No Service Tax on Post-Occupancy Flat Sales: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT )  ruled that no service tax is applicable on flats sold after the issuance of an occupancy certificate, as such sales constitute a transfer of immovable property.

The Revenue-appellant filed this appeal against the Order-in-Original dated 17.06.2016, where the Commissioner, had dropped the proceedings initiated through the show cause notice dated 19.10.2015.

In this case, Rustomjee Evershine Joint Venture, respondent-assessee, was building a residential complex called ‘Global City’ in Virar (West), Distt. Palghar, Maharashtra. During an audit of their records from April 2010 to March 2014, it was found that service tax was paid on advances for flats booked before the ‘Occupancy Certificate’ was issued, but no tax was paid on payments for flats booked after the certificate.

Think Crypto is Tax-Free? Think Again! - Click here

The assessee also had not received the ‘Completion Certificate’ by 31.03.2014, the end of the audit period. In response, the department issued a show cause notice on 19.10.2015, proposing to demand ₹1,15,37,316 as service tax, recover interest, and impose penalties for contravention and suppression of taxable values.

However, the Order-in-Original dated 17.06.2016 dropped the proceedings, stating the sale of flats after the ‘Occupancy Certificate’ was issued was exempt under Section 66E(b), and the service tax demand was not valid. The Revenue filed this appeal challenging the decision.

Think Crypto is Tax-Free? Think Again! - Click here

The two member bench comprising Ajay Sharma (Judicial Member) and Anil.G.Shakkarwar(Technical Member) heard both sides and reviewed the records, written submissions, and relevant case laws. It noted that under Section 66E(b) of the Finance Act, 1994, construction of a building intended for sale is considered a declared service, unless full payment is received after the issuance of a completion certificate by a competent authority such as an architect, engineer, or surveyor.

Read More: Service Tax Demand on Card Personalization: CESTAT Declares Activities as Manufacturing, Quashes Penalties

The tribunal referred to a press release dated 26.10.2015 from the Ministry of Finance, which clarified that sale of flats after receiving an occupancy certificate amounts to a transfer of immovable property and is not subject to service tax. Though the clarification mentioned BMC specifically, the CESTAT held that it applied to other municipal corporations as well, including Vasai-Virar, since the law was the same across the state.

It found no merit in the Revenue’s argument that the clarification applied only to BMC. The appellate tribunal agreed with the Commissioner that the rules for issuing occupancy certificates under Vasai-Virar and other municipal bodies were similar. It also noted that an occupancy certificate is issued only after the building is completed and verified for compliance with approved plans.

Think Crypto is Tax-Free? Think Again! - Click here

In this case, the assessee had received occupancy certificates from Vasai-Virar Municipal Corporation and had sold the flats after that date. The Revenue did not dispute the certificates. Since no service was provided after the issuance of the occupancy certificate, the CESTAT held that the sale of flats was outside the scope of service tax and fell under the exception in Section 66E(b).

In short, the appeal filed by the Revenue was dismissed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates