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TMI Blog2008 (4) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... to Service Tax under the provisions of section 65 (105) of the Finance Act, 1994? 2. Whether the applicant is liable to service tax under section 65 (105) (zzzh) of the Finance Act, 1994 under the notified taxable service of construction of Complex in case of Proposed Activity No.1? 3. Whether the applicant is liable to service tax under section 65 (105) (zzzh) of the Finance Act, 1994 under the notified taxable service of construction of Complex in case of Proposed Activity No.2?" 2. Details about the proposed activities 1 & 2 have been submitted in Annexure I to the Application. After the first hearing, further written submissions were filed through the applicant's communication dated 5.12.2007. Along with the above letter, the applicant has forwarded a draft of the Agreement for the proposed activities 1 and 2 that would be entered into with the buyers at the time of booking of residential units in the Complex. 3. The following are broadly the nature of proposed activities, as stated by the applicant: Through the proposed activities 1 & 2, the applicant intends to develop a residential complex on its own land at its expense. The complex will have more than 12 residenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment, but not the activities of a person like the applicant who constructs for ultimately selling the built up unit. According to the applicant, the answers to all the questions posed for ruling should be in the negative. 5. It is the contention of the Department that the construction and allied activities proposed to be undertaken by the applicant amount to "service in relation to the construction of residential complex" coming within the purview of sub-clause (zzzh) of section 65 (105) or alternatively it is service "in relation to the execution of works contract" within the meaning of sub-clause (zzzza) of section 65 (105). Considering the fact that the service referred to in (zzzh) contains more specific description of the proposed activity than the service specified in (zzzza) and also because the sub-clause (zzzh) occurs first, this earlier sub-clause, namely, (zzzh), is attracted in the instant case by virtue of the rule of Interpretation laid down in section 65 A of the Act. It is also submitted by the learned Departmental Representative that a clarification issued by the Deptt. of Revenue (TRU), Ministry of Finance in its circular dated 23/8/07 does not enure to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial 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. It 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. 'Personal use', according to the Explanation, includes permitting the use of the complex as residence on rent or without consideration. 'Residential unit' means a single house or a single apartment intended for use as a place of residence (vide clause (b) of the Explanation). We may now notice sub-clause (zzzza). 'Taxable service' means any service provided or to be provided; "(zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation : For the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deciding whether in the instant case, there is a taxable service within the meaning of sub-clause (zzzh) of section 65 (105). We shall now proceed to consider this aspect. In order to do so, a reference to the recitals and salient terms of the Agreement proposed to be entered into by the applicant need to be looked into and analysed. 10. The Agreement bears the caption "Agreement for booking/sale of residential units in the self-developed housing project". In the preamble, it is stated that the booker (prospective purchaser) has shown interest in "booking of a residential house to be built up on sub-plot No. ----- admeasuring ----- sq.mts". It is then recited that the builder/developer (applicant) "has started to build and self-develop its own sub-plots by constructing thereon residential houses and also to build and develop the common infrastructure and amenities of the housing project irrespective of its bookings". It is then stated that the land, super structure/constructed unit is subject to sale after completion of construction. It is then recited that the Booker "wants to book the residential unit as a precautionary measure so that the very residential unit can be handed ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der no circumstances, the possession of incomplete residential units will be handed over to the booker. However, the booker is duty bound to deposit the agreed amount to the builder/developer. vii. As per clause 7(d), if the booker is not interested in ultimately buying and taking possession of the property, he can cancel the booking at any stage and the amounts paid will be refunded to him with interest @ ....... per cent. There is an apparent contradiction between this clause and clause 7(a) which says that if the booker commits delay or default in depositing any amount under the agreement, the builder/developer shall be at liberty to cancel the agreement in which event the amount deposited by the booker shall stand forfeited as compensation or liquidated damage for the breach of the agreement. viii. Clause 8 enjoins that it is only on receipt of the entire amount, the builder/developer shall vacate the developed sub-plot of land. The time within which the housing scheme is expected to be completed is specified in clause 9(a). ix. In clause 9(b) it is stipulated that the responsibility of the builder/developer will extend to obtaining requisite permission for building use, dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence may be made to 76 Corpus Juris Secundum at pages 620 and 621 where it is stated that the term "relate" is also defined as meaning to bring into association or connection with. It has been clearly mentioned that "relating to" has been held to be equivalent to or synonymous with as to "concerning with" and "pertaining to ". The expression "pertaining to" is an expression of expansion and not of contraction". (emphasis supplied) In the division Bench decision of the Madras High Court referred to by the Supreme Court, the words "in every suit or proceeding relating to title to Wakf property" employed in Section 57(1) of the Wakf Act, 1954 were construed. It was held that the second suit instituted by a third party for a declaration that the decree in the previous suit was fraudulent and collusive would necessarily have bearing on the declaration of title to the property claimed as Wakf property in the earlier suit and therefore the subsequent suit is also a suit or proceeding "in relation to" Wakf property. 15.1 So also in the case of N S Nayak & Sons Vs. State of Goa the Supreme Court, at paragraph 13, construed the phrase 'in relation to' as follows:- "The phrase "i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be common amenities which will be available to others who inhabit in the complex but they cannot be dissociated from the construction of the residential unit for the benefit of the booker/buyer. Package of services is necessarily involved in the activity viewed as a whole and that is the reason why the phrase "in relation to" has been used. The fact that the ownership and possession remains with the applicant throughout the process of construction and that the constructed residential unit can only be transferred to the booker/buyer on receipt of entire sale consideration does not have a real bearing on the question whether any services in relation to the construction of complex are required to be rendered by the applicant. The applicant, in our view, has laid undue stress on the aspect of ownership remaining with it till completion and on the element of control over construction. If the contention of the applicant is to be accepted, the entire purpose of sub-clause (zzzh) will be defeated or at any rate, it may become otiose. We do not think that the point of time at which the ownership gets transferred will be determinative of the applicant's liability to pay service tax . Vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to any agreement with the customer / buyer. The recipient of service is not in the picture at all at any stage of construction. The developer and the buyer come face to face after the entire process of construction is complete and the building ready for occupation is offered for sale. In such a situation, it cannot be said that any services were extended by the developer to the buyer. The relationship between the developer and the buyer is purely one of seller and buyer. But, the factual position is qualitatively different in the case of proposed activity no.1. Question No.3 21. There is no material difference between the proposed activity no.1 and 2. The factual matrix in relation to the proposed activity no.2 is almost the same except that the applicant, instead of directly building the residential unit itself, will be sub-contracting the work. The applicant is accountable to the bookers/buyers and remains to be a service provider vis-à-vis the buyer. The engagement of sub-contractor to do a substantial part of the construction work does not absolve the applicant of the responsibility of providing services in relation to the construction of residential unit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of UP (7) STR 129, wherein the decision in Raheja's case was distinguished by the learned judges. Referring to the Allahabad decision, the learned Departmental Representative has argued that the point of distinction made out by the High Court is not valid and the ratio of the Supreme Court's decision was not correctly appreciated by the learned judges. Though we find some force in this contention of the Departmental Representative, we do not want to dilate on this point further in view of the rules of interpretation contained in section 65 A of the Act. Section 65 A reads as follows :- "65A. Classification of taxable services : (1) For the purposes of this Chapter, classification of taxable services shall be determined according to the terms of the sub-clauses of clause (105) of section 65. (2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows:- (a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description; (b) composite services consisting of a combination of different servi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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