Whether service tax is payable at service provided by seller till execution of sale deed?

PJ/Case Law /2016-17/3307

Case:-BAIRATHI DEVELOPERS PVT. LTD VersusCOMMISSIONER OF C. EX., JAIPUR

Citation:- 2016 (43) S.T.R. 455 (Tri. - Del.)

Brief facts:-This appeal is against order dated 15-10-2010 of Commissioner (Appeals), Jaipur. The appellants are registered with the Department for providing construction service. Proceedings were initiated against them for non-payment of service tax for the periods 2004-2005 to 2007-2008 in respect of construction of complex service. The appellant entered into joint venture with the land owners in 4 places. As per the agreements the appellants had borne the construction expenses in lieu of which the appellant got share of ownership of 50% of the total construction area. The case of the Department is that for the 50% of the complex assigned to the land owners, the appellants were not discharging the service tax. Proceedings initiated against the appellant resulted in the order-in-original dated 14-12-2009 confirming demand of Rs. 5,17,134/- and imposing equal amount of penalty under Section 78 of the Finance Act, 1994. Further penalty was also imposed under Section 76 of the Act. On appeal, the Commissioner (Appeals) vide the impugned order rejected the appeal. Aggrieved, the appellant is before the Tribunal in appeal.

Appellant’s contention:-The learned counsel for the appellant submitted that C.B.E.C. vide Circular dated 29-1-2009 clarified that the initial agreement between the promoters and the ultimate owner is in the nature of agreement to sale. Property gets transferred to the owner only after the completion of the construction and on full payment of the consideration. Any service provided by the seller in connection with 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. Reliance was placed by the learned counsel on various decisions of the Tribunal and Hon’ble High Courts in support of their claim.

Respondent’s contention:-The learned AR reiterated the findings of the lower authorities.

Reasoning of judgment:-The Tribunal heard both the sides and examined the appeal records. It found that service tax demand against the appellant has been confirmed on the ground that they have failed to pay their tax liability in respect of 50% of the constructed property assigned to the owners of the land in terms of the Joint Development agreement. It was alleged that this share of property with land owner can be equated to selling of property when there is agreement to sell and the land owner becomes prospective buyers. The learned Commissioner (Appeals) quoted the above-mentioned Circular of the C.B.E. & C. and found it not applicable to the present case of the appellant as appellant was engaged in construction of commercial building, whereas the Circular is relating to construction of residential units. The Tribunal failed to appreciate such distinction. The main point of clarification by the C.B.E. & C. is on the implication of “agreement to sale” and provisions of Transfer of Property Act to determine the question of service to another person or service to self. It has been clarified that the execution of sale deed transfers the ownership of their property to the ultimate owner. Hence, any services provided by seller till the execution of such sale deed will be in the nature of self-service with no liability to service tax. In such factual position, the distinction sought to be made in the impugned order is not tenable.
The Tribunal found that the Tribunal in the case of R.F. Properties & Trading Ltd. v. CCE, Jaipur reported in 2013 (31) S.T.R. 578 (Tri. - Del.) examined the scope of C.B.E. & C. clarification dated 29-1-2009 and the explanation inserted in Section 65(105)(zzq) through Finance Act, 2010. It was concluded that mere agreement to sale does not create any interest in the property and no service was provided to the buyer and service, if any, will be only to the self. In the present case from the nature of activity and agreement as mentioned in the impugned order it is apparent that the 50% share of the constructed property is transferred to the land owner only upon completion of the construction and there is nothing on record to indicate that there is a service provider and recipient relationship before such transfer of constructed building to the possession of land owner. In view of the above analysis and finding, the Tribunal held that the impugned order is not sustainable and the same is set aside. The appeal is allowed.

Decision:-Appeal allowed

Comment:-The gist of the case is thatappellant entered into joint development agreement and assigned 50% of constructed property to owners of land. In view of CBEC’s circular, service tax is not payable as any service provided by seller till execution of sale deed is treated as self-service and it is a settled law that mere agreement to sale not creates any interest in property and no service is provided to buyer. Since 50% of constructed property is to be transferred to land owner only on completion of construction, there is no relation of service provider and service recipient between appellant and land owner and hence service tax is not leviable.

Prepared by:-Praniti Lalwani

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PJ/Case Law /2016-17/3307

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