Individual Villas in Gated Layout Not Residential Complex for Service Tax: CESTAT Sets Aside Demand [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that the construction of individual villas in a gated layout does not amount to construction of a residential complex for service tax, merely because the layout has common amenities.

Green Avenue Homes & Gardens was engaged in constructing residential complexes, apartments and villas. The department investigated its activities and found that between April 2009 and December 2012, the appellant developed eight villa projects, including one under joint development. The department treated the projects as taxable works contract services involving the construction of a residential complex.

According to the department, each project had more than 12 units, common gated community facilities and a common project identity. Service tax of Rs. 4,04,98,480 was computed after adjusting Rs. 58,46,024 already recovered. The Principal Commissioner confirmed the demand with interest and imposed penalties underSections 77 and 78 of the Finance Act, 1994.

The appellant’s counsel argued that each buyer was allotted a specific plot and obtained plan approval in his own name. Each buyer entered into a separate agreement for the construction of his villa. It was argued that there was no single agreement for construction of a residential complex.

The appellant’s counsel also argued that common facilities such as a clubhouse, swimming pool, security and roads do not convert individual villas into a taxable residential complex. They relied on Macro Marvel Projects Ltd., Modi & Modi Construction, CSK Realtors Ltd and Jay Pee Enterprises.

The department’s counsel argued that the projects had more than 12 units, common layout approval, common amenities and project names. They relied on Madhukar Mittal v. CCE, Panchkula and also argued that the appellant’s VCES declaration showed awareness of taxability.

The two-member bench comprising M. Ajit Kumar, (Technical Member) and Ajayan T.V. (Judicial Member) observed that the case involved individual constructions for separate owners and not one composite residential complex project.

The tribunal observed that a common project name, common amenities and gated layout were not decisive. It pointed out that plots were separately identified, approvals were obtained individually and construction contracts were entered into separately.

The tribunal followed Macro Marvel and other coordinate bench decisions holding that construction of individual houses does not fall within residential complex service. The tribunal held that the appellant’s activity was not taxable as construction of residential complex. It set aside the service tax demand, interest and penalties, and allowed the appeal with consequential relief.

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