No Service Tax on Projects Completed Before July 2010, Even If Payments Are Received Later: CESTAT [Read Order]

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that service tax cannot be levied on construction projects completed before July 1, 2010, even if payments were received after that date.

Vishal Projects Ltd, the appellant, is a builder engaged in constructing residential and commercial complexes in Hyderabad, including a project called Prakruti Nivas. The department issued show cause notices demanding service tax, arguing that the appellant had received payments from buyers after July 1, 2010, making the transactions taxable under service taxlaws.

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The appellant’s counsel argued that Prakruti Nivas was fully completed by March 2009, with a completion certificate from the Gram Panchayat obtained before the introduction of service tax on construction services from July 1, 2010.

The counsel argued that since the construction was completed before the levy came into force, no service tax could be imposed even if payments were received later. The counsel relied on CBEC Circular No. 108/2/2009-ST and tribunal decisions clarifying that service tax could not be levied on completed projects where the taxable event, which is the provision of service, occurred before the tax was introduced.

The revenue counsel argued that the appellant had received payments after July 1, 2010, and that service tax was applicable on these receipts under the service tax law. The counsel also argued that the project met the criteria of a residential complex with common areas and facilities, making it taxable under service tax provisions.

The two-member bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) agreed with the appellant’s arguments. The tribunal observed that the taxable event for service tax is the provision of service, and since the construction was completed before July 1, 2010, service tax could not be levied on payments received later for the completed project. The tribunal relied on CBEC circulars and prior tribunal decisions to support this position.

The tribunal explained that once the project was completed before the introduction of the levy, the subsequent receipt of payments did not attract service tax, and the demand raised by the department was unsustainable. The appellant’s appeal was allowed.

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