2025 (5) TMI 773 - AT - Service Tax

Short/non payment of tax - booking of flats on comparison of ST-03 Returns with Ledger/ Chart provided by party - booking of Commercial Property as tax not payable in ST-03 Returns - Job Receipts for the F.Y. 2011-12 2013-14 in the capacity of Contractor for services provided to Builder/Developer/Promoter under Construction of Complex Service - Rent received - amount received for Forfeiture of Guest House booking amount under the head Mandap keeper service - amount received under the head Commission in Ledger account for the F.Y. 2010-11 2013-14 is taxable under Business Auxiliary Service (BAS) - Legal Services under reverse charge mechanism (RCM). Short payment of tax on booking of flats on comparison of ST-03 Returns with Ledger/ Chart provided by party and Non- payment of tax on booking of Commercial Property as tax not payable in ST-03 Returns - HELD THAT - As per the explanation the activity of construction is to be considered a service provided to the prospective buyer. In such a case the time of supply of services would be in accordance with the construction activity itself. Hence if a project is completed before 01.07.2010; then no construction service is provided by the Builder to the prospective buyer anymore. Instead it is merely a sale of the building to the buyer. For an activity to fall under the Explanation to Section 65(105)(zzq) (zzzh) there must be a construction which was ongoing even after 01.07.2010 and there must be consideration received with respect to such construction after 01.07.2010. A construction project completed to any extent before 01.07.2010 would not automatically fall under the Explanation which has not been provided any retrospective effect by the Statute. Since the service of construction to prospective buyers only becomes taxable after 01.07.2010 then it stands to reason that only the portion of construction completed after such date would become taxable under service tax regime. On perusal of the Completion Certificates provided by the Appellants with respect to the completed and on-going projects in the relevant period which in our view serve as sufficient proof of the degree of completion of the projects. Since the service tax on the amount vis-a-vis the uncompleted portion of the project as on 01.07.2010 has been paid by the Appellant in its ST-03 Returns there are no merit in the first allegation made in the impugned Order. Thus the demand of Rs.92, 74, 325/- under the head Construction of Residential Complex is set aside. Non-payment of service tax on Job Receipts for the F.Y. 2011-12 2013-14 in the capacity of Contractor for services provided to Builder/Developer/Promoter under Construction of Complex Service - HELD THAT - Unlike what is mentioned by the Adjudicating Authority the Appellant has deposited service tax amounting to Rs.12, 57, 758/- in the present case. Additionally since such service tax has been deposited with the Government Exchequer vide Challans the same must be considered and mere non reporting in ST-03 Returns cannot be the basis to disregard the same. Accordingly the service tax has been paid by the Appellant on the amount received from M/s Jaypee in F.Y. 2013-14 and the demand confirmed with respect to the same is unwarranted. With respect to the amount of Rs.9, 84, 09, 499/- received from M/s Jaypee in F.Y. 2011-12 the Appellant contends that such amount received against R/A Bill No.38 pertains to work which was completed back in 2004-05 and as such would not be taxable under Service tax regime. The amount received by the Appellant in FY 2011-12 from M/s Jaypee pertains to Work Contract services provided to M/s Jaypee pertaining to work completed in F.Y. 2004-05 and as such would not be taxable under Service tax regime. Thus the demand of Rs.1, 15, 04, 184/- under the head Construction of Complex service is set aside Short payment of service tax on Rent received - HELD THAT - The Adjudicating Authority has confirmed demand of tax short paid amounting to Rs.2, 19, 092/- on rent received in relevant period as shown in Balance Sheet in contrast with Rent reported in ST-3 Returns. It is observed that no submissions have been made nor any reasoning provided by the Appellant in this regard either in the Appeal or in the defence reply. Accordingly the demand of Rs.2, 19, 092/- is to be upheld. Non-payment of service tax on amount received for Forfeiture of Guest House booking amount under the head Mandap keeper service - HELD THAT - The Revenue has proposed demand of service tax on such amount under the head of Business Auxiliary Service BAS in the SCN. Subsequently the Adjudicating Authority had confirmed the demand in the impugned Order under the head of Mandap keeper service - When an allegation of taxability has been made in the SCN under one head the same cannot be classified under a different head in the impugned Order. In light of the same the present demand of service tax on amount of Rs.2, 25, 000/- under the head of Mandap keeper Service is beyond the scope of SCN and as such is unsustainable. Accordingly the sameis set aside. Non-payment of service tax on an amount received under the head Commission in their Ledger account for the F.Y. 2010-11 2013-14 is taxable under Business Auxiliary Service (BAS) - HELD THAT - A strict interpretation of exemption notification refers to strictly following the words of the notification. It does not refer to artificially adding imaginary requirements not provided in the Notification to narrow its scope. There is no ambiguity and no room for additional conditions to be imagined and read in Clause 29(c) of Notification No.25/2012 neither does the Department has the power to narrow the scope of the exemption. In light of the same since Notification No.25/2012 does not provide for any requirement of an AMFI/ARN No. the sole contention of Department is unsustainable. Consequently the commission received for providing services in capacity of a mutual fund agent to an asset management company is exempt under Service tax regime. Short payment of service tax under the head Legal Services under reverse charge mechanism (RCM) - HELD THAT - The concerned legal expenses do not refer to payment to Advocates/Advocate firm and as such would not be taxable under Reverse Charge mechanism. Accordingly the demand confirmed in impugned Order set aside. Conclusion - The demands confirmed on the basis of incomplete or misconstrued evidence incorrect interpretation of the taxability period procedural improprieties in changing service categories post SCN and misapplication of reverse charge provisions are unsustainable. Consequently all such demands and penalties are set aside while the uncontested demand on rent short payment is upheld. Appeal allowed in part.

Summary

The core legal questions considered by the Tribunal in this matter revolve around the correctness and sustainability of the confirmed Service Tax demands on various heads, including construction services, renting of immovable property, business auxiliary services, and legal services under reverse charge mechanism (RCM). Specifically, the issues are:

• Whether service tax is payable on advances received for booking of flats and commercial property under "Construction of Residential Complex" service, particularly concerning projects completed or partially completed before the taxability date of 01.07.2010.
• Whether service tax is payable on "Job Receipts" for construction services provided to a cooperative housing society, considering the timing of completion of the underlying work and the applicability of Works Contract Service classification.
• Whether there was short payment of service tax on rent received under the "Renting of Immovable Property" service head.
• Whether service tax is payable on forfeited guest house booking amounts, and if so, under which service category-"Business Auxiliary Service" or "Mandap keeper service"-and the permissibility of changing the category post issuance of show cause notice (SCN).
• Whether commission received for mutual fund transactions qualifies for exemption under the relevant Exemption Notification as services rendered in the capacity of a mutual fund agent, and the relevance of AMFI/ARN registration numbers.
• Whether service tax is payable on legal expenses under the reverse charge mechanism, particularly when payments are made to non-advocate professionals such as architects and company secretaries.
• The burden of proof regarding taxability and the evidentiary requirements for confirming service tax demands.

Issue 1: Service Tax on Advances for Construction of Residential Complex

The legal framework involves the Finance Act, 1994, specifically Section 65(105)(zzq) and (zzzh) as amended w.e.f. 01.07.2010, which introduced the taxable service of "Construction of Residential Complex" to prospective buyers. Prior to this date, such construction services were not taxable. The Tribunal analyzed whether tax is payable on the entire amount received from buyers or only on the portion attributable to construction completed after 01.07.2010.

The Court interpreted the Explanation to Section 65(105) to mean that only ongoing construction services after the effective date attract service tax. Completed projects before 01.07.2010 are not subject to service tax, as the transaction in such cases amounts to sale of immovable property, which is outside the service tax net. The Tribunal found the Revenue's argument-that tax is payable on the entire receipt regardless of completion status-lacking in cogent reasoning.

The Appellant's reconciliation statement, supported by "Completion Certificates" for various projects, was accepted as sufficient proof of the degree of project completion. The Tribunal noted that even if the reconciliation was somewhat complex, the Adjudicating Authority should have sought clarification rather than dismissing it outright. Consequently, the demand of Rs.92,74,325/- on this issue was set aside.

Issue 2: Service Tax on Construction Services Provided to Cooperative Housing Society

This issue involved demands on amounts received from M/s Jaypee Cooperative Group Housing Society Ltd. The Appellant contended these receipts were for Works Contract Services, supported by agreements and WCT deduction certificates, and that service tax had been paid on amounts received in 2013-14. The Tribunal relied on CBIC Circular No. B1/16/2007/TRU to classify the activity as Works Contract Service, which includes supply of materials.

The Tribunal accepted the Appellant's evidence of service tax payments by Challans and rejected the Adjudicating Authority's contention that non-reporting in ST-3 Returns invalidated such payments. Regarding the large sum received in 2011-12, the Appellant demonstrated through correspondence, certificates from the Delhi Development Authority, and accounting standards (AS-9) that the work was completed in 2004-05, a period when Works Contract Services were not taxable. The Tribunal found the Revenue's reliance on the Adjudicating Authority's skepticism misplaced, holding that the amount related to pre-taxable period work and was not liable to service tax. Thus, the demand of Rs.1,15,04,184/- was set aside.

Issue 3: Short Payment of Service Tax on Rent Received

The Adjudicating Authority confirmed a demand of Rs.2,19,092/- based on discrepancies between rent shown in the Balance Sheet and ST-3 Returns. The Appellant did not contest this issue or provide any explanation. The Tribunal upheld the demand due to lack of submissions or evidence to the contrary.

Issue 4: Service Tax on Forfeited Guest House Booking Amounts

The Revenue initially proposed demand under "Business Auxiliary Service" (BAS) but confirmed it under "Mandap keeper service" in the impugned order. The Appellant argued that confirming demand under a different service category than that mentioned in the SCN violates principles of natural justice and is impermissible, relying on Tribunal precedents.

The Tribunal agreed, holding that a demand cannot be shifted to a different service category post issuance of SCN. This procedural impropriety rendered the demand unsustainable, and the demand of Rs.2,25,000/- was set aside.

Issue 5: Service Tax on Commission from Mutual Fund Transactions

The Appellant claimed exemption under Clause 29(c) of Exemption Notification No.25/2012-ST, which exempts services by mutual fund agents to mutual funds or asset management companies. The Adjudicating Authority denied exemption on the ground that the payer was not a mutual fund or asset management company and the Appellant had not provided AMFI/ARN registration numbers.

The Tribunal emphasized the principle of strict interpretation of taxing statutes and exemption notifications, citing the Supreme Court's ruling that courts cannot read additional conditions into exemption notifications. Since the notification did not require AMFI/ARN numbers, the Department's denial on this basis was unsustainable.

The Tribunal found that the Appellant acted in the capacity of a mutual fund agent to an asset management company and was entitled to exemption. The demand of Rs.49,99,430/- under BAS was set aside accordingly.

Issue 6: Service Tax on Legal Expenses under Reverse Charge Mechanism (RCM)

The Adjudicating Authority confirmed a demand of Rs.17,31,752/- on the premise that legal expenses recorded in the ledger referred to payments to advocates or law firms, attracting RCM. The Appellant contended these expenses related to water tax, architects, company secretaries, and chartered accountants, none of whom fall under taxable legal services under RCM as per Notification No.30/2012.

The Tribunal examined ledger accounts submitted by the Appellant and found them consistent with the Appellant's claim. The absence of payments to advocates or law firms meant the RCM did not apply. The demand was therefore set aside.

Issue 7: Burden of Proof Regarding Taxability

The Tribunal highlighted a significant legal principle concerning the burden of proof. It noted that the Finance Act, 1994 does not shift the burden of proving taxability onto the taxpayer. Instead, the Revenue must establish that a transaction falls within taxable services, especially before the Negative List regime when only specifically enumerated services were taxable.

The Tribunal invoked Sections 101 and 103 of the Evidence Act, 1872 (and corresponding provisions of the Bhartiya Sakhshya Adhiniyam, 2024) to affirm that the burden of proof lies with the Revenue. The impugned order's reliance on the Appellant's alleged failure to produce evidence to disprove taxability was therefore erroneous.

Since the Revenue failed to discharge this burden with documentary evidence, all demands based solely on unsubstantiated allegations and lack of evidence were set aside.

Significant Holdings:

"Since the service of construction to prospective buyers only becomes taxable after 01.07.2010, then it stands to reason that only the portion of construction completed after such date would become taxable under service tax regime."

"Mere depositing of service tax by Challan and not reporting in ST-3 Returns is not sufficient" is rejected; actual payment by Challan is valid evidence of discharge of tax liability.

"When an allegation of taxability has been made in the SCN under one head, the same cannot be classified under a different head in the impugned Order."

"A taxing statute and corresponding notification is to be interpreted literally and strictly. To do so we have to read into the section many more words than it contains at present which is wholly impermissible in construing any provision much less a taxing provision."

"The burden of proving that a particular transaction falls under the taxable service is on the Revenue."

The Tribunal ultimately concluded that demands confirmed on the basis of incomplete or misconstrued evidence, incorrect interpretation of the taxability period, procedural improprieties in changing service categories post SCN, and misapplication of reverse charge provisions were unsustainable. Consequently, all such demands and penalties were set aside, while the uncontested demand on rent short payment was upheld.