2025 (5) TMI 405 - AT - Service Tax

Taxability - Construction of Residential Complex Services - construction activity undertaken by the appellants involving individual houses termed as villas within a gated community - Real Estate Agent Services - collection of land development charges. Taxability - Construction of Residential Complex Services - construction activity undertaken by the appellants involving individual houses termed as villas within a gated community - HELD THAT - To come within the ambit of the definition of residential complex as defined in Section 65(91a) the complex should comprise of a building having more than twelve residential units or the complex should comprise of buildings having more than twelve residential units. Such building or buildings having more than twelve residential units should have a common area and any one or more of the facilities stipulated therein. That the building or buildings should have more than twelve residential units should have a common area and should have any one or more of the facilities stipulated therein are cumulative requirements. The definition also states what is excluded. From the appeal records it is also evident from the photographs produced that these are individual houses that were constructed by both the appellants and not building or buildings having more than twelve residential units. Therefore by virtue of these individual houses not being a building or buildings having more than twelve residential units they do not satisfy clause (i) of Section 65 (91a) and are therefore straightaway ousted from the ambit of the definition - the appellants cannot be considered to have rendered a taxable service in relation to construction of complex as stipulated in Section 65(105) (zzzh) thereby rendering the demand made on this count in the impugned OIOs wholly unsustainable. Real Estate Agent Services - collection of land development charges - HELD THAT - Development construction implementation supervision maintenance marketing acquisition or management of real estate. It is found that in the impugned OIO the adjudicating authority has merely cited terms of a power of attorney given by a customer to the appellant to hold that the appellant has rendered all the services as stated in the power of attorney and that they are undertaken in relation to sale of land - the SCN does not rely on any invoices specifying the nature of services that the appellant has rendered as evidence for such real estate agent services that the appellant is alleged to have rendered and only alleges that during the financial year 2010-11 the appellant has collected land development charges from their customers. Further the annexure to the SCN indicates that the land development charges is the difference between guidance value and actual sale value and if that be so it only indicates amounts collected towards sale of immovable property and thus outside the ambit of levy of service tax - the demand made on the appellant in the impugned OIO on the allegation of having rendered real estate agent services cannot sustain. Conclusion - i) The appellants cannot be considered to have rendered a taxable service in relation to construction of complex as stipulated in Section 65(105)(zzzh) thereby rendering the demand made on this count in the impugned OIOs wholly unsustainable. ii) The demand made on the appellant in the impugned OIO on the allegation of having rendered real estate agent services cannot sustain. The impugned order set aside - appeal allowed.

The core legal questions considered by the Tribunal in these appeals are:

1. Whether the construction activity undertaken by the appellants, involving individual houses termed as "villas" within a gated community, falls under the taxable category of "Construction of Residential Complex Services" as defined under Section 65(91a) and related provisions of the Finance Act, 1994.

2. Whether the appellants rendered "Real Estate Agent Services" under Sections 65(88) and 65(89) of the Finance Act, 1994, particularly in relation to collection of land development charges.

3. Whether the extended period of limitation for service tax demand can be invoked in the facts and circumstances of the case.

4. Whether penalties and interest imposed on the appellants are sustainable given the nature of the dispute.

Issue-wise Detailed Analysis:

1. Taxability of Construction of Individual Houses as "Residential Complex Services":

Relevant Legal Framework and Precedents: The Tribunal examined the statutory definition of "residential complex" under Section 65(91a) of the Finance Act, 1994, which requires that a residential complex must comprise:

(i) a building or buildings having more than twelve residential units;
(ii) a common area; and
(iii) one or more facilities such as park, lift, parking space, community hall, common water supply, or effluent treatment system;

Further, Section 65(30a) defines "construction of complex" services, and Section 65(105)(zzzh) defines taxable service in relation to construction of complex. The definition excludes complexes constructed by a person for personal use.

In addition, the Mega Exemption Notification No. 25/2012 exempts construction of a single residential unit otherwise than as part of a residential complex from service tax.

Relevant precedents include the Tribunal's decision in Macro Marvel Projects Ltd v CST, affirmed by the Supreme Court, and similar rulings in Alliance Infrastructure Projects Pvt Ltd, Sikarwar v CCE, Naveen Kumar v CCE, and others, which consistently held that construction of individual houses does not constitute construction of a residential complex.

Court's Interpretation and Reasoning: The Tribunal noted that the appellants constructed individual houses ("villas") within a gated community having common amenities. However, the key statutory requirement of a building or buildings having more than twelve residential units was not met because the houses were individual units and not part of a multi-unit building. The presence of common areas and facilities alone does not satisfy the cumulative requirements of the definition.

The Tribunal emphasized that the definition's clauses are cumulative and must all be satisfied for the service to qualify as construction of a residential complex. Since the appellants constructed individual houses and not buildings with more than twelve units, the activity falls outside the definition.

The Tribunal also relied on the exemption notification which exempts construction of single residential units not forming part of a residential complex from service tax. This exemption applied both before and after 01-07-2012, the date when the definition of works contract service replaced earlier provisions.

Key Evidence and Findings: The Department's own show cause notices acknowledged that individual houses were constructed. Photographs, agreements, and sanctioned plans submitted by the appellants supported the claim that the constructions were individual houses and not multi-unit buildings.

Application of Law to Facts: Applying the statutory definition and the exemption notification to the facts, the Tribunal concluded that the appellants' activities did not attract service tax under "Construction of Residential Complex Services."

Treatment of Competing Arguments: The Department argued that the gated community with common facilities qualified as a residential complex. The appellants contended that the statutory definition requires buildings with more than twelve units, which was not the case. The Tribunal accepted the appellants' interpretation, supported by statutory language and precedent, rejecting the Department's broader interpretation.

Conclusion: The appellants did not render taxable service under "Construction of Residential Complex Services" during the disputed period. The demand of service tax on this count was unsustainable.

2. Taxability under "Real Estate Agent Services":

Relevant Legal Framework and Precedents: Sections 65(88) and 65(89) define "real estate agent" and "real estate consultant" services as those involving intermediary activities or advisory roles in sale, purchase, leasing, or renting of real estate.

Department Circulars clarified that sale of immovable property is exempt from service tax and that activities constituting transfer of title are excluded from the definition of service under Section 65B(44).

Court's Interpretation and Reasoning: The Tribunal found that the show cause notice was vague and failed to specify the exact activity constituting real estate agent service. The adjudicating authority's reliance on a power of attorney to allege that all services were rendered was beyond the scope of the SCN, violating principles of fair adjudication.

Further, the Department did not produce invoices or documentary evidence demonstrating that the appellants rendered any intermediary or advisory services. The amounts collected as land development charges were held to be part of sale consideration, not service charges.

Key Evidence and Findings: Absence of invoices or clear evidence of intermediary services; land development charges were shown as the difference between guidance value and actual sale value, indicating sale proceeds rather than service fees.

Application of Law to Facts: Since the appellants did not provide intermediary or consultancy services, and the charges collected related to sale of immovable property (exempt from service tax), the demand for service tax under real estate agent services was unsustainable.

Treatment of Competing Arguments: The Department's argument was largely based on assumption and vague allegations without specific evidence. The Tribunal rejected this approach as contrary to principles of natural justice and statutory requirements.

Conclusion: The demand of service tax under real estate agent services was not sustainable and was set aside.

3. Invoking Extended Period of Limitation and Penalties:

Relevant Legal Framework: Section 73(1) of the Finance Act allows extended period of limitation for service tax demands in cases of suppression or fraud. Penalties under Sections 76, 77, and 78 are imposed for non-compliance.

Court's Interpretation and Reasoning: The Tribunal noted that the issues involved were interpretational and that litigation was ongoing on similar questions of taxability. There was no evidence of malafide or suppression by the appellants. Hence, invoking the extended period of limitation was improper.

Consequently, penalties and interest imposed on the appellants could not be sustained.

Application of Law to Facts: Given the absence of fraud or suppression and the bona fide dispute on taxability, the extended period and penalties were not warranted.

Conclusion: Demands of interest and penalties were set aside along with the principal demands.

Significant Holdings:

"We find that, to come within the ambit of the definition of 'residential complex' as defined in Section 65(91a), the complex should comprise of a building or buildings having more than twelve residential units... Such building or buildings having more than twelve residential units should have a common area and any one or more of the facilities stipulated therein are cumulative requirements."

"From the appeal records, it is also evident from the photographs produced that these are individual houses that were constructed by both the appellants and not building or buildings having more than twelve residential units. Therefore, by virtue of these individual houses not being a building or buildings having more than twelve residential units, they do not satisfy clause (i) of Section 65(91a) and are therefore straightaway ousted from the ambit of the definition."

"We are therefore of the considered view that the appellants in both the appeals under our consideration, cannot be considered to have rendered the services of construction of 'residential complex', during the period under dispute, so as to come within the ambit of the definitions under Section 65(91a) and Section 65(30a). We therefore hold that the appellants cannot be considered to have rendered a taxable service in relation to construction of complex as stipulated in Section 65(105)(zzzh), thereby rendering the demand made on this count in the impugned OIOs wholly unsustainable."

"We find that the SCN, after reproducing definitions of 'real estate agent' under section 65(88) and 'real estate consultant' under Section 65(89) has merely gone on to allege that the appellant has rendered 'real estate agent services' and does not specify which activity or activities... the SCN suffers from the vice of vagueness, but also the adjudicating authority has traversed beyond the SCN."

"In such circumstances, for the above reasons, we find that the demand made in the impugned OIO on the allegation of having rendered 'real estate agent services', cannot sustain."

"In view of our analysis and discussions above, we find that the demands made in the impugned OIOs of both the appeals are untenable and consequently the demands of interest as well as the penalties imposed therein also cannot sustain. We hereby set aside the impugned orders in original in their entirety."

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