CONSTRUCTION OF INDIVIDUAL RESIDENTIAL UNITS IS NOT COVERED UNDER SERVICE TAX PROVISIONS

[Mr. M. GOVINDARAJAN]

      The service 'Construction of complex' was introduced with effect from 16.06.2005 under Finance Act, 2005.  Sec. 65 (30a) defines the service 'construction of complex' as-

(a) construction of a new residential complex or a part thereof; or

(b) completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry,  fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or

(c) repair, alteration, renovation or restoration of, or similar services in relation, residential complex.

      Thus the construction of residential complex is subject to service tax with effect from 16.06.2005.   Sec. 65(91a) defines the term 'residential complex'.   According to this section 'residential complex' means any complex comprising of-

(i) a building or buildings, having more than twelve residential units;

(ii) a common area; and

(iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person.

      The section also gives explanation as to the personal use and residential unit.   The term 'personal use' includes permitting the complex for use as residence by another person on rent or without consideration.   The term 'residential unit' means a single house or a single apartment intended for use as a place of residence. 

      In the case 'Macro Marvel Projects Limited V. Commissioner of Service Tax, Chennai' - 2008 -TMI - 31775 - CESTAT, CHENNAI the appellant was issued a demand of service tax of Rs.15,63,145/- for the period from 16.06.2005 to 30.11.2005 under the head 'construction of complex' service under Sec. 65(30a) of the Finance Act, 1994.   The demand is on the amount collected by the appellants from their clients as consideration for construction and transfer of residential houses.  The lower authorities have imposed a penalty on the assessee under Sec. 76 of the said Act.  The appellants filed this present appeal against the impugned order.

      The contention of the appellants is that the work done by them fell within the ambit of 'works contract' which became taxable only with effect from 01.06.2007 vide Sec. 65 (105) (zzzza).  Therefore the service tax cannot be levied from the appellants under any other head for any period prior to 01.06.2007.

      The department submitted that the case may be remanded to the authorities below, who apparently did not examine all the submissions of the party.

      The tribunal after examining the records of the case rejected the demand of the department of remanding since the authorities below regardless of the fact that construction of individual residential units was not included with the scope of 'construction of complex' as defined under Sec. 65 (30a) of the Finance Act, 1994.

      The tribunal analyzed the provisions of Sec. 65(30a) and Sec. 65(91a).  The tribunal observed that it is abundantly clear from the above provisions that construction of residential complex having not more than 12 residential units is not sought to be taxed under the Finance Act, 1994.   For the levy of service tax, it should be a residential complex comprising more than 12 residential units.  In the present case, as admitted, the appellants constructed individual residential houses, each being a residential unit, the fact of which is cleared by the photograph presented before the tribunal.  The tribunal held that in any case it appears the law makers did not want construction of individual residential units to be subject to levy of service tax.  This fact was, unfortunately, ignored by the lower authorities and hence the demand of service tax. 

      The tribunal is not impressed with the plea of the appellants that, from 01.06.2007 an activity of the one in question might be covered by the definition of 'works contract'.   Sec. 65 (105) (zzzza) of the Finance Act, 1994 defines the taxable service in respect of 'works contract' means any services provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contracts in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.  The explanation to this section gives the explanation to works contract.   Works contract means a contract wherein-

(i) transfer of property in goods involved in execution of such contract is leviable to tax as sale of goods; and

(ii) such contract is for the purposes of carrying out-

(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installments for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or

(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

(c) construction of a new residential complex or a part thereof; or

(d) completion of a new residential complex or a part thereof; or

(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects.

      The tribunal held that according to the explanation to Sec. 65 (105) (zzzza) of the Finance Act, 1994  construction of a new residential complex or a part thereof stands included within the scope of 'works contract'.  But here again, the definition of 'residential complex' as defined under Sec. 65 (91a) of the Act has to be looked at.   By no stretch of imagination can it be said that individual residential units were intended to be considered as a 'residential complex or a part thereof'.

      The tribunal set aside the impugned order and allow the appeal.