The Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) deemed the service tax demand on landowner shares in a residential complex under construction as unsustainable.
The appellant M/s. Srivari Property Developers is engaged in providing construction of residential complex services and are registered with the Department. On scrutiny of documents, in regard to project Sushant, Advaith , Anikait and Pranaav, it was noted by the Department that the appellant has not paid service tax on the payments received as the number of units are 12 or less than that. However, in respect of Prathist and Shaaswat as these projects had more than 12 residential units, the appellant had to pay service tax. On perusal of payments made by them, it was seen that they had not discharged service tax in respect of land owner’s share.
A Show Cause Notice dated 08.04.2010 was issued for the period June 2005 to April 2009 demanding service tax under Construction of Residential Complex service on land owner shares. After due process of law, the original authority confirmed the demand, interest and imposed penalty. Aggrieved by such an order, the appellant filed an appeal before the Commissioner ( Appeals ) who upheld the same.
Ms. Radhika Chandrasekar representing the appellant submitted that the period involved is from June 2005 to April 2009. The demand has been raised under the category of Construction of Residential Complex services. As per Section 65(105) the said service defines and includes services which are purely service simplicitor without involving the use of materials. As per the definition of works contract services with effect from 01.06.2007, the levy of service tax on composite contracts including both service and use of materials would be taxable only under WCS.
The tribunal in the case of Real Value Promoters Pvt. Ltd. vs. Commissioner of GST and Central Excise held that Works Contract cannot be taxed prior to 01.06.2007 and in respect of contracts which are composite in nature, the demand cannot be sustained under Construction of Industrial Complex Services / Commercial Construction Services or Construction of Residential Complex Services.
The bench found that the definition of Construction of Residential Complex does not apply to constructions in the nature of composite contracts which involve both providing services as well as use of goods and materials. The services which involve composite contracts fall under the definition of Works Contract Services which was brought forth from 01.06.2007. Therefore in cases where there is provision of services of composite nature, the demand can be raised only under WCS. The demand under Construction of Residential Complex would not apply as this definition deals with service simplicitor.
Further, the two member bench of the tribunal comprising Vasa Sesha Giri Rao ( Technical member ) and Sulekha Beevi C.S ( Judicial member ) observed that the tribunal in the case of Srinivasa Shipping & Property Developers Ltd. ( supra ) on a similar set of facts and issues had held that the demand under residential complex services cannot sustain.
CESTAT held that the demand raised under construction of residential complex services cannot sustain. Accordingly, the impugned order was set aside. The appeal was allowed.
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