TMI Blog2008 (5) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... has been asked to get itself registered under section 69 of the Finance Act, 1994 (hereinafter referred to as, the Finance Act, 1994 ), inasmuch as the petitioner-company has been, according to respondent No. 3, providing commercial or industrial construction service/construction of complex service . The petitioners challenge the very authority of respondent No. 3 to issue the notice, which stands impugned in the present writ petition, the case of the petitioners being, in brief thus : Petitioner No. 1 is a private limited company engaged in the business of development and sale of immovable properties, i.e., real estates. The petitioner-company constructs buildings and sells premises/flats in such buildings. During the course of development of such property and construction of buildings thereon and also after completion of such construction, the petitioner-company enters into flat purchase agreements with various premises/flat purchasers, whereunder the petitioner-company allots and sells flat/premises, in such buildings, to the purchasers. The said transaction is a transaction of sale of flats/premises and the consideration is payable to the petitioner-company in instalments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners for themselves and for their own benefits and not for any other entity or person. 2. The respondents have resisted the writ petition by filing an affidavit, their case being, briefly stated, as under : (i) As per the definition of construction of complex service , appearing in section 65(105)(zzzh) of the Finance Act, 1994 (as amended), since the petitioner-company is providing service to its clients, the service, so provided by them, is taxable under service tax . Hence, the petitioner-company is required to get, as per section 69 of the Finance Act, 1994 read with rule 4 of the Service Tax Rules, 1994 (in short, the said Rule ), as amended, registered so as to pay the service tax . (ii) The activities undertaken by the builders for construction of flats/buildings, for and on behalf of prospective buyers, for consideration of cash or deferred payment is covered under works contract and not sale . Although it has been stated by the petitioners that the agreements, signed between the petitioner-company and the prospective purchaser of the flat/building, are termed as deed of agreement for sale of flat and land , the fact remains that such agreements are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have heard Dr. A. K. Saraf, learned Senior Counsel, for the petitioners and Mr. H. Rahman, learned Assistant Solicitor General, appearing on behalf of the respondents. 4. The moot question, which the present writ petition has raised, is this : whether the petitioner-company has been working, as a service provider , for those persons with whom the petitioner-company enters into agreements and constructs flats for the purpose of sale to those with whom such agreements are entered into ? 5. In order to ascertain the exact nature of work, which the petitioner-company has been carrying on, a careful scrutiny of the relevant clauses of the agreement, which the petitioner-company enters into with prospective buyers, is necessary. One of such agreements for sale of the flats has been annexed to the writ petition. Some of the relevant clauses of the agreement for sale are extracted below : 1. That the first party agrees to sell and the second party agrees to purchase the flat described in Schedule B along with the proportionate and undivided share of land for a total sale of price of Rs. 7,86,500 (rupees seven lacs eighty six thousand five hundred only) which shall be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny constructional activities on behalf of the prospective buyers. What the petitioner-company sells is, thus, the flat/premises and the entire transaction is nothing, but sale and purchase of immovable property. The flat purchasers are entitled to seek specific performance of the contract and there is an obligation, on the part of the petitioner-company, to refund any part of money received together with interest if possession is not handed over to the prospective buyers in time. There is also an obligation, on the part of the petitioner-company, to register sale deeds and agreements. Even the registering authorities concerned treat these documents as agreements for sale/purchase of flats/premises inasmuch as the consideration is for sale and not for carrying out constructional activities. Stamp duty is, therefore, levied on the sale consideration. 7. Asserting that the petitioner-company does not render any taxable service and is not engaged in any such activities, which can make it liable to pay service tax , under the Finance Act, 1994, the petitioners, in the present writ application, have challenged, as already indicated above, the legality and validity of the impugned n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, the Central Government had initially imposed such taxes by taking resort to powers under the residuary entry in the Union List ; but in the year 2003, the Government moved a Bill seeking Constitutional amendments, which provided, formally, for levy on services by the Central Government. This Constitutional amendment aimed at enabling the States to collect and appropriate the proceeds of the levy on service tax . Thus, the Constitution (95th Amendment) Bill, 2003, was introduced, on March 7, 2003, seeking to amend the Constitution, by providing tax on services as a specific entry in the Union List and evolve principles for determining the modalities of levying service tax by the Union Government and collection of the proceeds thereof by the Central and the State Governments. By the said amendment, a new entry was inserted in List I of the Seventh Schedule to the Constitution of India, which reads as under : 92-C. Taxes on services . 11. Coupled with the above, a new article, namely, article 268A was also inserted. This article reads as under : Article 268A(1). Taxes on services shall be levied by the Government of India and such tax shall be collected and appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzf), (zzg), (zzh), (zzi), (zzj), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), (zzy), (zzz), (zzza), (zzzb), (zzzc), (zzzd), (zzze), (zzzf), (zzzg,) (zzzh), (zzzi), (zzzj), (zzzk), (zzzl), (zzzm), (zzzn), (zzzo), (zzzp), (zzzq), (zzzr), (zzzs), (zzzt), (zzzu), (zzzv) and (zzzw) of clause (105) of section 65 and collected in such manner as may be prescribed. 16. Section 69 of the said Act makes it mandataroy for a person, who is, otherwise, liable to pay service tax , to get himself registered under the said Act. Section 69 states as under : 69. Registration . (1) Every person liable to pay the service tax under this Chapter or the Rules made thereunder shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise. (2) The Central Government may, by notification in the Official Gazette, specify such other person or class of persons, who shall make an application for registration within such time and in such manner and in such form as may be prescribed. 17. Section 65(105) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction service was also provided by the Finance Act, 2005, by inserting clause (25b) to section 65(105) of the Finance Act, 1994. This clause, [i.e., clause (25b)] reads as under : (25b) 'commercial or industrial construction service' means (a) construction of a new building or a civil structure or a part thereof ; or (b) construction of pipeline or conduit ; or (c) completion and finishing services 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, in relation to building or civil structure ; or (d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is (i) used, or to be used, primarily for ; or (ii) occupied, or to be occupied, primarily with ; or (iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anking, communication, conveying of news, information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging. 26. Under the Monopolies and Restrictive Trade Practices Act, 1969 service has been defined as under : 'Service' means service of any description which is made available to potential users and includes the provisions of facilities in connection with banking, financing, insurance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information but does not include the rendering of any service free of charge or under a contract of personal service. 27. The term service , as defined under the Consumer Protection Act, 1986, reads as under : 'service' means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out by the petitioner-company, for its own self. Since the very concept of rendering of service implies two entities, one, who renders the service , and the other, who is recipient thereof, it becomes transparent that an activity carried on by a person for himself or for his own benefit, cannot be termed as service rendered. 32. Prior to the amendment of the Finance Act, 1994, in the year 2005, the Central Board of Excise and Customs, vide Circular No. 80/10/2004, dated September 17, 2004, clarified that estate builders , who construct buildings/premises for themselves (for their own use, renting it out or for sale thereof subsequently) are not covered within ambit of the construction services . Clause 13.1 of this circular states as under : 13.1 Services provided by a commercial concern in relation to construction, repairs, alteration or restoration of such building, civil structures or parts thereof which are used, occupied or engaged for the purposes of commerce and industry are covered under this new levy. In this case the service is essentially provided to a person who gets such constructions, etc., done, by a building or civil contractor. Estate builders who c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at facilitating purchase of the flat/premises by these probable purchaser so that they may not be required to pay whole of the price at a time. From the condition so incorporated in the relevant agreement for sale, it cannot be inferred that the petitioner-company is making construction for and on behalf of the probable allottees or purchasers. 35. Further, in K. Raheja Development Corporation [2005] 5 SCC 162 the apex court was considering the issue relating to sales tax and the issue therein was not at all related to service tax . While interpreting the provisions of sales tax under the Karnataka Sales Tax Act, 1957, the apex court held, in K. Raheja Development Corporation [2005] 5 SCC 162 , that the definition of works contract , given under the Finance Act, 1994, is very wide and is not restricted to the works contract as commonly understood, i.e., a contract to do some work on behalf of someone else. The apex court, therefore, held as under (at page 302 of STC) : . . . The definition would therefore take within its ambit any type of agreement wherein construction of a building takes place either for cash or deferred payment, or valuable consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be works contract, is wholly without jurisdiction . . . . 37. The Central Board of Direct Taxes has also, vide Circular No. 332/35/2006-TRU, dated August 1, 2006, clarified that if no person is engaged for construction work and the builder/promoter/developer undertakes construction work on its own without engaging the services of any other person, then, in such cases, in the absence of a relationship of service provider and service recipient , the question of providing taxable service to any person by any other person does not arise. The relevant portion of the circular, dated August 1, 2006, is reproduced below : Sl. No. Issue Legal position 1. Is service tax applicable on builder, promoter or developer who builds a residential complex with the services of his own staff and employing direct labour or petty labour contractors whose total bill does not increase 4.0 lacs in one financial year ? In a case where the builder, promoter or developer builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not bind them. But the benefits of such circulars to the assessees have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provision and mitigated the rigour of the law. But that is not the same thing as saying that such circulars would either have a binding effect in the interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. There is, however, the support of certain judicial observations for the view that such circulars constitute external aids to construction. 40. In K. P. Varghese v. Income-tax Officer [1981] 131 ITR 597 the apex court has held as under (at page 612) : But the construction which is commending itself to us does not rest merely on the principle of contemporanea expositio. The two circulars of the CBDT to which we have just referred are legally binding on the Revenue and this binding character attaches to the two circulars even if they be found not in accordance with the correct interpretation of sub-section (2) and they depart or deviate from such construction. It is now well-settled as a result of two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration in this appeals is what is the true nature and effect of the circulars issued by the Board in exercise of its powers under section 37B of the Central Excise Act, 1944 ? This question is no more res integra in view of the various judgments of this court. This court in a catena of decisions has held that the circulars issued under section 37B of the Finance Act, 1994 are binding on the department and the department cannot be permitted to take a stand contrary to the instructions issued by the Board. These judgments have also held that the position may be different with regard to an assessee who can contest the validity or legality of such instructions but so far as the department is concerned, such right is not available. 44. In Commissioner of Income-tax v. T. V. Ramanaiah Sons [1986] 157 ITR 300, the Andhra Pradesh High Court expressed similar views, when it pointed out as follows : (at page 306) . . . The law is fairly settled that the instructions and directions given by the Central Board of Direct Taxes under section 119 of the Act are binding on all the subordinate officers in the execution of the Act. Reference may be invited to the decisions of the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue. 47. In Collector of Central Excise, Meerut v. Maruti Foam P. Ltd . [2004] 6 SCC 722 the apex court held that the construction of statutory phrase, placed by a circular issued by the Central Board of Excise and Customs, although different from the one placed by the Supreme Court, was binding on the Revenue till the same was withdrawn. 48. In the light of what has been laid down in the catena of decisions referred to above, it becomes clear that the circular, dated August 1, 2006, aforementioned, is binding on the department and this circular makes it more than abundantly clear that when a builder, promoter or developer undertakes construction activity for its own self, then, in such cases, in the absence of relationship of service provider and service recipient , the question of providing taxable service to any person by any other person does not arise at all. In the present case too, the materials placed by the writ petitioners clearly show that the construction activities, which the petitioners have been undertaking, are in respect of the petitioners' own work and it is only the completed construction work, which is sold by the petitioner-company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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