whether Advocate Fees Collected from customers under the head “other charges” while performing “construction of complex service” is liable for tax?

PJ/CASE LAW/2014-15/2506

Case:-Sobha Developers Ltd Vs Commissioner Of Central Excise, Customs And Service Tax, Bangalore-Ltu

Citation:-2015-Tiol-26-Cestat-Bang

Brief Facts:-The Appellant Is A Builder/Developer Engaged In Construction Of Residential Complexes. On The Ground That Appellant Should Have Paid Service Tax On The BWSSB Charges And KEB Charges And Advocate Fees Collected From Customers Under The Head “Other Charges” During The Period From 2006-07 To 2010-11, Proceedings Were Initiated Resulting In Confirmation Of Demand For Service Tax Of Rs. 14,00,40,596/-. The Show-Cause Notice Was Issued On 18.04.2012. The Appellant Was Collecting Amounts From Its Customer Of The Various Residential Projects Towards Bescom Charges, Bwssb (Gbwsp) Charges And Legal Charges Which Is Liable To Included In The Taxable Value As Per Section 67 Of The Finance Act, 1994 Read With Rule 2a Of The Service Tax (Determination Of Value) Rules, 2006. The Amounts Collected By The Appellant Towards Other Charges Forms A Part Of The Construction Cost And Are Liable To Be Included In The Taxable Value Of “Construction Of Complex Service” Under Section 65(105)(Zzzh) Of The Act. The Date Of Completion Of The Construction As Per Construction Agreements Was The Date Certified By The Architect That The Apartment Was Ready For Occupation And The Date Of Obtaining The Power Supply, Provision For Water Supply, Installation Of Stp/Wtp, Fire Inspection And Lifts. Therefore Provision Of Power Supply And Water Supply Are Not Post The Completion Of Construction Activity. Since The Appellants Are Unable To Furnish Month-Wise Data, The Amount Should Be Treated As Collected On The First Day Of The Respective Financial Year And Charged At The Highest Rate Of Tax For That Financial Year. The Appellants Had Deliberately Suppressed The Fact Of Receipt Of Actual Consideration On The Apartments Construction By Them With An Intention To Evade Payment Of Service Tax.

Appellant’s Contention:-Builder/Developers were not required to pay service tax under the head of
“construction of residential complex service” before 01.07.2010. Reliance is placed
On-
Circular No. 108/02/2009 dated 29.01.2009
Circular No.151/2/2009-ST dated 10.02.2012
Maharashtra Chamber of Housing Industry V. UOI 2012 (25) STR 305 (Bom.) = 2012-TIOL-78-HC-M UM -ST
- Without prejudice to the above submission, the amounts collected relate to getting no-objection certificate from BWSSB for Water Supply, no-objection certificate from KEB for electricity supply and advocate fees for registration of sale deed and other legal formalities. These are post-construction activities and are not liable for payment of tax under Construction of Complex Service.
- As per Section 6 of the Karnataka Ownership of Flats Act, 1972, a promoter who constructs a building or a block of flats has a statutory duty to pay all outgoings including water charges and electricity charges. Thus, amounts received with respect to execution of statutory obligations cannot be subject to tax under “construction of residential complex service”. Reliance is placed on decision in Kumar Beheray Rathi V. CCE, Pune-III, 2014 (34) S.T.R. 139 (Tri.- Mum) = 2013-TIOL-1806-CESTAT-M UM .
- Functions of an executor of the property cannot come under the purview of service tax under Construction of Complex Service. Reliance is placed prima facie view taken in –
Hiranandani Constructions Vs. CCE, Thane - 2013-TIOL-1051-CESTAT-M UM
Raheja Universal (P) Ltd. V. CST, Mumbai – I - 2013-TIOL-1357-CESTAT-M UM .
- Assuming, even if the amounts collected from the buyers under “other charges” is more than the amount spent for obtaining such connections, service tax cannot be levied even on such difference as basic amount itself is not taxable. The principle enunciated in Baroda Electric Meters Ltd. V. CCE, 1997 (94) ELT 13 SC = 2002-TIOL-96-SC-CX-LB is relied upon.
- The agreements show the construction cost separately. Therefore other charges collected cannot be considered as consideration “for such service” of construction of complex service.
- Alternatively, appellant is eligible for payment of service tax under Works Contract Composition Scheme or for abatement under Notifications No.01/2006 dated 01.03.2006 or benefit under 12/2003 dated 20.06.2003; they are also eligible for CENVAT credit on inputs used in providing services.
- The activities of the appellant were well within the knowledge of the Department as several show cause notices relating to the construction activity on various issues have been issued and adjudicated, including the same issue for previous period. Therefore, suppression cannot be alleged and penalty under Section 78 of the Act cannot be imposed.

Respondant’s contention:-We have considered the submissions made by the learned counsel as well as the learned AR. We find that even though several decisions have been cited by the learned counsel, none of them discussed the issues relating to the charges on which service tax is to be paid before us. Therefore these decisions may not be relevant. As regards these amounts, we asked some specific queries to the learned counsel. The first question was whether the appellant acted as pure agent and this was not confirmed. The second question was whether these amounts were collected during the course of implementation of agreement of construction in different stages and answer was yes. Since the amounts were paid during the course of construction and were not collected on actual basis, it cannot be said that it is not part of the construction activity. Moreover provision of electricity, water and advocate fee for verifying documents etc are essential requirements to be fulfilled before the building is handed over. It was also agreed that such payments were made to BWSSB, KEB etc before the occupancy certificate was issued. The payments to BWSSB etc as well as payments by the buyer were made during the construction period. Therefore it is difficult to accept the view that it is not part of the construction cost. Once it is part of the construction cost, it becomes liable to tax. Therefore prima facie we do not find any merit in the appellant's case.

Reasoning of judgment:-However we find merit in the appellant's submission that the extended period cannot be applied and further prior to 01.07.2010, tax could not have been demanded. This is because the amendment to the definition which resulted in transaction within the individual buyer/builder/developer also becomes liable to service tax only after 01.07.2010. Further we also consider that the issue is a debatable one and subject to different interpretations and therefore extended period may not be invokable. However since we have taken a view that appellant is liable to pay service tax on these elements of cost, we consider that appellant should deposit the entire amount of tax demanded and payable with interest (approximate calculations) for hearing the appeal for normal period. The learned counsel submitted that if the Works Contract Composition Scheme benefit is allowed, the appellant will be liable to pay approximately of Rs. 1,00,00,000/- (Rupees one crore only) within 8 weeks and report compliance on 08.12.2014, that would be sufficient to hear the appeal and staying recovery of balance dues during the pendency of appeal.

Decision:-The appeal is not allowed.

Comment:-The BWSSB Charges And KEB Charges And Advocate Fees Collected From Customers Under The Head “Other Charges” while providing the services of construction of residential complex forms the part of total consideration and therefore are chargeable to tax .

Submitted By:-Somya Jain

Comments

PJ/CASE LAW/2014-15/2506

Post a Comment

Query