Commissioner of Service Tax vs M/s Shrinandnagar-IV Co. Op. Housing Society Ltd.

Honourable Mr. Justice Akil Kureshi

This appeal is filed against the common judgment of the Tribunal dated 2nd July, 2009. At the outset, we may notice that though the respondent is common, the Tribunal by the said judgment disposed of 4 second appeals involving the present respondent. Present tax appeal is filed by the revenue challenging the decision of the Tribunal in all the 4 appeals. We are afraid such common single appeal is not maintainable. We, therefore, at the choice of the counsel confine this appeal against the judgment of the Tribunal disposeing of Appeal No.104/A-IV/08. Insofar as other three appeals, namely, Tax Appeal Nos. 105/A-IV/08, 106/A-IV/08 and 107/A-IV/08 are concerned, it would be open for the appellant to file separate appeals, if so advised.

Question of law presented for our consideration are as follows:

In view of the facts of this case whether the Co. operative Housing Society and its members are different legal entity or otherwise?

Whether the construction activity being performed/ undertaken by the Society as a service to its members, is a taxable activity or not?

Whether Hon''ble CESTAT has committed error in interpreting the Board''s Circular No. 108/2/009-ST dated 29.1.2009 by not distinguishing a co-operative housing society, which is providing service to its members from a developer / promoter?

We have heard learned counsel for the appellant and the respondent. Brief facts are that respondent Co. Op. Housing Society had availed of the services of Contractor for constructing the residential units for use of the Members of the Housing Society. Initially, the Society had paid service tax. Subsequently, however, the society carried a belief that it was not liable to pay service tax. Society filed refund claims which were dismissed. The issue, ultimately, reached the Tribunal. Tribunal by the impugned judgment relying on the Board''s Circulars and Clarifications, formed an opinion that if the activity is undertaken by the Society for and on behalf of the members, it cannot be stated that the Society provided the services to its members.

Counsel for the respondent drew our attention to the judgment of Division Bench of this Court rendered in Tax Appeal No.1550 of 2010 dated 22nd April, 2011 in case of Commissioner of Service Tax V/s. M/s. Sujal Developers in which, judgment of the Tribunal impugned in the present appeal, was also under challenge. The Bench upheld the view of the Tribunal where the respondent-assessee was developer who had developed housing complexes for future sale. The Bench held and observed as under:

From the statutory provisions, circulars as well as clarifications issued by the Board referred to hereinabove, it appears that for being chargeable to tax u/s 65(105)(zzzh) of the Act is that the person concerned should render service to another person in relation to construction of complex. Thus the basic requirement for falling within the ambit of the said provision is that there has to be a service provider and a service receiver. In the present case as noticed earlier, the land on which the residential complex has been constructed belongs to the society. The society has entered into a development agreement with the respondent. Under the agreement between the society and the respondent-developer, the work of construction and development of the housing project has been entrusted to the respondent. The respondent-developer has agreed to develop the said land by attending to construction and development work and to complete the scheme duly and diligently on the terms and conditions contained in the agreement. Under the agreement, the developer is required to carry out every act necessary to complete construction and development of the project directly or indirectly, which includes preparation and approval of plans, getting the buildings constructed directly or by subcontracting and/or purchase of material, hiring labour, arrangement of finance, marketing and advertising the project, enroll members, collect money, etc. The respondent is permitted to use the property in question for the purposes mentioned in the agreement. The respondent is entitled to construct and/or arrange to construct the building as per the plan and specifications prepared by the Architects. Thus, as per the agreement, the respondent-developer is entitled to make construction on the land in question, enroll members as well as collect amounts towards the units allotted to such members. The finances for the purpose of development are to be arranged by the respondent-developer. In the circumstances, from the development agreement, it does not appear that the respondent-developer is a contractor who is executing the construction work on behalf of the society. Here, the developer is using its own finances and developing the land in question and selling the property constructed thereon to the members of the society. Thus, in the light of the clarification issued by the Board. viz., when it is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then, the ownership of the property gets transferred to the ultimate owner, in such a case, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed, would be in the nature of "self-service" and consequently, would not attract service tax.

In the facts of the present case, there is nothing to indicate that the respondent has been hired as a contractor by the society so as to bring the activities of the respondent within the ambit of taxable services as contemplated u/s 65(105)(zzzh) of the Act. In the absence of there being any service provider and service recipient in relation to the transaction in question, the Tribunal was justified in holding that the transaction in this case cannot be considered as taxable.

Counsel for the respondent further submitted that the Society cannot be stated to be providing any services to the members. He submitted that the contractor who undertakes the task of constructing the residential units on behalf of the society for the use of the members would be liable to pay service tax on such services rendered but in no case, society can be stated to have rendered any services to its members.

Counsel for the revenue, however, drew our attention to explanation to sub-clause (zzzh) added by virtue of Finance Act, 2010 to contend that such explanation was not noticed by the Bench in its judgment in case of M/s. Sujal Developers (supra). We wonder whether only on this count the judgment of the Bench would be rendered vulnerable.

From the record, we find that the impugned judgment of the Tribunal came to be upheld by the Division Bench in case of M/s. Sujal Developers (supra), relevant portion of which, we have already quoted in this order. We notice that in the said case before the Division Bench, it was a developer who was contending that not having provided any services he was not liable to pay any services tax. Only point of difference in this case is that it is a housing society who is putting forth a similar claim on the premise that the contractor who undertakes the construction work, would be liable to pay service tax but the society in turn, cannot be said to have supplied any services to its members. We are of the opinion that the question is substantially covered by the decision of Division Bench; wherein, similar questions were framed and answered against the revenue. Insofar as the explanation relied on by the counsel for the revenue is concerned, the same reads as under:

(e) in sub-clause (zzzh), the following Explanation shall be inserted, namely-

Explanation.- For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorized by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer.

We are not inclined to discuss whether by virtue of such explanation legal situation in factual background arising in present appeal, would or would not be any different. Suffice it to note that the explanation was brought in the statute book long after the taxing event in the present case had arisen.

In absence of any indication in the amendment to make it either retrospective or explanation being merely declaratory or clarifiacatory in nature, such statutory change cannot be made applicable to the long past events.

In the result, we do not find that any question of law arises. Tax Appeal, is therefore, dismissed.

Order in Civil Application

In view of order passed in main matter, Civil Application for stay does not survive and is disposed of accordingly.