The Hyderabad bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) remanded a ₹3.32 Cr service tax case back to the adjudicating authority for recalculating the tax liability on the appellant after reviewing all documents.
Creative Engineering Constructions, based in Vishakapatnam, is a developer accused of failing to pay service tax on residential complexes, villas, and road transportation services. The tax authority raised multiple show-caused notices (SCN). It confirmed the demand for Service Tax under the ‘Construction of Complex Service’ and ‘GTA Service”, alleging unpaid service tax, which amounts to ₹1.20 Cr, dropping the rest of the amount. The authority also stated that though the appellant had claimed that the flats and houses were sold after obtaining an Occupancy Certificate (OC), the appellant had not furnished any documentary evidence supporting their claim.
Law and Procedure for Filing of Appeals
The appellant submitted that the services should be classified under “ Worlds Contract Service” after July 1, 2007, after the Supreme Court decision in Larsen & Toubro Ltd. The appellant stated that villas constructed for personal use are exempt from service tax and that no advances were received before obtaining OCs in most cases, negating the tax liability imposed.
After considering submissions from both sides, the CESTAT noted that composite contracts cannot be taxed under “ Construction of Residential Complex Service” for periods before July 1, 2007. However, as clarified by the Supreme Court, they are taxed under “ Works Contract Service” after 2007. The tribunal also observed that service tax is applicable only if advances are collected before OCs are issued. The appellant claimed no advances were taken in most cases, but the tribunal found insufficient documentation to support this.
Law and Procedure for Filing of Appeals
When the adjudicating authority allowed abatements, the tribunal directed verification of value-added tax or sales tax payments on materials used, which is essential for determining abatement eligibility. The tribunal further criticised the incomplete submission of documents, including ledgers and agreements, to prove the appellant’s claims.
The CESTAT remanded the case to the original adjudicating authority and directed that the validity of OCs be verified and that advances be received before their issuance. The tribunal also directed the authority to assess eligibility for abatements based on Value-Added Tax compliance and recalculate the service tax liability considering the payments already made.
The tribunal, consisting of A.K. of A.K. Jyothishi (Technical Member) and Angad Prasad ( Judicial Member), asserted that tax demands must be based on proper classification and backed by solid evidence.
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