Service Tax can’t be levied on Consideration received from Land Owners towards Money paid by Flat Buyers: CESTAT [Read Order]

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Vasantha Green Projects vs. CCT held that Service Tax could not be levied on the consideration received from land owners in the form of land rights, when the cost of acquisition of land has already been subject to Service tax from prospective buyers.

The assessee who is registered with the Department under the category of construction of residential complex services and works contract services entered into the joint development agreement for construction of flats/ houses and residential premises with different land owners. As per the agreement, 9 Lakhs Square Feet of the area was to be developed and a built-up area of 2.71 Lakhs was to be given to land owners. They also entered into the agreement with prospective buyers at the rate of Rs. 5,495/sq. ft. The Department issued a notice for payment of differential service tax for the period April 2012 to March 2015 with an allegation that they had not discharged the service tax liability towards the amount received from land owners towards the allotted share of the developed property.

The adjudicating authority, after due process of law, confirmed the demands raised along with interest and imposed penalties. The assessee appealed before the CESTAT.

The Counsel for the appellant contended that at the time of sale of Villas to prospective customers, appellant had included the cost of land in the price of villas and paid service tax on such sale price as provided in the statute. He argued that in consideration of the land given by the land owners they constructed villas for the land owner and gave them free of cost and that the service tax due on the consideration received from the land owners in the form of land was actually discharged. He vehemently contended that the action of the adjudicating authority to bifurcate the joint development agreement into two transactions was incorrect. He relied on a letter by the CBEC, wherein it has been directed that in all such situations, the taxable value under section 67 of the Finance Act, 1994 shall be gross amount charged by service provider (builder in this case) for such services provided or to be provided and these instructions are applicable on Revenue.

The departmental representative submitted that the appellants had adopted the value for inclusion of discharge of service tax on the portion of the land developed and given to the land owners @ Rs. 1,779/- per sq. ft. was totally wrong as per the provisions of Section 67 (1) of Finance Act, 1994 read with rule 3(a) of the Service Tax (Determination of value) Rules, 2006 and as clarified by the Board vide circular dated 10.02.2012 and the value that should be adopted for discharging the service tax liability on the land-owners share of Villas is to be arrived as per the price received by them from independent prospective customers.

The Bench comprising of Judicial Member M.V. Ravindran & Technical Member Madhu Mohan Damodhar observed “The appellant has discharged the service tax liability on the gross amount charged i.e. consideration received from the land owners in the form of kind other than cash (value of the land/development rights) + consideration received from prospective buyers in cash by way of financial arrangements on the construction services undertaken by the appellant on joint development basis. We also note that appellant had declared the same in the books of accounts like IT returns and ST 3 returns which has been certified by Chartered Accountant wherein it is stated that service tax compliance is towards the payment of the gross amount of the construction undertaken on joint development basis and received from the customers has been made. This leads to a conclusion that it is evident that appellant has compiled the service tax liability on the construction undertaken on joint development basis on the value of construction which is mandated in Section 67 of Finance Act, 1994, read with rules made thereunder. In our view, if once the service tax liability has been discharged on the gross amount, demand of service tax on the same amount again would amount to double taxation.”