Raja Rajeswari Builders @Hash Commissioner Of Central Tax, Secunderabad - GST

This appeal is filed against Order-in-Original No. HYD-EXCUS-002- COM-022-16-17 dt.29.09.2016.

Heard both sides and perused the records. The appellant is a builder engaged in construction of residential flats and are registered with service tax

department under construction of residential complex service and commercial use or exploitation of any event service. They entered into joint

development agreement with owners of residential plots to construct residential building complexes. As per the agreement the land owner gives the

land to the project; the appellant constructions flats on them and gives some flats to the land owner and sells the rest. Thus, there is no cost of land is

paid by the appellant to the land owner and the land owner does not pay anything for the flats given by the builder. The builder, of course, receives

payment when he sells flats to home buyers and has been paying service tax on such amounts. The appellant has not been paying service tax on the

land owner’s portion of flats.

They had filed a declaration under the Voluntary Compliance Encouragement Scheme (VCES) 2013 for payment of service tax under residential

complex services amounting to Rs.15,19,225/- on the land owner’s share of the constructed area in the residential projects undertaken by them.

The VCES had provision whereby the Commissioner of Central Excise, if he has reasons to believe that the declaration made was substantially false,

may serve a notice to the declarant in respect of such declaration. Under this provision, a show cause notice dt.29.12.2014 was served upon the

appellant seeking to reject their classification of the service under construction of residential complex service and instead classifying the same under

the Works Contract Service and after applying the Works Contract Composition Scheme demanding differential duty both on the proposed payment

for land owner’s share as well as payment of service tax on the builder’s share. After following due process, learned Commissioner, by the

impugned order, has confirmed a demand of Rs.88,35,368/- and appropriated an amount of Rs.7,59,613/- paid by the appellant under VCES. He

further appropriated an amount of Rs.33,84,623/- paid earlier as Service Tax on the builder’s share of the flats.

Learned counsel for the appellant submits that now it is settled that no service tax is separately payable on the land owner’s share of flats as no

amount is received by the appellant. In fact, the entire value of these flats including the services rendered on their construction gets subsumed in the

value of the builder’s share of the flats which are sold by the builder. In their case, they have already paid service tax on the builder’s share of

flats. He relies on the decision of this bench in the case of Vasantha Green Projects [2018 (5) TMI 889 â€" CESTAT HYDERABAD] and PNR

Infra India Pvt Ltd [2018 (12) TMI 1243 â€" CESTAT HYDERABAD]. In both these orders, it has been held that the value of the builder’s

share of the flats is the total value of the project and which the service provider receives. This amount includes the value of land, the value of

materials and the services rendered. By taxing the builder’s share of the flats, in effect, the entire project is getting taxed. No separate service tax

needs to be paid again on the land owner’s share of the flats for which no consideration is received by the builder in cash. Therefore, he would

argue, that in the first place, no service tax is payable by them on the land owner’s share of the flats.

On the issue of service being allegedly misclassified under Works Contract Service instead of Construction of Complex service, he draws attention

of the bench to the letter F.No.332/22/2015-TRU dt.05.09.2016 in which it has been clarified that “Construction of Complex Service†is the

appropriate head for classification and not “Works Contract Serviceâ€. He argued that this direction is binding on the officers and learned

Commissioner could not have taken a different view. He further submits that the aforesaid letter also clarifies that in view of the fact that construction

of residential complex services involves not only rendering services and transferring goods but also transferring the immovable property in the form of

undivided share of land an enhanced abatement of 75% is provided. He would submit that if the enhanced abatement available to them is reckoned the

amount of service tax paid by them plus the amount deposited under VCES is more than the amount due from them and the excess amount needs to

be refunded to them.

He further submits that the valuation of the services in the show cause notice is done as per the Works Contract (Composition Scheme for payment

of service tax) Rules, 2007; Rule 3 of which reads as follows:

“Rule 3:-

(1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Ru1es, 2006, the person liable

to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract

service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount

equivalent to two per cent of the gross amount charged for the works contract.â€​

It is evident from the above that the composition scheme is an option given to the assessee and this can only be resorted to when the assessee opts

for it and they have not opted for it. Revenue cannot, on its own, impose this scheme upon them. They are entitled to choose whatever scheme is most

beneficial to them.

Learned departmental representative reiterates the findings in the impugned order. Insofar as Vasantha Green Projects (supra) is concerned, she

would submit that the order of this bench has been appealed against and the appeal is pending before the Hon’ble Supreme Court. On a specific

query from the bench, she confirmed that is has not been stayed.

Having considered rival submissions, we find that the adjudicating authority must be given an opportunity to examine the case in the light of:

(a) The order of this bench in the case of Vasantha Green Projects (supra) and PNR Infra India Pvt Ltd (supra) with respect to the land owner’s

share of the flats.

(b) Letter F.No.332/22/2015-TRU dt.05.09.2016 of TRU regarding classification of work undertaken.

(c) Examine if there is any provision in the Works Contract (Composition Scheme for payment of service tax) Rules, 2007 whereby the department

can, in the absence of any request from the assessee, impose the composition scheme or calculate the amount of service tax based on it.

In view of the above, leaving all issues open, without passing any remarks on the merits of the case, the matter is remanded to the adjudicating

authority to examine afresh with reference to the above three points and pass an order after following principles of natural justice.

The impugned order is set aside and the appeal is allowed by way of remand to the adjudicating authority.

(Pronounced in the open court on 09.11.2020)