TMI Blog2012 (6) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that that there was no provision in law prior to 19-04-2006 to tax consideration received other than in the form of money it is held that once it is decided that tax was payable on the activity, the liability cannot be set to naught because the section dealing with valuation specified only amounts received. It is well-settled that the court would construe the statute in such a manner so as to make the machinery workable. Valuation of flats given to land owners - assessee contending different valuation on ground of point of time of transfer of land - Held that:- Since flats handed over to the land owners were not different from what were sold to the individual buyers, hence it does not warrant assessment of a different value for services in respect of flats handed over to land owners as compared to flat sold to individual buyers. Time bar - Since there has been persistent resistance on the part of the appellant in providing the required information, hence appellant cannot claim benefit of bonafide belief and argue that demand for a period of one year from relevant date only will apply. Flats sold to Individual buyers - assessee contended that flats are constructed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flat/ house, in accordance with the agreed specifications. The constructed area in the form of flats/houses, allotted in favor of the land lord, would be dealt with by him according to his wish. 2. In this connection, the department conducted verification of the appellant s liability for payment of service tax and a show cause notice dated 11.02.2008 was issued to the appellant, stating various grounds of short levy of service tax and proposing a service tax demand of ₹ 83,98,962/- from the appellant, for the period 16.06.2005 to 31.03.2007 and also proposing imposition of penalties. 3. After due process of law, an Order-in-Original No.60/2008 dated 22.12.2008 has been passed by the Commissioner of Service Tax, confirming the above demand of service tax of ₹ 83,98,962/-, along with interest and imposing a penalty of ₹ 84,00,000/- under Section 78 of the Act. An amount of ₹ 58,45,507/- paid by the appellant was appropriated towards the above demand. Aggrieved by the said order-in-original, the appellant preferred an appeal before the Hon ble Tribunal, which vide its Final Order No.1125/2009 dated 31.8.2009 remanded the matter for fresh adjudication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , T.Nagar consisting of 20 units (iii) Kamakotivilasam, Madipakkam consisting of 16 residential units 6. We have heard both sides.We find that the disputes can be grouped under three major headings. These are,- (i) disputes in respect of constructed flats/ houses handed over to the land owners, in the nature of non-payment of tax; (ii) disputes in respect of constructed flats/ houses sold by the developer to the individual buyers, inthe nature of shot payment of tax on account of undervaluation; (iii) disputes in respect of Kamakotivilasam Project in the nature of non-payment of tax, which dispute involves questions of facts and law. 7. Since these disputes are somewhat different in nature andhence are being treated separately. Further many legal issues are argued under each of the above disputes. So we consider it proper to record arguments issue-wise and give findings. 8. The Appellants argue that there is no relationship of service provider and service recipient between the Developer and the Land Owner. According to them it is a relationship in a joint venture for profit. Both the parties have joined together in the business of construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch services at the option of the service provider. Accepting the argument of the appellants would render all taxes levied and collected on such services prior to 01-06-2007, as without authority of law. A reading of the entry in section 65 (105) (zzzza), Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 and Rule 2A of Service Tax (Determination of Value) Rules, 2006, does not warrant such an interpretation. 10.3. We also note the Apex Court has held in BSNL Vs. UOI- 2006 (2) S.T.R. 161 (S.C.) held that the nature of a composite contract should be decided with reference to intention of the parties and also with reference to the dominant aspect of the contract. Further it was held that a contract of the nature of composite contract as defined in Article 366 (29A) of the Constitution of India can be spilt into sale and service. In this case the Land Owners parted with partial rights in their land to be paid for in the form of constructed flats. Construction of flat is in the nature of a composite contract specified in Article 366 (29A). So the value of the material supplied and the service provided can be separated and subjected to service tax. While lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n excess of one flat handed over to the land owners were not for personal use. 11.2. We have considered this argument. 11.3. The definition of residential complex as defined at section 65 (91a) reads as under: (91a) 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. Explanation. For the removal of doubts, it is hereby declared that for the purposes of this clause, (a) personal use includes permitting the complex for use as residence by another person on rent or without consideration; (b) residential unit means a single house or a single ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or to be provided to any person, by any other person, in relation to construction of a complex . The Construction of Complex includes construction of new residential complex . For this purpose, residential complex means any complex of a building or buildings, having more than twelve residential units. A complex constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex intended for personal use as residence by such person has been excluded from the ambit of service tax. 2. A view has been expressed that once an agreement of sale is entered into with the buyer for a unit in a residential complex, he becomes the owner of the residential unit and subsequent activity of a builder for construction of residential unit is a service of construction of residential complex to the customer and hence service tax would be applicable to it. A contrary view has been expressed arguing that where a buyer makes construction linked payment after entering into agreement to sell, the nature of transaction is not a service but that of a sale. Where a buyer enters into an agreement to get a fully constructed residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same may be brought to the notice of the undersigned. 12.3. He further submits that the said circular was reconfirmed by another circular dt. 10.2.2012.The main contention is that this is a joint venture between the land owners and the appellant where profit of the joint venture is shared by both the parties. The land owner makes available his land and the appellant does construction activity and constructed flats are divided in a ratio agreed at the time of execution of Joint Development Agreement. It cannot be considered that the appellant was providing any service to the land owners. The appellant was paying back the consideration for his share of the land which he bought through the Development Agreement by compensating in the form of flats constructed and handed over to the land owners. 12.4. We find that para 3 of the clarification dt29-01-2009deals with cases where flats are sold after construction. In the instant case, the UDS is sold first and an agreement for construction is entered into with individual buyers. The situation in respect of Land Owners also is the same. Firstly, UDS is registered in their name and then the Developer constructs flats for the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not agree with the contention of the appellant in this regard. The new provision can be interpreted to mean only that prior to that date no tax was to be paid at the time when consideration was received but tax was to be paid at the time when service was provided. This position has been clarified by CBEC in its circular B1/6/2005-TRU dated 27-07-2005. 13.3 We note that this matter relates to the period prior to the notification of Point of Taxation Rules, 2011. So this issue has to be determined with reference to provisions in Act that were in force. As per the provisions of section 67 prior to 18-04-2006, the value of any taxable service was the gross amount charged by the service provider for such service provided or to be provided by him . From 18-04-2006 section 67 was amended to provide as under: SECTION 67.Valuation of taxable services for charging service tax. (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land fixed by the authorities registering transfer of immovable properties should be adopted rather than adopting the value of flats sold. The counsel argues that, if any service is considered as rendered by the appellant to the land owners the value should be determined by adopting the notional value of the share of rights in land sold to the appellant on the basis of value adopted for registration of property. 14.2 In the case of TA enclave it is specifically contended that the value of UDS to be handed over to the appellant was arrived atRs. 4,85,92,500/-. This was to be paid partly as cash of ₹ 3,46,50,000/- and ₹ 1,39,42,500 as cost of flats at the rate of ₹ 750 per Sq-Meter., but on the other hand the value of services rendered by the appellant has been arrived at by Revenue considering the value of flat at ₹ 1832 per Sq feet at which flats were sold to other buyers. 14.3 Revenue s case is that this is a case involving a type of barter system and therefore the value indicated in the agreement between the parties is not a correct value. The flats handed over to the land owners were not different from what were sold to the individual buyers. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. We have considered arguments on both sides. What we find is that there has been persistent resistance on the part of the appellant in providing the required information.After resisting for providing information the appellant cannot claim benefit of bonafide belief and argue that demand for a period of one year from relevant date only will apply. We also note that the letter dated 23.12.05 addressed by the appellant to the Superintendent of Central Excise deals only with Kamakotivilasam project and the main issue raised in that letter is something different as is being discussed in later paragraphs. 15.5. So we reject the argument of the appellants in this regard. PART-II- MATTERS RELATING TO FLATS/ HOUSES SOLD TO INDIVIDUAL BUYERS OTHER THAN LAND OWNERS. 16. The argument that the flats are constructed and sold and hence the construction service is for self. 16.1 For this argument also the Appellant is relying on the circular dated 29-01-2009 issued by CBEC reproduced in para 12 above. 16.2 Revenue argues that the said clarification will apply only in a situation where the Developer builds flats and sells and will not apply to a situation where the Undivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not in excess of amounts incurred on these activities. Here a liberal approach is required on the part of Revenue because we consider that these not in the nature of reimbursable expenses incurred while providing service but are expenses incurred before commencement of the service. So if there is difficulty in collecting evidence in respect of registration ofUDS in all the cases, the appellants should be allowed to submit sample documents. Since the charges are expected to be uniform for one type of flat Revenue should accept such calculation except to the extent Revenue is able to prove the amounts to be more than what was incurred for the impugned activities. PART-III- MATTERS RELATING TO KAMAKOTIVILASAM PROJECT 18. The argument that there is no residential complex as per the definition of the service 18.1. Appellant also submits that in the case of Kamakotivilasamsite plan, there were three distinct plots in respect of which separate proposals for approval were placed before the concerned authorities and permissions taken. Each of the projects housed less than 12 residential units. He, further, submits that there was no common facility to consider the all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id projects. But in the appeal the argument is placed as if the letter would apply to matters relating to service provided to Land Owners in general which is not the factual position. 18.5. In the case of Kamakotivilasm project there are disputes about facts like whether there is common boundary wall, common playground, common roads, common lighting etc. It is rather strange that on these facts also there is no agreement. 18.6. But what we notice is that the issue whether the definition of a residential complex as given in section 65 (91a) will apply only to cases where one building has more than twelve flats or will extent to cases where different buildings in the same compound totally having more than twelve flats was examined by the Tribunal in the case of MACRO MARVEL PROJECTS LTD.- 2008 (12) S.T.R. 603 (Tri. - Chennai) 18.7. In that case the issue was examined with reference to the entry 65 9105) (zzzza) for works contract. But the definition of residential complex at section 65 (91a), applicable for works contract as also the present dispute is the same. That dispute was with reference to more than twelve individual houses in the same premises. Further the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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