Prajay Engineers Syndicate Ltd vs Commissioner Of Central Tax Hyderabad

Anil Choudhary, J

The Appellant – M/s Prajay Engineers Syndicate Ltd., registered with the service tax department, were engaged in providing various services mainly being ‘Construction of Complex Service’ with effect from August, 2003. They have obtained centralized registration on 12.09.2003. On verification of the Returns filed by the Appellant and pursuant to search conducted in their premises on 29.07.2011, Show Cause Notice (SCN) dt.22.10.2011 was issued proposing to demand service tax as follows:

i) Rs.2,12,03,687/- under the head ‘Construction of Complex service’ for the period 01.04.2006 to 31.05.2007 as per Annexure-IV to SCN.

ii) Rs.8,16,39,119/- for the same service of CRCS with proposal to tax the same under Works Contract service (WCS) during the period 01.06.2007 to 31.03.2011 as per Annexure-IV to SCN with proposal to adjust the amount of tax already deposited i.e., Rs.1,69,70,199/- for the same period.

iii) Proposal to appropriate the amount of Rs.80,00,000/- paid during the investigation.

iv) Rs.4,69,180/- under the head ‘Renting of Immovable Property service’ for the period 01.06.2007 to 31.03.2011 as per Annexure-IV to SCN with proposal to appropriate Rs.3,21,680/- already paid.

v) Rs.33,333/- under the head ‘Management, Maintenance or Repair service’ during the period 01.04.2006 to 31.03.2011 as per Annexure-IV to SCN with further proposal to impose penalty under Sec 77(1), 77(2) & 78 of the Act.

The following were the relied upon documents in the SCN:

a) Statement of Shri D. Vijay Sen Reddy (Executive Director) recorded on 13.10.2011.

b) Worksheets showing the month-wise receipts as submitted by the Appellant.

c) Registers showing the details of service tax, as maintained by the Marketing section.

d) Mahazar dt.29.07.2011.

e) Copies of ST3 returns filed for the period April 2006 to March 2011 filed by the Appellant.

f) Statement of service tax charged/ collected as per the registers maintained by the Marketing section, submitted by the Appellant.

The SCN was adjudicated on contest and vide impugned Order-in-Original dt.04.01.2013 the following demands were confirmed:

S.No.

Service Tax demanded and appropriated

Amount demanded

Proposed appropriation

1.

Demand on Construction of Complex service for the period 01.04.2006 to 31.05.2007

2,12,03,687

2.

Demand on Works Contract service for the period 01.06.2007 to

31.03.2011

8,16,39,119

3.

Proposed appropriation against (1) &

(2) above

2,49,70,19

4.

Demand on Renting of Immovable Property service for the period 01.06.2007 to 31.03.2011

4,69,180

5.

Proposed appropriation against (4) above

3,21,680

6.

Demand on Management, Maintenance or Repair service during

the period 01.04.2006 to 31.03.2011

33,333

7.

Demand on Transport of goods by Road service during the period

01.04.2006 to 31.03.2011

3,31,699

Total

10,36,77,018

2,52,91,879

Heard the parties and perused the records.

So far the first demand is concerned, we find that construction of complex service is not taxable for the period prior to 01.07.2010 as clarified vide Board Circulars read with amendment in the definition of ‘construction of complex service’ – Sec 65(105)(zzzh) read with Sec 65(91a) of the Finance Act, particularly, Circular No. 108/02/2009-ST dt.29.01.2009. In this Circular, it has been clarified that in spite of agreement of sale entered into between the developer/builder and the prospective buyer, no right accrues to the buyer till the time sale deed for transfer of property is entered or executed. With effect from 01.07.2010, explanation was added to Sec 65(105)(zzzh), which reads as follows:

“For the purpose of this sub-clause, construction of 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.”

Thus, the construction of residential complex, under whichever head i.e., ‘Construction of Complex’ or WCS is taxable only when pursuant to a contract, amount is received by the builder/developer from the intended buyer during construction stage, i.e., prior to grant of completion certificate by the competent authority. In other words, a sale, post construction (after grant of completion certificate) will not come within the scope of service tax. Accordingly, we set aside the demand of Rs.2,12,03,687/-.

So far the demand of Rs.8,16,39,119/- is concerned, in view of the aforementioned observations, we hold that no service tax is payable for the period up to 30.06.2010. So far the demand for the period 01.07.2010 to 31.03.2011 is concerned, the Appellant states that they dispute the re-classification of the same service under the head WCS. However, as per the Notification No. 29/2010 amending the earlier Notification No. 01/2006-ST, keeping in view the value of land also involved, which is being transferred, 75% abatement of the gross value has been prescribed. Accordingly, the Appellant is required to pay service tax on only 25% of the gross value, after abatement. As the effective rate of service tax was 10.3%, thus, 25% of the same works out to 2.575%. The Appellant has already deposited service tax of Rs.1,42,75,289/-Thus, on the gross value relating to this period i.e., Rs.24,88,85,692/-, tax works out to Rs.64,08,807/-. Thus, Appellant has already paid more tax than payable.

For argument sake, even if it is taken that the Appellant is liable to pay service tax under the head of WCS, under composition scheme @1.42%, the tax works out to Rs.1,02,54,091/-, which is also less than the amount already paid i.e., Rs.1,42,75,289/-.

As we find that the Appellant has already paid the tax in accordance with law for the period 01.07.2010 to 31.03.2011 on the gross value as aforementioned, we allow this ground and set aside the demand of Rs.8,16,39,119/-. We find that the payment of tax is also supported by the appropriation made from the deposits already made, in the Impugned Order.

Learned Counsel also points out that Revenue has erred in considering the gross amount of turnover towards Construction of Complex service at Rs.59,93,33,492/- for the period 01.07.2010 to 31.03.2011. The same is required to be recalculated, being erroneous.

The Revenue has included the amount collected in respect of 9 projects completed much before the subject date (01.07.2010), but some of the amounts are collected during this period (after 01.07.2010). These amounts are required to be deducted from the gross value for computation of the correct gross value.

12.In respect of the project – Prajay Megapolis, it is submitted that the said project was done by a group company, viz., M/s Prajay Properties Pvt Ltd (PPPL) of the Appellant company. In the initial stage of the project some customers has issued cheques in favour of the Appellant totalling Rs.45,42,320/- which was transferred as such to M/s PPPL. Whereas, Revenue has erroneously considered the amount of Rs.23,27,53,000/- in respect of the said project received by M/s PPPL as received by the Appellant company, which is wholly erroneous. Admittedly, the said project has been executed by M/s PPPL and they have accounted for in their Books of Accounts and also complied with service tax provisions.

Further, the Appellant has received in respect of completed projects (9 projects as mentioned above), Rs.13,50,58,544/- (as per SCN, it is Rs.13,57,14,529/-) and the amount relating to Prajay Megapolis mentioned herein above is Rs.23,27,53,000/- totalling Rs.36,84,67,529/-. Upon deduction of this amount from the aforementioned gross amount of Rs.36,84,67,529/-, the correct amount of gross turnover is Rs.24,88,85,692/-. The Appellant has taken us through the Annexures filed with the Appeal Memorandum at the time of Hearing, and on being satisfied, we accept the contentions and allow this ground holding that the gross amount of turnover for ‘Construction of Residential Complex service’ during the period 01.07.2010 to 31.03.2011 is Rs.24,88,85,692/-. The Appellant also submitted evidence with respect to completion of the 9 projects prior to 01.07.2010 by demonstrating the completion certificates issued by the competent authority along withe the handing over letters to the prospective buyers, which are all prior to 01.07.2010.

So far the demand of Rs.4,69,180/- under ‘Renting of Immovable Property’ head is concerned, the Appellant has urged that they have already paid the admitted service tax of Rs.3,21,680/- prior to the issue of SCN, which has been appropriated. The Adjudicating Authority has erred by not considering that the amount of rent, being the gross amount, includes service tax amount also. Evidently, during the relevant period, levy of service tax under this head was highly disputed and had been declared ultra vires by the Hon’ble Delhi High Court in the case of Home Solutions Retail (India) Ltd and Others. Thereafter, the said tax was again levied with retrospective effect by re-enacting the provisions. When the amount actually received is considered as gross amount and no other amount is admittedly collected towards service tax, then the gross amount becomes cum-tax value as provided under Sec 67(2) of the Finance Act, 1994. The Adjudicating Authority has erred in not giving cum-tax benefit. If the gross amount is taken as cum-tax value and service tax is calculated on this basis, the amount already paid as tax, tallies.

Learned AR has not been able to dispute this contention. Accordingly, we allow this ground and set aside the demand in excess of Rs.3,21,680/-.

With reference to demand of Rs.3,31,699/- on Goods Transport Agency service, it has been urged that as per Rule 2(1)(d)(v) of the Service Tax Rules, the person liable to pay service tax in respect of the services notified under Sec 68(2) of the Finance Act, is the body corporate which pays or the person who is liable to pay freight either himself or through his agent for the transportation of goods by road in a goods carriage. The Appellant has demonstrated from sample purchase orders where it is clearly shown that price of the goods is inclusive of freight, taxes and goods to be delivered at the place of destination/ buyer’s premises. Thus, as the Appellant has not paid the freight, they are not liable to pay any service tax on the same under Sec 68(2) of the Finance Act read with Rule 2(1)(d)(v) of Service Tax Rules. Some times, in case of business exigency, freight amount has been paid by the Appellant on behalf of the supplier initially, which has been remibursed by the supplier or reduced from the amount of the bill for purchase.

Revenue has not disputed the factual aspect in this matter and accordingly, we find that the ground taken is correct and thus, we set aside the demand of Rs.3,31,699/-.

So far the ground taken as to the extended period of limitation is concerned, we find that the Appellant is registered with the Department and has maintained proper Books of Accounts, which is evident from the list of relied upon documents in the SCN. Further, we find that there is no allegation of suppression, misdeclaration or other act for evading payment of service tax. Accordingly, we hold that extended period of limitation is also not available to the Revenue.

We further find that the issue herein is wholly interpretational in nature and SCN has been issued by way of change of opinion, without finding the ST3 Returns filed to be wrong or erroneous. Accordingly, all penalties imposed are set aside. In view of our aforementioned observations and findings, we allow the Appeal and set aside the Impugned Order. The Appellant shall be entitled to consequential benefits, in accordance with law.