2025 (6) TMI 1848 - AT - Service Tax

Nature of activity - Sale or service - Sale of independent houses - Sale of immovable property - discharge of Stamp Duty on total consideration - Levy of service tax - Construction of Residential Complex service. Project Prakruti Nivas - HELD THAT - As per the appellants Project Prakriti Nivas which is related to 612 individual villas/houses on the land located at Annaram Village and completed the construction on 31.03.2009 and received completion certificate from the Competent Authority. Initially appellant entered into agreement for sale mentioning the total sale price and after receiving partial consideration the Sale Deed was executed in the favour of customer and completed the construction. The construction of houses/villas in the project Prakruti Nivas was completed and received completion certificate from the Gram Panchayat on 30.03.2009 whereas service tax upto 01.07.2010 is not required to be paid in terms of Board s clarification dated 29.01.2009. Therefore demand related to this project vide show cause notice dated 22.10.2010 for the period 16.06.2005 to 22.03.2010 and by show cause notice dated 24.10.2011 for the period 23.03.2010 to 30.06.2010 is not sustainable. Project Sri Vajralayam - HELD THAT - The State Government of Andhra Pradesh has prescribed rules vide Government Order dated 31.12.2007 for regularisation of unauthorised construction for projects completed before 15.12.2007. Applicant applied for regularisation and concerned Deputy Commissioner issued certificate approving and regularising the same. Sale was done after 4 years of regularisation. He explains that Circular No. 151/2/2012 dated 10.02.2012 has provided clarification by para 2.5 where prescribed that when completion certificate is waived or is not prescribed for a specific type of building the equivalent completion certificate by whatsoever name can be produced . Since concerned Government regularised this project and issued certificate therefore it cannot be ignored and it has binding effect for all. Therefore the certificate given under above Regularisation Rules can be treated as completion certificate or occupancy certificate. So in this project also houses got completed before 01.07.2010 therefore houses completed before 01.07.2010 are not liable for service tax even though amounts were received after 01.07.2010. Therefore demand for the period April 2010 to March 2012 by show cause notice dated 20.04.2013 is also not sustainable. Project Srinivasa Krupa - HELD THAT - Learned CA argued that if impugned Order-in-Original has confirmed the demand on total value that includes the land house and materials in case of any liability held to be sustainable the demand needs to be re-quantified by taking 25% total amount charged as taxable value under Rule 2A of the Service Tax (Determination of Value) Rules 2006 as amended by Finance Act 2017. In view of the above submissions and cited case laws in this regard relating Project Srinivasa Krupa is to be remanded back for redetermination of service tax in accordance with Rule 2A. Conclusion - i) Project Prakruti Nivas was completed and received completion certificate before 01.07.2010 i.e. before leviable of service tax. Some payment thereafter for that project also not taxable and leviable. ii) Project Sri Vajralayam also completed and received completion certificate before 01.07.2010 as per law/rule made by Statute. Therefore demand related to Sri Vajralayam is not sustainable and therefore liable to be quash. iii) Whereas demand relating to Srinivasa Krupa by show cause notice dated 20.04.2013 and 15.05.2014 needs to be recalculated. Appeal allowed in part - part matter on remand.

The core legal questions considered by the Tribunal include:

1. Whether service tax is leviable on construction of individual independent houses/villas under the project "Prakruti Nivas," particularly when construction was completed and completion certificate obtained prior to the levy date of 01.07.2010.

2. Whether the project "Prakruti Nivas" qualifies as a "residential complex" under Section 65(91a) of the Finance Act, 1994, thereby attracting service tax liability.

3. Whether service tax is leviable on the "Sri Vajralayam" commercial complex, which was constructed without prior sanction but regularized under the Andhra Pradesh Regulation and Penalization Rules, and sold after regularization.

4. Whether service tax is leviable on the "Srinivasa Krupa" residential complex project, particularly regarding the valuation of taxable service and exclusion of land and goods components from the taxable value.

5. The applicability of retrospective amendments and valuation rules, including Rule 2A of the Service Tax (Determination of Value) Rules, 2006, as amended by the Finance Act, 2017.

6. The applicability and extent of limitation and interest in light of the evolving legal position and government circulars clarifying service tax liability on builders prior to 01.07.2010.

Issue-wise Detailed Analysis

1. Service Tax Liability on Project "Prakruti Nivas"

The appellant constructed 612 independent houses on their own land, obtained layout approval in 2004, and completed construction by 31.03.2009 with a completion certificate from the Gram Panchayat. The Department issued show cause notices demanding service tax on the amounts received during 2005 to 2011, alleging liability under "construction of residential complex service" and "works contract service."

The relevant legal framework includes Section 65(91a) of the Finance Act, 1994, defining "residential complex" as a complex comprising more than twelve residential units, common areas, and facilities, but excluding complexes constructed for personal use by a single person. The appellant contended that individual independent houses do not fall under this definition as they are intended for personal use by different persons, and thus not liable to service tax.

The Tribunal examined the definition and found that the project meets the criteria of a residential complex because it comprises more than twelve residential units, common areas, and facilities such as parks, water supply, and sewerage systems, as confirmed by the agreement for sale and layout approvals. The appellant's argument that individual houses are exempt was rejected on this basis.

Regarding the timing of the levy, the Tribunal relied on Board Circulars (No. 108/2/2009-ST dated 29.01.2009 and No. 151/2/2012-ST dated 10.02.2012) and multiple judicial precedents, including the Tribunal's own decision in Modi Ventures, which clarified that service tax on construction of residential complexes became leviable only after 01.07.2010. Since the construction was completed and the completion certificate obtained before this date, the taxable event of "provision of service" had already concluded, rendering service tax demands prior to 01.07.2010 unsustainable.

The Tribunal further relied on the Supreme Court ruling in Collector Vs Vazir Sultan Tobacco Company Ltd., which held that if levy was not applicable at the time of manufacture or production, it cannot be levied at the stage of removal or sale. The Tribunal also cited the Eden Real Estates decision from Kolkata CESTAT, which held that service tax cannot be levied on completed constructions prior to the levy date, even if payments are received later.

Consequently, all demands relating to Project Prakruti Nivas for periods before and after 01.07.2010 were held unsustainable and quashed.

2. Service Tax Liability on Project "Sri Vajralayam"

The appellant entered a development agreement in 2007 to construct a commercial complex without prior sanction from the municipal authorities. The building was completed in 2007 and subsequently regularized under the Andhra Pradesh Regulation and Penalization Rules, which allowed issuance of an occupancy certificate without a completion certificate. The sale occurred more than four years after regularization.

The Department demanded service tax on the total consideration received, alleging provision of taxable service. The appellant argued that since the building was completed and regularized before 01.07.2010, service tax was not leviable.

The Tribunal noted that the regularization certificate issued under statutory rules is equivalent to a completion or occupancy certificate as clarified by CBEC Circular No. 151/2/2012-ST para 2.5. Therefore, the taxable event of service provision was completed before 01.07.2010, and subsequent payments do not attract service tax. The demand was thus held unsustainable and quashed.

3. Service Tax Liability on Project "Srinivasa Krupa"

The appellant entered a development agreement in 2010 with landowners, entitled to 50% of the super built-up area. Sale deeds were executed after receiving partial consideration, and stamp duty was paid on the total consideration. The Department demanded service tax on the total sale price under the "works contract service" category.

The appellant contended that the value of the sale deed should be excluded from the taxable value, relying on Section 73(1A) of the Finance Act and earlier show cause notices. It was also argued that the valuation of the service component must exclude land and goods, as held by the Supreme Court in Larsen & Toubro Ltd. and the Hon'ble High Court of Telangana in Vasudha Bommireddy.

The Tribunal referred to the absence of a statutory valuation mechanism prior to the retrospective amendment by Finance Act 2017 and the Service Tax (Determination of Value) Rules, 2006 (Rule 2A). It held that the demand confirmed on the total value, including land and materials, was not sustainable. The matter was remanded for redetermination of service tax liability in accordance with Rule 2A, excluding land and goods components.

4. Valuation and Retrospective Amendments

The Tribunal examined the retrospective amendment made by Section 129 of the Finance Act 2017, which introduced Rule 2A to provide abatement/deductions for land components in works contract valuations. Since the show cause notices and original orders were passed before this amendment, the retrospective benefit could not be invoked to sustain demands. The Tribunal held that interest demands also could not be sustained in the absence of a valid tax liability.

5. Limitation and Interest

The appellant argued that extended period of limitation was not invokable due to the evolving and unclear legal position on service tax liability for builders prior to 01.07.2010. The Tribunal agreed that the confusion caused by various circulars and judicial pronouncements justified the appellant's position and negated any intention to evade tax. Therefore, extended limitation was not applicable.

6. Treatment of Competing Arguments

The Department contended that the projects met the definition of residential complex and works contract services, and that service tax was rightly demanded on the total consideration. It relied on agreements for sale, sale deeds, and the presence of common amenities to establish the applicability of service tax. The Department also highlighted the introduction of works contract services from 01.06.2007 and the classification of services under Section 65a of the Finance Act.

The Tribunal carefully analyzed the statutory definitions, government circulars, and judicial precedents, ultimately finding in favor of the appellant on the timing of taxable events and valuation principles while partially accepting the Department's position on the nature of services. The Tribunal rejected the Department's demand for service tax on projects completed before the levy date and remanded the valuation issue for the Srinivasa Krupa project.

Significant Holdings

"As far as service tax under 'construction of complex services' is concerned, prior to 01.07.2010 (when the explanation was inserted), no tax could be levied. This was also clarified by the CBEC in Circular No. 108/2/2009/ST dated 29.01.2009."

"The construction of houses/villas in the project Prakruti Nivas was completed and received completion certificate from the Gram Panchayat on 30.03.2009, whereas service tax up to 01.07.2010 is not required to be paid."

"The certificate given under the regularisation rules can be treated as completion certificate or occupancy certificate for the purpose of service tax liability."

"The valuation of taxable service under works contract service must exclude the value of land and goods incorporated in the project, as held in Larsen & Toubro Ltd. and subsequent judicial pronouncements."

"The retrospective amendment by Finance Act 2017 introducing Rule 2A cannot be applied to demands raised prior to its enactment."

"Extended period of limitation is not invokable where the legal position was unclear and the appellant had no intention to evade tax."

Final determinations:

- Service tax demands on Project Prakruti Nivas and Sri Vajralayam for periods prior to 01.07.2010 and related payments are quashed as the taxable event had concluded before the levy date.

- Project Prakruti Nivas qualifies as a "residential complex" under Section 65(91a), and thus service tax would be leviable if not for the timing of completion.

- Service tax demand on Project Srinivasa Krupa is set aside and remanded for re-quantification of taxable value excluding land and goods components in accordance with Rule 2A.

- Interest and extended limitation demands are rejected in the absence of a valid tax liability and due to the evolving legal position.

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