OIO No. 35/STC-AHD/ADC/ (MKR)/2011-12
Page 1 of 28
BRIEF FACTS OF THE CASE:M/s N.G. Patel &. Associates, (Unit of N.G.Group), 10th Floor,
Astron Tech Park, Opp. Fun Republic, Satellite, Ahmedabad [herein after
referred to as the said service provider] are engaged in the business of
constructing residential complex. Intelligence gathered revealed that they
have provided construction service towards Ashwaraj Bungalows Scheme as
contractor and not paid service tax under the category of Construction of
Complex Service on the gross value received from the owner of the
land/plots of M/s Vishnudevi Co-Op. Housing Society Ahmedabad [herein
after referred to as said society].
2. Summons were issued on 12.12.2006, 05.02.2007 and the required
documents such as IT returns for 04-05 & 05-06, Balance Sheet for the year
04-05
&
05-06,
details
of
residential
building/commercial
building
developed/constructed and details regarding service tax registration and
payment of service tax etc. were called and
to give the statement. Also,
summons dtd. 05.06.2008 were issued for recording the statement.
3.
In response to the summons dtd. 12.12.2006 & 05.02.2007, the
said service provider had submitted Ledger Account/Advances received
against construction work/Ledger Accounts of members of the plot for the
year 2004-05, 05-06 & 06-07 alongwith a specimen construction agreement
dtd. 21.05.20.04 made with Smt. Dipti P Shah & Shri Pankil K Shah owner
[allottee] of the Bunglows No. 37 & 38 and allotment letter dtd. 02.03.2005
issued by said society for Rs.18,98,400/- in favour of Smt. Dipti P Shah &
Shri Pankil K Shah; list of members of Ashwaraj Bungalows Scheme [herein
after referred to as said scheme], Registration certificate dtd. 30.01.2004
issued by Assistant District Registrar, Dist. Panchayat Ahmedabad,
Development Permission dtd.30.04.2004, B.U. Permission dtd. 24.04.2006
and 23.04.2007 in case of Ashwaraj Bungalow Scheme alongwith village
specimen No. 7&12 and Index No.2 all documents
in favour of the said
society .
4.
In
response
to
summons
dtd.
05.06.2008,
Shri
N.G.Patel,
Partner of the said service provider firm, remained present on 12.06.2008
for giving his statement with regard to construction activity carried out by
them. On being asked he, inter-alia, stated that their firm has been
appointed as a contractor to construct the residential bungalows of the said
scheme (Ashwaraj Bungalows) by different persons/owners of the plot who
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are members of the said society. The construction has to be done according
to plan given to them by each member; that referring to the specimen
construction copy of agreement dtd. 21.05.2004 had been made between
joint owner Smt. Dipti P Shah, Shri Pankil K Shah and M/s. N.G.Patel &
Associates; he inter-alia deposed that as per agreement, M/s N.G.Patel &
Associates have been appointed and authorized as contractor to construct
the said bungalows on the land/plot who would carry out construction
work, in accordance with such plans and specifications as decided by the
owner in consultation with the Architect of the, organizer firm; that they
would also carry out the construction work as per the plans and would
employ
necessary
supervisor,
give
the
contractual
work
to
labour
contractor, purchase raw material and create necessary infrastructure for
smooth progress of construction work; that the Owner of the plot agreed to
pay Rs.33,00,100/- being construction cost of the said bungalow; that the
cost has been decided on the basis of plans and specifications provided,
more particularly attached to the said agreement; that the construction area
was fixed @ 541 sq. yards and the rate for construction is decided @ 6100/per sq. yards; that the owner would pay to the contractor if agreed, to the
organizer–M/s. N.G. Corporation, such sum of money as may be demanded
by the contractor looking to the progress of the work; that it was proposed
to complete the construction of the bungalow within a period of 2 years that
the owner agreed to pay all the amounts payable under the terms and
conditions of the agreement as and when that becomes due and payable;
that it was specifically agreed that cost decided did not include any Legal
charges, Architect's fees, Fees payable for passing of plans, AEC estimates
and charges etc., the same would have to be borne by the owner or
organizer of Ashwaraj–M/s. N.G. Corporation as may have been decided
between them.
5. It appeared that the said service providers, had carried out construction
work to the members during the year 2004-05, 05-06 & 06-07 for 35
members, who have common and mutual interest among themselves as all
are members of the said society. As per details given in the ledger account
for construction work carried out by the said service providers i.e.
N.G.
Patel & Associates and list showing payment received towards construction
work, the members of the plots had made total payment of Rs.9,38,27,070/during 2004-05, 05-06 & 06-07 respectively towards construction work to
them.
6.
It also appeared that the said society, having 43 units in the said
scheme i.e. Ashwaraj Bungalows had booked 35 members. It had got the
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development and plotting of its land and common amenities i.e. common
road, streetlight, water and drainage facilities, compound wall, fencing work
etc. It had sold the plots duly developed to its members. The said society
had issued allotment letters to its members who had paid the amount of
land cost etc. The said plot owners/members had got construction work
from said service provider. For example, Smt. Dipti P Shah & Shri Pankil K
Shah, Member (No.37 & 38) had paid Rs.18,98,400/- as per allotment letter
dtd. 02.03.2005 for booking of sub-plot No.37 & 38. Likewise, allotment
letters had been issued by the said society to its other members. The
members had got construction work for their bungalows from the said
service provider–the contractor who had carried out construction work. The
members had made construction agreements with said service providers.
For example, Smt. Dipti P Shah & Shri Pankil K Shah Member (No.37 & 38)
had made construction agreement dtd. 21.05.2004 with the said service
provider. As per agreement, the said service provider had been appointed
and authorized as contractor to construct the said bungalows on the land/
plot who would carry out construction work in accordance with such plans
and specifications as decided by the owner in consultation with the
Architect of the organizer firm. They would also carry out the construction
work as per the plans and would employ necessary supervisor, give the
contractual work to labour contractor, purchase raw material and create
necessary infrastructure for smooth progress of construction work. The
Owner of the plot agreed to pay Rs.33,00,100/- being construction cost of
the said bungalow. The cost had been decided on the basis of plans and
specifications provided, more particularly attached to the said agreement.
The construction area was fixed @ 541 sq. yards and the rate for
construction was decided @ 6100/- per sq. yards. The owner would pay to
the contractor if agreed, to the organizer–M/s. N.G.Corporation, such sum
of money as may be demanded by the contractor looking to the progress of
the work. It was proposed to complete the construction of the bungalow
within a period of 2 years. The owner agreed to pay all the amounts payable
under the terms and conditions of the said agreement as and when that
becomes due and payable. It was specifically agreed that cost decided did
not include any Legal charges, Architect's fees, Fees payable for passing of
plans, AEC estimates and charges etc. The same would have to be born by
the owner or organizer of Ashwaraj - M/s. N.G.Corporation as may have
been decided between them.
7. In view of the above paras, it appears that M/s. N.G.Patel & Associates, a
division
of
N.G.
Group,
Ahmedabad
is
engaged
in
the
business of construction of residential complex. The said service provider
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had constructed a single scheme viz. Ashwaraj Bunglows belonging to M/s
Vishnudevi Co-op. Housing Society having
more than 12 residential
units/dwelling units. All the members have common and mutual interest
among themselves. Further all the members have also right to use common
facilities/amenities like common road, streetlight, water and drainage
facilities, compound wall, fencing work etc. Also all the residential units are
having common area to use. They were providing the said taxable service to
their clients but they have neither obtained service tax registration for the
said service nor made payment of service tax. They have also not submitted
ST-3 returns for the said taxable service provided by them.
8.
M/s. N.G. Patel & Associates had carried out construction
work of Ashwaraj Bungalows and provided construction service to the 35
members of M/s. Vishnudevi Co-Op. Housing Society Ltd., Ahmedabad
during the year 2004-05, 05-06 and 2006-07. The members of the plots had
made payment of Rs.3,42,67,136/-, Rs4,63,28,099/- & Rs.1,32,31,835/(Total Rs.9,38,27,070/-) during the year 2004-05, 05-06, & 2006-07
respectively towards construction work.
9.
In view of the above paras, it appeared that M/s. N.G.Patel &
Associates, had provided their taxable services to the 35 members of M/s.
Vishnudevi
Co-Op.
Housing
Society,
Ahmedabad
and
collected
construction charges of Rs.9,38,27,070/- from their clients i.e. total 35
members of M/s. Vishnudevi Co-Op. Housing Society as seen from ledger
account for the years 05-06 & 06-07. The N.G. Patel & Associates, had
therefore, provided taxable service to the members of the said society, they
are liable to pay the service tax on the amount Rs.9,38,27,070/- after
allowing 67 % abatement of Rs.6,28,64,137/-. Thus, taxable amount came
to Rs.3,09,62,933/- on which service tax is payable by M/s. N.G. Patel &
Associates, as shown below;
Period
Gross Value
Taxable Value
(33% of Gross)
Service Tax
Payable
S.Tax
Total
E.Cess
2004-05
3,42,67,136
1,13,08,155
11,30,816
22,616
11,53,432
2005-06
4,63,28,099
1,52,88,273
15,28,827
30,577
15,59,404
2006-07
1,32,31,835
43,66,506
5,23,981
10,480
5,34,460
Total
9,38,27,070
3,09,62,934
31,83,624
63,673
32,47,296
Thus, they were liable for payment of service tax on the gross amount
received by them for construction service. It also appeared that M/s.
N.G.Patel & Associates had not paid service tax due on construction of
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residential units voluntarily. They had chosen to evade payment of service
tax thereon.
Section 65 (30a) of the Act, as inserted by the Finance Act, 2005, defines
'construction of complex' as follows:
‘(30a) “construction of complex” means;
construction of a new residential complex or a part thereof; or
completion
and
finishing
services
In
relation
to
residential
complex such as glazing, plastering, painting, floor and wall tilling,
wall covering and wall papering , wood and metal joinery and
carpentry, fencing and railing, construction of swimming pools,
acoustic applications or fittings and other similar services or ;
repair, alteration, renovation or restoration of, or similar services in
relation to, residential complex’
The term 'residential complex' defined in section 65(91a) of the Act as
follows:
a building or buildings, having more than twelve residential
units a common area; and anyone or more of facilities or services
such as park, lift,parking space, community hall, common water
supply or effluent treatment system.
10.
In view of the above discussion in the matter, M/s. N.G.Patel &
Associates, had provided their services to the members of M/s. Vishundevi
Co-Op. Housing Society Ltd., for construction of residential complex and
they were liable to pay service tax as shown above under the category of
Construction of Complex Service as defined under Section 65 (30a) of the
Finance Act.
11.
Circular
No.
108/02/2009-ST
dated
29-01-2009
also
has
clarified that in case of construction by agreement between Promoter/
Builder/Developer and the ultimate owner, the contractor, designer or
similar service provider would be liable to pay service tax. In this case, as
per
construction
agreement
M/s
N.G.Patel
&
Associates
are
the
constructors and therefore they were liable to discharge their service tax
liability on the gross value.
12.
In
view
of
the
above
forgoing
paras,
M/s.
N.G.Patel
&
Associates, had suppressed full value of taxable service provided for
construction of the said housing scheme to the members of M/s.
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Vishnudevi Co-Op. Housing Society, Ahmedabad for the year 2004-05, 0506 & 2006-07 as per agreements with the said members; the service
provider also failed to discharge full service tax liability for the taxable
service of Construction of Complex Service as defined hereinabove within
the stipulated period as prescribed under the provisions of Section 68 (1) of
Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994; and the
service provider also failed to obtain service tax registration and failed to file
prescribed half yearly ST-3 returns properly for “Construction of Complex
Services” for the half year ending 30.09.2005, 31.03.2006, 30.09.2006 and
31.03.2007 within the stipulated period as prescribed under the provisions
of Section 70 of the Finance Act, 1994 read with Rule 7 of Service Tax
Rules, 1994.
13.
All the above acts of contravention as discussed in above
paras on the part of the service provider, appeared to have been
committed by way of suppression of the facts and contravention of the
aforesaid provisions with an intent to evade payment of service tax in as
much as the service provider had not paid service tax on such value
properly; not obtained service tax registration for the said service of
construction of complex service; not filed ST-3 returns properly for the said
taxable service; not paid service tax on the actual value of service of
construction of housing bungalows for Ashwaraj Bungalow Scheme of M/s
Vishnudevi Co-Op. Housing Society for providing “Construction of Complex
Service” and also not disclosed/intimated to the Central Excise/Service Tax
department about any material facts.
14.
Therefore,
the
said
service
tax
not
paid
by
said
service
provider was required to be demanded and recovered from them with
interest under the proviso to Section 73(1) read with Section 75 of the
Finance Act, 1994 by invoking extended period for five years in as much as
the said service provider had suppressed the facts to the department and
contravened the provisions with an Intent to evade payment of service tax.
All these acts of contravention of the provisions of Section 68(1), 69 and 70
of the Finance Act, 1994 read with Rules 4, 6 and 7 of the Service Tax
Rules, 1994 appeared to be punishable under the provisions of Section 76,
77 and 78 of the Finance Act, 1994.
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15.
Page 7 of 28
Therefore, M/s. N.G.Patel &. Associates, (Unit of N.G. Group) were
issued a show cause notice bearing F.No. STC-51/O&A /SCN/NGPA/JC/RXV/D-III/09 dated 15.10.2009 asking them as to why;
(i) services rendered by them to their clients for the amounts
charged and collected on which no service tax was paid should not
be
considered
as
“taxable
service”
under
the
category
of
“Construction of Complex Service” as defined under Section
65(30a) of the Finance Act 1994, as amended, and the total / gross
amount of Rs.3,09,62,934/- should not be considered as value of
the said taxable services charged by them towards rendering of
construction of residential complex for the year 2005-06 &
2006-07;
(ii) Service Tax amounting to Rs.32,47,296/- (Rupees Thirty Two
Lakhs Forty Seven Thousand Two Hundred Ninety Six only)
(Service Tax of Rs.31,83,624/- + Education Cess of Rs.63,673/-)
as shown in the above para on ‘Construction of Complex Service’
should not be charged and recovered from them under the
provisions of Section 73(1) of the Finance Act, 1994, read with
Section 95 of the Finance (No.2) Act, 2004 as amended;
(iii) interest at the prescribed rate chargeable under the provisions
of Section 75 of the Finance Act, 1994, as amended, should not be
recovered from them;
(iv) penalty under the provisions of Section 76 of the Finance Act,
1994, as amended, should not be imposed on them for failure to
pay Service Tax and Education Cess as mentioned hereinabove;
(v) penalty under Section 77 of the Finance Act, 1994, as amended,
should not be imposed on them in as much as they failed to obtain
service tax registration and to file the prescribed ST-3 returns
properly within stipulated period as required under the provisions
of aforesaid Section 70 read with Rule 7 as amended; and
(vi) penalty under Section 78 of the Finance Act, 1994, as
amended, should not be imposed on them for suppressing the full
value of taxable services and material facts before the department
resulting into non-payment/ short payment of Service Tax and
Education Cess.
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DEFENCE REPLY:
16.1
The service provider filed their defence reply vide their letter dated
05.12.2009 received by this office on 09.02.2011, wherein they, inter-alia ,
submitted that the show cause notice served upon them is based on
assumption that they are a service provider in the Category of ‘Construction
of Complex service’ and the demand for service tax has been raised under
the said category; that they deny their liability of service tax as the findings
in the show cause notice is not based on facts and correct interpretation of
law; that M/s N G Patel and Associates is a partnership firm and carrying
on the business of construction; that a general summon was issued by the
Service tax department Ahmedabad on N G Group of companies on
12.12.2006 and 05.02.2007, presuming the business activities carried out
by them under the category of service provider “Construction of Residential
complex” and the details of Group companies/firms were asked for; that in
response to the Summons, various details with respect to Nature of
Business, Associate Concerns, Financial statements, Income Tax returns,
Copies of agreements etc., of M/s N G Patel and Associates were submitted
to the jurisdictional superintendent Service tax, Ahmedabad; that the
authorized representative of the Firm, appeared from time to time during
the
course
of
scrutiny
of
documents
and
submitted
clarifications/explanations/ additional documents etc., as requested; that
based on the scrutiny of the documents and submissions, it has been
presumed by the authorities that the assessee provided the Service falling
under the head ‘Construction of complex service’ and liable to pay Service
Tax under the said category, hence the Show cause notice has been issued.
16.2
They further submitted that M/s NG Patel and Associates is a
construction firm and undertaken the construction of bunglows on behalf of
individual plot owners in the scheme of Ashwaraj Bunglows - I at Nr: AUDA
Garden Prahlad nagar, Satellite, Ahmedabad; that during the period 200405 to 2006-07, there were 37 members owning plots in the housing society
which were allotted to individual members for construction of their
residential units by the Housing society; that each member thereafter have
entered into a separate individual construction agreement with M/s N G
Patel and Associates to get their bunglow constructed for their personal use;
that a copy of the construction agreement entered into between the
construction firm i.e. M/s N G Patel and associates and the owner is
enclosed herewith; that similar agreement has been entered into between
each member in the society for the construction of their individual bunglow;
that a statement showing the names and address of the persons for whom
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the construction has been undertaken is enclosed; that they have not
provided any service in relation to construction of residential complex but
construction of individual units as per the agreement entered with
respective owners of the plots on which the construction has been carried
out to be used by the owners for their residential purpose; that the
“Construction of Residential complex services” has been brought within the
purview of levy of service tax w.e.f 16.06.2005 only and the amount of
Rs.3,42,67,136/-
&
Rs.1,45,10,900/-
received
during
2004-05
and
prior to 16.6.2005 for the year 2005-06 respectively on account of
construction work from the individuals bunglow owners, which is included
in the SCN for levy of service tax, falls outside the purview of levy of any
service tax under construction of complex services.
16.3
They
further
submitted
that
they
as
a
construction
contractor with the individual plot holders have provided the construction
work for the individual bunglows, which is essentially a works contract and
not covered under the levy of service tax during the period covered in the
show cause notice; that the works contract has been brought in the service
tax net w.e.f 01.06.2007 only; that they are a contractor and not a
Promoter, Developer or a Builder who are covered for levy of service tax
under “construction of complex services”; that they have paid the applicable
VAT on the works contract during the period on the construction work
carried out.
16.4
They further submitted that;
As per section 65(91a) of the finance act 2005, residential complex
means;
“Any complex comprising of a building or buildings having more
than twelve residential units, a common area and anyone or more
of facilities or services such as park lift, parking space, community
hall, common water supply or effluent treatment system, located
within a premises and the layout of such premises is approved by
any authority under law for the time being in force, but does not
include a complex which is constructed by a person directly
engaging any other person for designing or planning of the layout
and the construction of such complex is intended for personal use
as residence by such person.”
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;that as may please be observed from the above definition, for the purpose
of levy of service tax, services in relation to construction of a residential
complex means that a building should consist of more than twelve
residential unit with above mentioned amenities and facilities should have
been provided by the builder either himself or on behalf of somebody.
16.5
They further submitted that as a contractor they have only
constructed individual units for and on behalf of individuals who have
entrusted them the work of construction directly in their individual capacity
as may please be observed from the copy of the construction agreement
being submitted herewith ;that it is essentially a works contract and outside
the purview for levy of service tax during the mentioned period in the show
cause notice; that the Board vide it's circular no 108/02/2009 - ST dated
29th January 2009 has clarified the position on the applicability of service
tax on builders; that in the above circular it has been clarified vide para 3
that if the ultimate owner enters into a contract for construction of a
residential complex with a promoter/
builder/developer, who himself
provides service of design, planning and construction and after such
construction the ultimate owner receives such property for his personal use,
than such activity would not be subjected to service tax because this case
would fall under the exclusion provided in the definition of residential
complex ;that they enclosed a copy of the said circular.
16.6
They further submitted that in view of the above submission
the allegations made in the show cause notice is not based on facts and
correct interpretation of law; that they have not contravened any provisions
of the services taxable under the category of ‘Construction of complex
services’ as per Section 65 (105) (zzzh) of Finance Act 2005; that they have
not suppressed any facts as all the information as asked for were provided
to the authorities from time to time; that they have not failed to obtain the
Service tax registration number under the category of Construction of
complex service as the same is not applicable to them looking the provisions
and board Circular No. 108/02/2009/ST dated 29.01.2009; that they are
not liable to pay service tax as Construction of residential complex service
as no taxable service has been provided by them under this category.
16.7
They
further
submitted
that
therefore
the
Amount
of
Rs.3,09,62,934/- considered as value of the taxable service under the
category of Construction of complex service should not be treated as value
for taxable service; that the Service tax and education cess amounting to
Rs.32,47,296/- determined to be payable by them vide show cause notice is
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bad in law and on facts as no service provided by them falls outside the
purview of levy of service tax; that as the service tax itself is not payable in
law under the bonafide belief that no construction of complex service has
been provided by them, the question of Interest under Section 75 and
penalty under Section 76, 77, and 78 as mentioned in the show cause
notice is not applicable.
16.8
Lastly, they requested to drop the proceedings on merits and facts
of the case.
PERSONAL HEARING
17.
Vide this office letter dated 19.08.2010, the service provider was
requested to appear for personal hearing on 01.09.2010, but the service
provider did not appear for personal hearing. Next date of personal hearing
was granted on 09.02.2011. Shri Satyendra Jha, FCA and Shri Jayendra
Patel, Accountant appeared for personal hearing. Further hearing was held
on 30.08.2011. Shri S.K.Jha, C.A. appeared on behalf of the assessee and
re-iterated their submission made vide letter 19.08.2010 and earlier
submission made on 09.02.2011.
DISCUSSION AND FINDINGS:
18.1
I have gone through the various allegations made in the show
cause notice, relevant documents, defence reply submitted by the said
service provider and record of personal hearing.
18.2
The central issue in the matter is that whether the
activities carried out by the said service provider fall under the
Construction of Complex service or not. If it falls, whether the same
is liable to service tax or not.
18.3
Therefore, it will not be out of place to look with regard
to the activities carried out by the said service provider. From the
facts put forth before me the activities carried out by the said service
provider are as under.
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The Activities carried out by M/s N G Patel & Associates, (the
said service provider):18.4
It is not disputed in the impugned show cause notice
that M/s N G Patel & Associates entered into a contract referred to as
‘Construction Agreement’ with the individual members [who have
been allotted a plot in the said society i.e. M/s Vishnudevi Co-Op.
Housing Society, Ahmedabad) for carrying out construction of the
bunglow on the said land as per the terms and conditions specified
in the said agreement.
18.5
Accordingly,
during
the
course
of
the
investigation
a
specimen copy of a construction agreement dtd. 21.05.2004 entered
between
joint owner Smt. Dipti P Shah, Shri Pankil K Shah and M/s.
N.G.Patel & Associates was made available. I have gone through the said
agreement. M/s N.G.Patel & Associates is referred to as the Contractor
in the said agreement. The various conditions stipulated therein are
as under.
It is hereby agreed by and between the parties hereto as follows:
1.The owner hereby appoint and authorise the contractor to
construct a building on the said land in accordance with such- plans
& specifications as has been decided by the owner in consultation
with the architect of the organisor firm.
2.The contractor will carry out the construction work as per
the plans and will employ necessary supervisor, give the
contractual work to labor contractors, purchase the raw
materials and create necessary infrastructure for smooth"
progress of construction work.
3.The owner has agreed to pay the sum of Rs. 33,00,100=00
I
(Rupees Thirty Three Lacs One Hundred Only) being the
construction cost of the said building. The cost has been
decided on the basis of plans and specifications provided,
more particularly attached to this agreement. At present, the
construction area is fixed at 541 Sq.Yds and the rate for
construction is decided at RS.6100=00 per Sq.Yds.
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Page 13 of 28
4.The owner shall pay additional sum of Rs. 6100=00 per
Sq.Yds. for any construction work exceeding 471 Sq.Yds. In
case,
the
owner’s
architect
wants
to
change
any
Specifications of the building, then first the same will be
communicated to the contractor and then contractor will
determine additional amount payable for the changed
specification and get the approval of the owner before
execution of work.
5.The owner shall pay to the contractor if agreed, to the
organizer – M/s N G CORPORATION, such sum of money as
may be demanded by the contractor looking to the progress
of work. No running bill will be provided by the contractor.
6.It is proposed to complete the construction of the building
within a period of 2 years. However, it for the circumstances
beyond the control of the contractor, the construction could not
be completed the time stipulated herein, shall be extended for
such further period as may be agreed upon.
7.The contractor. shall in respect of any amount remaining
unpaid by the owner under the terms and conditions of this
agreement have a first lien and charge on the said building.
The owner hereby agrees to pay all the amounts payable under
the terms of this agreement as and when that become due and
payable. Time in this respect is the essence of the contract.
8.It is hereby specifically agreed that cost decided in para 3
above does not include any legal charges architect's
fees,
fees
payable for passing of plans, AEC estimates and charges etc.
The same will have to be born by the owner or organisor of
ASHWARAJ
M/s
N G CORPORATION as may have been
decided between them.
9. It has been specifically agreed that this agreement under
no circumstances shall be liable to be cancelled and/or
terminated by the owner till the entire construction work is
complete and amounts to be received by the contractor have
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Page 14 of 28
been fully received.
10.In case of dispute or differences, in the execution of this
agreement or any terms thereof, the same shall be decided as per
the arbitration Act, by a panel of Two arbitrators, one to be
appointed by each party without any recourses being taken to the
court.
18.6
In this regard I have also gone through the Statement
[recorded under section 14 made applicable to the service tax matter
vide section 83 of the Finance Act, 1994] of concerned person of M/s
N G Patel & Associates wherein it has been , inter alia, deposed that;
their firm were appointed as a contractor to construct the residential
bungalows
of
the
said
scheme
(Ashwaraj
Bungalows)
by
different
persons/owners of the plot who are members of the said society. The
construction has to be done according to plan given to them by each
member; that referring to the specimen construction copy of agreement dtd.
21.05.2004 had been made between joint owner Smt. Dipti P Shah, Shri
Pankil K Shah and M/s. N.G.Patel & Associates; he, inter-alia, deposed that
as per agreement, M/s N.G.Patel & Associates have been appointed and
authorized as contractor to construct the said bungalows on the land/plot
who would carry out construction work, in accordance with such plans and
specifications as decided by the owner in consultation with the Architect of
the, organizer firm; that they would also carry out the construction work as
per the plans and would employ necessary supervisor, give the contractual
work to labour contractor, purchase raw material and create necessary
infrastructure for smooth progress of construction work; that the Owner of
the plot agreed to pay Rs.33,00,100/- being construction cost of the said
bungalow; that the cost has been decided on the basis of plans and
specifications provided, more particularly attached to the said agreement;
that the construction area was fixed @ 541 sq. yards and the rate for
construction is decided @ 6100/- per sq. yards; that the owner would pay to
the contractor if agreed, to the organizer–M/s. N.G. Corporation, such sum
of money as may be demanded by the contractor looking to the progress of
the work; that it was proposed to complete the construction of the bungalow
within a period of 2 years that the owner agreed to pay all the amounts
payable under the terms and conditions of the agreement as and when that
becomes due and payable; that it was specifically agreed that cost decided
did not include any Legal charges, Architect's fees, Fees payable for passing
of plans, AEC estimates and charges etc. the same would have to be borne
OIO No. 35/STC-AHD/ADC/ (MKR)/2011-12
Page 15 of 28
by the owner or organizer of Ashwaraj–M/s. N.G. Corporation as may have
been decided between them. The aforesaid facts have not been disputed
in the impugned show cause notice.
19.
Thus, I find no difficulties in concluding that the said M/s
N.G.Patel & Associates, the contractor was hired for carrying out
construction of a residential bunglows for the individual owner of the
land allotted by the society. Thus, Contractor i.e. M/s N.G.Patel &
Associates is the service provider and individual owner of the
land allotted by the said society is the service recipient. This
will amount to hiring of service of the contractor by the owner
for their own personal use or for themselves.
20.
In
this
regard
I
would
like
to
refer
the
history
of
‘construction of complex’ service and various clarifications issued by
the various authorities with regard to the said service which is as
under.
The Statute:
21.
To Examine whether the activities as aforesaid carried out by
M/s . N.G.Patel & Associates, attract service tax under “Construction of
Complex Service”, I would like to go though the history of construction
service since its introduction to till date. The same is mentioned as under:
21.1
The definition of ‘construction service” was introduced w.e.f.
10.09.2004 vide Finance (No.2) Act, 2004 by inserting sub-clause (30a) in
the clause 65 of the Finance Act, 1994. The said sub clause (30a) is as
under:‘(30a) of the Finance Act, 1994 “construction service” means, —
(a) construction of new building or civil structure or a part thereof; or
(b) repair, alteration or restoration of, or similar services in relation to,
building or civil structure,
which is —
(i) used, or to be used, primarily for; or
(ii) occupied, or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in,
commerce or industry, or work intended for commerce or industry, but does
not include road, airport, railway, transport terminal, bridge, tunnel, long
distance pipeline and dam;’;
The said sub clause was substituted w.e.f. 16.06.2005 by s. 88 of the
Finance Act, 2005 (18 of 2005) as under.
3[(30a) “construction of complex” means —
(a) construction of a new residential complex or a part thereof; or
OIO No. 35/STC-AHD/ADC/ (MKR)/2011-12
Page 16 of 28
(b) completion and finishing services in relation to residential complex such as glazing,
plastering, painting, floor and wall tiling, wall covering and wall papering, wood and
metal joinery and carpentry, fencing and railing, construction of swimming pools,
acoustic
applications or fittings and other similar services; or
(c) repair, alteration, renovation or restoration of, or similar services in relation to,
residential complex;]
3
Substituted (w.e.f. 16.06.2005) by s. 88 of the Finance Act, 2005 (18 of 2005).
Further w.e.f 16.06.2005 another sub-clause (91)(a) defining “Residential
Complex” was introduced in clause 65 of the Finance Act,1994 which read
as under.
3[(91a) “residential complex” means any complex comprising of—
(i) a building or buildings, having more than twelve residential units;
(ii) a common area; and
(iii) any one or more of facilities or services such as park, lift, parking space,
community hall, common water supply or effluent treatment system, located within a
premises and the layout of such premises is approved by an authority under any law
for the time being in force, but does not include a complex which is constructed by
a person directly engaging any other person for designing or planning of the
layout, and the construction of such complex is intended for personal use as
residence by such person.
Explanation. — For the removal of doubts, it is hereby declared that for the purposes of
this clause, —
(a) “personal use” includes permitting the complex for use as residence by another
person on rent or without consideration;
(b) “residential unit” means a single house or a single apartment intended for use as a
place of residence;]
Inserted (w.e.f. 16.06.2005) by s. 88 of the Finance Act, 2005
(18 of 2005).
3
The said service is made taxable vide clause 65(105) (zzzh) of the Finance
Act, 1994 which read as under.
65(105) (zzzh) The taxable service under this clause means the service rendered to any
person, by any other person, in relation to construction of complex;]
With effect from 01.07.2010 following explanation was introduced below the
afore said sub clause of taxable service
[Explanation.—For
the
purposes
of
this
sub-clause,
construction of a complex which is intended for sale, wholly or
partly, by a builder or any person authorized by the builder
before, during or after construction (except in cases for which no
sum is received from or on behalf of the prospective buyer by the
builder or a person authorized by the builder before the grant of
completion certificate by the authority competent to issue such
certificate under any law for the time being in force) shall be
deemed to be service provided by the builder to the buyer.]
1
Inserted (w.e.f. 01.07.2010) by s. 76 of the Finance Act, 2010
(14 of 2010).
1
22. Thus, residential complex as defined under sub clause 65 (91a) of the
Finance Act, is covered in the definition of “Construction of Complex
Service” as defined in sub-clause (30a) of clause 65 of the Finance Act,1994
OIO No. 35/STC-AHD/ADC/ (MKR)/2011-12
Page 17 of 28
and the said service is taxable service vide sub-clause (105)(zzzh) of clause
65 of the Finance Act,1994.
22.1
However, the close look at the definition of “residential complex”
as defined in sub clause (91) (a) of section 65 of the Finance Act, 1994
revealed that it does not include a complex which is constructed by a
person directly engaging any other person for designing or planning of
the layout, and the construction of such complex is intended for
personal use as residence by such person.
22.2
The word “personal use” is defined in the explanation below the
said sub clause. According to the said explanation for removal of doubts it
is clarified in the said explanation that personal use includes permitting
the complex for use as residence by another person on rent or without
consideration. Further residential unit means a single house or a single
apartment intended for use as place of residence.
22.3
Thus, combined reading of both the explanation revealed that
residential complex does not include the complex which are constructed by
a person [in the instant case the owners of land allotted by the society to
its members] by directly engaging any other person [in the instant case
M/ s . N.G.Patel & Associates] the construction of such complex is
intended for personal use as residence by such person i.e. owners of the
land allotted who are also members of the said society.
23.1
The ingredients of the of the definition of residential complex
are (i) a building or buildings, having more than twelve residential units; (ii)
a common area; and (iii) any one or more of facilities or services such as
park, lift, parking space, community hall, common water supply or effluent
treatment system, located within a premises and the layout of such
premises is approved by an authority under any law for the time being in
force, but does not include a complex which is constructed by a person
directly engaging any other person for designing or planning of the
layout, and the construction of such complex is intended for personal
use as residence by such person.
In this regard on perusal of contract as discussed above I find that,
the construction carried out by the said contractor is a single residential
units which is also defined at clause (b) of the explanation below the
definition of “residential complex”. The said clause (b) is read as under:
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Page 18 of 28
“residential unit” means a single house or a single apartment
intended for use as a place of residence;
The said construction is carried out by the service provider with all material
for construction against the payment as stipulated in the said contract.
Therefore the fact of the case on hand is that the said service provider have
only constructed individual residential units which is a part of residential
complex and not the entire complex as defined in the definition of the
“residential Complex.
23.2
If individual contract as referred to above is considered
then, in view of the clause (i) of the definition of residential complex
as referred above I find that “residential complex” means any complex
comprising of—a building or buildings, having more than twelve
residential units. In this case also the activities carried out by the service
provider will be out of the definition of residential complex and consequently
will be out of the definition of “Construction of Complex.”
23.3
If all of such contracts entered with all individual owners of
the plots allotted by the said society are considered then it can be
categorized as a residential complex. However, by virtue of words
“not include a complex which is constructed by a person directly
engaging any other person for designing or planning of the layout, and
the construction of such complex is intended for personal use as
residence by such person
in the definition of residential complex, then
also such service provider are out of the definition of residential complex
and consequently will be out of the definition of “Construction of Complex”.
Factual Position:
24.1
In view of above following observations can be made:

The
said
service
provider
have
undertaken
the
entire
development and construction of residential units under
individual agreement with the individual owners of the land
allotted by the society to its member.

The construction agreement indicates that the said service
provider have collected consideration from the owners of the
plot for construction of individual bunglows.
OIO No. 35/STC-AHD/ADC/ (MKR)/2011-12

Page 19 of 28
The individual members/owner has paid the amount to the the
said service provider for construction of individual residential
units. If it is said that the assessee have provided any service to
the society, then the society should have paid some amount to
the assessee in lieu of service rendered, however it is not the
case here. Though the investigation is silent about the cost of
land, however it transpires that the cost of land is directly given
by the members to the said society on allotment of the
membership.

It
is the
said
service
provider
i.e. developer
who was
undertaking construction & development activities on the land
allotted by the society and owned by the members. Thus, facts
of the case is that individual owner is the recipient of the service
by the service provider. Therefore, it clearly established that
owner of the land have by virtue of the aforesaid agreement
hired the service of the service provider for carrying out
construction activities for their own personal use.

The construction has been undertaken as per the design and
specification provided by the owners; that individual owners of
the plots have got the plans approved in their names from the
authorities.

M/s Vishnudevi Co-Op. Housing Society Ahmedabad having
43 units as Ashwaraj Bungalows, has booked 35 members.
It has got the development and plotting of its land and
common amenities i.e. common road, streetlight, water
and drainage facilities, compound wall, fencing work etc.
It has sold the plots duly developed to its members. The
said society has issued allotment letters to its members
who have paid the amount of land cost etc.
24.2
From the perusal of the impugned agreement on which
impugned show cause notice is heavily relied, I find that in the said
agreement there is no mention with regard to construction of
common facilities and amenities like common road street light,
water and drainage facilities, compound wall, fencing work etc.,
and common area to use. I find that construction of aforesaid
ingredients
are
the
very
requirement
for
classifying
subject
OIO No. 35/STC-AHD/ADC/ (MKR)/2011-12
Page 20 of 28
construction under residential complex as defined under section
65(91a) of the Finance Act, 1994. Therefore, I find that the
contention in the impugned show cause notice that “M/s. N.G.Patel
& Associates, have carried out construction work of Ashwaraj Bungalows
and provided construction
service to the 8 members of M/s.
Vishnudevi Co-Op. Housing Society Ahmedabad during the year 200405, 2005-06 and 2006-07. The said service provider has constructed
35 residential units in a single scheme viz. Ashwaraj Bungalows
belonging to M/s Vishnudevi Co-Op. Housing Society Ahmedabad. All
the members have common and mutual interest among themselves.
Further all the members have also right to use common facilities /
amenities like common road, streetlight, water and drainage facilities,
compound wall, fencing work etc. Also all the residential units are
having common area to use” is without any support and,therefore, it
can not be considered that M/s. N.G.Patel & Associates is engaged in
the “Construction of Complex Service” as the subject show cause
notice is demanding service tax on the construction activities carried
out by the said service provider under aforesaid contracts entered by
them with the individual owners of the land allotted by the said
society. From above analysis, the said construction can not be
considered as construction of complex service.
24.03
From the perusal of the show cause notice, other relied upon
documents, statements and submission of the service provider, it is clear
that service receiver is individual owner. The service provider has provided
service by using their own men, money and materials for construction of the
residence under the aforesaid agreements for the consideration mentioned
in the said agreement.
24.04
Therefore, I find full force in the contention of the said service
provider that the Company has undertaken the construction of bunglows
on behalf of individual plot owners in the scheme of Ashwaraj Bungalows;
that during the period 2004-05 to 2006-07, there were 37 members owning
plots in the housing society namely M/s Vishnudevi Co-Op. Housing
Society Ahmedabad, which were allotted to individual members for
construction of their residential units by the Housing society; that as the
society had only allotted the plots, the members were at liberty to get their
residential units constructed themselves; that therefore some members
entered into a separate individual construction agreement with the company
to get their bunglow constructed for their personal use; that they have not
provided any service in relation to construction of residential complex but
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Page 21 of 28
construction of individual units as per the agreement entered with
respective owners of the plots on which the construction has been
carried out to be used by the owners for their residential purpose; that
the construction has been undertaken as per the design and specification
provided by the owners; that individual owners of the plots have got the
plans approved in their names from the authorities.
24.5
In this regard I would like to refer CBEC’s letter issued from
F.No. B1/6/2005-TRU, dated 27-7-2005 issued in connection with Budget
for the Financial year 2005-06 where in with regard to the Construction of
Residential complex following have been mention.
13. Construction of residential complexes
13.1 Any service provided or to be provided to any person, by any
other person, in relation to construction of complex is taxable under
sub-clause (zzzh) of section 65(105) of the Finance Act, 1994.
“Construction of complex” has been defined under clause (30a) of
section 65 of the Finance Act, 1994. ‘Residential complex” has been
defined under clause (91a) of section 65 of the Finance Act, 1994.
13.2 Construction of new building or civil structures used for
commercial or industrial purposes and repair, alteration or
restoration activities of such buildings or civil structures is liable to
service tax since 2004. In this year’s budget the construction of new
residential complex or a part thereof is also covered under service
tax. The term of “construction of complex” is defined under section
65(30a) of the Finance Act 1994. It covers, -

construction of a new residential complex

completion and finishing services in relation to a residential
complex, whether or
not new

repair, alteration, etc. in relation to residential complex,
whether or not new.
13.3 This service would generally cover construction services in
respect of residential complexes developed by builders, promoters or
developers. Such residential complexes are normally constructed
after obtaining approval of the statutory authority for their layout.
For the purpose of this levy, residential complex means, (i)
a building or buildings located within a premises;
(ii)
total number of residential units within the said
premises are more than twelve;
(iii)
having common area;
(iv)
having common facilities or services; and
(v)
layout of the premises has been approved by the
appropriate authority.
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Page 22 of 28
Common area would include roads, staircases and other similar
areas where residents of the residential complex have easement
rights. The list of facilities prescribed is merely illustrative and not
exhaustive. Some residential complexes may also contain other
facilities such as market or shopping complex, schools, security,
banks, gymnasium, health club, sports facilities, power back up and
the like.
13.4 However, residential complex having only 12 or less
residential units would not be taxable. Similarly, residential
complex constructed by an individual, which is intended for
personal use as residence and is constructed by directly
availing services of a construction service provider, is also
not covered under the scope of the service tax and not
taxable.
13.5 Post construction, completion and finishing services such as
glazing, plastering, painting, floor and wall tiling, wall covering and
wall papering, wood and metal joinery and carpentry and similar
services done in relation to a residential complex, whether or not new,
would be included as part of the construction activity of residential
complexes for the purpose of levy of service tax.
13.6 The taxable service is the service provided in relation to
construction of a residential complex. Service tax would be payable
only on the gross amount charged by the service provider for the
construction service provided and it would not include the cost of
land and stamp duty paid for registration of land. However,
notification No. 18/2005-S.T., dated 7-6-2005 provides option to
avail abatement and pay service tax only on 33% of the gross
amount charged, subject to fulfillment of conditions specified in the
notification.
13.7 Repair, alteration, renovation or restoration of residential
complexes would also be liable to service tax. Such services
provided in relation to residential complexes which are in existence
before the levy has come into force and are not new would also be
liable to be taxed.
The aforesaid view is supported at Sr. No. 3
in the clarification
issued by the Ministry of Finance, Department of Revenue, TRU,
issued from F.No.332/35/2006-TRU dated 01.08.2006. The relevant
text of the said circular is as under.
Sr.
Issue
No.
1. Is service tax applicable on Builder,
Promoter or Developer who builds a
residential complex with the services of
his own staff and employing direct
labour or petty labour contractors
whose total bill does not increase 4.0
lacs in one F/Y?
Legal Position
In a case where the builder, promoter or developer
builds a residential complex, having more than 12
residential units, by engaging a contractor for
construction of such residential complex, the
contractor shall be liable to pay service tax on the
gross amount charged for the construction services
provided, to the builder / promoter / developer
under ‘construction of complex’ service falling
under section 65(105)(zzzh) of the Finance Act,
1994.
If no other person is engaged for construction work
and the builder / promoter / developer undertakes
construction work on his own without engaging
the services of any other person, then in such
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Page 23 of 28
cases in the absence of service provider and service
recipient relationship, the question of providing
taxable service to any person by any other person
does not arise.
2.
3.
4.
5.
Again will service tax be applicable on
the same, in case he constructs
commercial complex for himself for
putting it on rent or sale?
Will the construction of an
individual house or a bungalow
meant for residence of an individual
fall in purview of service tax, is so,
whose responsibility is there for
payment?
Is payment of service tax a
responsibility of service provider or of
whom the service is provided?
If it is applicable on the Real Estate
Developers, a detailed guideline of tax
calculation and date from which it will
be applicable. If it is from retrospective
effect, and the service provider has left
the work and no payment is due for
him, who will pay?
Service tax exemption for small service providers
upto an aggregate value of taxable services of Rs. 4
lakh provided in any financial year vide notification
No. 6/2005-Service Tax dated 01.03.05 is
applicable for ‘construction of complex’ service
also.
Commercial complex does not fall within the scope
of “residential complex intended for personal use”.
Hence, service provided for construction of
commercial complex is leviable to service tax.
Clarified vide F. No. B1/6/2005-TRU dated
27.07.05, that residential complex constructed
by an individual, intended for personal use as
residence and constructed by directly availing
services of a construction service provider, is
not liable to service tax.
As per section 68 of the said Act, in case of
‘construction of complex’ service falling under
section 65(105)(zzzh) and ‘commercial or industrial
construction’ service falling under section
65(105)(zzq) of the said Act, every person providing
taxable service to any person shall be liable to pay
service tax.
As per section 66A of the said Act, if the service is
provided from outside India to a person in India,
then in such cases service tax is required to be
paid by the recipient of such service.
Notification No. 1/2006-Service Tax dated
01.03.06 provides for levy of service tax on 33% of
the gross amount charged for the services provided
or to be provided, subject to fulfillment of the
conditions specified in the said notification. Service
tax is leviable on,-(i) ‘commercial or industrial
construction’ service falling under section
65(105)(zzq) with effect from 10.09.04, and (ii)
‘construction of complex’ service falling under
section 65(105)(zzzh) with effect from 16.06.05.
3. For any further clarifications, you may contact the jurisdictional officers with
relevant facts, for appropriate guidance.
The aforesaid circular was superseded by CBEC’s Master Circular No. 96/2007 ST
dated 23.08.2007. The relevant text of the said circular is as under.
Reference
Code
(1)
079.01 /
23.08.07
Issue
Clarification
(2)
Whether service tax is
liable under construction of
complex service [section
65(105)(zzzh)] on builder,
promoter, developer or any
such person,-
(3)
(a) In a case where the builder, promoter, developer
or any such person builds a residential complex,
having more than 12 residential units, by engaging a
contractor for construction of the said residential
complex, the contractor in his capacity as a taxable
service provider (to the builder / promoter /
developer / any such person) shall be liable to pay
service tax on the gross amount charged for the
construction services under ‘construction of complex’
service [section 65(105)(zzzh)].
(a) who gets the complex
built by engaging the
services of a separate
contractor, and
(b) who builds the
residential complex on
his own by employing
direct labour?
(b) If no other person is engaged for construction
work and the builder / promoter / developer / any
such person undertakes construction work on his
own without engaging the services of any other
person, then in such cases,(i) service provider and service recipient relationship
does not exist,
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Page 24 of 28
(ii) services provided are in the nature of self-supply
of services.
Hence, in the absence of service provider and
service recipient relationship and the services
provided are in the nature of self-supply of
services, the question of providing taxable
service to any person by any other person does
not arise.
The issue has further been clarified by the Board vide Circular
No.108/2/2009.S.T
construction
of
dated
residential
29.01.2009
complex
in
service.
connection
The
with
circular
is
reproduced below ;
“Construction of residential complex was brought under service tax w.e.f.01.06.2005. Doubts have
arisen regarding the applicability of service tax in a case where developer / builder/promoter enters
into an agreement, with the ultimate owner for selling a dwelling unit in a residential complex at
any stage of construction (or even prior to that) and who makes construction linked payment. The
‘Construction of Complex’ service has been defined under Section 65 (105)(zzzh) of the Finance Act
as “any service provided or to be provided to any person, by any other person, in relation to
construction of a complex”. The ‘Construction of Complex’ includes construction of a ‘new
residential complex’. For this purpose, ‘residential complex’ means any complex of a
building or buildings, having more than twelve residential units. A complex constructed
by a person directly engaging any other person for designing or planning of the layout,
and the construction of such complex intended for personal use as residence by such
person has been excluded from the ambit of service tax.
2.
A view has been expressed that once an agreement of sale is entered into with the buyer for
a unit in a residential complex, he becomes the owner of the residential unit and subsequent activity
of a builder for construction of residential unit is a service of ‘construction of residential complex’ to
the customer and hence service tax would be applicable to it. A contrary view has been expressed
arguing that where a buyer makes construction linked payment after entering into agreement to
sell, the nature of transaction is not a service but that of a sale. Where a buyer enters into an
agreement to get a fully constructed residential unit, the transaction of sale is completed only after
complete construction of the residential unit. Till the completion of the construction activity, the
property belongs to the builder or promoter and any service provided by him towards construction is
in the nature of self service. It has also been argued that even if it is taken that service is provided
to the customer, a single residential unit bought by the individual customer would not fall in the
definition of ‘residential complex’ as defined for the purposes of levy of service tax and hence
construction of it would not attract service tax.
3.
The matter has been examined by the Board. Generally, the initial agreement between the
promoters / builders / developers and the ultimate owner is in the nature of ‘agreement to sell’.
Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any
interest in or charge on such property. The property remains under the ownership of the seller (in
the instant case, the promoters/builders/developers). It is only after the completion of the
construction and full payment of the agreed sum that a sale deed is executed and only then the
ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by
such seller in connection with the construction of residential complex till the execution of such sale
deed would be in the nature of ‘self-service’ and consequently would not attract service tax.
Further, if the ultimate owner enters into a contract for construction of a residential
complex with a promoter / builder / developer, who himself provides service of design,
planning and construction; and after such construction the ultimate owner receives such
OIO No. 35/STC-AHD/ADC/ (MKR)/2011-12
Page 25 of 28
property for his personal use, then such activity would not be subjected to service tax,
because this case would fall under the exclusion provided in the definition of ‘residential
complex’. However, in both these situations, if services of any person like contractor,
designer or a similar service provider are received, then such a person would be liable to
pay service tax.”
I further observe that at para 4, the Board has given specific
direction
that
“All
the
Pending
cases
may
be
disposed
of
accordingly.”
24.06 This
issue
has
also
been
clarified
by
the
Pune
Commissionerate Vide Trade Notice No. 1/2011 dated 15.02.2011.
Relevant para 4 is reproduced below;
“4.
Representations have been received from trade requesting clarification particularly
for advance payments for service of Construction of Residential Complex rendered after
01.07.2010 and also for service tax collected by builders even where no liability exists. It is
hereby clarified that ;
a)
Where services of construction of Residential Complex were rendered prior to
01.07.2010 no Service Tax is leviable in terms of para 3 of Boards Circular number
108/02/2009-S.T dated 29.01.2009. The Service of Construction of Residential
Complex would attract service tax from 01.07.2010. Despite no service tax liability,
if any amount has been collected by the builder as “Service Tax” for services
rendered prior to 01.07.2010, the same is required to be deposited by the builder to
the Service tax department. Builder cannot retain the amount collected as Service
Tax.
b)
For services rendered after 01.07.2010 for which payment has been or is made
after 01.07.2010, service tax is leviable and builder is liable to deposit the service
tax to the service tax department. The only exception to this is provided within the
parenthesis ( ) in the “Explanation” in para 3.
c)
For services rendered after 01.07.2010 for which payment was made prior to
01.07.2010, service tax has been exempted by the Govt. based on documentary
evidence vide Notification No. 36/2010-ST, dated 28.06.2010 as amended.
Therefore, this benefit can be availed by builders on the basis of documentary
evidence.
25.
From above, it is explicit clear that M/s N.G.Patel &
Associates i.e. the service provider/the assessee have entered into
agreement with the individual owners of the plot, hence their activities
cannot be classified under ‘construction of residential complex’ services
by exclusion clause as clarified by several times by the Board. They
have been termed as contractor in the show cause notice and in the
construction agreement, but essentially their activities define them as
builder in this case. In my view, because of use of the word
‘contractor’, the investigating officer treated them liable to service tax
as per Board’s clarifications. But in terms of Board’s clarification dtd.
OIO No. 35/STC-AHD/ADC/ (MKR)/2011-12
Page 26 of 28
01.08.2006, they are not contractor, because they have directly
constructed the individual residential units without engaging any
contractor.
26.
I further find that circulars issued by the Board and Trade
Notice issued by the department are binding on officers/ department. I
rely on following case laws to support the above view.
 Commissioner Vs. Suzlon Structures Ltd., reported
at 2011(264)ELT/329(Guj),
 CCE & Cus. Surat-I Vs. Bhagyoday Silk Industries
reported at 2010(262)ELT248(Guj)
 CCE
Vs
Reliance
Industries
Ltd
reported
at
2010(259) ELT356 (Guj)
 CCE & Cus., Daman Vs. R.A.Shaikh Paper Mills
Pvt.Ltd., reported at 2010(259)ELT 53(Guj)
 State of Kerala
Vs. Kurian Abraham Pvt.Ltd.,
reported at 2010(16)STR 210(SC)
 CCE, Nagpur Vs Ultraech Cement Ltd., reported at
2010(20) STR 577(Bom)
 Magus Construction Pvt.Ltd., Vs UOI reported at
2008 )11) STR 255(Gau)
 Air Control & chemical Engg. Company Ltd., Vs.
UOI reported at 1991(51)ELT 265(Guj)
27. Limitation:
I further find that the department from time to time
has issued several circulars and trade notices, which support the
stand of the service provider. Thus, the entire issue revolves
around the interpretation of statute. In such cases, hon’ble
courts and tribunal have held in several decisions that extended
period can not be invoked
as the service provider was having
bonafide belief that in their activities service tax is not leviable.
To support above view, I rely on following decisions;
 Commissioner of C.Ex & Customs, Surat – II Vs MTZ
Polyfilms Ltd., reported at 2010 (256) ELT 539 (Guj)
 CCE, Banglore – II Vs ITC Ltd., reported at 2010
(257) ELT 514 (Kar.)
 Sunil Metal Corporation Vs CCE, Rajkot – 2009 (16)
STR 469 (Tri – Ahmedabad)
OIO No. 35/STC-AHD/ADC/ (MKR)/2011-12
Page 27 of 28
 Welcome Hotel Vs CCE, Vadodara – 2009 (13) STR
375 (Tri – Ahmd)
 Zee Telefilms Ltd., Vs CCE (Appeals), Mumbai – IV –
2006 (4) STR 349 (Tri. Mumbai).
28.
I further observe that service tax on construction of residential
complex was levied w.e.f. 16.06.2005, and therefore demand of service
tax for the period prior to 16.06.2005 is not sustainable otherwise also.
29.
In view of the above discussion & findings, I conclude that the
facts of the case, definition of the said service, departmental clarifications,
etc., all go in favour of the said service provider. Accordingly, I conclude
that the demand of service tax of Rs. 32,47,296/- against the said service
provider fails on merit as well as on limitation. Since the demand fails, the
question of interest and penalty does not arise, hence the same also fails.
30.
Accordingly, I pass the following order:
ORDER
I drop the entire proceedings initiated vide show cause notice
issued
from
F.No.STC-51/O&A/SCN/NGPA/JC/R-XV/D-III/09
dated
15.10.2009 against M/s N G Patel & Associates, Ahmedabad. The show
cause notice is disposed of accordingly.
-Sd-
DR.Manoj Kumar Rajak
Additional Commissioner,
Service Tax, Ahmedabad.
F. No. STC-51/O&A/SCN/NGPA/JC/R-XV/D-III/09
By R.P.A.D / Hand Delivery
To,
M/s N.G. Patel &. Associates,
(Unit of N.G.Group),
10th Floor, Astron Tech Park,
Opp. Fun Republic, Satellite,
Ahmedabad
Date: 12.10.2011.
OIO No. 35/STC-AHD/ADC/ (MKR)/2011-12
Page 28 of 28
Copy to :(i)
The Additional Commissioner(Prev.), Service Tax, Ahmedabad,
Ahmedabad.
(ii) The Asstt. Commissioner, Service Tax, Division-III, Ahmedabad.
(iii) The Superintendent Range-XV, Division-III, Service Tax,
Ahmedabad with a extra copy to be delivered to assessee and send
acknowledgement .
(iv) Guard File.