TMI Blog2019 (5) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... ject. DDA further agreed to grant to the Project Developer and the Project Developer agreed to accept from DDA exclusive developer rights to the development of the Project on the Project Site as per the terms and conditions of the agreement. The responsibility of the Appellant under the PDA included construction of residential units, which necessarily involves supply of material coupled with the provision for work and labour. The materials have to be supplied as per the given specifications and work and labour have to be in accordance with the Good Industry Practices as per Clause 8.8 of the agreement. The activity undertaken by the Appellant under PDA would, therefore, qualify as a composite and indivisible works contract and by no means can be said to be Service simplicitor. The show cause notice was, however, issued to the Appellant alleging that the Appellant is providing CCS services under Section 65(105)(zzzh) of the Act. The Supreme Court in COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS [ 2015 (8) TMI 749 - SUPREME COURT] examined as to whether Works Contract Service can be classified under Section 65(105)(zzzh) and held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects imposition of penalty of ₹ 1,35,18,67,996/- under Section 78 of the Act and a penalty of ₹ 5,000/- or ₹ 200/- per day for each of failure under Section 77(1)(a) and also of ₹ 5,000/- under Section 77(2) of the Act. The demand has been confirmed against the Appellant for Construction of Complex Service (hereinafter referred to as the CCS ) rendered by the Appellant to the Delhi Development Authority (hereinafter referred to as the DDA ) in regard to the share of share of DDA (1/3rd of total flats) under the Project Development Agreement (hereinafter referred to as the PDA ) dated 14 September, 2007. The value of such service has been considered as equivalent to the value of the Appellant s share of flats i.e 2/3rd of the total flats. 2. The Appellant, M/s Emaar MGF Construction Private Limited (hereinafter referred to as the Emaar ) is a Private Limited Company inter alia engaged in providing various services including CCS and is registered with the Service Tax Commissionerate, Delhi. DDA was mandated by the Government of India, Ministry of Youth Affairs and Sports, to undertake the development of Commonwealth Games Village for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.1.7 Development Rights means the right granted by DDA to the Project Developer under this Agreement to design, engineer, finance, procure, construct, operate and maintain the Project. 1.1.19 Project means complete construction and development of the ready-to-use Residential Facility at the Project Site under a public private partnership model wherein the Project Developer pays an upfront bid amount to DDA and DDA transfers the two-third (2/3rd) of the Residential Apartments along with the rights in the undivided underlying land for onward transfer to the individual buyers by the Project Developer. 1.1.21 Residential Apartments means all types of Units and includes all associated facilities/amenities with the Unit, like parking, kitchen garden. It further includes rights to use the Common Facilities. 1.1.22 Residential Facility means all Units, building blocks, common areas, parking bays, roads, parks, landscaping etc. And other associated facilities like sewerage, water, power, internet, telephone arrangements etc. at the Project Site. 1.3 Priority of Documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In the event, the Project Developer has to enter into Financing Agreement for arranging funds for the development of the Project, the Project Developer shall execute such agreement within 6 months from the Commencement Date and ensure that all conditions precedent under the Financing Agreements has been complied with within the said period. 10.2 DDA shall transfer the land underneath the 2/3rd of the developed Residential Apartments (i.e. 2/3rd of the dwelling units only excluding all other facilities, for eg. institutional) to be identified for transfer of the Project Developer in accordance with the terms, conditions and covenants contained in this Agreement and the Conveyance Deed to be executed by DDA after completion of the Project and post the Games Period........................................... 6. The Appellant also entered into an agreement dated 05 May, 2009 with DDA by which it agreed to give up its rights in respect of 333 apartments out of its 2/3rd share in favour of DDA absolutely and unconditionally in consideration for ₹ 766,89,25,000/-. This financial package of ₹ 766,89,25,000/-was agreed to be paid by DDA t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) Net consideration received and liable for service tax = ₹ 1447.68 crores (₹ 1768.68 crores minus ₹ 321 crores) (d) Emaar by the letter dated 21 January, 2011 informed the Commissioner that no Service Tax liability arose; 9. The show cause notice, therefore, called upon to show cause within 30 days of the receipt of the notice as to why : (i) the proviso to Section 73(1) of the Finance Act, 1994 should not be invoked; (ii) Section 72 of the Finance Act, 1994 should not be invoked; (iii) Service tax amounting to ₹ 1,73,72,00,000/- (Rupees One Hundred Seventy Three Crores Seventy Two Lacs only), Education Cess of ₹ 3,47,00,000/- (Rupees Three Crores Forty Seven Lacs only) and Secondary Higher Education Cess of ₹ 1,74,00,000/- (Rupees One Crore Seventy Four Lacs only), totalling ₹ 1,78,93,00,000/- as detailed in para 7.4 above should not be demanded and recovered from them under proviso to Section 71(1) of Finance Act, 1994 read with Section 66 and 68 of the Finance Act, 1994 read with Rule 6(1) of the Service Tax Rules, 1994, further read with Section 91 and Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but works contract cannot be covered under any other category of services prior to that day; (v) The definition of CCS in Section 65(105)(zzzh) remained unchanged even after 01 June, 2007 and, therefore, even after 01 June, 2007 Section 65(105)(zzzh) would cover contract simplicitor only i.e. contract of service not involving any goods; (vi) In this view of the matter, the demand could not have been confirmed under CCS either prior to 01 June, 2007 or after 01 June, 2007; and (vii) If a show cause notice proposes demand under a particular category of service and categorization is found under this category to be incorrect, the demand has to be set aside in view of the decisions of the Supreme Court in Hindustan Polymers Company Limited vs Collector of Central Excise, Guntur, reported in 1999 (106) ELT 12 (SC) and Reckitt Colman of India Limited vs Collector of Central Excise, reported in 1996 (88) ELT 641 (SC). 13. Apart from the aforesaid arguments submitted by the learned Counsel for the Appellant relating to CCS and Works Contract, number of other submissions were also advanced in the alternative, but these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transfer of development rights have been considered as taxable and provisions have been made by the GST Council and, therefore, the activities performed by the Appellant with regard to grant of development rights are services and taxable as per the Act. 15. The submissions advanced by the learned Counsel for the Appellant and the learned Authorised Representative of the Department have been carefully considered. 16. It would be necessary to deal first with the submission advanced by the learned Counsel for the Appellant that in view of the nature of the activities that were required to be undertaken by the Appellant in terms of the Agreement, the service rendered by the Appellant would fall under the category of Works Contract Service and not CCS , because if this issue is decided in favour of the Appellant, it may not be necessary to consider the other submissions raised by the learned Counsel for the Appellant. 17. In order to examine this issue, it would be appropriate to refer to the various provisions of the Act. Section 65(30a) of the Finance Act defines Construction of Complex to mean : 65(30a) - C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects; 20. The terms of the Agreement (PDA) need to be examined in order to ascertain whether the nature of service provided by the Appellant to DDA would fall under the category of CCS or Works Contract Service . DDA had undertaken a competitive bid process for selecting private entity to undertake the implementation of the project for the development of Residential Facility to be used to provide accommodation for athletes and officials participating in the CWG and thereafter dispose of as apartments for residential purposes. For this purpose, a site comprising 11 hectares located adjacent to the Akshardham Temple was identified and DDA selected the Appellant as Project Developer for undertaking the implementation of the project. DDA further agreed to grant to the Project Developer and the Project Developer agreed to accept from DDA exclusive developer rights to the development of the Project on the Project Site as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssarily involves supply of material coupled with the provision for work and labour. The materials have to be supplied as per the given specifications and work and labour have to be in accordance with the Good Industry Practices as per Clause 8.8 of the agreement. The activity undertaken by the Appellant under PDA would, therefore, qualify as a composite and indivisible works contract and by no means can be said to be Service simplicitor. The show cause notice was, however, issued to the Appellant alleging that the Appellant is providing CCS services under Section 65(105)(zzzh) of the Act. 22. The Supreme Court in Larsen Toubro examined as to whether Works Contract Service can be classified under Section 65(105)(zzzh) and held that the scope of Section 65(105) (zzzh) is limited to cover contract of service simplicitor only and not a composite works contract. The Supreme Court noticed that it is only w.e.f 01 June, 2007 that Section 65(105)(zzzza) was introduced to cover composite works contract and so works contract cannot be covered under any other category of services prior to 01 June, 2007. The relevant portion of the judgment is reproduced below : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been done by the Finance Act, 1994, it is clear that any charge to tax under the five heads in Section 65(105) noticed above would only be of service contracts simpliciter and not composite indivisible works contracts. xxxxxxx xxxxxxx xxxxxxx 24. A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines taxable service as any service provided . All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue on these counts, the appropriate order for the Tribunal to have passed was to have set aside the demand and left it open to the Revenue to proceed against the appellants, as permissible under the law. The appellants would then have had the opportunity of meeting the precise case made out by the Revenue. 26. This is what was also observed by the Supreme Court in Reckitt Colman of India in paragraph 3 of the judgment which is reproduced below : 3. It will be remembered that the case of the Revenue, which the appellant had been required to meet at every stage from the show cause notice onwards, was that the said product was a preparation based on starch. Having come to the conclusion that the said product was not a preparation based on starch, the Tribunal should have allowed the appeal. It was beyond the competence of the Tribunal to make out in favour of the Revenue a case which the Revenue had never canvassed and which the appellants had never been required to meet. It is upon this ground alone that the appeal must succeed. 27. The learned Authorised Representative of the Department, however, submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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