2025 (7) TMI 1264 - AT - Service Tax

Classification of services - construction of Residential Complex Service or not - compliance with Condition No.(iv) of Section 65(91)(a) of FA - abatement under N/N. 01/2006 - Invocation of extended period of limitation - penalty. Compliance with Condition No.(iv) of Section 65(91)(a) - HELD THAT - The requirement of Condition No.(iv) under Section 65(91)(a) prescribes that to fall under Residential Complex the layout of the premises constructed is approved by an authority under any law for time being in force. In the instant case it is not the case of the appellants that the layout is not approved by a competent authority. It is demonstrated that the layout of the MIG flats constructed by the appellants has been approved by Patiala Improvement Trust even though for themselves. Therefore it is not inclined to accept the argument of the appellant that Condition No.(iv) is not satisfied. Allowing abatement under N/N. 01/2006 - HELD THAT - The Tribunal in the case of Surinder Kumar Mittal 2012 (8) TMI 244 - CESTAT NEW DELHI held that there is provision in the Notification to the effect that value of services exempted by other Notification should not be taken into account for calculating the aggregate value under Notification No. 4/2007-S.T. The argument that they were providing only tea and snacks and such items were not substantial and satisfying meal seems to be misplaced because the canteen was operated for providing meals to employees of AIL and tea and snacks were only items served at times intervening between that for substantial meals and that was not the main service provided. - the appellant s contention that firstly the abated value for the purpose of computing service tax should be arrived at and from that amount the permissible clearances under small-scale exemption should be deducted before calculating the service tax payable. Invocation of extended period of limitation - penalties - HELD THAT - It is found that during the relevant period there were different opinions available on the taxability of construction of residential complexes. Therefore there are reasons for the appellants to believe that the services rendered by them in this regard are not taxable. The fact that the appellants are providing services to a statutory body also gives scope to hold such an opinion. Therefore the extended period cannot be invoked and penalties cannot be imposed. The demands beyond the normal period and the penalties imposed are set aside - appellants are liable to pay service tax on the services rendered by them to Patiala Improvement Trust in the construction of residential complex - the computation of gross taxable amount shall be arrived first by arriving at the abated value and thereafter subtracting the value of services as per the small-scale exemption. The appeals are partly allowed by way of remand to the Original Authority.

Summary

ISSUES:

Whether the service rendered in construction of residential flats for a statutory body falls under the definition of "Residential Complex Service" under Section 65(91)(a).Whether Condition No. (iv) of Section 65(91)(a), requiring approval of the layout by a competent authority, is satisfied when the statutory body itself approves the layout.The correct manner of computing the aggregate value of gross receipts for service tax purposes, specifically the sequence and application of abatement under Notification No.01/2006-ST and small-scale exemption under Notification No.06/2005-ST or Notification No.33/2012-ST.Whether the extended period for recovery of service tax and penalties can be invoked given the existence of differing opinions on the taxability of construction of residential complexes during the relevant period.

RULINGS / HOLDINGS:

The service rendered in construction of residential flats for a statutory body is taxable under "Residential Complex Service" as defined in Section 65(91)(a), since the layout of the premises is approved by the statutory body acting as the competent authority, satisfying Condition No. (iv).The requirement under Condition No. (iv) that the layout be approved by an authority "under any law for the time being in force" is met when the statutory body itself approves the layout, and the appellant's contradictory arguments on this point are rejected.For computation of service tax liability, the aggregate value of gross receipts must be calculated by first applying the abatement under Notification No.01/2006-ST and thereafter deducting the value of services exempted under the small-scale exemption notifications (Notification No.06/2005-ST or Notification No.33/2012-ST), consistent with Tribunal precedents.Extended period for recovery and penalties cannot be invoked because the appellants had reasonable grounds to believe that their services were not taxable due to differing opinions on the issue and because the services were rendered to a statutory body.

RATIONALE:

The Court applied the statutory definition of "Residential Complex Service" under Section 65(91)(a), emphasizing the requirement that the layout must be approved by a competent authority "under any law for the time being in force," which includes approval by the statutory body itself.The Court relied on Circular No. B1/6/2005-TRU dated 27.02.2005 and Tribunal decisions (Surinder Kumar Mittal and Ashok Kumar Mishra) interpreting the correct sequence of applying abatement and small-scale exemption in computing taxable value, affirming that exempted services should not be included in aggregate value calculation.The Court recognized the existence of conflicting legal opinions on taxability during the relevant period, and the fact that services were rendered to a statutory body, as justifying the appellants' bona fide belief that their services were not taxable, thereby precluding invocation of extended period and penalties, consistent with prior Tribunal rulings.The decision includes a partial remand to the Original Authority for recomputation of tax liability in accordance with the clarified principles within a specified timeframe.