" from concluding the adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring 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 order adjudicating the show cause notice and not leave it to the department to speculate why the Adjudicating Authority could not adhere to the time limit provided to it under a Statute to adjudicate the show cause notice. 29. Learned authorized representative appearing for the department only submitted that the delay occurred on account of the appellant as the appellant did not file a reply to the show cause notice within the period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 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 time. 36. Thus, the impugned orders that have been assailed in all the 210 Excise Appeals would have to be set aside and are set aside. The appeals are, accordingly, allowed with consequential relief(s), if any to the appellant." 3.9 Ld. Advocate also referred to the decision of Hon'ble Bombay High Court in case of IDFC First Bank Ltd. reported in (2023) 10 Centax 256f (Bom) wherein similar proposition was laid down. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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