2025 (6) TMI 1670 - AT - Service Tax

Levy of service tax - Construction of Residential Complex Service - Management Maintenance or Repair Service - reimbursable expenses received as After Sales payment. HELD THAT - The issue regarding Construction of Residential Complex Service is no longer res integra as this issue stands settle vide Board Circulars dated 29.01.2009 and 10.02.2012 as well as by various decisions relied upon by the appellant. In one such case in the case of Krishna Homes Vs. CCE Bhopal 2014 (3) TMI 694 - CESTAT AHMEDABAD this Tribunal held as 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 demand on Construction of Residential Complex Service prior to introduction of the Explanation and the period of dispute in the present case being prior to 01.07.2010 the demand of service tax cannot be sustained. On the same grounds the demand under Management Maintenance or Repair Service also cannot be sustained. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal were:

(a) Whether the appellant was liable to pay service tax under the category of 'Construction of Complex Service' for the period from 16.06.2005 to March 2009, prior to the insertion of the Explanation to Section 65(105)(zzzh) w.e.f. 01.07.2010.

(b) Whether service tax was payable on reimbursable amounts collected by the appellant from customers under the head 'After Sales' categorized as 'Management, Maintenance or Repair Service'.

(c) Whether the show-cause notice issued in 2009 for the disputed period was barred by limitation, given that a prior notice for an earlier period had already been issued.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Liability to pay service tax under 'Construction of Complex Service' prior to 01.07.2010

The relevant legal framework includes Section 65(105)(zzzh) of the Finance Act, 1994, which defines 'Construction of Complex Service' as any service provided in relation to the construction of a complex, including residential complexes. The definition of 'residential complex' under Section 65(91a) includes buildings with more than twelve residential units along with common areas and facilities.

Prior to 01.07.2010, there was no Explanation deeming receipt of instalments from prospective buyers before issuance of completion certificate as a taxable service. The Explanation inserted w.e.f. 01.07.2010 expanded the scope of taxable service by deeming such construction as service provided by the builder to the buyer.

The Tribunal relied on Board Circulars dated 29.01.2009 and 10.02.2012, which clarified that before the Explanation, the activity of builders/promoters receiving construction-linked payments from buyers was not liable to service tax as the property ownership remained with the builder until completion and full payment. The transaction was considered 'self-service' and not a taxable service. The Circulars further clarified that the service tax liability arose only after the Explanation was introduced.

Precedents relied upon include decisions of this Tribunal in cases such as Krishna Homes Vs. CCE, Bhopal and CCE & ST, Bangalore-I vs. Keerthi Estates Pvt. Ltd., which held that prior to 01.07.2010, construction contracts with prospective buyers were not taxable under 'Construction of Complex Service'. The Apex Court judgment in Larsen & Toubro Ltd. v. State of Karnataka was also noted, which treated such agreements as works contracts but did not impose service tax liability prior to the Explanation.

The Tribunal emphasized that the Explanation was a prospective amendment expanding the taxable scope, not a clarification of existing law. Therefore, the appellant's liability for service tax on construction services rendered before 01.07.2010 could not be sustained.

The Tribunal also considered the appellant's submission that proceedings for the same activity for an earlier period had been dropped, indicating settled law.

Issue (b): Liability to pay service tax on reimbursable amounts collected under 'Management, Maintenance or Repair Service'

The appellant collected amounts from customers under an 'After Sales' scheme, which included payments for electricity, water bills, property taxes, cable TV charges, and owners association subscriptions. The appellant submitted that these amounts were merely collected as reimbursements and paid to respective authorities, and no service was rendered by the appellant for these collections.

The Tribunal noted that such reimbursable amounts do not constitute consideration for any service provided by the appellant and therefore do not attract service tax. The demand for service tax on these reimbursable expenses was held unsustainable.

Issue (c): Limitation on issuance of show-cause notice

The appellant contended that since a show-cause notice had already been issued for an earlier period for the same activities, the subsequent notice dated 26.03.2009 for the period 16.06.2005 to March 2009 could not be sustained on grounds of suppression or misdeclaration. The Tribunal did not elaborate extensively on this point but implicitly accepted the appellant's contention by allowing the appeal and holding that the demand could not be sustained for the disputed period.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpts:

"Thus, in terms of this explanation, when a builder/promoter/developer got a residential complex constructed for his customers with whom he had individually entered into agreements, in terms of which the prospective customers were required to make payments for the residential units to be constructed in instalments and the possession of the residential units was to be given to the customers on completion of the complex and full payment having been made, the builder/promoter/developer was to be treated as a deemed provider of construction of residential complex service to his customers. Thus, 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."

"In view of the above, though in view of the Apex Court judgment... the agreements entered into by a builder/promoter/developer with prospective buyers for construction of residential units... are to be treated as works contracts, it has to be held that during the period of dispute, there was no intention of the Government to tax the activity... 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."

"Construction of residential complex was brought under service tax w.e.f. 1-6-2005... The matter has been examined by the Board... 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."

"To sum up, as far as construction of 'residential complexes' by the builders are concerned :

(i) Prior to 1-6-2007, if it is a composite works contract, no Service Tax is leviable in view of the judgment of the Hon'ble Apex Court in the case of Larsen & Toubro (supra).

(ii) After 1-6-2007, it is chargeable as 'works contract' only if it is a composite contract and under 'construction of complex services' if it is a service simpliciter.

(iii) However, after 1-6-2007 but prior to 1-7-2010, whether it is a service simpliciter or a works contract, if the service is rendered prior to issue of completion certificate and transfer to the customer, it is not taxable being in the nature of self service.

(iv) Further, whenever the service is rendered for completion or construction of a flat for personal use of the service recipient, no Service Tax is payable in view of the exclusion in the definition of residential complex service.

(v) After 1-7-2010, Service Tax is chargeable under the head of 'construction of complex services' if it is service simpliciter and under 'works contract service' if it is a composite works contract."

The Tribunal concluded that the demand of service tax on 'Construction of Residential Complex Service' for the disputed period prior to 01.07.2010 could not be sustained. Similarly, the demand under 'Management, Maintenance or Repair Service' on reimbursable amounts was also held unsustainable.