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2025 (5) TMI 158 - AT - Service TaxClassification of services - Demand of service tax along with interest and penalty - activity of construction of villas commercial shops and development of land in lieu of development charges from the owner of the land under different projects - Definition of Construction of Complex as per Section 65 reproduced (30a) of Finance Act 1994 - HELD THAT - From the definition it is abundantly clear from the provisions that construction of residential complex having not more than 12 residential units is not sought to be taxed under the Finance Act 1994. For the levy it should be a residential complex comprising more than 12 residential units. Admittedly in the present case the appellants constructed individual residential houses which is evident from the fact that the appellant had entered into different contracts with each individual owner which has been noted in the order-in-original. In any case it is clear that the law makers did not want construction of individual residential units to be subject to levy of service tax. We hold that for something to be a residential complex each individual building should have at least 12 residential units. In the instant case we note that a piece of land was developed and divided into plots along with some common areas and the plot was sold to each customer. Consequently we hold that each of these structures is in the form of individual house and the eligible for the exemption. We note that this issue is no more res-integra as the matter stands decided in case the decision of M/s Macro Marvel Projects Vs Commissioner Service Tax 2008 (9) TMI 80 - CESTAT CHENNAI wherein this Tribunal held that service tax can be levied only if a building concerned has more than 12 units. This decision was upheld by the Hon ble Supreme Court. Consequently the departmental appeal is dismissed. As regards the assessee s plea on reduced penalty we note that the proviso to Section 78 (1) of the Finance Act 1994 makes it clear that the said benefit is available only if the reduced penalty is paid within 30 days of the order-in-original. As the same was not paid within such period the benefit cannot be extended. Thus we uphold the impugned order and dismiss both the appeals.
1. ISSUES PRESENTED and CONSIDERED
- Whether the construction of individual villas qualifies as construction of a "residential complex" liable to Service Tax under the Finance Act, 1994, given the statutory definitions and exemption notifications. - Whether the demand of Service Tax on construction of villas can be sustained when the assessee had entered into separate contracts with individual landowners and the development involved common amenities. - Whether the development charges received by the assessee for land development should be classified under "Works Contract Service" or "Site Formation and Clearance Service" for Service Tax purposes. - Whether the assessee is entitled to the benefit of reduced penalty under Section 78(1) of the Finance Act, 1994, given the timeline of payment of penalty. - Whether the Commissioner (Appeals) erred in setting aside the demand on construction of villas while confirming the demand on commercial shops and land development charges. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether construction of individual villas amounts to construction of a residential complex liable to Service Tax Legal Framework and Precedents: The Finance Act, 1994 defines "construction of complex" under Section 65(30a) and "residential complex" under Section 65(91a). The latter requires a complex to comprise:
Exemption Notification No. 25/2012-ST dated 20.06.2012 exempts construction of single residential units (e.g., villas) from Service Tax. Relevant precedents include the Tribunal's decisions in M/s Macro Marvel Projects (2008), upheld by the Supreme Court, which held that construction of buildings with twelve or fewer residential units is not taxable as a residential complex. Subsequent decisions such as Arvind Tiwari (2024), M/s P.S. Builders et al. (2023), and Quality Builders & Construction (2023) reaffirm this interpretation, emphasizing that individual houses or villas do not constitute a "residential complex" for Service Tax purposes. Court's Interpretation and Reasoning: The Tribunal noted that the assessee constructed individual houses (villas) pursuant to separate contracts with individual landowners. Although the land was developed with common amenities (parks, roads, streetlights, sewerage), the individual houses did not form a "residential complex" as defined, because each building had fewer than twelve residential units. The Tribunal emphasized that the legislative intent was to tax only construction of complexes with more than twelve residential units, not individual residential units. Key Evidence and Findings: The record showed that the land was divided into plots with common areas, and the assessee entered into separate contracts for construction of villas on these plots. The presence of common amenities did not convert these individual houses into a residential complex liable to Service Tax. Application of Law to Facts: Applying the statutory definition and settled precedents, the Tribunal held that the construction of villas did not attract Service Tax as construction of a residential complex. The exemption notification applied, and the demand on the construction of villas was rightly set aside by the Commissioner (Appeals). Treatment of Competing Arguments: The Revenue argued that the development was part of residential projects with common amenities and thus taxable. The Tribunal rejected this, distinguishing the facts from earlier cases cited by the Revenue and underscoring the statutory requirement of more than twelve residential units per building or complex. Conclusion: The Tribunal concluded that the construction of villas was exempt from Service Tax as they did not constitute a residential complex under the Finance Act, 1994. Issue 2: Classification of land development charges and construction of commercial shops Legal Framework and Precedents: The assessee received development charges from landowners and was engaged in construction of commercial shops. Service Tax liability on such activities is recognized under "Works Contract Service" or related taxable services. Court's Interpretation and Reasoning: The Tribunal observed that the assessee had accepted and paid Service Tax on construction of commercial shops and land development charges. The show cause notice and adjudicating authority records confirmed that the land development involved activities such as land filling, road construction, sewerage, street lighting, and park construction, involving supply of materials and labor, which fall within the ambit of Works Contract Service. Key Evidence and Findings: The assessee's own admissions and payments, as well as the departmental enquiry, established the taxable nature of these services. The Commissioner (Appeals) confirmed the demand of Rs. 21,44,696 along with interest. Application of Law to Facts: Since the assessee did not dispute the tax liability on these services before the Commissioner (Appeals), and had paid the tax and interest, the Tribunal upheld the demand. Treatment of Competing Arguments: The assessee contended that land development charges were incorrectly classified as Site Formation and Clearance Service instead of Works Contract Service. The Tribunal found this distinction immaterial, as the demand was sustained on the basis of Works Contract Service classification, which is taxable. Conclusion: The demand on construction of commercial shops and land development charges was confirmed. Issue 3: Entitlement to benefit of reduced penalty under Section 78(1) of the Finance Act, 1994 Legal Framework: Section 78(1) provides for imposition of penalty equal to the amount of Service Tax demand, but allows benefit of reduced penalty if the penalty is paid within 30 days of the order-in-original. Court's Interpretation and Reasoning: The Tribunal noted that the assessee had not paid the reduced penalty amount within 30 days of the issue of the order-in-original. The proviso to Section 78(1) clearly conditions the benefit of reduced penalty on timely payment. Key Evidence and Findings: The penalty was not paid within the stipulated period, as confirmed by the adjudicating authority and Commissioner (Appeals). Application of Law to Facts: The Tribunal held that the assessee was not entitled to the benefit of reduced penalty due to non-compliance with the time limit. Treatment of Competing Arguments: The assessee claimed entitlement to reduced penalty on the ground that the tax liability was paid before issuance of the show cause notice. The Tribunal rejected this, emphasizing the statutory requirement of payment of penalty within 30 days. Conclusion: The benefit of reduced penalty was denied to the assessee. Issue 4: Whether the Commissioner (Appeals) erred in setting aside the demand on construction of villas but confirming the demand on commercial shops and land development charges Court's Interpretation and Reasoning: The Tribunal found no error in the Commissioner (Appeals)'s order. The setting aside of the demand on villas was consistent with statutory definitions and judicial precedents, while the confirmation of demand on commercial shops and land development charges was supported by the assessee's own acceptance of tax liability and payments. Conclusion: The Tribunal upheld the Commissioner (Appeals)'s order in toto. 3. SIGNIFICANT HOLDINGS "It is abundantly clear from the above provisions that construction of residential complex having not more than 12 residential units is not sought to be taxed under the Finance Act, 1994. For the levy, it should be a residential complex comprising more than 12 residential units. Admittedly, in the present case, the appellants constructed individual residential houses, each being a residential unit... the law makers did not want construction of individual residential units to be subject to levy of service tax." "The proviso to Section 78 (1) of the Finance Act, 1994 makes it clear that the benefit of reduced penalty is available only if the amount of such reduced penalty is also paid within such period [30 days]. As the appellant has not paid the amount of penalty within thirty days of the issue of the impugned order, the benefit of reduced penalty is not admissible to him." Core principles established include:
Final determinations:
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