2025 (5) TMI 1821 - AT - Service Tax

Refund claim - Taxability of service - Construction of Residential Complex Service prior to 01.07.2010 - eligible for exemption as per the Board s Circula r No. 108/02/2009-ST - HELD THAT - In view of the Explanation to the definition of taxable service of Construction of Residential Complex Service under Section 65(105)(zzzh) was inserted only with effect from 01.07.2010. The Board s Circulars dated 29.01.2009 and 10.02.2012 have categorically clarified that the above service was not liable to service tax prior to 01.07.2010; since the refund claim pertains to the period prior to 01.07.2010 the impugned order rejecting the refund claim cannot be sustained. The issue is no longer res integra in as much as the Principal Bench in the case of Krishna Homes vs. Commissioner of Central Excise Bhopal 2014 (3) TMI 694 - CESTAT AHMEDABAD . This Tribunal vide Final order No.21127/2024 dated 18.09.2024 relying upon the various settled decisions held that the appellant is not liable to pay service tax on Construction of Residential Complex Service prior to 01.07.2010. Thus the impugned order is set aside and the appeal is allowed with consequential relief if any as per law.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

- Whether the appellant was liable to pay service tax under the category of 'Construction of Residential Complex Service' prior to 01.07.2010;

- Whether the Explanation inserted into Section 65(105)(zzzh) of the Finance Act, 1994 with effect from 01.07.2010, which deemed the builder as a service provider to buyers, applies retrospectively or prospectively;

- Whether the appellant was entitled to a refund of service tax paid during the period from June 2005 to June 2007 based on the Board's Circular No. 108/02/2009-ST dated 29.01.2009;

- The applicability and interpretation of relevant Board Circulars and judicial precedents concerning the taxability of construction services rendered by builders/promoters to prospective buyers before the insertion of the Explanation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Liability to pay service tax under 'Construction of Residential Complex Service' prior to 01.07.2010

Relevant legal framework and precedents: The service tax liability on construction of residential complexes is governed by Section 65(105)(zzzh) of the Finance Act, 1994. The key amendment was the insertion of an Explanation to this clause effective from 01.07.2010, which deemed the builder to be a service provider to the buyer for construction services where sale is intended before, during, or after construction. Prior to this Explanation, the liability was less clear.

Several judicial decisions were relied upon, including:

• CCE, Chandigarh vs. U.B. Construction (P) Ltd.
• Krishna Homes vs. CCE, Bhopal
• CCE & ST, Bangalore-I vs. Keerthi Estates Pvt. Ltd.
• Asian Builders & Developers vs. CCE, Secunderabad
• Adriot Urban Developers P. Ltd. vs. CGST, Chennai

These decisions consistently held that the Explanation was a prospective amendment and that prior to 01.07.2010, the builder/promoter was not liable to pay service tax on construction services provided to buyers under agreements for sale of residential units.

Court's interpretation and reasoning: The Tribunal extensively referred to the Principal Bench decision in Krishna Homes, which analyzed the legislative history and the effect of the Explanation. The Tribunal noted that the Explanation expanded the scope of taxable service by deeming the builder as a service provider to the buyer, which was not the case before the Explanation was inserted. The Tribunal observed that prior to this, the service tax liability was on the contractor engaged by the builder, not on the builder himself.

The Tribunal also highlighted the Circular No. 108/02/2009-ST dated 29.01.2009, which clarified that construction of residential complexes was not liable to service tax prior to 01.07.2010. The Tribunal underscored that this circular was binding on the authorities and supported the appellant's claim for refund.

Key evidence and findings: The appellant had paid service tax under the category of 'Construction of Residential Complex Service' for the period June 2005 to June 2007 and filed a refund claim based on the Board's Circular. The original authority sanctioned the refund, but it was later set aside by the Commissioner on revision, denying the exemption.

The Tribunal found that the appellant's projects met the definition of residential complex under Section 65(91a) and that the agreements with buyers were in the nature of works contracts. However, the Tribunal emphasized that the legislative intent was not to tax such contracts prior to the Explanation's insertion.

Application of law to facts: Applying the legal framework and precedents, the Tribunal held that the appellant was not liable to pay service tax on construction of residential complexes prior to 01.07.2010. The Explanation inserted w.e.f. 01.07.2010 was prospective and did not apply to the period in question. Therefore, the refund claim was valid.

Treatment of competing arguments: The Revenue argued that the appellant was not eligible for exemption as per the Board's Circular and the Explanation. The Tribunal rejected this, relying on the authoritative circulars and judicial pronouncements clarifying the non-taxability before 01.07.2010. The Tribunal also distinguished the position post-01.07.2010 when the Explanation expanded the taxable scope.

Issue: Entitlement to refund of service tax paid

Relevant legal framework: Refund claims are governed by service tax laws and Board Circulars. The Circular No. 108/02/2009-ST clarified that construction of residential complexes was not taxable prior to 01.07.2010.

Court's interpretation and reasoning: Since the appellant paid service tax during a period when the service was not liable to tax, the Tribunal held that the refund claim was justified. The original authority had sanctioned the refund, and the Commissioner's revision order was set aside.

Application of law to facts: The Tribunal allowed the refund claim for Rs. 12,21,799/- paid during June 2005 to June 2007, consistent with the legal position that the service was not taxable during that period.

Treatment of competing arguments: The Revenue's contention that the refund was not permissible was rejected based on the binding nature of the Board Circular and judicial precedents.

3. SIGNIFICANT HOLDINGS

- "By this explanation, the scope of the Clause (zzzh) of Section 65(105) has been expanded and this amendment by adding an explanation has been held by this Tribunal ... as prospective amendment."

- "Prior to the explanation, the view taken was that since a mere agreement to sell does not create any interest in the property and the title to the property continues to remain with the builder, no service was provided to the buyer; that the service, if any, would be in the nature of a service rendered by the builder to himself."

- "Such works contracts involving transfer of immovable property were brought within the purview of taxable service by adding explanation to Section 65(105)(zzzh) w.e.f. 1-7-2010, and therefore, it has to be held that such contracts were not covered by Section 65(105)(zzzh) during the period prior to 1-7-2010."

- The Tribunal conclusively held that the appellant was not liable to pay service tax on 'Construction of Residential Complex' Service prior to 01.07.2010 and allowed the refund claim accordingly.

- The impugned Order-in-Revision setting aside the refund was set aside, and the appeal was allowed with consequential relief.