OIO NO. 32/STC-AHD/ADC(MKR)/2011-12
Page 1 of 51
BRIEFT FACTS OF THE CASE
On the basis of an intelligence gathered and reasonable belief that
M/s. Shrinandnagar-IV Co. op Housing Society (Shrinandnagar-IV), Makarba
Road, Vejalpur, Ahmedabad [herein after referred to as the said service
provider/assessee/society] is indulged in the evasion of Service Tax, as a
follow up action, inquiry under summons proceedings as provided under
section 83 of the Finance Act, 1994 made applicable to service tax matter
was initiated against the said service provider. Accordingly, a summons was
issued from F.No.STC/04-90/Prev/05-06/Gr.I to M/s. Bakeri Engineers and
Industries Ltd., [herein after referred to as M/s Bakeri], asking them to
submit the required documents as mentioned in the summons and was also
requested to appear to give their statement. In response to which the said
M/s Bakeri submitted the documents as mentioned in the summons. A
statement of Director of M/s Bakeri was recorded on 31.05.06 wherein he
stated that they are providing consultation to the societies, engaged in
construction. Regarding Service Tax Registration, he stated that their firm is
registered under the category of “Consulting Engineer” and they are
regularly paying service tax on consulting fees received.He further stated
that they had also undertaken residential housing projects of M/s.
Shrinandnagar-IV Co. op Housing Society (Shrinandnagar-IV), Makarba
Road, Vejalpur, Ahmedabad.
2.
On the basis of above, a summon was issued to M/s. Shrinandnagar IV
Co. Op Housing Society, Makarba Road, Vejalpur Ahmedabad who were
engaged in business of construction of residential complexes falling under
the category of Construction of Complex Services as defined under clause
(30a) of Section 65 of the Finance Act, 1994 and the said service is taxable
w.e.f. 16.06.2005. The said service provider though registered with the
service tax department was not paying proper service tax.
3.
Statement of Shri Ajay Gordhanbhai Patel, Secretary, of the said
service provider was recorded on 01.06.2006 wherein he, inter-alia, stated
that they were engaged in providing facility for construction of residential
houses and common amenities. He further stated that during the period
from June-05 to September-05 the gross value realized by them was Rs.
46,58,812/-and the taxable value @ 33% came to Rs. 15,37,508/- after
availing abatement of 67% on which the service tax payable was worked out
to Rs. 1,53,751/- + Rs.3,075/- E.C. whereas in the ST-3 return filed by
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them they have shown the value realized as Rs. 7,30,000/- only on which
they had paid S.T.Rs.73,000/- + Rs.1,460/- E.C. i.e. instead of calculating
the value of Rs 15,37,508/- they ascertained the value only Rs.7,30,000/and paid S.T. on Rs. 7,30,000/- which was not proper value for paying
Service Tax. Further, during the period from October-05 to March-06, the
gross value realized by them was Rs. 98,27,237/- and the taxable value @
33% came to Rs. 32,42,,827/- after availing abatement of 67% on which the
service tax payable was worked out to Rs. 3,24,282/- + Rs.6,486/- E.C.
therefore, they had evaded service tax amounting to Rs. 4,05,033/- + E.C.
Rs. 8,101/- education cess. Regarding late registration and late payment of
service tax he stated that they were under the impression that no service
tax was leviable as society was itself constructing building for its own use.
4.
Preliminary scrutiny of the documents and facts narrated by the said
service provider, revealed that the said service provider had evaded the
service Tax amounting to Rs.4,05,033/- + Education Cess Rs. 8,101/-. The
said service provider during the course of investigation had paid an amount
of S.T. Rs. 4,05,613/- + Rs.7,503/- Education Cess. (Total Rs. 4,87,594/-).
5.
The said society vide their letter dated 17.06.2006 had submitted :-
(1) Brochures of Scheme (2) Details of Members with name and Addresses
(3)
AUDA Permission (4) Copy of Allotment Deed/Letter of Member.
6.
Thereafter, in response to department letter dated 24.07.2006 calling
certain information, the Service Provider vide their letter dated 21.08.2006
submitted that applicability of Service Tax on Construction/ Development of
Housing project has always been under a cloud since beginning. Department
itself contradicted Board/Ministry’s clarifications. DGST-Mumbai vide F.No.
V/DGST/22/Audit/Misc./1/2004/ Mumbai dated 16.02.2006 superseded view
already presented by Technical Research unit vide Circular No. 80/2004
dated 10.09.2004. However, to bring consensus in interpretations and to
end long back controversies, TRU had come up with a circular F. No.
332/35/2006 dated 01.08.2006. In said circular, at Sr. No.1 it has been
categorically made clear that no service tax is applicable in case work has
been undertaken at his own without engaging services of any other person.
In their opinion said clarification mutatis mutandis applied in their case and
hence no service tax should be made applicable to them.
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OIO NO. 32/STC-AHD/ADC(MKR)/2011-12
7.
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They had also submitted vide their letter dated 11.09.2006 that
circular F. No. 332/35/2006 dated 01.08.2006 overrode all controversies
created by earlier clarifications and hence, no service tax was leviable in
their case and sought further clarification in the matter. They had also
submitted statement of receipt, for the period prior to June 2005 to June
2006, consolidated in the order of units and period from their members.
8.
They further submitted a letter dtd. 24.12.2007 under which they
stated that properties being constructed by the society did not fall within the
definition of Residential Complex as given in Section 65 (91a) of the Finance
Act, 1994. They reproduced the definition as given in the said section. They
stated that the society was constructing residential premises for its own use
which included use of property by its members. Society, according to
doctrine of mutuality, society and its members can not be considered as
different. However explanation was given in Section 65(91a) also permitted
use of property by other persons. In the given case, society allowed its
members to use such property for residential purposes and accordingly it
was squarely covered by definition of ‘personal use’ as given there under.
Hence, immovable properties thus constructed by the society clearly fell
outside the purview of residential complex. As no residential complex as
stipulated in Section 65(91a) was being constructed, very basis of the
charge failed to survive and thus no service tax could be levied. The said
society also contended that section 65(30a) of Finance Act 1994, requires
construction of ‘residential complex’ only, no levy can be imposed under
category of ‘Construction of Residential Complex’ unless and until such
construction is in relation to residential complex.
8.1
Further,
they
submitted
that
in
view
of
Board’s
Circular
No.
332/35/2006-TRU dtd.01.08.2006 at Para 1 it was clearly mentioned that if
no
other
person
was
builder/promoter/developer
engaged
for
undertakes
construction
construction
work
work
on
and
the
his
own
without engaging the service of any other person, then in such cases in the
absence of service provider and service recipient relationship, the question
of providing taxable service to any person by any other person did not arise.
That the society was constructing the entire property on its own engaging
laborers and purchasing materials. Therefore, insofar as transaction between
society and its members was concerned their relationship of service provider
and recipient of service did not exist. Accordingly, it was squarely covered by
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the clarification given by TRU and hence, society was eligible for benefit of
the same.
9.
Further, the said service provider has submitted copy of the BU Permissions
dtd.01.05.2006 for 112 units, specimen copy of the allotment letter/deed dated
06.06.2006.
10.
During investigation further statement of Shri Nikhil Jagdishbhai Shah, the
then Chairman of M/s. Shrinandnagar-IV Co. op Housing Society (ShrinandnagarIV), Makarba Road, Vejalpur Ahmedabad, was recorded on 27.09.2010 under
Section 14 of the Central Excise Act, 1944 read with section 83 of Finance Act,
1994.
11.
He was shown statement dated 01.06.2006 of Shri Ajay G. Patel, the then
Secretary of the said Society. He agreed to its content and in token of its
correctness he had put his dated signature on it. He also stated that he was
employed since last 24 years with M/s. Bakeri Engineering and Infrastructure Ltd.;
on being asked as to whether he owned any unit in the society he stated that he did
not own any unit in the said society; that the said society was formed
approximately three months prior to its registration date with the Registrar of Co
Operative Society, the date of registration being 16.08.2001 with 10 PROMOTER
members; that the said Promoters of the said society had filed the forms with the
office of
Registrar of Co Operative Society; regarding enrolling of members he
stated that when any one interested came in touch with M/s. Bakeri Engineering
and Infrastructure Ltd., then he was referred to the said society and the land was
purchased from Vejalpur Rabari Panch; that the land was selected by the said
promoters of the said society; that the said society had appointed M/s. Bakeri
Engineering and Infrastructure Ltd., as its Project Consultant and the construction
was commenced from April 2002; that the said society had procured all the goods
and materials as required for the purpose of construction and whenever required,
the help of Project Consultant was obtained; that the said Society had made
payments for the material procured.
12.
On being asked as to what was his financial contribution in the scheme, he
stated that except Share Capital he has not contributed any thing; that on being
asked as to who were other promoter members and whether they were having any
unit in the society, he had produced the certificate of registration along with leaflet
“U” under which name and address of other promoter members were mentioned.
He also stated that none of the said promoter members had any unit in the said
society. On being asked as to what were their financial contribution in the scheme,
he stated that there was no Financial contribution from them either.
12.1 He was also shown a brochure of M/s. Shrinandnagar-IV Co. op
Housing Society (Shrinandnagar-IV), Makarba Road, Vejalpur, Ahmedabad.
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OIO NO. 32/STC-AHD/ADC(MKR)/2011-12
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After perusal of the same he stated that on the front page of the said
Brochure a Logo reading as “Bakeri SINCE 1959” was printed on the right
hand side top corner; the said logo was also found printed on each and
every page of the brochure on the right hand side top corner; that the name
and address of Project Consultant was mentioned as “Bakeri Engineers &
Industries Limited “Sanskrut”, near old High Court, off Ashram Road,
Ahmedabad-9, India. That the name and address of the project consultants
was also mentioned on the last page of the brochure; that it was also
mentioned at Sr. No. 9 of the brochure that project consultants had
exclusive rights to change, expand or revise or abandon altogether, the
scheme or part of the scheme or any details therein including specification
and make one or more sub-divisions of any unit or combine two or more
units of the scheme, merge common passages/ corridors /roads with units
wherever feasible, change the size and/or location of the common
plots/roads/entrance of the scheme, add one or more
building/s and or
floors/basements, change floor height, move common plot/s altogether etc.,
whenever and wherever admissible under the rules or deletions, removals,
etc., shall be binding to all.
13.
He was explained the provisions of “Construction of Complex” services which
is defined under Section 65 (30a) of the Finance Act, 1994 as amended and which
is also defined as under :
30( “construction of complex” means —construction of a new residential complex
a)
or a (a) part thereof; or completion and finishing services in relation
(b) 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 repair, alteration, renovation or restoration
(c) of, or
similar services in relation to, residential complex;
13.1 On being asked to submit year wise receipts against construction, cost of
land, maintenance and other receipts, he has submitted the same as under. He was
explained that the society was liable to pay Service Tax under the “Construction of
Complex” services as defined under Section 65 (30a) of the Finance Act, 1994. On
being asked he has submitted year wise amount of contribution collected from their
members, and stated that out of the said amount they had incurred expenditure
against purchase of land and also incurred expenditure for construction as detailed,
as under :-
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OIO NO. 32/STC-AHD/ADC(MKR)/2011-12
Page 6 of 51
Year
2005-06
2006-07
2007-08
2008-09
2009-10
Total
Amount
collecte
d
22762878
26115941
37946026
2305744
0
89122919
14.
On the basis of the above, the total service tax payable for the period Jun. 05
to Mar. 09, came to Rs. 29,43,247/- on the taxable value of Rs. 2,44,26,489/which is as per detail in Annexure “A” attached with the Show Cause Notice.
15.
During further investigation, statement of Shri Dashrath Ambalal Patel, the
then Chief Finance Manager of M/s. Bakeri Engineers and Infrastructure Ltd.,
“Sanskrut”, First Floor, Near Old High Court, Ashram Road, Navrangpura,
Ahmedabad was also recorded on 04.10.2010 under Section 14 of the Central
Excise Act, 1944 read with Section 83 of Finance Act, 1994, wherein he stated that
he was Chief Finance Manager of M/s. Bakeri Engineers and Infrastructure Ltd.,
since 2000 and he was looking after all the financial matters. Regarding the
business activity of M/s. Bakeri Engineers and Infrastructure Ltd., which was
previously known as M/s. Bakeri Engineering and Industries Ltd., he stated that
they were engaged in the business of Project Consultancy since 1982.
15.1 He was shown the statements of Shri Ajay G. Patel, the then Secretary dated
01.06.2006 and Shri Nikhil Jagdishbhai Shah, the then Chairman and of the said
Society dated 27.09.2010 recorded under Section 14 of the Central Excise Act,
1944 made applicable to the Service Tax matters vide Section 83 of the Finance
Act, 1994. After perusal of the said statement, he agreed to its content and put his
dated signature on the same in token of having seen it and its correctness.
15.2 He was also shown a leaflet “U” submitted by Shri Nikhil J. Shah vide his said
statement. On perusal of the said Leaflet “U”, he stated that name and address of
the promoter members of the said society are mentioned therein. On being asked
he stated that Shri Nikhil J. Shah was also a member and he is Vice President of
M/s. Bakeri Enginering and Industries Ltd. Shri Suresh Devadiga is an Accountant
of M/s. Bakeri Engineering and Industries Ltd. Shri Chetan Shah is System Analyst
of M/s. Bakeri Engineering and Industries Ltd. All these three were Promoter
Member of the said society.; that M/s Bakeri Engineering and Industries Ltd., was
acting as a project consultant to the society and the said society being a statutorily
incorporated body, has its own and distinct legal identity and existence separate
from that of M/s. Bakeri Engineers and Infrastructure Ltd.; that M/s. Bakeri
Engineers and Infrastructure Ltd., had helped the said society in getting members
and stated that during the course of promotion and marketing of the scheme by
M/s. Bakeri Engineers and Infrastructure Ltd., any member interested in purchasing
a unit, came in touch with M/s. Bakeri Engineers and Infrastructure Ltd., were
referred to the said society; that M/s. Bakeri Engineers and Infrastructure Ltd., was
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having its own reputation and dignity in the market and it was their own merits
which had played vital role in their selection as a project consultant; that M/s.
Bakeri Engineers and Infrastructure Ltd., had acted as Project Consultant; that M/s.
Bakeri Engineers and Infrastructure Ltd., had not hired any labours; that the
construction material was purchased by the said society; that the said society had
made payments for the construction material purchased by them; that as and when
required the said Society had obtained finance from the Bank of Baroda,
Navrangpura Branch, Ahmedabad; that as a Project Consultant M/s. Bakeri
Engineers and Infrastructure Ltd., had stood as guarantor for the finance obtained
by the said society; that there was no financial contribution by M/s. Bakeri
Engineers and Infrastructure Ltd., in the said scheme. Regarding vide spread use of
Logo reading as “Bakeri SINCE 1959” which was printed on the brochure of the said
society, he stated that M/s. Bakeri Engineers and Infrastructure Ltd., was Project
Consultant of the said scheme and therefore, their name and logo were used in the
brochure of the said scheme by the society; that M/s. Bakeri Engineers and
Infrastructure Ltd. had not carried out construction of residential complex but it was
carried out by the said society only.
16.
During further investigation a statement of Shri Asit Natvarlal Somani, Vice
President (Finance), M/s. Bakeri Engineering and Infrastructure Ltd., “Sanskrut”,
First Floor, Near Old High Court, Ashram Road, Navrangpura, Ahmedabad was also
recorded on 04.10.2010, wherein he stated that he was Vice President (Finance) of
M/s. Bakeri Engineering and Infrastructure Ltd., since 2007 and was looking after
all the matters related to finance and accounts including Service Tax matters of this
society. A statement of Shri Dashrathbhai Ambalal Patel, the then Chief Finance
Officer of M/s. Bakeri Engineering and Infrastructure Ltd., recorded on 04.10.2010
under Section 14 of the Central Excise Act, 1944 made applicable to the Service
Tax matters vide Section 83 of the Finance Act, 1994 was shown to him and after
perusal of the said statement, he agreed to its content and put his dated signature
on the same in token of having seen it and its correctness.
17.
The Service Provider had filed ST 3 returns as under :
Year
2005-06
Period
June 05 to Sept. 05
and Oct. 05 to Mar.
06
Category
Construction of complex service
under Section 65(30a) of the
Finance Act, 1994.
2006-07
April 06 to Sept. 06
and Oct. 06 to Mar.
07
April 07 to Sept. 07
and Oct. 07 to Mar.
08
April 08 to Sept. 08
and Oct. 08 to Mar.
09
April 09 to Sept. 09
and Oct. 09 to Mar.
10
Construction of Residential complex
service under Section 65(91a) of
the Finance Act, 1994.
Construction of Residential complex
service under Section 65(91a) of
the Finance Act, 1994.
Construction of complex service
under Section 65(30a) of the
Finance Act, 1994.
Construction of complex service
under Section 65(30a) of the
Finance Act, 1994.
2007-08
2008-09
2009-10
SCN F.NO. STC-41/O&A/SCN/SN/ADC/10-11
Remarks
Service Tax paid
but
at
on
suppressed value
found
during
investigation.
Nil return filed.
Nil return filed.
Nil return filed.
Nil return filed.
OIO NO. 32/STC-AHD/ADC(MKR)/2011-12
18.
Page 8 of 51
The Construction of Complex services were brought under the Service tax by
the Finance Act, 2005, with effect from 16.06.2005 vide Notification No. 15/2005
ST dated 07.06.2005. The Service shall be taxed, if provided by service provider to
any other person.
19.
The construction of Complex Service, sub-clause (zzzh) of Clause (105) of
section 65 of the Act, defines ‘taxable service’ as under“taxable service means any service provided to any person, by any other
person, in relation to construction of complex.”
Explanation – For the purpose of this sub clause construction of the
complex which is intended for sale, wholly or partly by 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 any 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.
19.1 “construction of complex” means:(a)
construction of a new residential complex or a part thereof : or
(b)
completion and finishing services in relation to residential complex
such as glazing plastering etc.
(c)
repair, alteration etc. . . . in relation to residential complex
(Section 65(30a)) of the Finance Act,1994.
19.2 Residential complex :Clause (91a) of section 65 of the Act, defines “residential complex” as
under:“residential complex” means any complex comprising of -----(a) a building or buildings, having more than twelve residential units,
(b) a common area: and
(c) 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
purpose of this clause:-
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a.
Page 9 of 51
“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”
The following are the key ingredients of the definition:(a) There must be a complex.
(b) The complex must comprise:1.
a building or buildings, having more than 12 residential units,
2.
a common area: and
3.
any one or more of facilities or services such as park, lift, parking
space, community hall, common water supply or effluent treatment
system,
4.
5.
Such facilities should be located within a premises
Layout of such premises should be approved by an authority under any
law for the time being in force.
6.
Residential complex 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.
7.
Personal use would include permitting the complex for use as
residence by another on rent or without consideration.
19.3
Any 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 is not covered by
the definition.
19.4
In other words, if any person gets the construction work of any
residential complex done on his own and such premises is intended for his own use,
such service are not covered by the definition.
19.5
According to Explanation to clause (91a) “personal use” includes
permitting for use as residence by another person on rent or without consideration.
19.6
Hence, if any person gets any residential building constructed on his
own and rents the residential units out to another person, it would be deemed to be
personal use,
19.7
If the construction work is got done from any builder or any concern,
and the building is intended for his personal use, such builder or other, constructing
the building would be chargeable to pay service tax under this category.
20.
In the instant case, it was found that the said M/s. Shrinandnagar IV,
Co-op Housing Society, Makarba Road, Vejalpur Ahmedabad was engaged
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Page 10 of 51
in business of Construction of Residential Complex falling under the Category
of Construction of Complex services as defined under clause 30(a) of section
65 of the Finance Act, 1994. In as much as it was found that : (i).
The 10 PROMOTERS of the said society had filed the form with the
office of the Registrar of Co-op. society and the date of registration
being 16.08.2001 with 10 PROMOTERS members. For the construction
of new Residential Complex for the said society, the land was selected
and purchased by said PROMOTERS of the said society and they
obtained various permissions in this regard. Except share capital the
said PROMOTERS of the said society had not contributed any Financial
contribution to the said society and none of the said PROMOTERS of
the said society had owned any residential flat for their personal use in
the said society formed.
(ii). Out of said 10 PROMOTERS of the said society, Shri Nikhil Jagdishbhai
Shah, Vice President, Shri Suresh Devadiga, Accountant and Shri
Chetan Shah, System Analyst were the employees of M/s Bakeri
Engineering and Infrastructure Ltd. and said M/s Bakeri Engineering
and Infrastructure Ltd. was appointed as Project Consultant.
(iii). The said PROMOTERS of the said society had procured material
required, engaged laboures and carried out construction for new
Residential Complex on their own for the said society formed. The
PROMOTERS of the said society had also made payments for the
material and laboures.
(iv). The PROMOTERS of the said society had enrolled members by
themselves and also with the help of M/s Bakeri Engineering and
Infrastructure Ltd. and they had also received contribution from
members and further allotted units to the members.
21.
In view of the above, the said Society was “Service Provider” and
ensuing members of the said Society were “Service Recipients” and that the
said society had engaged in providing service of “Construction of Complex”.
The said service of Construction of Complex is taxable w.e.f. 16.06.2005.
under Section 65(30a) of the Finance Act, 1994. The said society though
registered with the service tax department was not paying proper service
tax. They had paid Service tax for the period from June-05 to September-05
on the gross value realized by them of Rs. 46,58,812/- and for the period
from October-05 to March-06, on the gross value realized by them of Rs.
98,27,237/-. Total Rs. 1,44,86,049/- for which they had paid Service tax
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Page 11 of 51
of Rs. 4,78,033/- and edu. Cess of Rs. 9,561/- along with interest of Rs.
12,066/- for the said period. However, during investigation it was found that
they had actually collected an amount of Rs. 2,27,62,878/- in the year
2005-06 (as detailed in Annexure “A” attached herewith.) which had been
confirmed by Shri Nikhil Jagdishbhai Shah, Chairman of the said society in
his statement dated 27.09.2010. Thus they had suppressed the value of
Taxable service for the year 2005-06 with an intent to evade the payment of
Service Tax.
22.
The said society had claimed exemption from payment of Service Tax
under the Circular No. 332/35/2006 dated 01.08.2006 as the Residential
Complex constructed by an individual- intended for personal use as
residence and constructed by directly availing services of a construction
service provider was not liable to service tax. The said circular has been
superseded by the CBEC’s Master Circular No. 96/2007 ST dated 23.08.2007
in which the CBEC had expressed an identical view. The claim of the said
society was that their services were falling under “Residential Complex”
services given under clause (91a) of Section 65 of the Finance Act, 1994 as
amended. The said contention of the Society for classification of their service
under clause (91a) of Section 65 of the Finance Act, 1994 as amended was
not tenable in as much as the said Society had constructed New Residential
Complex and had carried out construction on their own and had also
engaged services of a Project Consultant namely M/s. Bakeri Engineers and
Infrastructure Ltd., who had exclusive rights to change, expand or revise or
abandon altogether, the scheme or part of the scheme or any details therein
including specification and make one or more sub-divisions of any unit or
combine
two
or
more
units
of
the
scheme,
merge
common
passages/corridors /roads with units wherever feasible, change the size
and/or location of the common plots/roads/entrance of the scheme, add one
or more building/s/ and or floors/basements, change floor height, remove
common plot/s altogether, etc. whenever and wherever admissible under the
rules or deletions, removals, etc., and which shall be binding to all. Their
Services were rightly falling under “Construction of Complex” services under
Section 65(30a) of the Finance Act, 1994 as amended. The said society was
“Service Provider” and its ensuing members were “Service Recipients”.
23.
The value of taxable service under “Construction of Complex” services
was worked out as Rs 2,44,26,489/- on which service tax payable was Rs.
29,43,247/- (ST Rs. 28,70,816/- + Edu. Cess Rs. 57,416/- and Higher Sec.
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Page 12 of 51
Edu. Cess Rs. 15,015/-) for the period 2005-06 to 2008-09 as detailed in
Annexure ”A” attached herewith.
24.
In view of the foregoing paras, it appeared that said M/s. Shrinandnagar IV
Co Operative Housing Society Ltd., Makarba Road, Vejalpur Ahmedabad, had not
disclosed the amounts received as contribution for land and construction of said
housing scheme from its ensuing members for the year 2005-06 to 2008-09 in their
ST- 3 returns and had suppressed the said facts with an intention to evade the
payment of Service Tax under “Construction of Complex” Services under Section
65(30a) of the Finance Act, 1944 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; the society had also failed to file
the prescribed half yearly ST-3 returns in respect of the said receipts from their
members for the said services for the half year ending 30.09.2005, 31.03.2006,
30.09.2006 and 31.03.2007, 30.09.2007, 31.03.2008, 30.09.2008 and 31.03.2009
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.
25.
All the above acts of contravention as discussed in the above paras on
the part of the said society, 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 said society had
not paid/short paid service tax on value of taxable service received
properly; not filed ST-3 returns properly or filed “NIL” ST-3 returns for the
said taxable service; not paid/short paid service tax on the actual value of
the service of “Construction of Complex” service under Section 65(30a) of
the Finance Act, 1994 and also not disclosed/intimated to the Central
Excise/Service Tax department about the material facts discussed above.
26.
Therefore, the said service tax not paid/short paid by the said society 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 society 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 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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27.
Page 13 of 51
Therefore, M/s. Shrinandnagar IV Co Operative Housing Society
Ltd.,Makarba Road, Vejalpur Ahmedabad
were issued show cause
notice bearing F. No. STC-41/O&A/SCN/SN/ADC/10-11
dated 22.10.2010
asking them as to why –
i)
Services rendered by the said society to its ensuing members should not be
considered as “taxable service” under the category of “Construction of Complex”
services as defined under Section 65(30a) of the Finance Act 1994, as amended
and the taxable amount of Rs. 2,44,26,489/- (as per Annexure “A” attached
herewith) received from the said ensuing members for the said services
rendered, should not be considered as value of the taxable services charged by
them towards rendering said service for the period from 2005-06 to 2008-09;
ii) Service Tax amounting to Rs 29,43,247/- (Rupees Twenty nine lacs forty
three thousand two hundred and forty seven only) (ST Rs. 28,70,816/- + Edu.
Cess Rs. 57,416/- and Higher Sec. Edu. Cess Rs. 15,015/-) (as per Annexure
“A” attached with the SCN) should not be demanded and recovered from them
under proviso to Section 73(1) of the Finance Act, 1994, invoking larger period
of five years;
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 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;
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.
28. Defence reply:The service provider filed their defence reply vide their letter dated
10.08.2011 received by this office on 10.08.2011.
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28.01
Page 14 of 51
The said service provider vide their letter dated 10.08.2011 while denying
all the allegations made in the aforesaid show cause notice submitted their defence
reply wherein they inter-alia submitted that; the Shrinandnagar – IV Co Operative
Housing Society Limited ( hereinafter referred to as “assessee” or “society” for sake
of convenience ) is a co-operative housing society incorporated under Gujarat CoOperative Societies Act, 1961, for an philanthropic objective of providing better
residential accommodation to the people who are member of the society; that the
statute, under which assessee is formed and administered, aims to encourage any
system of co-operation amongst the people for collective and efficient exploitation
of common resources, that it can be undisputedly asserted that assessee is not
intended for undertaking a business or business practices in direct or indirect way
or to make profit or gain out of transactions being undertaken; that it is imperative
to make a note of it that Revenue has nowhere disputed this fact or brought to
notice other evidences suggesting otherwise.
28.02
The further submitted that in accordance with the objectives and
byelaws, assessee acquired piece of land, undertaken development activities
such as designing, planning, approvals, etc with
the help of project
consultant M/s Bakeri Engineering and Infrastructure Limited (hereinafter
referred to as “Bakeri” for sake of convenience); that Bakeri is a renounced
group in Ahmedabad having vast experience of real estate development
activity gained over several decades, that with the help of Bakeri, assessee
started to canvass the project, invited members to join in and develop the
residential project; that Society itself managed to procure materials as per
layouts, plans, structural drawings, requirements of engineers and a pool of
petty labour contractors to actually construct the residential property; that it
is imperative to make it clear and undisputable that role of Bakeri was to
provide advise in the course of development process and assistance to
address various intricate issues and problems being faced in; that in any
way, role of Bakeri was never been intended nor actually played in relation
to execution of the project by way of constructing residential premises ; that
it was the duty of Society to undertake actual brick by brick construction of
the property through its own materials and labourers; that
Bakeri was
remunerated for the services provided by it to the Society which did not
include consideration for construction of property and that is evident from
the agreement entered into by and between the Society and Bakeri; that it is
imperative to note that Preventive has examined all the records including
the Agreement and show cause notice has nowhere disputed to the fact,
meaning thereby affirmed to the facts.
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28.03
Page 15 of 51
They further submitted that information was gathered by
Preventive Group – I of Ahmedabad Service Tax Commissionerate and
investigation was undertaken a way back in early 2006 in case of Bakeri
Engineering and Infrastructure Limited and found that Bakeri has been
paying service tax on all its taxable receipts ; that having no clue to evasion
or short payment of service tax on part of Bakeri, Preventive Group agitated
to expand scope by including those persons from whom Bakeri was receiving
taxable services and thereby Preventive Group came to know about following
persons undertaking activity of developing residential projects under the
advise of Bakeri.
28.04
-
Shrinandnagar IV Co Operative Housing Society Limited
-
Shrinandnagar V Co Operative Housing Society Limited
-
Satej Co Operative Housing Society Limited
-
Shantanu Co Operative Housing Society Limited
-
Sujal Developers
The further submitted that having knowledge of above stated five
entities undertaking development of residential projects, Preventive Group
summoned and commenced investigation proceedings leaving aside the case
of Bakeri; that substantive procedures were resorted with and gathered all the
relevant information including value of receipts from respective entities
including the assessee which is evident from the mentioning in the impugned
show cause notice ; that Though the activities undertaken by the said entities
including assessee were in the nature of development activities and not
construction/contracting of residential complex, Preventive Group officers
misunderstood and misled entire flow of assertions to conclude the activity as
of construction of residential complex and wrongly asserted to the respective
representatives of all entities including the Assessee of taxability under
Service Tax Law; that having incorrect but a strong word from Departmental
Authorities normally believed to be the mostly acquainted people of Service
Tax Law, Assessee immediately paid tax amount on estimate basis ; that
looking to the readiness of the Assessee to pay tax and availability of all the
information to conclude the investigation proceedings, Preventive Officers
recorded statement of representative so as to take the proceeding to a start
point of a journey to finality namely issue of show cause notice.
28.5
It is further contention of the said service provider to ascertain the
correct position of law and its applicability, assistance of expert of Service Tax
Law was taken by the assessee and it was firmly opined that development of
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residential complex as envisaged in case of Assessee is no way considerable
as service of construction as per definition of taxable service laid down in
Finance Act, 1994; that Moreover reference was invited to various circulars
issued by the Central Board of Excise and Customs inter alia clarifying the
scope of taxable services and legislatively intended target group for collection
of tax ; that having a firm opinion with plausible explanations, Assessee opted
to claim for refund of service tax already paid and refrain from paying further
according to advise of Preventive Officers; that it is to be noted that
Preventive Group was well informed of said position gained by the Assessee.
28.06
They further submitted that having overlooked the clarification
provided by the Assessee, Preventive Officers prolonged the proceeding of
investigation by not issuing show cause notice for years together and
demanded for further period information at several occasions; that Assessee
submitted all the information as and when demanded, which is evident from
the findings of impugned show cause notice.
28.07
They further submitted that Assessee continued to hold its stand of
getting refund of tax paid and get declared to be non-taxable and therefore was
served with show cause notice from Ld. Assistant Commissioner of Division-III,
Ahmedabad in relation to claim of refund; that Assessee made a categorical
defense reply to the show cause notice and matter was heard by ld. Assistant
Commissioner. However ld. Assistant Commissioner passed vague and absurd
order rejecting the refund claim and arbitrarily concluded that activity
undertaken by the Assessee is a taxable service in nature of construction of
residential complex ; that being aggrieved with the order-in-original, Assessee
preferred first appeal before ld. Commissioner of Central Excise (Appeals), who
opted to consistently respect departmental discipline of not granting refund
instead of giving justice on fair and reasonable counts ; that being aggrieved
with the order-in-appeal, assessee preferred second appeal before Hon’ble
Customs, Excise and Service Tax Tribunal, West Zonal Bench, Ahmedabad.
Comprehensive written submission was made followed by flairs of verbal
arguments before Hon’ble Court in support of grounds of appeal and finally
order was passed by Hon’ble Tribunal contending in favour of the Assessee that
there existed no element of ‘service’ in undertaking development of residential
premises by the developer. It was also affirmed by Hon’ble Tribunal to the
concept posed by ld. Representative that definition of taxable service as laid
down in the code by legislature was intended to cover transaction between the
developer and contractor and not that of between the developer and member (
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customer ) which is otherwise called in a common parlance as ‘sale of
immovable property’. Accordingly, refund was granted to assessee by Hon’ble
Tribunal with an instruction to the original authority to examine and verify facts
related to unjust enrichment. However, department preferred further appeal to
Hon’ble Gujarat High Court against the order of Hon’ble Tribunal; that Hon’ble
High Court provided sufficient opportunity to both the appellant and respondent
and made categorical reference to the decision of Hon’ble Tribunal in light of
facts as well as law position; that
Hon’ble High Court passed a categorical
order rejecting all the grounds raised by Revenue against the decision of
Hon’ble Tribunal and rejected appeal on merit by contending that Tribunal has
rightly held that activity undertaken by the Assessee did not amount to
rendition of service nor taxable service. It was also decided by the Hon’ble High
Court in response to a new ground of Revenue regarding applicability of
amendment made w.e.f. 01.07.2010 in form of a deeming fiction to bring said
activities within the ambit of Service Tax, that amendment is having
prospective effect and cannot be applied retrospectively. No further appeal has
been preferred by Revenue against the order of Hon’ble High Court till the date
of this reply according to our knowledge. Therefore, order of Hon’ble High Court
shall become law of land and accordingly ld. Assistant Commissioner has been
specifically requested to grant and issue refund to the assessee.
28.08
They further submitted that meanwhile, Preventive Group,
standing at the verge of getting demand barred by limitation of even extended
period i.e. 5 years, cleared dust over the case by recording final statement of
the assessee and concluded investigation proceeding by causing issuance of
impugned show cause notice.
From the face of impugned notice, it will be
made patently clear that after having a verdict of Hon’ble Tribunal in favour as
well as lapse of substantial time of first gathering of information and booking of
case, a desperate attempt has been made by Revenue to germinate grounds to
sustain demand of service tax in one or other way. Therefore this presentation
is made as a part of adjudication proceeding of the impugned notice and kind
attention is drawn to series of facts stated above.
28.09
In support of their contention and negating the content of the impugned
show cause notice they further submitted that the position of law as traveled all its
way from the day of introduction in 2005 to insertion of an explanation in 2010 the
inter-alia submitted as under :Hon’ble Finance Minister in his speech over Union Budget of India for
2003-04 prescribed ‘Panch Priorities’ – five objectives as part of non-negotiable
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commitment of the Government in the interest of citizens and economic security of
the country and reproduce list of all five priorities which inter- alia includes reforms
in Service Tax.
a) poverty eradication; addressing the ‘life time concerns’ of our
citizens, covering health, housing, education and employment;
b) infrastructure development;
c) fiscal consolidation through tax reforms and progressive elimination
of budgetary drags, including reform of the additional excise duty,
introduction of service tax, and introduction of Value Added Tax (VAT)
from April 1, 2003 at the State level.
d) agriculture and related aspects including irrigation; and
e) enhancing manufacturing sector efficiency, including promotion of
exports and further acceleration of the reform process.
While interpreting the said speech they further stated that
Government has been mulling over the way of tapping service sector which
contributes to substantial to the GDP of nation and therefore widening the
web of service tax has became of greater connotation to generate steady but
large source of revenue with minimal costing. Hon’ble Finance Minister per
speech, started introducing service tax on industry/commerce specific
services unlike consumer specific services so far. In 2003, tax was imposed
on
Erection,
Commissioning
and
Installation
Services,
Repairs
and
Maintenance Services, Business Auxiliary Services etc. Thereafter in 2004,
chain was extended to cover in construction related services of commercial
or industrial structures/buildings. If carefully seen, attempt was made from
bottom to top so as to cover in vertically all cadres of services which an
industry or a commercial unit normally consumes. Repairs and Maintenance
and Erection, Commissioning and Installation services takes care of minor
repairs, regular maintenance, installations etc which hold part of the entire
industrial or commercial unit. Gradually moving upward, levy was extended
to reach civil structures/buildings in which installations, maintenance etc are
normally required to be carried out so as to tap a heavy and large stream of
revenue, by introducing category of Commercial or Industrial Construction
Services. However, it is worth noting here is that Government had intended
only service specific activity to be covered within the tax net.
Only pure
services provided in connection with construction, erection, maintenance etc
were aimed to be taxed thereby. Putting differently it can be said that only
‘contractors’ were targeted who normally escaped out from manifestation
based levy such as Excise. Let us not go in what aspect theory talks about,
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but it is not out of place to mention here that developers/builders who
launches commercial schemes and sells commercially exploitable units to the
customers were already been subjected to a levy of Stamp Duty which is
substantially more than the effective rate of service tax. Hence legislation
had never targeted the transaction of developer with the customer to
sell/convey the immovable property, but attempted to reach to the hands of
contractors who provide services of pure construction of property to the
developers/builders. Difference between two was of significant importance
but unfortunately failed to perceive by Revenue authorities.
28.10 They further invited attention to Circular dated 17.09.2004 – ‘Issues
pertaining to Service Tax – regarding the Finance Bill, 2004” in para 13.1, if
referred to, will undisputedly makes the stated position of target group by
legislation.
This is the first circular, inter alia, clarifying and extending
support to legislative intent, clearly distinguishing the transaction between
contractor and developer/builder, targeted to be levied, from a transaction
between developer/builder and customer.
“13.1 Services provided by a commercial concern in relation to
construction, repairs, alteration or restoration of such buildings, civil
structures or parts thereof which are used, occupied or engaged for
the purposes of commerce and industry are covered under this new
levy. In this case the service is essentially provided to a person who
gets such constructions etc. done, by a building or civil contractor.
Estate builders who construct buildings/civil structures for themselves
(for their own use, renting it out or for selling it subsequently) are not
taxable service providers. However, if such real estate owners hire
contractor/contractors, the payment made to such contractor would be
subjected to service tax under this head. The tax is limited only in case
the service is provided by a commercial concern. Thus, service
provided by a laborer engaged directly by the property owner or a
contractor who does not have a business establishment would not be
subject to service tax.”
Circular, by way of highlighted references, draws a thick line of
demarcation, leaving doubts apart, that contractors providing services to the
builders, normally referred to as developers, would be liable under this
specified
category
and
not
the
builders
themselves
for
receiving
consideration for selling of buildings. Though the case hand, involves issue
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Page 20 of 51
of residential construction, ratio derived from the above references is of
utmost relevancy, as legislature has, in similar analogy of commercial
construction, introduced tax under residential constructions in 2005.
28.11
They further submitted that Service Tax was introduced in
2005 under Construction of Residential Complex Services, being the issue of
day
the attention was invited to the Budget Speech of Hon’ble Finance
Minister reading as under :
“146.
I propose to include some additional services in the service
tax net. New services to be covered include pipeline transport of
goods; site formation, demolition and like services; membership fees
of clubs and associations; packaging and specialized mailing services;
survey and map making services; dredging services in rivers and
harbours; cleaning services for commercial buildings and similar
premises; and construction of planned residential complexes,
with more than 12 dwelling units, developed by builders.”
They further interpreted that by this Budget, a missing link was matched by Hon’ble
Finance Minister by introducing service tax on residential construction services. As
introduced
the
levy
on
commercial/industrial
construction
services
in
the
immediately preceding budget, levy was extended to cover in residential
constructions also so as to bring entire ‘CONTRACTORS’ fraternity in the kitty.
Moreover, addition of few other new services like site formation, demolition and
excavation, dredging also tapped to remaining part of the term Contractors. More
specifically, Hon’ble Finance Minister in his speech, reproduced above, clearly
defined the perspective of taxing contractors by stating construction of planned
complexes developed by builders to be added as additional services.
Careful
reading of the sentence reveals a clear distinction between the services of
construction that from the selling of constructions.
Use of words ‘developed by
builders’ hold them in the capacity of ‘service recipient’ instead of ‘service provider’
and therefore targeted services were the services received by the builder
developing such planned residential complexes from the CONTRACTORS. Definition
of taxable service as defined in the statute has been reproduced in the impugned
notice and therefore we shall refrain repeating the same here.
28.12
In this regards they further contended that a clarification
issued by DGST vide No V/DGST/22/AUDIT/MISC./1/2004 dated 16.2.2006
solely depending upon but incorrectly interpreting the decision of Hon’ble
Supreme Court in case of K. Raheja Development Corporation v. State of
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Karnataka [2005 TIOL 77 SC CT] opined that even real estate developers
selling property to the customers were also encompassed in the purview of
service provider and tax was payable accordingly. DGST having irrational
and illogical opinion, influenced the Revenue authorities fallaciously and
shuffled a well perceived and logically rested position of law within the trade.
This is the first time, a doubt over applicability of service tax to the
builders/developers,
germinated
in
the
mind
of
experts
as
well
as
departmental authorities and then everybody started jumping on the hot
cake.
28.13
In light of aforesaid contention they further submitted that
subsequently in the year 2006 itself, Government came with a superseding
clarification over DGST’s views, with a noble intention to clear the air vide
Ministry Letter FNO 332/3/2006 – TRU dated 1-8-2006. Relevant part of the
clarification is reproduced hereinafter for ready reference
Legal Position to Sl.No.1
“In a case where the builder, promoter or developer builds a
residential complex, having more than 12 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.”
28.14
They further submitted that, in line with the speech of Hon’ble
Finance Minister and circular dated 17.9.2004, Ministry clarified it to a great
extent by distinguishing between services of contractor for pure construction
activity and activity of builder/developer with the customer/member. If the
contractor is engaged, it becomes liability of the contractor to discharge
service tax and the amount receive by the contractor from the builder shall
become part of taxable value.
In no case, taxability can be thought of in
hands of developer upon amounts received from members/customers, as
envisaged by DGST.
Above cited circulars comes to a direct support of
developers and leaves with no doubts thereto.
28.15
In support of their claim they further submitted that in 2007,
Hon’ble Allahabad High Court came to rescue against decision of K.Raheja,
in case of Assotech Realty Private Limited v. State of U.P. 2007 (7) STR 129
wherein Hon’ble High Court has categorically decided that the right, title and
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interest in the construction remains with the developer. It cannot be said
that the constructions were undertaken for and on behalf of the prospective
allottees and, therefore, the constructions in question undertaken by the
developer would be treated as works contract.
28.16
They further submitted that general clarification on technical
issues, issued vide Master Circular No 96/7/2007-ST dated 23.8.2007 as
amended by Circular No 98/1/2008 dated 4.1.2008 provided following
clarification.
“(a)
In a case whether 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) ].
(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,
(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 off self-supply of services, the
question of providing taxable service to any person by any other person does
not arise.”
While referring aforesaid circular, they further submitted that
another verdict from the Court came to shelter in case of Magus
Construction Private Limited v. Union of India 2008 (11) STR 225 by
Hon’ble Guwahati High Court. Hon’ble Guwahati High Court also stepped
on the same footings Assotech Reality’s case and contended that right,
title and interest in constructions remains with the developer and it
cannot be said that construction has been undertaken for and on behalf of
the customer merely because payment is received in advance.
28.17
To bring more clarity to the issue and for disposal of
pending cases they further drawn attention to the Circular No.108/ 02/
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2009-ST
dated
29.1.2009.
Relevant
Page 23 of 51
part
of
circular
is
reproduced
hereinafter.
“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 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, ultimate owner receives such
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.
4.
All pending cases may be disposed of accordingly.
Any
decision by the Advance Ruling Authority in a specific case, which is
contrary to the foregoing views, would have limited application to that
case only.
In case any difficulty is faced in implementing these
instructions, the
same may be brought to the
notice of the
undersigned.”
29.1
In a backdrop of above presented facts and circumstances,
they explain reasons and grounds for which no liability arises against them
in sheer denial of the allegations leveled in the impugned notice and
contended that having a general perception of position of facts vis-à-vis
position of law as narrated, two conducive questions emerges out of it to be
answered.
Firstly, what is the law as applicable to the present facts
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considering various legislative intents brought on record in form of Budget
Speeches and Clarifications.
Secondly, a developer (or may be called as
builder) steps into the shoes of a ‘Contractor’ following the verdict of Hon’ble
Supreme Court delivered in case of K. Raheja. Before jumping into frivolous
and capricious allegations leveled in the impugned notice, it is felt better
pose, answers to these two questions for brevity of understanding on judicial
as well as judicious platform.
29.02
They further submitted for support of their contention
that answer to the first question lies beneath the update of law position as
envisaged in para 28.
Chronology with analogy of each other itself is
sufficient and self-explanatory to the question. Budget Speech and Circulars
provides indispensable support to the interpretation process of code written
in black and white. Reading through the circulars and as already discussed
in relevant part of para 28, a consistent attempt would be found to have
made to distinguish two transactions vis-à-vis two positions for the law. The
first transaction is between the Developer and a prospective buyer who
wants to buy a ‘house’ for his shelter. The developer defines and specifies
the nature, type, dimension, size of the ‘house’ to be made available for
purchase by the prospective buyer and buyer agrees to it. While the second
transaction is between the Developer and the ‘Contractor’ who actually
constructs a property called as ‘house’ by putting brick over brick with man,
machine and materials. As discussed in a more lucid manner in para 2 that
the basic intention of Hon’ble Finance Minister as evident from the cited
budget speech as well as people behind law making process as known as
TRU was undisputedly flowing out from the series of cited circulars that only
‘Contractor’ who actually constructs property on behalf of the Developer is
intended to be taxed under Law and not the transaction between the
Developer and a prospective buyer. As envisaged in circulars, the Developer
is the service recipient while the ‘Contractor’ is a service provider liable to
pay service tax.
Given interpretation of law also takes support from the
amended position of Statute after introduction of an Explanation to the
definition of taxable service w.e.f. 01.07.2010 and that too with prospective
effect.
29.03
In continuation of aforesaid contention it is further submitted
by them that in the instant
case, the Assessee is a co-operative housing
society providing shelter to its members and receives contribution in form of
money from the respective members. While demand in the impugned notice
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has been raised upon the amount of contributions received by the society
from members.
As properly explained in earlier para, the Society acts in
capacity of the developer who receives consideration (including advance)
from the members who are nobody else but prospective buyers. Hence the
transaction of Society with its member has been wrongly and fallaciously
targeted for levy under impugned notice. In view of circulars, developer
cannot be said to have rendered any services to the members, albeit it
amounts to ‘self-service’ as the property is constructed at its own and no
right, title or interest in the property is transferred to the member until
completion thereof.
29.04
2009
They further invited reference to a circular dated 29-1[Para 2.8] in which it has been clearly instructed to the field
formations that all pending issues shall be disposed off according to the
clarification given thereby. Hence clarification contained in the said circular
becomes binding in nature for the impugned notice and being the facts
covered thereby, it should be decided accordingly.
29.05
As regards answering to the second questions as to
whether a Developer steps into shoes of ‘Contractor’ in view of verdict of
K.Raheja, they further submitted that it is imperative to appreciate first the
major difference between two terminologies. Development of a building,
which is indeed a wider term and of greater importance over construction of
building. A person undertaking said development of property is called the
Developer who intends to create the value of property by transforming a raw
land into a socially and commercially exploitable building of definite purpose
which eventually becomes a ‘shelter’ for humankind. It is not the person who
merely puts brick over brick but undertakes a responsibility and risk on
shoulders with a clear vision in eye to provide something called a ‘shelter’.
As a part of it, being it little longer process in terms of time, the Developer
attempts to mitigate its risk propositions by shaking hands with prospective
buyer of the property and accepting some token advance monetary
consideration. But in no case it alters the substance of the relationship had
between the developer with the prospective buyer which witness a
subsequent event of ‘sale’ of the ‘shelter’ to the buyer. There could be many
permutations–combinations of modus operandi prevailing within the trade
for creating a bond between the Developer and the prospective buyer
considering respective legal aspects and laws of land. However, the
substance remains same across the trade that transaction aims to provide a
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ready built property called as ‘house’ or ‘shelter’ to the prospective buyer for
purchase after its completeness and until then all the risks as well as
benefits, rights vis-à-vis interests in the property under development would
remain with the Developer. Prospective buyer does not step into rights
and/or interest in the property unless and until a conveyance deed (or may
be called as sale deed/allotment deed) is actually executed between the
parties after having finished the creation of a property called as ‘house’ in all
respect. Till then, the Developer not only enjoys rights and ownership in the
property but also assumes various risks and responsibilities such as price
escalation, loss by natural as well as man made disasters, regulatory
restrictions etc.
At the same time, prospective buyer enjoys right of
termination/cancellation of booking. All these factors are conducive to call
the Developer as Developer and not the Contractor. In case of Contractor as
engaged by the Developer for actual construction of property does not do
anything else than actually constructing property as per requirements of the
Developer. In a nutshell, the Developer is more like a Principal to the
Contractor and thereby receives services of the Contractor. In the case, as
discussed in brief facts of their submission and more particularly described in
the impugned show cause notice itself, Society had been formed with a
philanthropic objective of providing shelter to the members. It is of no
significance that whether society was formed by few people or many people,
whether many of promoters are from Bakeri or not. The ultimate objective
was to provide a good accommodation to the members who are certainly
different from the initial promoters from Bakeri. So called assimilation
between Bakeri and the Society as attempted to create a platform for
demand of tax liability in the impugned notice does not wash away the vary
basic objective and spirit with which the Society was formed. They further
submitted that it cannot override the powers, duties, rights, responsibilities
casted upon the Society by the Statute under which it is formed. Therefore,
instead of getting distracted by impugned notice, it is more pertinent to
understand relationship between the Society and members. Preventive
Group has examined leaflet ‘U’, deed of allotment, deed of purchase of land
and many of other relevant records duly produced by the assessee. Nowhere
in the notice or during the course investigation, it could be negated by the
Revenue that Society has developed the property at its own. Society has not
transferred any of the interest in the property until deed of allotment and
actual completion of the property thereafter. It cannot be denied by Revenue
that no prospective customer of the Society had any right, interest, title or
benefit in the property unless and until full payment of contribution was
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made to the Society and Deed of Allotment was actually conveyed according
to the law. Nowhere in the show cause notice or during the course of
investigation proceeding, it could be proved or shown with corroborative
evidences that Society had constructed property for and on behalf of the
prospective buyers. It has been a clear case of ‘Self-Service’ where
relationship of service provider and recipient was patently absent.
29.06
In a nutshell, it is submitted that, in the case on hand, it
cannot be said any manner, nor it has been challenged/alleged in the
impugned show cause notice that Society has constructed property for and
on behalf of the members. Therefore, it would be completely out of place to
contend that Developer (Society) could be said to have stepped into shoes of
‘Contractor’ in any manner. Lordship, if Society is not the Contractor,
certainly liability of service tax does not arise.
29.07
As regards, verdict of K. Raheja, it is their submission that a
Division Bench of Hon’ble Supreme Court has raised a concern over the
acceptability of the verdict in case of M/s Larsen & Toubro Limited v. State of
Karnataka & ANR. 2008-TIOL-186-SC-CT and therefore, it was referred to
Hon’ble Chief Justice for re-examination of decision of K. Raheja by Larger
Bench. Pending reference with Larger Bench, verdict of K. Raheja requires
no consideration or importance. Therefore, so called theory of ‘construction
for and on behalf of the prospective customers’ described by DGST in its
circular becomes baseless.
29.08
In view of above discussion in general over the issues
underlying issuance of show cause notice, it is contend by them that there
existed no element of service in the case on hand and accordingly Society
cannot be treated as service provider so as to consider member as service
recipient. Therefore, liability of service tax under Construction of Complex
services is liable to be quashed.
30.
Without prejudice to whatever discussed hereinabove and in
continuing support of their plea to deny allegations leveled against the show
cause notice, we hereby attempt to make point wise reply to each of the
allegations raised in the notice separately.
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30.1
Page 28 of 51
Para 1 to 17 of the impugned notice are referential in nature for
various correspondences, process of examination and statements recorded,
therefore requires no specific explanation.
30.2
Para 18 and 19 of the notice deals with the provisions of Finance Act,
1994 ( hereinafter referred to as ‘Act’ ). It requires no specific reply except
in para 19 in which definition of taxable service has been reproduced with
Explanation. It is to bring to your kind attention that said Explanation has
been enacted into the law w.e.f. 01.07.2010 and the period involved in the
notice is prior thereto, hence shall be treated as not applicable.
30.3 Emphasis invited to para 19(iv) read with para 19(vii), where revenue
itself contend and accept position of law as discussed in foregoing
submission. It is clearly mentioned that if any person gets the construction
work of any residential complex done on his own and such premises is
intended for his own use, such service is not covered by the definition.
Statute does not directly in words specifies for said exclusion but the
exclusion is a derivative of brainstorming and interpretational analysis of the
language of provisions.
As discussion in foregoing para, tax is levied on
actual construction activity and not upon the developer or builder who gets
property constructed for own use which includes selling it subsequently. In
present case, property has got constructed by Society at its own for personal
use of its members. It is a settled position of law that society and members
are not different according to principle of mutuality. Therefore it is not out
of place to mention that personal use by members also amounts to personal
use of Society. Accordingly show cause notice itself assent to the pleading of
Society for non-taxability.
30.4
In para 20 of the show cause notice, Revenue attempted to create a
false perception of assimilation between the Society and Bakeri and thereby
trying to mislead attention. It is stated that PROMOTERS of the said society
had procured material required,
engaged
labourers
and carried
out
construction for new Residential Complex. It is also stated that the
PROMOTERS of the said society had also made payments for the materials
and labourers. Further it states that PROMOTERS of the said society had
enrolled members by themselves and also received contribution from
members.
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30.5 It is further stated in sheer denial of foregoing observation of notice
that word PROMOTERS has been wrongly and unlawfully been used to
unduly influence attention of adjudicating authority.
PROMOTERS neither
purchase materials nor makes payment for it in their own capacity. It is the
society who purchase materials and pay for it through its administrators who
inter alia comprise of PROMOTERS. Society is not a living organism like a
human so as to undertake its own affairs but an artificial body formed in
accordance with the Statue by a particular class/group of people for definite
purpose. Like company, it always requires a functioning body either called
Board of Directors or Trustees or Administrators. Functioning by Board or
any of the board member on behalf of the Society, therefore does not
tantamount to have done things for his own person behalf but it is always on
behalf of the Society insofar as it is within the vires. Similarly, in the case,
Society has procured materials, paid for it, enrolled members, allotted them
with units through its administrative body which includes humans some of
whom may be PROMOTERS of the society. Therefore, it is completely false
on part of the notice to contend that all such affairs have been undertaken
by PROMOTERS and needs no special attention.
30.6 Further in para 21 notice has summarily concluded that because of
things mentioned in para 20, Society becomes ‘service provider’ and
members becomes ‘service recipient’ and society is said to have engaged in
providing construction services of complex. In their opinion, highlighting so
called alliance of society with bakeri and passing remarks over common
manpower does not alter the nature of transaction as between a developer
and prospective member. Whether society shares manpower with Bakeri for
administration or not, does not automatically makes society a service
provider in terms of provisions of the Act. Findings stated in para 20 has no
relevant to determination of taxability under the Act.
30.7 It is to further state that Revenue has completely failed in the notice
to prove any of the ingredients satisfied for confirmation of levy on the
Society.
Nowhere else in the notice, it could be brought on record that
either Society has acted in capacity of ‘Contractor’ to construct property on
behalf of the prospective members or provided any ‘Service’ to the member
of any manner.
Service provider, service recipient and service are three
basic elements for attracting service tax which Revenue has completely
failed to prove. Kind attention is invited to foregoing discussion in para 2 and
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3 conducive to contend absence of ‘service’ element and therefore leviability
is absent. We do not wish burden upon by making repetitive submissions.
30.8
In para 22 of the impugned notice, it has been stated that circular
dated 01.08.2006 as claimed by Assessee for exemption of tax is
superseded by circular dated 23.08.2007. It may please be noted that no
exemption is claimed by assessee under circular but pleaded to ascertain
non-taxability by virtue of ratio derived in the cited circular and therefore it
always prevails for the period concerned.
Moreover, it is to state that
circular dated 23.08.2007 is also on the similar line and clarifies the same
position of law favouring to the views expressed by the assessee during
course of investigation. Attention is invited to para 2 in which reference has
been made to the circular, which is not resubmitted at this point.
30.9
Except para 21 and 22 of the impugned notice, as properly explained in
foregoing paras, nowhere in the show cause notice, Revenue has attempted or
succeeded in determination of liability of service tax upon assessee. Therefore it is
worth to assert at this point that show cause notice has failed to satisfy
requirements of provisions of the Act insofar as it relates to taxable service and
accordingly demand of service tax does not sustain.
In against of this, we have
proactively made detailed and comprehensive submission in foregoing paras
comprising of facts and circumstances, position of law, modus operandi and nature
of transactions etc.
On the basis of said submission, it is humbly requested to
accept theit contentions related to non-taxability and drop the notice.
31.
Without prejudice to their foregoing submissions, they invite kind
attention
to decision of Hon’ble Tribunal as well as Hon’ble Gujarat High
Court in case of the assessee itself, copies of which are enclosed herewith as
Annexure : A for
ready references. In para 1 of this submission, it has
been clarified at length to your honour regarding facts under which the said
litigation was germinated and settled, which are no different from the
present show cause notice. Decision of Hon’ble High Court in the matter of
refund claims and present show cause notice are the results of the same
investigation proceedings which was ought to have concluded especially
after having verdict from Hon’ble Tribunal. No additional ground has been
placed in the impugned show cause notice.
Therefore decision of Hon’ble
Gujarat High Court is squarely applicable to the present show cause notice.
It is imperative to note that no appeal has been preferred by the
Department against the order of Hon’ble High Court as per our knowledge,
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hence it becomes law of land and binding in nature. It is humbly requested
to follow the same and oblige.
32.
Without prejudice to foregoing plea, they further added in furtherance of
grounds for non-taxability. Attention is invited to definition of ‘residential complex’
as defined in section 65(91a) of the Finance Act, 1994. It was argued that definition
of residential complex as envisaged in section 65(91a) excludes complex intended
for personal use as residence. Personal use is also defined to include permitting the
complex for use as residence by another person on rent or without consideration. In
the given case, society constructed property for personal use of its members and
not otherwise, hence it squarely falls within the definition of personal use as given
and accordingly stands out of the ambit of residential complex. Definition as given
in said section is reproduced herein below for kind perusal.
“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 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.
Explanation : For the removable 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;”
Attention is invited to bold part of the above said definition of residential
complex, which restraints its reach from complexes which are used by the
developer itself or by any other person.
As already established in earlier para,
society is constructing residential premises for its own use which includes use of
property by its members. According to doctrine of mutuality, society and its
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members can not be considered as different.
However explanation as given in
section 65(91a) also permits use of property by other persons. In the given case,
society allows its members to use such property for residential purposes and
accordingly it is squarely covered by definition of ‘personal use’ as given
thereunder. Hence immovable properties thus constructed by the society clearly
falls outside the purview of residential complex.
33.
Without prejudice to whatever stated in foregoing para, it is
further added by them that show cause notice is barred by limitation as
provided in section 73(1) of the Finance Act, 1994. Show cause notice has
been served on 22.10.2010 while period involved is from 2005-06 to
23.02.2009.
Accordingly demand covered by the impugned notice stands
beyond one year in which show cause notice should have been issued. It is
gathered from the notice in para 24 to 26 that extended period is invoked
for issue of show cause notice by confirming suppression on part of the
Assessee.
It is also attempted to find out the substantive reason or
corroborative evidences brought on record by the revenue in support of its
contention of having suppressed the facts by the Assessee, however could
not found anything except standard departmental words generally used in all
the notices getting time barred. It is stated in the notice that NIL returns
have been filed by the Assessee and not disclosed/intimated to the Service
Tax Department about the material facts discussed above.
34.
In relation to filing of Form ST-3 it is submitted by them that
Society had obtained expert opinion on a matter of applicability of service
tax, as stated in brief facts in para 1 above, and accordingly refund claims
were lodged before concerned Assistant Commissioner of Service Tax with
detailed
reasoning
and
grounds
for
refund.
Filing
of
refund
claim
presupposes a belief on part of the Society that tax liability does not arise
and therefore it left with no option but to file NIL returns; that nowhere in
Form ST-3, assessee is required to furnish information of non-taxable
services or activities considered other than services. However, it has been
specifically drawn to the attention of departmental authorities that why tax
is not being paid and returns are being file NIL by way of various
correspondences including notes to ST-3. As a token of evidence they
attached photocopy of ST-3 bearing note of explanation.
Moreover, it is
evident from the para 3, 5, 6, 7, 8 of the show cause notice itself that
Society has been submitting all the information including receipt amounts
from time to time to the department.
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that Range Officer has called for information and not submitted by the
Assessee.
It is to be noted that issue involved interpretation of law and
known to every person of concerned department of Revenue and been
shuffling since 2006 to 2011.
Needless to mention that Society has not
suppressed any single information from the department for which provisions
of section 73(1) proviso could be invoked.
35.
Without prejudice to foregoing submission it is further submitted that
it is the duty of revenue to prove deliberate action on part of assessee to
suppress information or withholding of information from the department.
Mere omission of information or non-submission thereof cannot be treated
as suppression.
In the case on hand, show cause notice has completely
failed to establish suppression on part of assessee. It is a settled position of
law that departmental authorities shall not invoke extended period merely to
safeguard demand proceeding which is otherwise barred by limitation.
Things which cannot be done directly can never be done indirectly. Assessee
could have been issued with show cause notice in the year 2006 itself when
all the information were furnished upto the date, investigation was
completed and statement was also recorded. Had it been issued such time,
it must be in accordance with the timely requirement of law and no need
would have emerged to invoke extended period of limitation. Accordingly,
resorting to alternative remedies on the basis of capricious grounds should
not be encouraged and humbly requested to contend the notice as barred by
limitation.
36.
Moreover it is to state that issue involved in the notice is of
interpretation of law and finally Hon’ble Tribunal as well as Hon’ble Gujarat
High Court have assented to the belief held by the Society by allowing the
refund claim. It is a settled position of law that when issue is of
interpretation and diversified opinions were prevailing, suppression could not
be confirmed on part of the assessee. In the instant case, it is needless to
mention that issue was a burning one and from the day one Board has been
trying to clarify in favour of the assessee but one or other way it got
puzzled. Accordingly, it is humbly requested in view of foregoing discussion
to accept plea of the assessee of notice barred by limitation and demand of
service tax is liable to be quashed.
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37.
Page 34 of 51
As regards imposition of penalties u/s 76, 77 and 78 of the Act, it is
submitted by them that the submission made in para 7 above respectfully
demonstrates the reasons for non-payment of service tax.
Without
prejudice to their other submission, it is humbly requested by them to
refrain from imposition of penalties in view of provisions of section 80.
38.
They further submitted that; in view of above discussion and in the light of
decision of Hon’ble Gujarat High Court and related records, it is requested to drop
the show cause notice.
Personal Hearing:39. Personal hearing was held on 10.08.2011 and Shri Rahul Patel, C.A. appeared
on behalf of
the said service provider and reiterated the content of written
submission [which is as discussed above] and requested to drop the show cause
notice.
Discussions and Findings:40.1
I have carefully gone through the Show Cause Notice, defence reply,
relevant documents and records and submission made during the course of
personal hearing. Before I proceed to decide the issue, I would like to categorically
examine the activities and role of M/s. Shrinandnagar IV Co Operative Housing
Society Ltd., and the Role of M/s Bakeri Engineering and Infrastructure Limited
played in carrying out the impugned “Construction of Complex Service”.
40.2 From the discussion in the show clause notice and defence submitted by the
said assessee, I find the specific role of both are as under:
The status of M/s Shrinandnagar IV Co Operative Housing Society Ltd.,
From the aforesaid discussion I find that it is not a disputed fact that M/s
Shrinandnagar IV Co Operative Housing Society Ltd [assessee] is a co-operative
housing society incorporated under Gujarat Co-Operative Societies Act, 1961, for
an philanthropic objective of providing better residential accommodation to the
people who are member of the society; that the statute, under which assessee is
formed and administered, aims to encourage any system of co-operation amongst
the people for collective and efficient exploitation of common resources; that it can
be undisputedly asserted that assessee is not intended for undertaking a business
or business practices in direct or indirect way or to make profit or gain out of
transactions being undertaken. Further in accordance with the objectives and
byelaws, assessee acquired piece of land, undertaken development activities such
as designing, planning, approvals, etc., with the help of project consultant M/s
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Bakeri Engineering and Infrastructure Limited. The said society itself managed to
procure materials as per layouts, plans, structural drawings, requirements of
engineers and a pool of petty labour contractors to actually construct the residential
property; that it was the Society who undertook actual construction of the property
through its own materials and labourers.
The Role of M/s Bakeri Engineering and Infrastructure Limited (Bakeri):
It is a fact that M/s Bakeri is a renouned group in Ahmedabad in the field of
real estate development activity; that with the help of Bakeri, assessee started to
canvass the project, invited members to join in and develop the residential project;
that the role of Bakeri was to provide advise in the course of development process
and assistance to address various issues and problems being faced in; that in any
way, role of Bakeri was never been intended nor actually played in relation to
execution of the project by way of constructing residential premises. M/s
Bakeri was remunerated for the services provided by it to the Society which
did not include consideration for construction of property as evident from
the Show cause Notice.
The Statute:41. To Examine whether the activities carried out by M/s. Shrinandnagar IV Co
Operative Housing Society Ltd.,
is liable to service tax , I would like to go
through the history of construction service since its introduction to till date.
The same is mentioned as under.
41.1 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;’;
41.2 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
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(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).
41.3
Further, w.e.f 16.06.2005 another sub-clause (91a) 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;]
3. Inserted (w.e.f. 16.06.2005) by s. 88 of the Finance Act, 2005 (18 of
2005).
41.4 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;]
41.5
With effect from 01.07.2010 following explanation was introduced below
the afore said sub clause of taxable service
1[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 authorised
by the builder before, during or after construction (except in cases for which no
sum is received from or on behalf ofthe prospective buyer by the builder or a
person authorised by the builder before the grant of completion certificate by the
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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).
42. Thus, the residential complex as defined under clause 65(91a) of the Finance
Act, 1994 is covered in the definition of “Construction of Complex Service” as
defined in sub-clause (30a) of clause 65 of the Finance Act,1994 and the said
service is taxable service vide sub-clause (105)(zzzh) of clause 65 of the Finance
Act,1994.
42.1 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.
42.2 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.
42.3
Thus, combined reading of both the explanation revealed that residential
complex does not include the complex which are constructed by a person [the
said society in the instant case] by directly engaging any other person [in the
instant case M/s Bakari and other contractors hired by the said society]
for designing or planning of the layout, and the construction of such complex is
intended for personal use as residence by such person i.e. members of the said
society.
42.4
Further, as regard to the taxability of “Construction of Complex” service,
a closer look at the definition of taxable as envisaged under sub-clause (105)(zzzh)
of clause 65 of the Finance Act,1994 revealed that the
service rendered to any
person, by any other person, in relation to Construction of Complex is taxable
service.
42.5
Thus, the said society is not the person who have rendered service in
relation to “Construction of Complex Service” and does not include the said society
for taxing in view of the exclusion clause available in the definition of “residential
Complex which 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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43. Factual position
43.1 The society is the owner of land, on which it undertook entire
construction work with the help of M/s Bakeri Engineering and
Infrastructure limited and other petty labour contractors.
43.2 The society got BU Permission dtd. 01.05.2006 for 112 units.
43.3
The period covered in this case is 2005-06 to 2008-09.
43.4 The society has completed construction work through its own
resources, obtained finance from the Bank of Baroda, Ahmedabad.
The housing scheme was for the ensuing members of the society.
43.5 The society has issued allotment letters to its members on
taking contribution for land and construction of dwelling units from
them.
43.6
Thus, I observe that the society was basically providing self
service in as much as it was constructing houses on its own land and
also the housing scheme was intended for personal use as residence
by the society itself comprising of its members.
43.7
From the detail analysis of the definition revealed that the activities of the
said service provider classifiable under “Construction of Complex Service” However,
on detail analysis of the definition revealed that :There are three elements in this definition

Service

Service Provider

Service Receiver
To qualify as provided service for service tax levy, all three have to be
satisfied.
43.8 From the perusal of the show cause notice, other relied upon documents,
statements and submission of the service provider, it is clear that first two elements
are present in this case. But the third element i.e. service receiver is not traceable,
which is also equally important. The society acquired the land , purchased the
construction materials on their own, developed the same by way of construction
housing
scheme
by
engaging
other
persons,
and
thereafter
allotted/given
possession the same to the members under allotment/ possession letter. Hence ,
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whatsoever activities carried out on the said land before sale do not qualify as
service in absence of service receiver, as per the definition of “ construction of
complex service.”
Entire development work had been completed by the society
before the allotment/possession letters were issued.
43.9 I further observe that the department has not disputed the purchase of land
by the society, neither disputed the allotment of housing units to different
members, nor disputed the major activities carried on before the issue of
allotment/possession letter to the members by the society.
43.10
It also goes in favour of the society that the department has not
interrogated any single member of the society in this case.
43.11
Thus, I conclude that the relation between service provider and service
receiver is not established in this case, in absence of service receiver.
44. Departmental Clarification
The department has also issued several clarifications from time to time
on this issue. Some of the relevant clarifications are as under.
44.1 Para 13.1 of Circular No. 80/10/2004-ST dated 17.09.2004:
“13.1 Services provided by a commercial concern in relation to construction,
repairs, alteration or restoration of such buildings, civil structures or parts
thereof which are used, occupied or engaged for the purposes of commerce
and industry are covered under this new levy. In this case the service is
essentially provided to a person who gets such constructions etc.
done, by a building or civil contractor. Estate builders who construct
buildings/ civil structures for themselves (for their own use, renting it out
or for selling it subsequently) are not taxable service providers.
However, if such real estate owners hire contractor/ contractors, the
payment made to such contractor would be subjected to service tax
under this head. The tax is limited only in case the service is provided by a
commercial concern. Thus service provided by a laborer engaged directly by
the property owner or a contractor who does not have a business
establishment would not be subject to service tax.”
44.2
Point No. 1 of Circular No. 332/35/2006-TRU dated 01.08.2006:
Point 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?
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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 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.
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.
44.3. 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
Issue
Clarification
(1)
(2)
(3)
079.01/23.08.07 Whether service
tax is liable under
construction of
complex service
[section
65(105)(zzzh)] on
builder, promoter,
developer or any
such person,(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?
(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)].
(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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(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.
44.4 The issue has further been clarified by the Board vide Circular
No.108/2/2009.S.T dated 29.01.2009 in connection with construction
of residential complex service. The 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.
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3.
Page 42 of 51
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 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.”
44.5 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
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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.
44.6
Thus, I find that the assessee have constructed the housing
project on their own land and allotted the same to their members.
Hence, it is basically allotment of housing units for contribution
towards cost of land and construction. Atmost, it can be treated as
sale of property, but there is no angle of service in this case.
Whatever amount was collected as advance or full payment in this
case pertains to the period prior to 01.07.2010, hence amended
provisions
also
do
not
make
the
activities/services
of
the
assessee/society taxable with retrospective effect.
44.7
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)
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45. The issue covered
45.1
I observed that the assessee has submitted that this issue
has been decided by the Hon’ble Tribunal and High Court of Gujarat in
their favour in their own case. They added that during investigation
they alongwith other assessees paid service tax, but later on after
knowing several clarifications issued by the Board, opted to claim for
refund of service tax already paid and refrained from paying further.
Refund applications of all the assessees were rejected by the Assistant
Commissioner, and Commissioner (Appeals) also did not give relief to
them. But the issue was decided by the Hon’ble Tribunal in their own
case, which has also been upheld by the Hon’ble High Court of
Gujarat. The relevant para of said orders are reproduced below:-
45.2
Hon’ble Tribunal vide order No. A/1346-
1361/WZB/AHD/2009 dated 03.07.2009 reported at 2009 (16)
S.T.R. 440 (Tri. - Ahmd.), allowed the appeal of the assessee . The
relevant para 5, 6 & 7 are reproduced below:
“5. I have considered the submissions made by both sides. In this case, there is no
dispute that co-operative, societies have not taken a service of the contractor for
constructing residential complex but have chosen to construct complex on their own.
Where they have taken a service of the contractor, Society has handed over the land
to the contractor and the contractor provides the service to the individual who
purchases the residence. In all these cases, the transaction is between the members
of the Society and either the Society or developer. According to the circular issued by
Board on 1-8-06 cited by the learned advocate, 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 gross amount charged for the
construction services provided, to the builder/ promtor/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 cases in the absence of
service provider and service recipient relationship, the question of providing taxable
service to any person by other person does not arise.
6. Further, Board had issued clarification on 29-1-09 which is relevant and is
reproduced below :
“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
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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 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.”
7. I find that in the absence of a contractor hired by Society and nature of the
transaction between the parties and in the light of definition of service and its liability
for service tax, the transaction in this case cannot be considered taxable. Therefore,
all the appeals are allowed. However, the matter is remanded to the original
adjudicating authority in view of the fact that unjust enrichment aspect will have to
be examined before granting refund and also for verification of the correctness of the
claim”.
45.3 I further observe that the said order of Tribunal has further been upheld by
the Hon’ble High Court of Gujarat in Tax Appeal No. 382 of 2010 with civil
application No. 47 of 2010 vide order dated 30.06.2011.
Relevant para
4,5,6,7,8,9,10 are reproduced below:
“4. Counsel for respondent drew our attention to the judgment of Division Bench of
this court rendered in Tax Appeal No. 1550 of 2010 dated 22 April 2011 in case of
Commissioner of Service Tax V/s M/s Sujal Developers in which Judgment of Tribunal
impugned in the present appeal, was also under challenge. The Bench upheld the
view of Tribunal where the respondent-assessee was developer who had developed
housing complex for future sale. The bench held and observed as under
“13.From the statutory provisions, circulars as well as clarifications issued by the
Board referred to hereinabove, it appears that for being chargeable to tax under
section 65(105)(zzzh) of the Act is that the person concerned should render service
to another person in relation to construction of complex. Thus the basic requirement
for falling within the ambit of the said provision is that there has to be a service
provider and a service receiver. In the present case as noticed earlier, the land on
which the residential complex has been constructed belongs to the society. The
society has entered into a development agreement with the respondent. Under the
agreement between the society and the respondent–developer, the work of
construction and development of the housing project has been entrusted to the
respondent. The respondent-developer has agreed to develop the said land by
attending to construction and development work and to complete the scheme duly
and diligently on the terms and conditions contained in the agreement. Under the
agreement, the developer is required to carry out every act necessary to complete
construction and development of the project directly or indirectly, which includes
preparation and approval of plans, getting the buildings constructed directly or by
sub-contracting and/or purchase of material, hiring labour, arrangement of finance,
marketing and advertising the project, enroll members, collect money, etc. The
respondent is permitted to use the property in question for the purposes mentioned
in the agreement. The respondent is entitled to construct and/or arrange to construct
the building as per the plan and specifications prepared by the Architects. Thus, as
per the agreement, the respondent-developer is entitled to make construction on the
land in question, enroll members as well as collect amounts towards the units
allotted to such members. The finances for the purpose of development are to be
arranged by the respondent-developer. In the circumstances, from the development
agreement, it does not appear that the respondent–developer is a contractor who is
executing the construction work on behalf of the society. Here, the developer is using
its own finances and developing the land in question and selling the property
constructed thereon to the members of the society. Thus, in the light of the
clarification issued by the Board. viz., when 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, in
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such a case, 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.
14.In the facts of the present case, there is nothing to indicate that the respondent
has been hired as a contractor by the society so as to bring the activities of the
respondent within the ambit of taxable services as contemplated under section
65(105)(zzzh) of the Act. In the absence of there being any service provider and
service recipient in relation to the transaction in question, the Tribunal was justified
in holding that the transaction in this case cannot be considered as taxable.
15.In view of the foregoing discussion, it is not possible to state that the impugned
order of the Tribunal gives rise to any question of law, as proposed or otherwise,
much less a substantial question of law. The appeal is, accordingly, dismissed.”
5. Counsel for the respondent further submitted that the Society cannot be
stated to be providing any services to the members. He submitted that the
contractor who undertakes the task of construction the residential units on
behalf of the society for the use of the members would be liable to pay service
tax on such services rendered but in no case, society can be stated to have
rendered any services to its members.
6.
Counsel for revenue, however, drew our attention to explanation to sub-
clause (zzzh) added by virtue of Finance Act, 2010 to contend that such
explanation was not noticed by the Bench in its judgment in case of M/s Sujal
Developers (Supra). We wonder whether only on this count the judgment of
the Bench would be rendered vulnerable .
7. From the record, we find that the impugned judgment of the tribunal
came
to
be
upheld
by
the
Division
Bench
in
case
of
M/s
Sujal
Developers(Supra), relevant portion of which, we have already quoted in
this order. We notice that in the said case before the Division bench, it was
a developer who was contending that not having provided any service he
was not liable to pay any service tax. Only point of difference in this case
is that it is a housing society who is putting forth a similar claim on the
premise that the contractor who undertakes the construction work, would
be liable to pay service tax but the society in turn, cannot be said to have
supplied any services to its members. We are of the opinion that the
question is substantially covered by the decision of Division Bench;
wherein, similar question were framed and answered against the revenue.
Insofar as the explanation relied on by the counsel for the revenue is
concerned, the same reads as under:-
(e)
in
sub-clause
(zzzh),
the
following
Explanation
shall
be
inserted,
namely-
"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 ."
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8.
Page 47 of 51
We are not inclined to discuss whether by virtue of such explanation
legal situation in factual background arising in present appeal, would or
would not be any different. Suffice it to note that the explanation was
brought in the statute book long after the taxing event in the present case
had arisen.
9. In absence of any indication in the amendment to make it either
retrospective or explanation being merely declaratory or clarifiacatory in
nature, such statutory change cannot be made applicable to the long past
events.
10. In the result, we do not find that any question of law arises. Tax
Appeal, is therefore, dismissed.”
45.4
I further observed that said order of Hon’ble High Court has been
accepted by the department on monetary limit only, and not on merit.
46.
Judicial Discipline:
46.1
I observe that the issue has been clarified by the Hon’ble High Court in
the case of the assessee itself , and the undersigned is a very small quasi judicial
authority. Hence, I can not think contrary to the decision of Hon’ble High Court as
far as this issue and the same assessee is concerned. Judicial discipline has to be
followed. In this regard, I find fit to quote the relevant paras of Hon’ble Supreme
Court’s decision in the case of UOI Vs. Kamlakshi Finance Corporation Ltd
reported at 1991(55) ELT433(SC), which are reproduced below:
“6.Sri Reddy is perhaps right in saying that the
officers were not actuated by any
mala fides in passing the impugned orders. They perhaps genuinely felt that the
claim of the assessee was not tenable and that, if it was accepted, the Revenue
would suffer. But what Sri Reddy overlooks is that we are not concerned here with
the correctness or otherwise of their conclusion or of any factual mala fides but with
the fact that the officers, in reaching their conclusion, by-passed two appellate
orders in regard to the same issue which were placed before them, one of the
Collector (Appeals) and the other of the Tribunal. The High Court has, in our view,
rightly criticised this conduct of the Assistant Collectors and the harassment to the
assessee caused by the failure of these officers to give effect to the orders of
authorities higher to them in the appellate hierarchy. It cannot be too vehemently
emphasised that it is of utmost importance that, in disposing of the quasi-judicial
issues before them, revenue officers are bound by the decisions of the appellate
authorities. The order of the Appellate Collector is binding on the Assistant Collectors
working within his jurisdiction and the order of the Tribunal is binding upon the
Assistant Collectors and the Appellate Collectors who function under the jurisdiction
of the Tribunal. The principles of judicial discipline require that the orders of the
higher appellate authorities should be followed unreservedly by the subordinate
authorities. The mere fact that the order of the appellate authority is not
“acceptable” to the department - in itself an objectionable phrase - and is the
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subject-matter of an appeal can furnish no ground for not following it unless its
operation has been suspended by a competent Court. If this healthy rule is not
followed, the result will only be undue harassment to assessees and chaos in
administration of tax laws.
7.The impression or anxiety of the Assistant
Collector that, if he accepted the
assessee’s contention, the department would lose revenue and would also have no
remedy to have the matter rectified is also incorrect. Section 35E confers adequate
powers on the department in this regard. Under sub-section (1), where the Central
Board of Excise and Customs [Direct Taxes] comes across any order passed by the
Collector of Central Excise with the legality or propriety of which it is not satisfied, it
can direct the Collector to apply to the Appellate Tribunal for the determination of
such points arising out of the decision or order as may be specified by the Board in
its order. Under sub-section (2) the Collector of Central Excise, when he comes
across any order passed by an authority subordinate to him, if not satisfied with its
legality or propriety, may direct such authority to apply to the Collector (Appeals) for
the determination of such points arising out of the decision or order as may be
specified by the Collector of Central Excise in his order and there is a further right of
appeal to the department. The position now, therefore, is that, if any order passed
by an Assistant Collector or Collector is adverse to the interests of the Revenue, the
immediately higher administrative authority has the power to have the matter
satisfactorily resolved by taking up the issue to the Appellate Collector or the
Appellate Tribunal as the case may be. In the light of these amended provisions,
there can be no justification for any Assistant Collector or Collector refusing to follow
the order of the Appellate Collector or the Appellate Tribunal, as the case may be,
even where he may have some reservations on its correctness. He has to follow the
order of the higher appellate authority. This may instantly cause some prejudice to
the Revenue but the remedy is also in the hands of the same officer. He has only to
bring the matter to the notice of the Board or the Collector so as to enable
appropriate proceedings being taken under S. 35E(1) or (2) to keep the interests of
the department alive. If the officer’s view is the correct one, it will no doubt be finally
upheld and the Revenue will get the duty, though after some delay which such
procedure would entail.
8.We have dealt with this aspect at some length,
because it has been suggested by
the learned Additional Solicitor General that the observations made by the High
Court, have been harsh on the officers. It is clear that the observations of the High
Court, seemingly vehement, and apparently unpalatable to the Revenue, are only
intended to curb a tendency in revenue matters which, if allowed to become
widespread, could result in considerable harassment to the assessee-public without
any benefit to the Revenue. We would like to say that the department should take
these observations in the proper spirit. The observations of the High Court should be
kept in mind in future and utmost regard should be paid by the adjudicating
authorities and the appellate authorities to the requirements of judicial discipline and
the need for giving effect to the orders of the higher appellate authorities which are
binding on them.”
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46.2
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I also observe that the Hon’ble High Court of Gujarat has
consistently followed the said ratio of Hon’ble Supreme Court in the following
decisions:
a. Topland Engineers Pvt.Ltd Vs.UOI 2006(199)ELT
209(Guj) maintained in 2010(253)ELTA.17(SC),
b. Milcent Appliances Pvt. Ltd Vs UOI 2006(205) ELT
130(Guj),
c. Inductotherm (India) Pvt.Ltd Vs. UOI 2010(251)ELT
494(Guj)
46.3
Other High Courts have also directed to follow the Judicial Discipline.
Some of the relevant decisions are as under:
a. Choithram Hospital & Research Centre Vs. UOI2008(222)ELT)188(MP),
b. Tata Motors Ltd. Vs. UOI- 2009(244)ELT 337 (Bom),
c.
Hindustan
Petroleum
Corporation
Ltd
Vs
UOI
2010(250)ELT) 212(Bom)
d. CCE & Cus. Nasik Vs.D.J.Malpani – 2010(258)ELT
185(Bom).
46.4
I further observe that Hon’ble High Court of Allahabad in the case of
Galaxy Indo Fab. Ltd Vs. UOI reported at 2010(252) ELT 3(All.) has taken
serious view against the officer concerned for not following Judicial discipline.
Relevant paras are reproduced below.
“13. The aforesaid averments made in paragraph-6 of the counter affidavit are
contemptuous in nature. The Assistant Commissioner, Central Excise Division, Rae
Bareli has no authority to say that the order of the Tribunal is erroneous and this
Court has no jurisdiction to pass the order.
14. In the case of Union of India v. Kamlakshi Finance Corporation Ltd., reported in
1991 (55) E.L.T. 433 (S.C.), the Apex Court while dealing with the situation wherein
the Assistant Collector has not followed the order of the Appellate Authority. The
Apex Court observed as follows :
“The principles of judicial discipline require that the orders of the higher appellate
authorities should be followed unreservedly by the subordinate authorities. The mere
fact that the order of the appellate authority is not acceptable to the department-in
itself an objectionable phrase-and is the subject matter of an appeal can furnish no
ground for not following it unless its operation has been suspended by a competent
Court. If this healthy rule is not followed, the result will only be undue harassment to
assessees and chaos in administration of tax laws.”
15. In the present case it is admitted case that the order of the Tribunal has not
been challenged by the revenue in any higher Court and the same holds good till
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date. The said order of the Tribunal was binding upon the revenue authority.
Revenue authority cannot refuse to obey the order on any pretext. The refusal to
obey the order amounts to violation of judicial discipline. In the present case,
knowingly there is an order of Tribunal staying the demand till the disposal of appeal,
the demand notice has been issued. Not only that in paragraph-6 of the counter
affidavit, the authority of the Tribunal and this Court has been challenged by
breaking all judicial norms and discipline. We are of the view that the language used
in paragraph-6 of the counter affidavit is contemptuous in nature. However, having
regard to the facts and circumstances, instead of taking a contempt proceeding
against the officer concerned, we propose to impose an exemplary costs of Rupees
one lac on the respondent-officer, which will be payable to the petitioner within two
months by a account payee cheque or draft with a further warning to the officer not
to act in haste and arbitrarily in future.”
The aforesaid decision has been maintained by the Hon’ble Supreme Court
of India as reported in 2010 (256) ELT A59 (Supreme Court).
47. 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)
 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)
48.
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 assessee even without relying upon the decisions of Hon’ble High
Court of Gujarat on same very issue in the assessee’s case itself. Accordingly, I
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conclude that the demand of service tax of Rs. 29,43,247/- against the assessee
fails on merits as well as on limitation. Since the demand fails the question of
interest and penalty does not arise, hence the same also fails.
49.
Accordingly, I pass the following order:
ORDER
I drop the entire proceedings initiated vide show cause notice issued from
F.No.STC-41/O&A/SCN/SN/ADC/10-11
dated
22.10.2010
against
M/s.
Shrinandnagar IV Co Operative Housing Society Ltd., Makarba Road, Vejalpur
Ahmedabad. The show cause notice is disposed of accordingly.
-Sd-
(DR. Manoj Kumar Rajak)
Additional Commissioner,
Service Tax, Ahmedabad.
F.No.STC-41/O&A/SCN/SN/ADC/10-11
Date: 27.09.2011.
By R.P.A.D/Hand Delivery
To,
M/s. Shrinandnagar IV Co Operative Housing Society Ltd.,
Makarba Road, Vejalpur
Ahmedabad.
Copy to :1. The Commissioner of Service Tax, Ahmedabad (Attn. Review Cell).
2. The Additional Commissioner (Prev.), Service Tax, Ahmedabad. (Attention
Supdt. (Prev), Gr. I, Ahmedabad.
3. The Asstt. Commissioner, Service Tax, Division-III, Ahmedabad.
4. The Superintendent Range-XV, Division-III, Service Tax, Ahmedabad with
extra copy of OIO to be served to the assessee and submit the
acknowledgement to this office.
5. Guard file.
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