The Allahabad Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has held that service tax leviable on preferential location charges charged by builder. The Tribunal held that if no charge is levied for a preferential location or development, no service tax would be attracted in the first place.
The appellant/assessee DBF Infrastructure Pvt. Ltd is in the business of providing taxable services, namely “construction of residential complexes,” and is registered with the service tax authorities. During the audit of the records of the appellant for the period April 2013 to June 2016, the department noted that the appellant was not paying service tax on the preferred location charges (PLC) services provided to his customers. The service tax short paid was Rs. 3,25,123.
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A Show Cause Notice was issued to the appellant, asking them to show cause as to why service tax amounting to Rs. 3,25,123/- not paid on PLC recovered from service recipients while providing the said construction of residential complex services should not be demanded and recovered from them under proviso to Section 73(1) of Chapter V of the Finance Act, 1994.
The department confirmed the demand for service tax payable on PLC recovered from service recipients against the party for the period from April 2014 to June 2016 under Section 73(1) of the Finance Act, 1994, and ordered its recovery.
The assessee contended that the appellant has sold the flats in the building at different prices by adding a preferential location charge (PLC) to the base price depending upon their location in the building. Hence, PLC is not considered for the rendering of services but merely a premium price charged for the sale of that particular flat.
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The two member bench of P.K. Choudhary (Judicial Member) and Sanjiv Srivastava (Technical Member) have observed that the service is rendered in the context of a location, which does not make it a tax on land within the meaning of Entry 49 of List II. The tax continues to be a tax on the rendering of a service by the builder to the buyer. There is no vagueness or uncertainty.
While dismissing the appeal, the Tribunal held that if no charge is levied for a preferential location or development, no service tax would be attracted in the first place. Builders, however, follow the practice of levying charges under diverse circumstances, including the preferred development of the property intended to be sold or a preferred location that is made available to the buyer. If no separate charge is levied, the liability to pay service tax does not arise, and it is only when a particular service is separately charged that the liability to pay service tax arises.
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