The nature of the transaction and the applicability of legal provisions and circulars in determining the liability for service tax on construction of residential complexes.

R. Sudhakar, J.

1. C.M.A.No.3289 of 2013 is filed against the Misc. Order No.41959 to 41961 of 2013, dated 29.7.2013 passed by the Customs, Excise and Service Tax Appellate Tribunal, Chennai (for brevity, “the Tribunal”).

2. C.M.A.Nos.1419 to 1421 of 2014 are filed against the Final Order Nos.40170 to 40172 to 2014, dated 17.3.2014, passed by the Tribunal.

3.1. The brief facts of the case are as under: The appellant is engaged in the development of residential projects. The relevant period in all these appeals is from April, 2006 to June, 2010.

The Finance Act, 2010, with effect from 1.7.2010, introduced an explanation to Section 65(105) (zzzh) and that brought about a change in the manner in which the business transactions of the assessee was to be considered. During the relevant period, the appellant executed four projects, namely, Sundarbans, Sudarsana, Nakshatra and Inseli Park.

3.2. The Department issued three show cause notices proposing to levy service tax on the ground that the activity undertaken by the assessee is liable to service tax under the category of “Construction of Complex” service as defined under Section 65(30a) of the Finance Act, 1994, as amended. The assessee filed its objections to the show cause notices relying upon various decisions of the Co-ordinate Benches of the Tribunal and the circulars issued by the Department, on the prima facie plea that the activity undertaken by the appellant is in the nature of works contract as defined under Section 65(105)(zzzza) of the Finance Act, 1994. The assessee also pleaded that the nature of transaction in the present case would not attract service tax in terms of the Finance Act, 1994 in view of the various circulars issued from time to time clarifying the position. The assessee specifically relied upon the circular in D.O.F.No.334/1/2010-TRU, dated 26.2.2010, relating to changes and clarifications on service tax law proposed in Union Budget 2010-2011. The relevant portion of the said circular relating to “Service tax on construction services” is extracted hereunder for better clarity:

“8. Service tax on construction services

8.1. The service tax on construction of commercial or industrial construction services was introduced in 2004 and that on construction of complex was introduced in 2005.

8.2 As regards payment made by the prospective buyers/flat owners, in few cases the entire consideration is paid after the residential complex has been fully developed. This is in the nature of outright sale of the immovable property and admittedly no service tax is chargeable on such transfer. However, in most cases, the prospective buyer books a flat before its construction commencement/completion, pays the consideration in instalments and takes possession of the property when the entire consideration is paid and the construction is over.

8.3 In some cases the initial transaction between the buyer and the builder is done through an instrument called ‘Agreement to Sell’. At that stage neither the full consideration is paid nor is there any transfer in ownership of the property although an agreement to ultimately sell the property under settled terms is signed. In other words, the builder continues to remain the legal owner of the property. At the conclusion of the contract and completion of the payments relating thereto, another instrument called ‘Sale Deed’ is executed on payment of appropriate stamp duty. This instrument represents the legal transfer of property from the promoter to the buyer.

8.4 In other places a different pattern is followed. At the initial stage, instruments are created between the promoter and all the prospective buyers (which may include a person who has provided the vacant land for the construction), known as ‘Sale Of Undivided Portion Of The Land’. This instrument transfers the property right to the buyers though it does not demarcate a part of land, which can be associated with a particular buyer. Since the vacant land has lower