Builder/Developer/Promoter Not Liable To Pay Service Tax On Construction Of Complex Service Or Works Contract Prior To July 2010: CESTAT

The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that no liability for paying tax under ‘construction of complex service’ or ‘works contract’ would lie on the builder, developer, or promoter during the period prior to July 2010.

The two-member bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) has observed that it was only on July 1, 2010, that an explanation was added to Section 65(105)(zzzh), whereby a builder, developer, or promoter who gets a residential complex constructed for a customer with whom he has individually entered into agreements was to be treated as a deemed provider of the construction of a residential complex to his customers.

The appellant/assessee is in the business of constructing residential complexes, which became taxable on June 16, 2005, but they registered with the Department only in June 2008. They have also not filed periodic ST-3 returns.

It appeared to the department that the assessee did not pay appropriate service tax on the construction activity under the classification ‘Construction of Residential Complex Service'. Hence, notices were issued to them demanding a service tax of Rs. 2,64,33,866 for the period from May 2006 to September 2009, and a follow-up show-cause notice was issued demanding a service tax of Rs. 72,66,757 for the period from October 2009 to June 2010, under the provisions of the Finance Act, 1994.

The appellant contended that a developer of a residential complex is not liable to pay service tax for the period prior to July 1, 2010. As per the Central Board of Excise and Customs (CBEC) Circular No. 108/02/2009-S.T. dated January 29, 2009, construction services provided by the builder or developer will not be taxable for the period prior to July 1, 2010.

The appellant contended that the demand for the period from May 2006 to September 2009 is barred by limitation since the show cause notice is dated April 4, 2011, and none of the ingredients set out in the proviso to Section 73(1) of the Finance Act, 1994, have been met. They have also been filing ST-3 returns and paying service tax wherever it is legally applicable.

The department stated that the appellant has entered into two agreements with their customers. One for the sale of an undivided share of land, and the other for the construction of a flat or apartment. A sale deed is later entered into only for the undivided share of land, and no sale deed is executed for the completely constructed flat. The stamp duty was paid only on the cost of an undivided share of land and not on the completed apartment. Thus, the appellant provides construction services to their clients. Section 65(105)(zzzh) of the Act specifies the construction of complex services as taxable services as of June 16, 2005. Just because contract services were brought under the service tax levy on June 1, 2007, does not mean that such services provided by the assessee were not taxable prior to June 1, 2007.

The tribunal held that work contract services came under the service tax levy with the introduction of Section 65(105)(zzzza) in the Finance Act 1994 on June 1, 2007. The period covered under the demand for a work contract as per the impugned order is post-June 1, 2007, and hence the service rendered by the appellant is prima facie eligible for the levy of service tax.

Case Title: M/s. South India Shelters Private Limited Versus The Commissioner of Central Excise

Citation: Service Tax Appeal No. 40297 of 2013

Date: 07.03.2023

Counsel For Appellant: Radhika Chandrasekhar

Counsel For Respondent: R. Rajaraman

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