The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) observed that service tax is not leviable on flats, less than 12 in units constructed prior to 01.07.2010.
Believing that there was no tax liability, the appellant filed a refund application claiming refund of the above service tax paid to the developer, which resulted in the issuance of a show cause notice by the revenue. It appeared that thereafter the case was taken up for adjudication and, per the order, the adjudicating authority rejected the claim for refund. It was the case of the original authority that the service tax was paid towards works contract service provided by the developer, which was very much in order.
In a nutshell, it is the case of the revenue that plan approval having been obtained on 04.03.2013 and the construction activity having been commenced from 31.06.2013, explanation inserted to tax works contract service with effect from 01.07.2010 was very much applicable to the case of the appellant. It is against this order that the present appeal has been preferred by the taxpayer.
The appellant submitted that their case is supported by Notification No. 36/2010–ST dated 28.06.2010, which specifically exempted the tax liability on the amounts received prior to 01.07.2010 towards any service provided after that date; the Board had also issued a Circular No. 151/2/2012–ST dated 10.2.2012 clarifying that the consideration for the builder / developer is the land/ developmental rights.
It is their further case that even the definition of Residential complex is not satisfied since only a few, i.e., less than 12 units/flats were constructed and hence, for any levy, it should be a residential complex comprising more than 12 residential units/flats and therefore, there was no liability to service tax. Even otherwise, the development and construction of residential units was intended for personal use and hence, by virtue of clarification of CBEC circular No. 108/2/2009–ST, the construction for personal use would fall within the exclusion portion of the definition of residential complex as defined under section 65(91)(a) of the finance act 1994.
A Two-Member Bench comprising M Ajit Kumar, Technical Member and P Dinesha, Judicial Member observed that “We find that there is no dispute that only four residential units / flats were constructed in this case on hand and hence, by virtue of this alone the case of the appellant does not get covered under the definition of residential units since the definition covers any complex of a building or buildings, having more than twelve residential units.”
“Secondly, going by the ruling of the coordinate Hyderabad Bench, we are also of the view that there was no tax liability on the appellant for the impugned flats constructed prior to 01.07.2010, having less than 12 units / flats and hence, the refund claimed by the appellant was very much in order; the revenue has erred in rejecting the valid refund claim and consequently, the impugned order cannot sustain” the Tribunal concluded.
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