Construction Services under Collaboration Agreements Fall under Works Contract: CESTAT quashes Rs. 1.59 Crore Service Tax Demand [Read Order]

In a recent ruling, the Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) quashed the Rs. 1.59 crore service tax demand levied against the assessee and held that construction services carried out under collaboration agreements with landowners are not taxable under the category of "commercial or industrial construction services" but instead qualify as "works contracts."

In this case, the appellant, M/s New Heights Buildcon, is a real estate builder. In 2014, the Directorate General of GST Intelligence (DGGI) initiated an investigation into the company’s dealings. After the search proceedings at the builder’s offices, the authorities observed that the assessee had provided construction services to landowners in exchange for an undivided share of the land but failed to pay service tax on the constructed portions allocated to these landowners. A demand notice was issued in 2016 to recover Rs. 1.59 crore, along with interest and penalties, and the tax authorities later upheld this demand in 2018.

During the proceedings before the CESTAT, both parties agreed that there was a precedent in a related case involving the assessee itself, and the name of the case was M/s. JMD Ltd. vs. Additional Director General (Adjudication), DGCEI, New Delhi. In this case, the CESTAT held that construction services provided under collaboration agreements constituted "composite works contracts," which involve both goods and services.

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Thus, by relying on the above-mentioned decision, the CESTAT noted that the adjudicating authority failed to follow the judicial protocol. The bench observed that no service tax could be levied before June 1, 2007, and that subsequent demands under an incorrect tax category were not maintainable.

The CESTAT, comprising Dr. Rachna Gupta ( Judicial Member ) and Hemambika R. Priya ( Technical Member ) set aside the impugned order and allowed the appeal filed by the appellant.

The appellant was represented by Mr. P.K. Sahu and the Department by  Mr. S.K. Meena.

To Read the full text of the Order CLICK HERE

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M/s. New Heights Buildcon Pvt. Ltd. vs The Additional Director General , 2024 TAXSCAN (CESTAT) 1041 , SERVICE TAX APPEAL NO. 50091 of 2019 , 20 December 2024 , P.K. Sahu , S.K. Meena