The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax payable on ‘construction of residential complexes’.
The bench of Justice Dilip Gupta (President) and P. V. Subba Rao, (Technical Member) has observed that the appellant/assessee has rendered the service of construction of residential complexes as ‘works contracts’, the demand of service tax under section 65(105)(zzzh) of the Finance Act, 1994 towards ‘construction of residential complexes’ cannot be sustained.
Table of Contents
Background
The appellant had provided services of construction of residential complexes but had not registered with the Service Tax department or paid any service tax.
Acting on intelligence, the Assistant Commissioner sent letters and reminders to the appellant, who, in reply, sent letter giving details of the work done by it during the period 2006-07 to 2009-10 along with its annual reports. It also submitted work order wise details of the payments received from 1.4.2006 to 31.3.2011.
The Assistant Commissioner came to a tentative conclusion that the appellant had rendered taxable service of ‘construction of residential complexes’ chargeable to service tax under section 65(105) (zzzh) of the Finance Act, 1994 and issued a Show Cause Notice dated 21.11.2012 demanding service tax of Rs. 46,08,851 invoking extended period of limitation under the proviso to section 73(1) along with interest under section 75. The SCN also proposed to impose penalties on the appellant under sections 76, 77 and 78.
The appellant opposed the SCN but the proposals therein were confirmed in the OIO passed by the Assistant Commissioner which was upheld by the impugned order passed by the Commissioner (Appeals).
The Commissioner (Appeals) specifically recorded that all the services rendered by the appellant were under ‘works contracts’ as they included the use of materials also but he declined to give abatement towards the use of materials as the appellant had not opted for composition as per Rule 3(3) of the Works Contract (Composition scheme for payment of Service Tax) Rules, 2007.
Arguments
The assessee contended that all the complexes which the appellant had constructed were for the government hospitals and for the police department to be used as quarters for their employees. Therefore, they squarely fall under the definition of ‘personal use’ as per the Explanation(a) to section 65(19a) of the Act and therefore, do not fall under the definition of ‘residential complex’ and hence no service tax was payable and the appellant had accordingly not paid any service tax.
Conclusion
The CESTAT opined that composite works contracts are a separate type of contracts distinct from contracts for sale of goods or for supply of services. Since at the relevant time, the State Governments could only levy tax on sale of goods, works contract services were held to be outside the legislative competence of the State legislatures.
The CESTAT noted that since ‘works contracts’ were neither in the State List (List II) nor in the Union List (List I) of the Seventh Schedule to the Constitution, they fell under the residual entry (entry 97 of List I) and the power to tax them was with the Union.
The tribunal ruled that service tax can be levied and it has only been levied on the service component (and not on the goods component) of works contracts by introducing clause 65(105) (zzzza) of the Act. Therefore, the sections of the Act or the Rules made thereunder cannot be read so as to levy service tax also on the value of the goods transferred in the works contracts as has been erroneously done by the Commissioner (Appeals).
The tribunal held that regarding the personal use or use of employees of the buildings constructed need not be considered because the services rendered by the appellant do not fall under section 65(105) (zzzh) of the Act at all.
Case Details
Case Title: Raj Construction Company Versus Commissioner Of CGST
Case No.: SERVICE TAX APPEAL NO. 51189 OF 2018
Date: 29/10/2024
Counsel For Appellant: Nikita Jaju
Counsel For Respondent: Anand Narayan