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PJ/Case Law/2013-14/1683

Development and maintenance fees collected from flat buyers for discharging various taxes is not liable to service tax.

Case:- M/s HIRANANDANI CONSTRUCTIONS PVT LTDVsCOMMISSIONER OF CENTRAL EXCISE, THANE-I

Citation:-2013-TIOL-1051-CESTAT-MUM

Brief facts:-Material facts of this case are that appellant M/s Hiranandani Constructions Pvt. Ltd., Mumbai are engaged in the construction of residential flats. During the sale of the flats before handing over the possession of such flats, the appellant collected the development and maintenance fees from the flat buyers as the promoter is liable to discharge payments towards outgoing expenses including any municipal local taxes, property tax, water charges, electric charges, revenue assessment or interest or any mandatory charges under the provisions of Section 5 of Maharashtra Ownership flats (Regulation) Act, 1963. On completion of construction while handing over the possession, the developer returns the balance amount, if any, after debiting the expenses.

The department was of the view that the activity undertaken by the appellant as per the provisions of Section 5 of the aforesaid Act comes under the category of ‘Management, maintenance and repair services'. Accordingly, a Service Tax demand of Rs. 10,44,855/- was confirmed including the demand towards GTA services amounting to Rs. 9,492/-.
The appellant has collected the amount from flat owners as under Section 5 of the Maharashtra Ownership of Flats (Regulation) Act, 1963, as the appellant was obliged to discharge property tax, water and electricity tariff etc. on behalf of the flat owners and the appellant has undertaken these activities in the capacity of an executor. Therefore, the appellant has not rendered any management, maintenance or repair services. Therefore, the impugned demand is not sustainable in law. Accordingly, he prays for grant of stay. He also relies on the decision of this Tribunal in the case of Lake View Developers vide Order no./416/13/CSTB/C-I dt. 19/03/2013wherein stay has been granted by this Tribunal in a similar matter. It is his further submission that in respect of the various services such as cleaning services, lift maintenance etc. individual service providers have discharged the Service Tax liability.

Appellant’s contention:- It was mainly contended on appellant’s behalf that the amount collected from flat buyers was to pay off the various developmental tax liabilities on behalf of flat owners. Hence no management, maintenance or repair services have been provided. So appellant is not liable to pay the said damages. It was also quoted that in the case of Lake View Developers - Order no. S/416/13/CSTB/C-I dt. 19/03/2013, tribunal had granted stay in similar case. Therefore, the stay application of the appellant should be allowed.

Respondent’s Contention:- . The learned Commissioner (AR) appearing for the Revenue reiterated the findings of the adjudicating authority and contendedthat the activity undertaken by the appellant comes under the category of ‘Management, maintenance and repair services'. Accordingly, appellant should be asked to pre-deposit.

Reasoning of Judgment:- After carefully considering the submissions made by both the sides and after perusing the provisions of Section 5 of the Maharashtra Ownership Flat (Regulation) Act, 1963, tribunal was of the view that the appellant has made out a strong case in their favour for grant of waiver from pre-deposit. Accordingly, the tribunal granted unconditional waiver from pre-deposit of the dues adjudged against the appellant and stayed recovery thereof during the pendency of the appeal.

Decision:- Stay application was allowed.

Comment:- The gist of this case is that amount collected by flat owners in respect of development and maintenance charges for the flat for discharging tax liabilities like property tax, water and electricity tariff etc. is not liable for service tax as the amount has been collected by the builders in the capacity of pure agent and there has been no provision of management, repair or maintenance services.

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