Service Tax Not Payable On Flats Constructed Prior To 01.07.2010, Having Less Than 12 Flats: CESTAT

The Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that there is no tax liability on the appellant for the impugned flats constructed prior to July 1, 2010, having less than 12 units or flats.

The bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) has observed that only four residential units or flats were constructed in this case on hand, and hence, by virtue of this alone, the case of the appellant does not get covered under the definition of residential units since the definition covers any complex of a building or buildings having more than twelve residential units.

There was a development agreement dated May 2, 2008, between the appellant and the developer for the construction of a residential complex or apartment, in which Rs. 29,31,752 was paid to the developer towards service tax. Believing that there was no tax liability, the appellant filed a refund application claiming refund of the above service tax paid to the developer, which resulted in the issuance of a show cause notice by the Revenue.

The case was taken up for adjudication, and, per order, the adjudicating authority rejected the claim for refund. As per the original authority, the service tax was paid towards the work contract service provided by the developer, which was very much in order.

The appellant preferred an appeal before the first appellate authority and rejected the appeal by upholding the order of rejection. In the order in appeal, the first appellate authority has held that the appellant was only a recipient of service; the construction activity was started by the developer on 31.5.2013; the invoice was raised on 24.9.2015; and hence, in terms of point of taxation rules, the service was provided only after 01.07.2012. The FAA has also noted from the invoice issued by the developer that even the state VAT was also paid and that the service tax was consequently paid at the applicable rate of the service contract.

The FAA thus concluded that the claim of the appellant that the construction carried out by the developer would fall under residential complex service since the argument that the number of units was less than 12 did not have any weight.

The plan approval having been obtained on March 4, 2013, and the construction activity having commenced on June 31, 2013, the 2013, the explanation inserted to the tax works contract service with effect from July 1, 2010, was very much applicable to the case of the appellant. It is against this order that the present appeal has been preferred by the taxpayer.

The appellant contended that even the definition of residential complex is not satisfied since only a few, i.e., less than 12 units or flats, were constructed, and hence, for any levy, it should be a residential complex comprising more than 12 residential units or flats, and therefore, there was no liability to service tax. Even otherwise, the development and construction of residential units were intended for personal use, and hence, by virtue of the clarification of CBEC circular No. 108/2/2009-ST, the construction for personal use would fall within the exclusion portion of the definition of a residential complex as defined under Section 65(91)(a) of the Finance Act 1994.

The tribunal held that there was no tax liability on the appellant for the impugned flats constructed prior to July 1, 2010, having less than 12 units, and hence, the refund claimed by the appellant was very much in order. The department has erred in rejecting the valid refund claim, and consequently, the order cannot be sustained.

Counsel For Appellant: Sudhir

Counsel For Respondent: M. Ambe

Case Title: M/s. Sandeep N Savani Versus Commissioner of GST & Central Excise

Case No.: Service Tax Appeal No.40035 of 2020

Click Here To Read The Order