2014 (6) TMI 555 - AT - Service Tax

Planning advisory and execution services - Revenue held this service as Real Estate Agent commercial or industrial service and construction of Residential Complex - Demand of CENVAT Credit - Held that - appellants themselves in their appeal memorandum have stated as reproduced above that when the scheme is completed all the members are taken up as either members or share-holders of the society or NTA and the persons of the builder go out of the NTA or the society. Eventually the NTA or the society either enter into sale deeds in favour of the members or just allots the land in favour of the members. As reproduced by us above admittedly the land was purchased in the name of the society and the society allotted the land to the members without a registered sale deed thereby stamp duty was avoided. Measures taken by the appellants or the public at large to avoid stamp duty or to devise mechanism to legally not to pay stamp duty should not be a ground for demanding Service Tax or upholding the demand for Service Tax. But what the appellants are asking the Revenue to do is to ignore the legal and statutory documents executed for the purpose of construction/development and transfer of property between the Society/NTA and members. It has to be noted that it is the Housing Society/NTA which purchases the land even though the builder pays to the society to facilitate the payment for the land. Similarly even though the builder identifies the customer/purchaser the customer/purchaser pay for the land and the constructed building to the Society/NTA and not to the builder. Demand in respect of Real Estate Agent Service - Held that - The definitions of Real Estate and Consultant would clearly show that the definition covers any service in relation to sale purchase leasing or renting of real estate. The Consultant covers a person who renders in any manner various types of activities which include all the activities undertaken by appellant in this case. We have to note that the words used are rendering any service in relation to Real Estate. In the case of Real Estate Consultant it means rendering advice consultancy etc. in any manner of Real Estate. Under the circumstances any services rendered in relation to Real Estate and any advice or activity undertaking in relation to Real Estate for a service receiver would be covered under this category and unfortunately for the appellant the definition clearly cover them. Demand in respect of Construction Service - works contract - date of levy - composition scheme - Held that - In the case of commercial or industrial service also appellant s claim is only that there is nobody in between the purchaser of a portion of the property or mall or commercial complex constructed by them and again the same ground has been explained. This contention cannot be accepted - entitlement to benefits of composition scheme arises only after exercise of option as per rules. For the period prior to 2007 no such option would be available for the services. Moreover it was also submitted that it was a clear understanding of the legislature that many of the services which were included prior to works contract service which has come from 1-6-2007 were in fact covered under some other category of service especially relating to construction activity. Therefore it can not be said that prior to 1-6-2007 the appellant was not liable to payment of Service Tax even if service was classifiable and liable to Service Tax earlier. - Decision of Nagarjuna Construction Co. Ltd. reported in 2010 (6) TMI 91 - ANDHRA PRADESH HIGH COURT followed. Appellants have not been able to make a prima facie case in their favour. Keeping in view the peculiar facts and circumstances of the case and the facts that no financial difficulties have been pleaded and the balance of convenience etc. it is felt that the appellant should be directed to deposit an amount of Rs. 2 crore as pre-deposit for hearing the appeal. Taking the interest quantum also into account but without taking penalty the amount required to be deposited would come to less than 10% of the dues - stay granted partly.

Summary

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of Service Tax under various heads.
3. Legal status and implications of the Special Purpose Vehicle (Society/NTA).
4. Treatment of development charges.
5. Applicability of judicial precedents and legal definitions.

Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant, engaged in the business of development and construction of commercial and residential projects, was scrutinized by Revenue, which classified their services under 'Real Estate Agent,' 'Commercial or Industrial Service,' and 'Construction of Residential Complex.' The appellant argued that they operated as a builder, bearing all profits and losses, and created Special Purpose Vehicles (SPVs) like societies or non-trading associations (NTAs) for administrative purposes. These SPVs were controlled and financed by the appellant until the project's completion.

2. Applicability of Service Tax Under Various Heads:
The Revenue demanded Service Tax on amounts received under 'Development Charges/Fees' and 'Construction Costs.' The appellant contended that their activities were entrepreneurial and not taxable services. However, the tribunal noted that the appellant's activities, including finding land, obtaining permissions, and promoting schemes, fell within the definition of 'Real Estate Agent' and 'Real Estate Consultant' under Section 65 of the Finance Act, 1994. The tribunal concluded that the services provided by the appellant were taxable under these categories.

3. Legal Status and Implications of the Special Purpose Vehicle (Society/NTA):
The tribunal emphasized the legal recognition of the SPVs (Society/NTA) created by the appellant. Despite the appellant's control over these entities, they were legally distinct and acted as the service recipients. Payments for construction and development were made to the SPVs, which then transferred the amounts to the appellant. The tribunal rejected the appellant's argument to ignore the SPVs' legal status, affirming that the SPVs were not mere dummies but legitimate entities in the eyes of the law.

4. Treatment of Development Charges:
The tribunal examined the nature of 'Development Charges,' which included costs for land acquisition, design, statutory approvals, and promotion. These charges were considered part of the service provided to the SPVs. The tribunal held that the appellant's activities, as detailed in agreements with the SPVs, constituted taxable services under the 'Real Estate Agent' category. The separation of construction costs and development charges further supported the classification of these activities as taxable services.

5. Applicability of Judicial Precedents and Legal Definitions:
The appellant cited several judicial decisions to support their case, arguing that their activities did not constitute taxable services. However, the tribunal found these precedents inapplicable due to differing facts and circumstances. The tribunal referred to the definitions of 'Real Estate Agent' and 'Real Estate Consultant' in the Finance Act, 1994, which broadly covered the appellant's activities. The tribunal also considered the Board's circular and the decision in Nagarjuna Construction Co. Ltd., which clarified the applicability of Service Tax to construction activities prior to the introduction of the works contract service.

Conclusion:
The tribunal concluded that the appellant's services were taxable under the 'Real Estate Agent,' 'Commercial or Industrial Construction,' and 'Construction of Residential Complex' categories. The appellant was directed to deposit Rs. 2 crore as a pre-deposit for hearing the appeal, with the balance amount waived and recovery stayed during the appeal's pendency. The tribunal's decision underscored the importance of recognizing the legal and statutory framework governing the transactions between the appellant and the SPVs.