Whether service tax leviable on Construction of residential units on a plot of land owned by appellant?

PJ/Case Laws/2012-13/1284

Case:- AMBIKA PAINTS PLY & HARDWARE STORE versus COMMISSIONER OF C. EX., BHOPAL

Citation:-2012 (27) S.T.R. 71 (Tri.-Del.)

Brief Facts:-The Assessee is engaged in the business of real estate development and construction of residential houses. They owned the land out of which plots were sold to their customers and duplex type residential houses were constructed on those plots as per agreement with their customers. The department said that the assessees have provided the taxable service of "construction of complex" and demand of service tax along with interest and penalty was raised.

Appellant Contention’s:-The Appellant submits that the assessee in terms of their agreement with their customers were selling the plots of land owned by them and were constructing the duplex type houses for them, that the assessee activity is not covered under "construction of complex services" because they have been constructed residential units and not residential complexes and transaction between the assessee and their customers was selling of immovable property and not of service, hence no service tax is charged and for this reason they rely upon the case of Magus Construction Pvt. Ltd. v. Union of India and also Board's Circular No. 332/35/06-TRU, wherein it has been clarified that in a case where a builder, promoter, developer or any such person builds a residential complex having more than 12 residential units by engaging a contractor for construction of such residential complex, the contractor in his capacity as provider of taxable service to the builder/promoter/developer shall be liable to pay service tax on the gross amount charged for the construction service so provided and that if the builder/promoter/developer undertakes the construction work himself, in absence of service provider and service recipient relationship, the question of providing taxable service by the builder/developer/promoter to any other person does not arise and same instructions have been reiterated in Board's Circular No. 108/02/09-S.T., In this Circulars, service tax cannot be demanded from the builder/promoter/developer. The appellant have a strong prima facie case and, hence, the requirement of pre-deposit of service tax demand, interest and penalty may be waived for hearing of their appeal and recovery thereof may be stayed till the disposal of the appeal.

Respondent Contention’s:-The Respondent submits that the stay application by reiterating the findings of the Commissioner (Appeals) in the impugned order and also cited the judgment of Hon'ble Punjab & Haryana High Court in the case of G.S. Promoters v. Union of India reported in 2011 (21) S.T.R. 100 (P & H) and contended that their case is not apt for waiver.

Reasoning of Judgement: -We have considered the submissions made by both the sides and perused records. There is no dispute about the fact that the appellant in terms of their agreement with their customers for construction of residential units on a plot of land owned by them, construct the duplex type houses for their customers. Hon'ble Gau. High Court in the case of Magus Construction Pvt. Ltd. v. Union of India (supra) has held that construction of residential complex by a builder/developer against agreement for purchase of flat with the customers is not service, but is an agreement for sale of immovable property. Hon'ble Punjab & Haryana High Court in the case of G.S. Promoters v. Union of India (supra) was cited by the Respondent. We find that it is only w.e.f. 1- 7-2010, that explanation was added to Section 65(zzzli) of the Finance Act, 1994 providing that, construction of a complex which is intended for sale; wholly or partly, by a builder or any person authorized by the builder before, during or after construction, shall be deemed to be service provided by the builder to the buyer. This legal fiction introduced by explanation to Section 65(zzzh) has not been given retrospective effect. Therefore, the appellant's activity cannot be treated as service provided by them to their customers. In respect of the period prior to 1-7-2010 same view has been expressed by the Board in its Circular No. 108/2/2009-S.T., dated 29-1-09 and the impugned order is not correct. The requirement of pre-deposit of Cenvat credit demand, interest and penalty is waived for hearing of the appeal and recovery thereof is stayed, till the disposal of the appeal. The stay application is allowed.

Decision: -Appeal Allowed.

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PJ/Case Laws/2012-13/1284

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