2008 (12) TMI 633 - Commissioner - Service Tax

Issues Involved:

1. Liability of the appellant to pay service tax.
2. Nature of the transaction between the appellant, landowner, and buyers.
3. Applicability of service tax on advances received for construction.
4. Interpretation of "service" and "service provider" under the Finance Act, 1994.
5. Applicability of Board's Circulars and previous judicial decisions.
6. Legality of penalties imposed under Sections 76, 77, and 78 of the Finance Act.

Detailed Analysis:

1. Liability of the appellant to pay service tax:

The core issue was whether the appellant, engaged in the construction of residential complexes, was liable to pay service tax. The Additional Commissioner of Central Excise, Mangalore, held that the appellant was a service provider and confirmed a demand of service tax along with interest and penalties. The appellant contended that they were not liable as they built properties for their own business and sold completed structures, not services.

2. Nature of the transaction between the appellant, landowner, and buyers:

The agreements indicated that the appellant entered into joint development agreements with landowners, whereby the appellant would construct residential complexes and sell the completed apartments to buyers. The agreements specified that the appellant had the authority to sell the apartments and receive payments in installments. The appellant argued that these transactions were sales of completed properties and not services.

3. Applicability of service tax on advances received for construction:

The Additional Commissioner ruled that the advances received from buyers for constructing residential complexes constituted a taxable service. However, the appellant argued that receiving advances did not change the nature of the transaction from a sale of immovable property to a service.

4. Interpretation of "service" and "service provider" under the Finance Act, 1994:

The judgment discussed the definition of "service" and "service provider." The Gauhati High Court in the case of M/s. Magus Construction Pvt Ltd. v. Union of India held that construction activities undertaken by a builder for their own business did not constitute a service. The court emphasized that for a service to exist, there must be a service provider and a recipient, which was not the case here as the appellant constructed properties for sale, not as a service to buyers.

5. Applicability of Board's Circulars and previous judicial decisions:

The appellant relied on various Board's Circulars and judicial decisions, including the Gauhati High Court ruling and the Allahabad High Court decision in Assotech Realty (P) Ltd. The Circular No. 332/35/2006-TRU clarified that construction activities undertaken by a builder for their own sale did not attract service tax. The Gauhati High Court's decision was deemed superior to the Authority for Advance Ruling's decision in M/s. Harekrishna Developers, which had a contrary view.

6. Legality of penalties imposed under Sections 76, 77, and 78 of the Finance Act:

The appellant contested the penalties imposed, arguing that there was no deliberate intention to evade tax as they believed they were not liable for service tax. The judgment concluded that since the primary demand for service tax was not sustainable, the penalties imposed were also not legal.

Conclusion:

The judgment set aside the demand for service tax, interest, and penalties imposed on the appellant. It was concluded that the appellant's activities constituted the sale of immovable property and did not attract service tax. The appeal was allowed with consequential relief.

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