Construction of residential complex by Housing Society for its own Members

PJ/Case Laws/2011-12/1374

Construction of residential complex by Housing Society for its own Members - whether is provision of service

Case: COMMR OF S.T. v/s SHRINANDNAGAR-IV CO.OP. HOUSING SOCIETY LTD.

Citation: 2011 (23) S.T.R. 439 (Guj.)

Issue:- Whether constructing residential units for its members by Society is a service to its members?

Brief Facts:- Respondent Co.-op. Housing Society had availed the services of Contractor for constructing the residential units for use of its members. Initially, the Society had paid service tax. Subsequently, however, the society carried a belief that it was not liable to pay service tax. Respondent filed refund claims which were dismissed. The issue reached the Tribunal. The Tribunal by relying on the Board's Circulars and Clarifications formed an opinion that if the activity is undertaken by the Society for and on behalf of the members, it cannot be stated that the Society provided the services to its members.

Hence, Revenue is in appeal before the High Court.

Appellant’s Contention:- Revenue drew attention to explanation to sub-clause (zzzh) added by virtue of Finance Act, 2010 to contend that such explanation was not noticed by the Bench in its judgment in case of M/s. Sujal in Developers.

Respondent’s Contention:- Respondent relied upon the judgment of Division Bench of High Court in case of Commissioner of Service Tax v. M/s. Sujal Developers in which, judgment of the Tribunal impugned in the present appeal, was also under challenge. The Bench upheld the view of the Tribunal where the respondent-assessee was developer who had developed housing complexes for future sale.

It was observed that the basic requirement for falling within the ambit of the said provision is that there has to be a service provider and a service receiver. In present case, the land on which residential complex was constructed belonged to the society which had in turn entered into a development agreement with the respondent. The agreement was perused and it was held that the same provided that the respondent-developer is entitled to make construction on the land in question, enroll members as well as to collect amounts towards the units allotted to such members. The finance was arranged by the respondent-developer. Thus, it was concluded that respondent-developer did not appear to be a contractor who is executing the construction work on behalf of the society. It was noted that the developer was using its own finances and developing land and selling property to its members. Thus, it was held that when it is only after the completion of the construction and full payment of agreed sum a sale deed is executed and only then, the ownership of the property gets transferred to the ultimate owner, in such a case, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed, would be in the nature of “self service” and consequently, would not attract service tax. It was held that there is absence of service provider and service recipient in relation to the transaction in question, the Tribunal was justified in holding that the transaction in this case cannot be considered as taxable.

Respondent further submitted that the Society cannot be stated to be providing any services to the members. It was submitted that the contractor who undertakes the task of constructing the residential units on behalf of the society for the use of the members would be liable to pay service tax on such services rendered but in no case, society can be stated to have rendered any services to its members.

Reasoning of Judgment:- The High Court held that that the impugned judgment of the Tribunal came to be upheld by the Division Bench in case of M/s. Sujal Developers, relevant portion of which, have already quoted in this order. The High Court noticed that in the said case before the Division Bench, it was a developer who was contending that not having provided any services he was not liable to pay any services tax. Only point of difference in this case is that it is a housing society who is putting forth a similar claim on the premise that the contractor, who undertakes the construction work, would be liable to pay service tax but the society in turn, cannot be said to have supplied any services to its members. Hence the High Court was of the opinion that the question is substantially covered by the decision of Division Bench; wherein, similar questions were framed and answered against the revenue.

With regard to Explanation to sub-clause (zzzh), the High Court declined to discuss whether by virtue of such explanation legal situation in factual background arising in present appeal, would or would not be any different. It was noted that explanation was brought in the statute book long after the taxing event in the present case has arisen.

Thus, in the absence of any indication in the amendment to make it either retrospective or explanation being merely declaratory or clarificatory in nature, such statutory change was held as not applicable to the long past events.

Decision:- Appeal dismissed.

Comment:- This decision has very wide implications. This says that the society has constructed the house for its members, then no service tax is payable as the ownership is passed after the completion of flats. But the most important thing was to see was whether the explanation inserted by Finance Act, 2010 will make the service tax payable on such transaction. But the High Court did not commented on the same. Hence the issue after the insertion of explanation is still open.

Comments

PJ/Case Laws/2011-12/1374

Post a Comment

Query