2025 (7) TMI 1262 - AT - Service Tax

Taxability - Management Maintenance or Repair Service - maintenance deposit collected from the buyers / customers - HELD THAT - The issue is no more res integra and as per the decision of this tribunal in the matter of Ballal Developers 2019 (9) TMI 889 - CESTAT BANGALORE wherein it was held that Karnataka High Court in the case of COMMISSIONER OF CENTRAL EXCISE SERVICE TAX CUSTOMS BANGALORE-II VERSUS NITHESH ESTATES LTD. 2018 (7) TMI 1135 - KARNATAKA HIGH COURT where it was held that the appellants are not liable to pay any service tax as the building constructed by them is not for the use of Commerce or Industry. The impugned order confirming the service tax by considering the interest accrued on the deposit made by the respective buyers of the flats cannot be considered for assessing the service tax lability under the category of Management Maintenance or Repair Service since the appellant had already paid service tax on actual cost for providing the said service - the impugned order is set aside - Appeal allowed.

Summary

ISSUES:

Whether maintenance deposits collected from flat buyers/customers constitute a taxable service under the category of 'Management, Maintenance or Repair Service' as defined under Section 65(64)(i)(b) and Section 65(105)(zzg) of the Finance Act, 1994.Whether the taxable value for such services should include the interest accrued on maintenance deposits or be limited to the actual expenses incurred by the service provider, as per Service Tax (Determination of Value) Rules, 2006.Whether statutory obligations under the Karnataka Ownership Flats Act, 1972 (and analogous legislation) exempt such maintenance charges from service tax liability.Whether the levy of service tax on composite contracts for sale of flats, including maintenance charges, is valid in the absence of statutory machinery provisions for valuation and abatement.

RULINGS / HOLDINGS:

The maintenance deposits collected by the appellant do not amount to a taxable service under 'Management, Maintenance or Repair Service' since the appellant is not providing such services on its own but acting as a trustee or pure agent disbursing amounts on behalf of flat buyers, consistent with statutory obligations under the Karnataka Ownership Flats Act, 1972 and analogous laws.The taxable value under the Service Tax (Determination of Value) Rules, 2006 cannot be less than the cost of provision of taxable services; however, since the appellant had already discharged service tax on the actual expenses incurred, the interest accrued on maintenance deposits is not includible for service tax valuation.Amounts collected for maintenance pursuant to statutory obligations are not consideration for a taxable service under the Finance Act, 1994, as held by various judicial authorities including the Bombay High Court and the Tribunal.Levy of service tax on composite contracts for sale of flats, including maintenance charges, without statutory machinery provisions for valuation and abatement, is unsustainable; administrative circulars or notifications cannot substitute statutory rules, consistent with the principle that "Taxation by way of administrative instructions which are not backed by any authority of law is unreasonable and is contrary to Article 265 of the Constitution of India."

RATIONALE:

The Court applied the statutory framework under the Finance Act, 1994, specifically Sections 65(64), 65(105)(zzg), and related provisions, alongside the Service Tax (Determination of Value) Rules, 2006.It relied on precedent decisions interpreting the scope of taxable services in the context of builder/developer activities, including rulings that distinguish between statutory obligations to maintain property pending transfer and provision of taxable maintenance services.The Court emphasized that statutory obligations under ownership flats legislation (e.g., Karnataka Ownership Flats Act, 1972; Maharashtra Ownership Flats Act, 1963) impose duties on developers to collect and disburse maintenance funds until formation of a cooperative housing society, which does not constitute a taxable service.Judgments from various High Courts and the Tribunal were cited to reject reliance on circulars or administrative instructions as a basis for valuation or levy of service tax, underscoring the constitutional requirement under Article 265 that taxation must be authorized by law.The Court noted that the appellant's role is that of a trustee or pure agent, merely passing on charges to statutory authorities and service providers without markup or independent service provision, negating the characterization of a taxable service provider.There was no dissenting opinion recorded.