The Chennai bench of the Customs, Central Excise and Service Tax Appellate Tribunal (CESTAT) has held that the builder cannot be liable to pay service tax for the construction of residential flats for the individuals in view of the circular issued by the Central Board of Indirect Taxes and Customs (CBIC) dated 29.1.2009.
Before the authorities, the appellants contended that the Circular issued by the Board dated 29.1.2009 is applicable to the taxable service of construction of individual flats rendered by the appellant. In the said circular, it is stated that prior to 1.7.2010, construction service provided by the builder / developer will not be taxable in terms of Board circular dated 29.1.2009.
The adjudicating authority, while concluding, found thatthe appellant had rendered the construction service after selling the land to the customers. Thus, the land belonged to the customers and not the builder / developer while rendering the service. On such ground, it was held that the construction being rendered to an individual, it is not taxable as per the Board circular.
The bench comprising Judicial Member Ms. Sulekha Beevi and Technical Member Mr. P Anjani Kumar held that it is not in dispute that the construction services are composite in nature involving both supply of goods and rendering service. The definition of works contract was introduced under sec. 65(105)(zzzza) with effect from 1.6.2007. The service portion in the composite work contract was specifically made taxable under works contract service with effect from 1.6.2007.
“The manner of determination of the value of such service portion is prescribed vide Rule 2(A) of Service Tax (Determination of Value) Rules, 2006 framed under sec. 94(2) of the Act. Alternatively in the form of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 was introduced to pay service tax at a lesser rate on the gross amount (including the value of transfer of property in the goods). The issue as to whether a composite contract which has both transfer of property in goods as well as rendering of service would fall under CICS / CCS / CRCS was examined and finally settled by the Hon’ble Supreme Court in the case of Larsen & Toubro Ltd. reported in 2015 (39) STR 913 (SC). The Hon’ble Supreme Court observed that the service classified under CICS and CCS as defined under clause (zzzq) and (zzzh) of section 65(105) would cover only pure service contracts which does not involve any transfer of property in goods,” the bench said.
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