Brief Facts of the Case s5
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Brief facts of the case:
M/s Safal Construction Private Limited, B- Safal House, Nr. Tej Motors, B/h. Mirchmasala Restaurant, Off. S G Highway, Ahmedabad ( hereinafter referred to as “M/s SCPL” for the sake of brevity ) are providing the service under the category of Works Contract Service, Construction of Residential Complex Service and Transport of Goods by Road Service which are taxable services as defined under Sub Clause (105) of Section 65 of the Finance Act, 1994. They are holding a valid Service Tax Registration No. AACCS7461CST001.
2. During the course of the audit of M/s SCPL conducted by the officers of audit section of Service Tax Commissionerate, Ahmedabad, it was noticed that M/s SCPL have made a development agreement with the land owners Sameet (Bodakdev) Owners Association, a non trading corporation (herein after referred to as Sameet) and Shri Samprat Co-Operative Housing Society Ltd. Vibhag-II, a society registered under the Gujarat Co-Operative Societies Act, 1961, (herein after referred to as Samprat) to develop and build the residential scheme in the name and style of Samprat Residency-II. Accordingly, M/s SCPL developed and built the residential scheme on the land owned by Sameet and Samprat. However, it appeared that they have not paid service tax for the construction of residential complex known as Samprat Residency –II under the category of residential complex service.
3. Further, during the course of Audit it was noticed that there was a co- development agreement dated 1.11.2006 between M/s SCPL, M/s Safal Infrastructure Pvt. Ltd., (now known as M/s Safal Realty Pvt Ltd ) and M/s Pegasus Commercial Co-op Society Ltd., for joint development of Pegasus Commercial Complex (herein after referred to as Pegasus). It is revealed from the said agreement more specifically from Para 6.2 that M/s SCPL carried out the limited activities of marketing and liasoning etc., for the project with the Government Departments and follow up with sanctioning authorities and obtaining all licenses, approvals, permissions, consents, no objections certificates, etc., for implementing the Pegasus Commercial Complex. These facts were also admitted by Shri Maharshi Umeshbhai Shah, Senior Accountant of M/s SCPL in his statement dated 30.9.2011. Therefore, it appeared that M/s SCPL was supporting the business of M/s SIPL (now known as M/s Safal Realty Pvt Ltd) in those areas where, M/s SIPL (now known as M/s Safal Realty Pvt Ltd) had less experience. Hence the services provided by M/s SCPL to M/s SIPL (now known as M/s Safal Realty Pvt Ltd) appeared to be classifiable and taxable under the category of “Support Service for Business and Commerce” as defined under the Finance Act,1994. However, M/s SCPL did not pay service tax on the income received from M/s Safal Realty Pvt. Ltd under the category of Business Support Service.
4. Statement of Shri Maharshi Umeshbhai Shah, Senior Accountant of M/s SCPL duly authorized by the Director vide his letter dated 29.09.2011 was recorded on 30.09.2011. Shri Maharshi Umeshbhai Shah in his said statement inter-alia stated that they got themselves registered with the department for ‘Works Contract Service’ and Transport of Goods Service in 2007 and have added one more service namely Construction of Residential Complex in their existing registration in that year. They have undertaken only one project i.e., Sumel Business Park-1 near New cloth market, Kalupur, Ahmedabad under the category of ‘Works Contract Service’. Whereas, under the category of Construction of Residential Complexes, they have undertaken one project, Samprat Residency-II which is already completed and presently they are carrying out two projects in this category firstly Samprat Residency at Shilaj, Ahmedabad and the second one is Paarijat at Bodakdev, Ahmedabad. On being shown the Development agreement 2 between Sameet (Bodakdev) Owners Association, Shri Samprat Co-operative Housing Society Ltd. Vibhag-II and Safal Construction Pvt. Ltd, he stated that they developed and built the residential scheme on the land owned by “the land owners” Sameet (Bodakdev) Owners Association and Shri Samprat Co-operative Housing Society Ltd. Vibhag-II. They had also obtained plan approval as per the specification and details of the proposed project from the concerned local authority. They arranged for building materials, articles and things as required for the purpose of putting up the project and construction. They also obtained all and every permission, certificates etc., from the concerned authorities under the applicable provisions of laws and for the other matters relating to the implementation of the project. They also advertised the project by pamphlets, broachers, publishing advertisements in news papers, magazines etc., by putting sign-boards, neon signs on the said lands or at other places, and they invited members and prospective acquirers to the site of project. They engaged the services of the Architect, Engineers, Supervisors, Labour Contractors, Chartered Accountants, Legal Advisor and other persons for all or any of the purposes of the project. He further stated that for the construction of the Samprat Residency-II, the expenses have been booked in the name of Sameet (Bodakdev) Owners Association and incurred by M/s Safal Construction Pvt. Ltd. The advances received from the purchasers/members of the society were deposited in the account of Sameet (Bodakdev) Owners Association and the expenses of the construction of Samprat Residency-II were incurred by M/s Safal Construction Pvt. Ltd. On being shown the Allotment Cum Sale Deed of Flat No. 302 in Samprat Residency-II, he stated that as per Allotment Cum Sale Deed between Vendors (Sameet (Bodakdev) Owners Association and Shri Samprat Co-operative Housing Society Ltd., Vibhag-II) and Developers (M/s Safal Construction Pvt. Ltd) agreed to sell to the purchaser Shri Sunil Kumar Gambhir (HUF) Flat No. 302 in Samprat Residency-II at a price of Rs. 47,25,000/-. The vendors allotted, granted, transferred and assured unto the purchaser membership of the society and association and all that premises of unit/flat, proportionate undivided land to the use and benefit of the purchasers forever as members of the vendor society and association by way of allotment. Thereafter, he was shown ledger account of M/s Sameet (Bodakdev) Owners Association for the period F.Y. 2006 -07 to 2008-09 and was requested to give and explain the details of debit and credit entries for which he stated that these entries are in the nature of financial transaction carried out during the year 2006 -07 to 2008-09 between Sameet (Bodakdev) Owners Association and M/s Safal Construction Pvt. Ltd. He stated that when Sameet (Bodakdev) Owners Association was in need of the funds M/s Safal Construction Pvt. Ltd., transferred the funds to M/s Sameet (Bodakdev) Owners Association and later on they recovered the same. He further stated that the entry of (Development Income A/c) in their ledger accountant is income received by them from M/s Sameet (Bodakdev) Owners Association which is the difference between the amount received from members and expenditure incurred on the project.
On being asked to give clarification with regard to Co-development Agreement dated 01.11.2006 between Safal Infrastructure Pvt. Ltd, Safal Construction Pvt. Ltd and Pegasus Commercial Co- Op. Society Ltd., he stated that as it was not possible for M/s Safal Infrastructure Pvt. Ltd. to handle the scheme alone by themselves and as M/s Safal Construction Pvt. Ltd. had experience of marketing, liasoning etc., with the Government Department and follow up with the sanctioning authorities, etc., M/s Safal Infrastructure Pvt. Ltd., contacted them as they were in the line of development and construction since many years and requested them to Join with M/s SIPL as co-developer of the said project and complete the scheme for which they gave their consent. As mentioned in the said agreement, he deposed that following functions were carried out by M/s Safal Construction Pvt Ltd as a Co-developer: - 3
(i) They obtained all licenses, approvals, permissions, consents, no objections certificates, etc. as required according to the laws legally applicable in connection with undertaking and implementing the proposed scheme.
(ii) They looked after and took care of all the legal procedural aspects including getting the plans modified, to meet the requirements laid down by the competent authorities. They also got amended plans as and when required for the said scheme through Architects, Structural Engineers or other consultants and did necessary follow up work for getting the plans sanctioned. They carried out the activities of advertisements and marketing of the scheme. As they have experience in liasoning and marketing, they provided their skill for business support in the form of liasoning to obtain various licenses, approvals, permissions, consents, no objections certificates, etc.,
(iii) They have not carried out any construction activity as co-developer. Their role was restricted to above mentioned activities only.
He further stated that they have not collected any sale proceeds from prospective purchasers eventhough auhorized to do so as per para 13 of co-development agreement. He further stated that in consideration of the contribution, expertise and experience of M/s SCPL, M/s Safal Infrastructure Pvt. Ltd. shared the gross income in the ratio of 75% and 25% respectively between M/s Safal Infrastructure Pvt. Ltd. and M/s SCPL from their Profit and Loss account after deduction of expenses relating to building construction. He further stated that M/s Safal Construction Pvt. Ltd. have made payment to Safal Realty Pvt. Ltd. as per their needs and later on recovered the same. They have only got the share of co- developer for their contribution and the expertise and experience provided to M/s Safal Infrastructure Pvt. Ltd.
5. The matter was taken up by the audit party with M/s SCPL and clarification and reasons for non payment of service tax were sought from M/s SCPL. M/s SCPL vide their letter dated 31.01.2011 tried to explain about the activities carried out by them and the various incomes shown in their balance sheet. The details of various incomes explained by them are as under:- TABLE ‘A’ (Amount in Rs.) Title of income Sl. Income Period as shown in the Remarks No. (in Rs.) balance sheet Co-Developer 1,27,72,637 Profit on development of 1 2006-07 Income scheme named PEGASUS as Co-developer Development 1,70,99,138 Rs 16550218 profit on Income development of scheme 2 2006-07 SAMPRAT Residency-II. Rs 548920/- construction income Income from 1,99,23,316 Rs 4836245 profit of operation SAMPRAT-II, Rs. 3 2007-08 15087071 profit of scheme PEGASUS 4 2007-08 Other Income 3,98,149 Interest on FD Income from 71,64,446 Rs 4877522 profit from operation scheme SAMPRAT- II and 5 2009-09 Rs 2286924/- profit from scheme PEGASUS 4
Other. Income 41,70,227 Rs 3267300/- interest income, Rs 368930/- 6 2008-09 Dividend income, Rs 385906 Kasar-Vatav, Rs 148091/- sale of scrap 7 2008-09 Misc Income 148091 Rs 148091/- sale of scrap Misc Income 495331 Rs 329607 sale of scrap, Rs 133431 Sundry credits bills 8 2009-10 written off, Rs 32293/- Insurance Income
5(i) It appeared from the above table that the income shown in the above table at Sl. No. 4,6,7 and 8 as is evident from the balance sheet that the said income were related to interest, dividend, sale of scrap and insurance, kasar- vatav and written off dues meant to be paid to others.
5(ii) As regard to the income at Sl No. 2,3,5 of the table ‘A’ it is clarified by M/s SCPL that the incomes of Rs.1,65,50,218/- (06-07) Rs.48,36,245/- (07-08) and Rs.48,77,522/- (08-09) shown in the balance sheet were in relation to development of Samprat-II undertaken up by them.
6. However, on verification of records and statement of the Senior Accountant it appeared that in the instant case, M/s SCPL had rendered the service of Construction of Residential Complex to M/s Sameet and M/s Samprat, the owners of the land. Thus, it appeared that in real sense M/s SCPL is a service provider and M/s Sameet and M/s Samprat are the service receivers and the ultimate buyers of the flats/dwelling units, by the virtue of purchase of dwelling units became the members of the society.
7. It was also evident from the copy of certificate termed as “7 &12” issued by the land revenue officer that land was in the name of M/s Shree Samprat Co-op Housing Society, M/s Sameet (Bodakdev) Owners Association and not in the name of M/s SCPL. Thus, it appeared that the said Development Agreement was nothing but a power of attorney for smooth and speedy activities of construction and other construction related activities and two parties were separate entities as service provider and service receiver.
8. Further it also appeared from the “Development Permission” dated 12.5.2008 issued by the Ahmedabad Urban Development Authority (AUDA) that it was in the name of a society M/s Lintas Owners Association and not in the name of M/s SCPL. Thus, M/s SCPL were not the owner’s of the land and they have acted as service provider only. It, therefore, appeared that though the agreements were made for transfer and development of land, the land remained in the name of societies concerned and the transfer was merely for the speedy and expeditious implementation of the scheme. M/s SCPL had invested their own money in the scheme and charged the same from the members of the society together with the cost of land from the buyers (members of the society) of dwelling units and passed on the cost of land to the society concerned. Thus, it appeared that it is not self service but service rendered to the Society and Association concerned. Also, no evidence has been brought on records to show that the 7/12 UTARA (STATE’s LAND RECORDS SHOWING OWNERSHIP OF THE LAND) was in favour M/s SCPL. However, as discussed above, a copy of 7/12 Utara on record appeared to reveal that the land, which has been developed by M/s SCPL under construction Service was owned by M/s Shri Samprat Co-Op Housing Society etc and not by M/s SCPL and therefore, the land developed by M/s SCPL was not of their own but was that of society concerned. The service was provided by M/s SCPL and the same was received by the aforesaid society and non trading corporation. 5
9. On perusal of one of the Registered sale deed dated 3.2.2009 made by the ultimate buyer of Flat No. 302 of Samprat Residency-II revealed that the buyer was one Shri Sunil Kumar Gambhir and in the column of seller the following names appeared:
i) M/s Sameet (Bodekdev) Owners Association; ii) M/s Shree Samprat Co-op Housing Society Ltd, Vibhag-2; iii) However the name M/s Safal Construction Private Limited marked as Developer i.e (the said service provider).
10. “Construction of Complex Service” 10.1 From the Deed of Sale by Allotment entered between M/s Sameet (Bodakdev) Owners Association, M/s Shree Samprat Co-Operative Housing Society Ltd., M/s Safal Construction Private Limited jointly with Mr.Sunilkumar Gambhir(HUF), it appeared that the sale was not made alone by M/s SCPL but the names of the Association (Sameet) and the society (Samprat) were appearing as vendors. Thus, it appeared that M/s SCPL was only an agent of Sameet and Samprat, who had provided service of construction and also marketing of the Samprat Residency -II.
10.2 From the above facts and discussion, it appeared that society and Association were the service receivers and M/s SCPL was the service provider. The consideration for the services provided was paid by the members (whether old members or new members inducted by M/s SCPL) to the society. This fact is evident from clause 6 of the said agreement which states that “ To get finance or make arrangement that may be required for the purpose of the project and all other purposes relating to the same and to claim reimbursement thereof from the society out of the moneys that may be received from prospective acquirers of the premises in the project and in the mean time may arrange from other sources.” The provisions related to service tax are clear that consideration received towards service rendered are taxable and it appeared that in the instant case the members of society have paid money to the society who in turn had paid to the service provider namely M/s SCPL. The total amount so charged and received from the members appeared as the taxable value and liable to service tax under the category of “Construction of complex service”.
10.3 However, in the instant case, M/s Sameet and M/s Samprat who are owning the land, hired the service of M/s SCPL who have constructed more than 12 residential units, the activity carried out by M/s SCPL became taxable service under Construction of Complex Service as defined under Section 65 (105) (zzzh) of the Finance Act.
10.4 M/s SCPL vide their letter dated 23.9.2011 submitted the details of amount received from members for the year 2006-07 to 2009-10. Accordingly, Service tax liability had been worked out after giving the abatement of 67% from the gross amount of Rs.11,50,88,018/- as per Notification No. 1/2006 ST. For the purpose of this notification the total amount received from the members is the value from which the taxable value has to be arrived after giving abatement of 67 %. Therefore the remaining 33% value shall be the taxable value under section 67 of the Finance Act, 1994 liable to service tax. The total service tax liability is worked out as shown in Annexure A to this show cause notice.
12. Support Service for Business and Commerce:-
12.1 As discussed in para 3 and 4 above, M/s SCPL on the basis of a Co- development agreement provided their skilled business support in the form of liasoning to obtain various licenses, approvals, permissions, consents, no 6 objections certificates, etc. as required for implementing the proposed scheme i.e. Pegasus Commercial Complex. They only looked after and took care of all the legal procedural aspects including getting the plans modified; that they also got amended plans as and when required for the said scheme through Architects, Structural engineers or other consultants and did necessary follow up work for getting the plans sanctioned. They also carried out the activities of advertisements and marketing of the scheme. In his statement dated 30.09.2011 Shri Maharshi Shah senior accountant of M/s SCPL stated that they did not carry out any construction as a Co- developer and their activities were restricted to the activities mentioned in Co- development agreement and they received remuneration only for the activities as mentioned in the Co- development agreement from M/s SIPL(Now known as M/s Safal Realty Pvt Ltd).
12.4 The service provided by M/s SCPL to M/s Safal Realty Pvt. Ltd appeared to be classifiable under the taxable category of “support services of business or commerce” as defined under section 65 104( c) of the Finance Act, 1994 which is reproduced herewith.
“ support services of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.
Explanation.—For the purposes of this clause, the expression “infrastructural support services” includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security.”
The said service is made taxable vide section 65(105)(zzzq) of the Finance Act,1994. The said section is reproduced as under.
65(105)(zzzq) the Taxable service means service provided to any person, by any other person, in relation to support services of business or commerce, in any manner;
12.5 In consideration of their contribution and the expertise and experience M/s SCPL got share of 25% from the gross income of M/s Safal Realty Pvt. Ltd from their Profit and Loss account after deduction of expenses relating to construction of Pegasus Commercial Complex. Thus, the remuneration received by M/s SCPL from M/s Safal Realty Pvt. Ltd is the taxable value of “support services of business or commerce” provided by them. Hence the amount of Rs.3,01,46,572/- as per the copy of ledger account of ‘Safal Realty Pvt Ltd (Pegasus) received during the F.Y. 2006-07 to 2008-09 as a remuneration by M/s SCPL is the taxable services. A worksheet showing the service tax liability is attached to the Show Cause Notice as Annexure – B.
13. Section 68 of the Finance Act, 1994 provides that every person providing taxable service to any person shall pay service tax at the specified rates and in such manner and within such period as may be prescribed. Further, Rule 6 of the service tax rule, 1994 stipulates that service tax shall be paid to the credit of the Central Government, by the 5th of the month immediately following the calendar month, in which the payments are received, towards the value of taxable services. M/s SCPL has contravened the provisions of the said section as they have failed to 7 make the payment of service tax amounting to Rs.83,28,737/-including Ed. Cess and Sec. and Higher Ed. Cess as explained in foregoing para for the services provided during the Year 2006-07 and 2010-11 to the credit of the Government within stipulated time limit.
14. Section 70 of the Finance Act, 1994, provides that every person liable to pay the service tax shall himself assess the tax due on the service provided by him and shall furnish to the Superintendent of Central Excise, a return in such from and in such manner and at such frequency as may be prescribed. Rule 7 of the Services Tax Rules, 1994, prescribes that every assessee shall submit a half-yearly return in from ST-3 or ST-3A as the case may be, alongwith a copy of the Form TR-6, in triplicate for the months covered in the half-yearly returns. Further sub- rule [2] thereto also provides that every assessee shall submit the half yearly return by the 25th of the month following the particular half-year. M/s SCPL has contravened the provisions of the said section in as much as they had not shown any amount received against Construction of Residential Complex and Business Support Service during the period F.Y. 2006-07 to 2010-11 and failed to self assessee service tax liability under the category Construction of Residential Complex and Business Support Service.
15. The short payment of service tax was detected during the course of audit on the basis of books of account and the agreements executed by M/s SCPL. The said details/documents were never provided by M/s SCPL along with his ST-3 return or at any other time. Had the same not been detected during audit, the same would have gone undetected. Therefore, there is a definite element of suppression on the part of M/s SCPL. All the above acts of contravention of Finance Act, 1994, as amended and Rules made there under, on the part of the said assessee appeared to have been committed by way of suppression of facts with an intent to evade payment of Service Tax and, therefore, the said Service Tax not paid is required to be demanded and recovered from them under the proviso of section 73 of the Finance Act, 1994 by invoking extended period 5 years. All these acts of contravention of the provisions of Section 68, and Section 70 of the Finance Act, 1994 as amended, read with Rule 6, 4 and 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of Section 76, Section 77 and Section 78 of the Finance Act, 1994 as amended from time to time.
16. Moreover, in addition to the above contravention, omission and commissions on the part of the M/s SCPL as stated in the foregoing paras, it appeared that, they have willfully suppressed the facts, with an intent to evade the payment of Service Tax, rendering themselves liable for penalty under Section 78 of the Finance Act, 1994.
17. Scrutiny of ST-3 returns filed by the said assessee during the corresponding period revealed that the said assessee has not declared the amount received in their ST-3 returns nor discharged their Service Tax liabilities as discussed in the foregoing paras of this Show Cause Notice. From the evidence, it appeared that the said service provider had not taken into account all these incomes received by them for rendering taxable services for the purpose of self assessment and payment of applicable service tax and thereby not complied their tax liabilities. It appeared that the deliberate efforts to mis-declare the value of taxable service in ST-3 Returns and not paying the correct amount of service tax is utter disregard to the requirements of law and breach of trust deposed on them is certainly not in tune with Governments efforts in the direction to create a voluntary tax compliance regime. 8
18. The failure on the part of the said assessee to make the payment of service tax attracts penalty under Sec. 76 in addition to the interest payable under Sec. 75 of the Finance Act, 1994.
19. Therefore, M/s Safal Construction Private Limited, B- Safal House, Nr. Tej Motors, B/h. Mirchmasala Restaurant, Off. S G Highway, Ahmedabad were called upon vide SCN F.No. STC/4-82/O&A/11-12 dated 21.10.2011 to show cause to the Commissioner, Service Tax, Ahmedabad, situated at 1st Floor, Central Excise Bhavan, Near- Polytechnic, Ambawadi, Ahmedabad-15 as to why:
(i) The amount of Rs. 3,79,79,046/- arrived at after allowing abatement of 67% on Rs.11,50,88,018/-, (the total amount received from the members), as worked out in Annexure A should not be considered as taxable value under the category of ‘Construction of Complex Service’
(ii) The service tax amounting to Rs. 46,65,051/-on the total taxable value of Rs. 3,79,79,046/- for providing ‘Construction of Complex Service’, should not be demanded under proviso to Section 73(1) of the Finance Act, 1994.
(iii) The amount of taxable value of Rs. 3,01,46,632/- received by them from M/s Safal Realty Pvt. Ltd for providing service under the category of “support services of business or commerce” should not be considered as taxable value under the said category.
(iv) The service tax amounting to Rs. 36,63,686/-on the total taxable value of Rs. 3,01,46,632/- received by them for providing “support services of business or commerce” should not be demanded under proviso to Section 73(1) of the Finance Act, 1994.
(v) Interest at the prescribed rate should not be recovered from them under the provisions of Section 75 of the Finance Act, 1994 as amended from time to time.
(vi) Penalty under Section 76 of the Finance Act, 1994 should not be imposed on them in as much as they failed to pay service Tax within the stipulated time frame as mentioned hereinabove.
(vii) Penalty under Section 77(1)(a) of the Finance Act, 1994 as amended should not be imposed on them as they failed to obtain service tax registration under the category of ‘Business support service’ and ‘Construction of residential complex’ under Section 69 read with Rule 4 of Service Tax Rules 1994.
(viii) Penalty should not be imposed on them under Section 77(2) of the Act as they did not file the Service Tax Returns under the category of ‘Business support service’ and ‘Construction of residential complex’ as required under Section 70 read with Rule 7 of the Service Tax Rules, 1994.
(ix) Penalty under Section 78 of the Finance Act, 1994 as amended should not be imposed on them for suppressing and not disclosing the value of the said taxable service provided by them before the department with intent to evade payment of service tax as mentioned above. 9
Defence Reply & Personal Hearing:
20. M/s SCPL did not file any defence reply to the show cause notice. A personal hearing was fixed for 29.5.2012 which was adjourned to 4.6.2012 on the request of M/s SCPL. Shri Dinesh P. Bhavsar, Chartered Accountant appeared on behalf of M/s SCPL and explained the legal as well as factual position of the case. He also submitted a written submission by way of reply to the show cause notice. He was given the option of adjournment as the undersigned is under order of transfer but he requested for hearing and if possible early adjudication.
21. They referred to the following statutory provisions and circulars:
i) Definition of “Construction of Complex Services” ii) Definition of “Support Service of Business Services” iii) Circular No. 80/2004-ST, dated 17-09-2004 iv) Circular No. 96/7/2007-ST, dated 23.08.2007 v) Circular No. 108/02/2009 ST. dated 29.01.2009 vi) Circular No. 151/2/2012-ST,dated 10.02.2012 vii) Trade notice No. VGN/(30)80/Trade Notice/10/Pune, dated 15-2-2011 issued by Pune Commissionorate viii) Circular No. DOF.334/4/2006 dated 28-2-2006 ix) Section 73,75,76,77 & 78 of Finance Act, 1994 x) Rule 6(1) of Service Tax Rules, 1994
22. As regard to Construction of complex services (Samprat Residency II) the factual position was clarified as under;
22.1 In order to develop a Residential Scheme the noticee M/s SCPL had identified a piece of land. The noticee formed a co-op. housing society of which Shri Rupesh Brahmbhatt, Director of the Noticee was the president. Since society had no means of finance, the noticee arranged the fund of Rs. 80,55,000/- as under
Rs. Name Remark
12,00,000 Uday Vora Director of the Company
68,55,000 Dhiren Vora Director of the Company
Copies of accounts were enclosed.
22.2 Out of the said funds the society made payments to land owner viz. Maganbhai Desai Sanman Trust as under :
Rs. 12,07,650/- D.D. No. 118904 Dt.26.12.2005 of HDFC Bank. Rs. 68,43,350/- D.D. No. 171657 Dt. 06.01.2006 HDFC Bank. Rs. 80,51,000/-
The said payment is reflected in the land purchase deed which was enclosed with the written submission. They submitted that entire payment for purchase of land was arranged by the noticee.
22.3 It was further submitted that another land was purchased in the name of Sameet (Bodakdev) Owner Association and Shri Uday Vora, Director of the Company was the chairman of said NTC. Copy of purchase deed was enclosed along with the written submission. In order to make the payment of land funds were arranged by Noticee as under :- 10
Rs.63,00,000/- 06.10.2004 from Hasmukh N. Vora father of the Director viz Dhiren Vora Copy of accounts was enclosed along with the written submission.
Out of the above fund, Rs. 60,57,505/- was paid to land owner on 06.10.2004 by ch. no. 306351 Dt. 07.10.2004 , BOI.
Thus entire payment of both lands was arranged by the noticee.
22.4 It was further submitted that the noticee, M/s SCPL could have executed purchase deed of land in its name. But as advised by legal consultant, in order to pass a good title of the property, Noticee got the sale deed executed in the name of society of which chairman / secretary were the Directors of the Noticee. Thereafter, the Noticee entered in to an agreement jointly with Sameet (Bodakdev) Owners Association and Shree Samprat Co-Op. Housing Society Ltd. Vibhag-II in respect of Development and construction of Residence Scheme Viz Samprat Residency –II. A copy of such agreement was enclosed along with the written submission.
22.5 They referred to the Main Terms and conditions of the agreement as under :
Clause No. 4: “The developer shall be entitled to sell, allot or otherwise in any other manner dispose of the premises and generally any part of the project, and any areas, spaces, rights, interests, benefits, privileges, amenities, facilities and services of the project and to give possession thereof to the prospective acquirers.”
Clause No. 7 “All liabilities and responsibilities under this agreement shall be solely of the developer. The developer confirms having received the possession of the said lands as licencee from the society in conformity with this agreement. The entire development work shall be carried out by the Developer at its own costs and expenses.
Clause No. O “ The profit or loss that may arise out of the project will belong to the developer. All surpluses that may be received in addition to the cost of the project from the members – prospective members of the Residential units shall absolutely belong to the developer as its profit. All the loss or deficiency shall also be borne and paid by the developer.”
In view of this they submitted that thus, no consideration was payable by the NTC/Society to the Developer nor any amount was payable by Developer to society. They carried out the Development and construction of the scheme as a whole through society.
22.6 After completion of individual units, deed of sale by allotment was executed by paying proper stamp duty, in favour of purchaser as a whole unit without recovering the cost of land separately from members. A copy of such sale deed was enclosed along with the written submission. The difference between the members contribution and expenditure was taken by the noticee as its profit under the terms and conditions of the agreement as per working given at Annexure-“G” along with the written submission.
23. Regarding Commercial or industrial construction service of Pegasus Commercial Complex they clarified factual position as under; 11
23.1 Pegasus commercial Co-op. Society Ltd. (comm. society) had entered in to an agreement jointly with Safal Infrastructure (P) Ltd. and Safal Construction Private Limited. (the Noticee) in respect of Development and construction of the scheme viz. Pegasus. Copy of the agreement was enclosed along with the written submission. Under the said agreement jobs and factions of both co-developers were determined and accordingly their respective shares were determined.
23.2 Vide clause No. 2 of the agreement it was specifically decided that agreement for joint development shall not constitute partnership and neither shall be an agent of anybody. In other word both developers were working as principal for common objects under the agreement. Accordingly the noticee and Safal Infrastructure P. Ltd. carried out their agreed jobs and functions and completed the scheme and shared the profit as determined in the agreement.
24. With regard to Construction of Complex – Samprat Residency – II they submitted that it has been proposed to charge and recover the service tax from the Noticee under the category of “construction of complex service” on following findings against which, denying the contention of the show cause notice they had given their comments / justification as under:
Findings Comments / Justification 1. Development permission was 1. This itself proves that the noticee issued in the name of society was a developer and taking into and SCPL consideration the various circulars and H.C. judgment quoted not liable to S. T. 2 Noticee was not owner of the 2 Ownership of land is not a statutory land and have acted as service requirement. Noticee did not acted a provider Service provider. Had it been so it would have charged its fees and that too under an agreement neither noticee nor society are liable to pay any amount to anybody.
3. Noticee invested its own money 3. Of course, the notice invested its own in the scheme and charged the funds as discussed in the facts of the same to the members of the case, but noticee has not charged society. either to members or society for construction of complex, but sold dully constructed unit. 4. The consideration for the service 4. The consideration was paid towards provided was paid by the sale of constructed units. members to the society. 5. In the instant case it appears that 5. The Finding of the investigation is members of society have paid factually wrong. money to society which in turn has paid to Noticee 6. It appears that said Dev. 6. If it is a POA then obviously it was Agreement is nothing but POA purely on account of society and for smooth and speedy noticee has nothing to do with S. T. activities.
25. It was further submitted that before discussing the concept of ‘ownership’ and also the issue whether construction is on their own account or not, and other legal submissions, they drew attention to the various circulars issued by Department and submitted that it is an undisputed and admitted fact that Noticee is a Developer and it is also an undisputed fact that the risk of rise and 12 reward of fall and rise in price is on account of the Noticee. With this background, they further submited that the relevant paras of the following circulars reproduced herein below are directly applicable to Noticee.
(A) Relevant extracts of Circular F.No.B1/ 6 /2005-TRU, dated 27th July, 2005 stated as under:
13. Construction of residential complexes
13.1 Any service provided or to be provided to any person, by any other person, in relation to construction of complex is taxable under sub-clause (zzzh) of section 65(105) of the Finance Act, 1994. "Construction of complex" has been defined under clause (30a) of section 65 of the Finance Act, 1994. 'Residential complex" has been defined under clause (91a) of section 65 of the Finance Act, 1994.
13.2 Construction of new building or civil structures used for commercial or industrial purposes and repair, alteration or restoration activities of such buildings or civil structures is liable to service tax since 2004. In this year's budget the construction of new residential complex or a part thereof is also covered under service tax. The term of "construction of complex" is defined under section 65 (30a) of the Finance Act 1994. It covers,-
construction of a new residential complex;
completion and finishing services in relation to a residential complex, whether or not new; repair, alteration, etc., in relation to residential complex, whether or not new.
13.3 This service would generally cover construction services in respect of residential complexes developed by builders, promoters or developers. Such residential complexes are normally constructed after obtaining approval of the statutory authority for their layout.
(B) Relevant extracts of Circular F. No. 332/35/2006-TRU dated 1-8-2006 stated as under: Subject: Clarification on applicability of service tax on real estate developers / builders - Regarding. Please refer to your letter dated 21.06.06 on the above subject. 2. I have been directed to state the following relating to levy of service tax on "construction of complex" service falling under section 65(105)(zzzh) and "commercial or industrial construction" service falling under section 65(105)(zzq) of the Finance Act, 1994: Sr. Issue Legal Position No. 1 Is service tax applicable onIn a case where the builder, promoter or Builder, Promoter ordeveloper builds a residential complex, having Developer who builds amore than 12 residential units, by engaging a residential complex with thecontractor for construction of such residential services of his own staff andcomplex, the contractor shall be liable to pay employing direct labour orservice tax on the gross amount charged for petty labour contractorsthe construction services provided, to the whose total bill does notbuilder / promoter / developer under 13
Sr. Issue Legal Position No. increase 4.0 lacs in one F/Y. 'construction of complex' service falling under section 65(105)(zzzh) of the Finance Act, 1994. If no other person is engaged for construction work and the builder / promoter / developer undertakes construction work on his own without engaging the services of any other person, then in such cases in the absence of service provider and service recipient relationship, the question of providing taxable service to any person by any other person does not arise. Service tax exemption for small service providers upto an aggregate value of taxable services of Rs. 4 lakh provided in any financial year vide notification No. 6/2005-Service Tax dated 01.03.05 is applicable for 'construction of complex' service also. 2 Again will service tax beCommercial complex does not fall within the applicable on the same, inscope of "residential complex intended for case he constructspersonal use". Hence, service provided for commercial complex forconstruction of commercial complex is leviable himself for putting it on rentto service tax. or sale. 3 Will the construction of anClarified vide F. No. B1/6/2005-TRU dated individual house or a27.07.05, that residential complex constructed bungalow meant forby an individual, intended for personal use as residence of an individualresidence and constructed by directly availing fall in purview of serviceservices of a construction service provider, is tax, is so, whosenot liable to service tax. responsibility is there for payment.
(C) Circular no. 96/7/2007-ST dated 23-8-2007 in the reference code 079.01/23.08.07 stated as under:
Reference Issue Clarification Code (1) (2) (3) 079.01 / Whether service tax is(a) In a case where the builder, promoter, 23.08.07 liable under constructiondeveloper or any such person builds a of complex serviceresidential complex, having more than 12 [section 65(105)(zzzh)]residential units, by engaging a on builder, promoter,contractor for construction of the said developer or any suchresidential complex, the contractor in his person,- capacity as a taxable service provider (to (a) who gets the complexthe builder / promoter / developer / any built by engaging thesuch person) shall be liable to pay service services of a separatetax on the gross amount charged for the contractor, and construction services under 'construction (b) who builds theof complex' service [section 65(105) residential complex on(zzzh)]. his own by employing(b) If no other person is engaged for direct labour? construction work and the builder / promoter / developer / any such person 14
Reference Issue Clarification Code (1) (2) (3) undertakes construction work on his own without engaging the services of any other person, then in such cases,- (i) service provider and service recipient relationship does not exist, (ii) services provided are in the nature of self-supply of services. Hence, in the absence of service provider and service recipient relationship and the services provided are in the nature of self- supply of services, the question of providing taxable service to any person by any other person does not arise.
(D) The relevant extracts of Circular No.108/02/2009 – ST dated 29.01.2009 has been reproduced as under:
2. A view has been expressed that once an agreement of sale is entered into with the buyer for a unit in a residential complex, he becomes the owner of the residential unit and subsequent activity of a builder for construction of residential unit is a service of 'construction of residential complex' to the customer and hence service tax would be applicable to it. A contrary view has been expressed arguing that where a buyer makes construction linked payment after entering into agreement to sell, the nature of transaction is not a service but that of a sale. Where a buyer enters into an agreement to get a fully constructed residential unit, the transaction of sale is completed only after complete construction of the residential unit. Till the completion of the construction activity, the property belongs to the builder or promoter and any service provided by him towards construction is in the nature of self service. It has also been argued that even if it is taken that service is provided to the customer, a single residential unit bought by the individual customer would not fall in the definition of 'residential complex' as defined for the purposes of levy of service tax and hence construction of it would not attract service tax.
3. The matter has been examined by the Board. Generally, the Initial agreement between the promoters / builders / developers and the ultimate owner is in the nature of 'agreement to sell'. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). 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. Therefore, 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.
25.1 They submitted that one of the grounds raised against the noticee is that they had constructed on behalf of the society and / or members, but it may be noted that this is factually incorrect. The building up of the property is on account of the Noticee. The rise and fall in price is also on account of Noticee. Building 15
is not constructed for and on behalf of the society. Society has not given any remuneration or consideration to the Developer. So in fact, construction was carried out by the contractor and this very situation has been visualized and has been described in the circular and therefore they fall squarely within the ambit of circular, which is binding to the Department. Noticee had engaged the contractor for real construction work. This itself proves that Noticee is a developer within the meaning of Circular.
25.2 With regard to the ownership it was submitted that from the interpretation of Development Agreement, Deed of confirmation and Purchase Deed of land, which are very well on the record of the Department, it can be verified that for all practical purposes, Developer is the absolute owner of the land. This view is supported by Hon. Supreme Court and various High Courts in various judgments which are narrated below. However, it is necessary to refer the provisions contained in Transfer of Property Act, 1882. Relevant provisions are reproduced below:-
Section 53A of Transfer of Property Act, 1882 : “53.A Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty.
and the transferee has in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,
and the transferee has performed or is wiling to perform his part of the contract, then, notwithstanding that the contract, though required to be registered, has not been registered or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession other than a right expressly provided by the terms of the contract.
Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.”
(i) The Hon'ble Supreme Court in the case of Tamilnadu Civil Supplies Corporation Ltd : 249 ITR 214 [S.C.] has observed as under:-
“The assessee before it had purchased certain houses from the housing board and had made part payment thereof. It had acquired possession of the houses but the deed of conveyance was not executed until after the financial year in question. Even so, the assessee’s claim for depreciation of the buildings, which it had used for the purpose of its business, was upheld on the basis that it has acquired domination over the buildings.” 16
(ii) The Hon'ble Supreme Court in the case of Mysore Minerals Ltd.: 239 ITR 775 [S.C.] relying upon the decision of CIT vs. Poddar Cement P. LTd. [1997] (226 ITR 625) [S.C.] has elaborately discussed and defined the word ‘owner’ and has finally held as under:-
“What is ownership ? The terms “own”, “ownership” “owned” are generic and relative terms. They have a wide and also a narrow connotation, the meaning would depend on the context in which the terms are used Black’s Law Dictionary [6th edition], defines “owner” as under:-
“Owner, The person in whom is vested the ownership, dominion, or title of property, proprietor. He who has dominion of a thing, real or personal, corporate or incorporated, which he has a right to do with as he pleases, even to spoil or destroy it as far as law permits, unless he be prevented by some agreement or covenants which restrains his right.
The primary meaning of the word as applied to land is one who owns the fee and who has the right to dispose of the property, but the term also includes one having a possessory right to land or the person occupying or cultivating it.
In the same dictionary, the term “ownership” has been defined to mean, inter alia, a “collection of rights to use and enjoy property, including right to transmit it to others. The right of one or more persons to possess and use a thing to the exclusion of others. `
In State of UP v. Renusagar Power Company [1991] 70 Comp Cas 127, 149 [SC] is, was held that “The word ‘own’ is a generic term, embracing within itself several gradations of title, dependent on the circumstances, and it does not necessarily mean ownership in fee simple; it means, ‘to possess, to have or hold as ‘property’”.
In CIT v. Podar Cement Pvt Ltd [1997] 226 ITR 525 (SC), the question which came up for consideration before this court was whether the rental income from the house property which had come to vest in the assessee, but as to which the assessee not legal owner for want of deed of title, was liable to be assessed as income from house property or as income from other sources.
“ We are conscious of the settled position that under the common law, ‘owner’ means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc But in the context of section 22 of the Income Tax Act, 1961 having regard to the ground realities and further having regard to the object of the Income Tax Act, namely, ‘to tax the income’ we are of the view, ‘owner’ is a person who is entitled to receive income from the property in his own right.”
We may usefully extract and reproduce the following classic statement of law from Perry v. Clissold [1907] AC 73 (PC) quoted with approval in Nair Service Society Ltd v. K.C. Alexander, AIR 1968 SC 1165. 17
“ It cannot be disputed that a person in possession of land….assumed character of owner and exercising peaceably the ordinary rights of ownership has a perfectly good title against all the …….but the rightful owner. And if the rightful owner does not come forward and assert his title by the process of law within the period prescribed by the provisions of the statute of limitation applicable to the case, his right is for ever extinguished and the possessory owner acquires an absolute title.”
(iii) The Hon'ble Income Tax Appellate Tribunal, Ahmedabad Bench-A in the case of Radhe Developers and others, following the above judicial pronouncement, has observed as under:-
“44. As discussed above and in view of the case-law of the Supreme Court in the case of Mysore Minerals Ltd [supra], wherein it has been categorically observed as regards to ownership that anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of the title might not have been executed and registered as contemplated by the Transfer of Property Act.
The assessee is also the owner of the project, though the title does not vest in it.”
Looking to the above judicial pronouncements as well as the terms and conditions under which the exclusive rights were acquired, the adjudicating authority would like to appreciate that, beyond any doubt the Developer is the ABSOLUTE OWNER of land.
26. They submitted that Construction of complex service has been bifurcated into three categories i.e. (a) Construction of New residential complex or a part thereof; (b) Completion and finishing services in relation to residential complex (c) repairs, alteration, renovation or similar services in relation to residential complex
26.1 In order to get covered under the category of “Construction of complex services”, first of all, any one out of above 3 conditions is required to be satisfied meaning thereby, either a person who constructs new residential complex or provides completion and finishing service in relation to residential complex or provides service of repairs, renovation, etc., for already constructed residential complex is a taxable service.
26.2 It is a settled law that service tax is levied on rendering of taxable services, as defined under section 65 of the Act. It is equally well settled that except person liable to pay service tax, according to the provisions of rule-2(1)(d) (iv) read with section 66A of the Act, the liability to pay service tax is cast upon the service provider.
26.3 Taxable service in the present case is construction of complex service. Hence, it follows that service tax is payable by service provider i.e. a person who actually renders the construction service i.e. services provided before completion of new residential flat. Use of the phrases “builder” or “promoter” or 18
“developer” does not make the person a service provider, since the actual activity of construction is carried out by the contractor.
26.4 They submitted that it will not be out of place to refer the Circular No.96/7/ 2007-ST dated 23.8.2007 which clarifies the technical issues relating to taxation of services.
Clarification in respect of construction of complex services given in the above referred Circular is reproduced below:-
Reference Issue Clarification Code (1) (2) (3) 079.91/ Whether service tax is 23.08.07 liable under construction of complex service [section 05(105)(zzzh)] on builder, promoter, developer or any such (a) In a case where the builder, person,- promoter, developer or any such person builds a residential complex, (a) who gets the complex having more than 12 residential units, built by engaging the by engaging a contractor for services of a separate construction of the said residential contractor, and complex, the contractor in his capacity as a taxable service provider (to the builder / promoter / developer / any such person) shall be liable to pay service tax on the gross amount charged for the construction services under `construction of complex’ service [sectuib 65 (105) (zzzh)]. (b) who builds the residential complex on his (b) If no other person is engaged for own by employing direct construction work and the builder / labour? promoter / developer / any such person undertakes construction work on his own without engaging the services of any other person, then in such cases,-
(i) service provider and service recipient relationship does not exist.
(ii) services provided are in the nature of self-supply of services.
Hence, in the absence of service provider and service recipient relationship and the services provided are in the nature of self-supply of services, the question of providing taxable service to any person by any other person does not arise. 19
26.5 In para 8 of the said Circular, it has been stated that - “Views stated in the Circular reflects INTERPRETATION OF LAW AND CURRENT PRACTICE OF THE DEPARTMENT.”
They submitted that looking to the above interpretation of law and prevailing practice of Department, it is very clear that only contractor who really constructs the complex is only liable to pay service tax.
26.6 They further submitted that the department has found that the noticee developed and built the residential scheme on the land owned by society/NTC. On such findings it can be appreciated that looking to the various circulars quoted hereinabove, the activities are considered self construction and service tax is not attracted. That too no land cost is separately recovered from purchasers but sale deed was executed as a whole unit by paying proper stamp duty. And Noticee earned profit as a surplus of receipt and expenditure of development and construction, as agreed under Dev. Agreement and such agreement has not been disputed by Service Tax Department. The Noticee was not engaged as a contractor for simply construction of complex.
26.7 They submitted that amount received on such transactions are not taxable prior to 01.07.2010. This view is also supported by Circular No. 151 Dt. 10.02.2012 and Trade Notice issued by Pune Commissionerate, which is enclosed along with the written submission. They also relied on the following decisions:
1) Assotech Realty Pvt. Limited - V/s State of UP 2007(7) S TR 129 (All.), 2) Magus Construction (P) Ltd V/s Union of India 2008(11) STR 225 (Gau.),
3) Commissioner of Service Tax V/s Sujal Developer 2011 – TMI 21217 Gujarat High Court
Business Support Services
27. With regard to above, the Noticee submitted that :
27.1 They had entered into an agreement which has not been disputed by the Department, under which the Noticee and Safal Infrastructure (P) Limited (SIPL), another co-developer were obliged to carry out the work agreed therein for common object of development and construction of residential scheme.
27.2 The Noticee has not provided services to anybody, as alleged in the above referred Show Cause Notice but it has carried out the activities, as agreed under the co-development agreement, for its own and therefore, there was no service receiver and in the absence of relationship of service receiver and service provider, no service tax can be demanded. They relied on the following decision:
1) Faquir Chand Gulati Vs. Uppal Agencies (P) Ltd. (2008) 15 STT 296 (SC) 2) K P Dream Cricket (P) Ltd. Vs CCE 2012 (26) STR 362 (Tri. Del.) 3) Mundra Port & Special Economy Zone Ltd. Vs. CCE Rajkot (2011) 33 STT 364 (Ahd-CESTAT) 4) Nyco S. A. Vs. CST (2009) 20 STT 113 (New Delhi –CESTAT) 5) CCE Vs. Sundram Fin. Ltd. 20
(2007) 9 STT 100 (Chennai – CESTAT)
27.3 It can also be appreciated that SIPL had not outsourced the activities/work to the Noticee which can be treated as business support service. Vide Circular No. DOF 334/4/2006, dated 28-04-2006 it has been specifically and categorically clarified that the activity which has been outsourced will only be covered under the taxable category of Business Support Service. And, during the period under dispute the said circular was in full force and is binding to the Department. It can also be appreciated that in order to cover the activities under the Business Support Service, it must have been outsourced, which is a pre-condition. In the instant case, Noticee has not carried out the work on behalf of SIPL but carried out the activity jointly as a co-developer for its own common object under the co- development agreement.
27.4 They relied on the decision rendered by the Apex Court in the case of Fakirchand Gulati v/s Uppal Agencies Pvt. Limited (2008) 15 STT 296 (SC) in which the Hon'ble Supreme Court has laid down the principles for joint venture as under:
(i) There must be an express or implied agreement; (ii) A common purpose that they intend to carry out; (iii) Share profit and loss.
27.5 Looking to the above, they submitted that the facts of the present case are identical to the case cited above and, therefore, there was no relationship of service provider and service receiver and, therefore, they were not at all liable to pay service tax on the share of profit derived from the project commonly developed by the two co-developers. It was submitted that circulars issued by Department are binding to the department and relied on the following decision :
State of Kerala & Others Vs. Kurian Abraham (P) Ltd. (2008) 13 VST 1(SC).
They submitted that it is well settled that circulars issued by the Board are binding and aims at adoption of uniform products. In that regard reliance has been placed on the judgment of Honourable the Supreme Court in the case of Paper Products Ltd. V/s. CCE (1999) 7 SCC 84. Placing reliance on earlier judgments of the Supreme Court in the cases of CCE V. Usha Martin Industries, 1997 (94) ELT 460 (S.C) = (1997) 7 SCC 47 Ranadey Micronutrients V. CCE, 1996 (87) ELT 19 (SC) = (1996) 10 SCC 387 CCE Vs. Jayant Dalal (P) Ltd, 1996 (88) ELT 638 (SC) = (1997) 10 SCC 402 and CCE, Vs. Kores (India) Ltd., 1997 (89) ELT 441 (SC) = (1997) 10 SCC 338.
Therefore, also looking the clarification given vide Circular No. DOF 334/4/2006, dated 28-04-2006 and 109/03/2009 Dated 23.02.2009 no service tax is payable by Noticee.
27.6 They also submitted that when there is a conflict between decision and circular, the court decision would prevail. They relied on the following decisions:
1. CCE Bolpur Vs. Ratnam Metal & Wire Industries. 2008 (231) ELT 22 (SC)
2. Tablets India Ltd. Vs. CCE Chennai 2008 (227) ELT 110 (Tri-Channai) 21
28. They submitted that invocation of extended period on the ground of suppression is incorrect and bad in law. There is no allegation that the Department asked and they did not furnish the desired information under section 71 of the Act. There was no requirement in law for the Noticee to suo moto disclose any information, especially in the circumstances when the Noticee was under a bona fide belief that they were not liable to pay service tax on the amount collected from the clients. They relied on the decision of Catalyst Capital Service (P) Ltd. Vs. CCE, Mumbai (2005) 1 STT 241 (Tri. Mumbai), Padmini Products Limited v CCE 1989 (43) ELT 195 (SC) and CCE Vs. Chemphar Drugs and Liminents 1989 (40) ELT 276 (SC),.
28.1 They are a private limited company and their accounts are filed with the Registrar of the Company and therefore all the documents are public documents which can be accessed by any person, and therefore it cannot be said that they had suppressed the facts. Demand raised on the basis of information appearing in Balance Sheet is not sustainable by invoking extended period since the Balance Sheet is a public document and therefore suppression for such information can not be alleged. They relied on the judgment of Kirlosker Oil Engines Ltd. Vs. CCE 2004 (178) ELT 998.
28.2 They had filed the ST-3 returns for the period of Show Cause Notice. The Tribunal and various High Courts including the Hon’ble Apex Court have held that when the ST-3 returns are submitted, the extended period cannot be invoked. Thus the Show Cause Notice is barred by limitation. They relied on the following decisions of the Hon’ble Tribunal and Hon’ble Courts:
a. CCE, Kanpur Versus M/s. Taj Tours & Travels [2009] 21 STT 23 (New Delhi-CESTAT);
b. Commissioner of C.Ex. Versus Umakanth & Co. 2008 (9) STR 527 (Tri.-Bang.);
c. VBC Exports Ltd. Versus Commr. of C.Ex., Visakhapatnam 2008 (10) STR 613 (Tri.-Bang.);
d. Rolex Logistics Pvt. Ltd. Versus Commissioner of Service Tax, Bangalore 2009 (13) STR 147 (Tri.-Bang.);
e. Scott Wilson Kirkpatrick (I) Pvt. Ltd. Versus Commr. of S.T., Bangalore 2007 (5) STR 118 (Tri.-Bang.);
f. Saurin Investments Pvt. Ltd. Vs. Commissioner of Service Tax, Ahmedabad 2009 (16) STR 446 (Tri. – Ahmedabad).
28.3 It is well-settled position that in any show-cause notice issued on the basis of Audit objection, extended period cannot invoked. They relied on the following decisions:-
(a) Vikram Ispat v. CCE 2007 (8) STR 559 (Trib.-Mumbai). (b) Cambay Organics (P.) Ltd. v. CCE 2007 (217) ELT 586 (Trib-Ahdmedabad.)
28. As regards the penalty it was submitted that there cannot be levy of penalty automatically without coming to the conclusion that they had realized tax and did not deposit the same to the treasury with intent to evade the tax, there cannot be automatic levy of penalty. Merely disclosing the provision of law, levy enforced 22 by the authorities shall not serve the object of the statute. It was submitted however, that for imposing penalty, there should be an intention to evade payment of service tax on the part of the noticee supported by documentary evidences. Further if the penalty has been payable under section 78, the provisions of section 76 shall not apply. The penal provisions are only a tool to safeguard against contravention of the rules. The noticee submits that they have always been under the bonafide belief that charges collected by the noticee is not liable to service tax under the services mentioned in Show Cause Notice. Such bonafide belief was based on the grounds given above. There was no intention to evade payment of service tax as mentioned on the ground above. Therefore, no penalty is imposable in the present case. They relied on the following judgments: i) Hindustan Steel Ltd., v. The State of Orissa reported in AIR 1970 (SC) 252. ii) Kellner Pharmaceuticals Ltd., Vs. CCE, reported in 1985 (20) ELT 80, iii) Akbar Badruddin Jiwani V. Collector of Customs, 1990 (047) ELT 061 SC,
28.1They further submitted that there is no means rea or contumacious conduct on their part to evade service tax. The non payment of service tax and failure to follow the other formalities occurred not due to assessee’s intention to evade the payment of tax. They relied on the judgment of Pushpam Pharmaceuticals Company V. CCE 1995 (78) ELT 401(SC) and CCE Vs. Camphor Drugs and Liniments 1989 (4) ELT 276 (SC).
28.2They further submitted that even assuming without admitting that service tax is payable on the services provided by it, then also no two penalties u/s. 76 and 78 can be imposed for a single default. This is a settled law. They relied on the following decisions.
a.) SIVA SANKAR MOTORS Versus CCE, VISAKHAPATNAM- II [2009] 18 STT 306 (KOL.-CESTAT)
b.) Opus Media and Entertainment vs. CCE, Jaipur [2007] 10 STJ 259 [CESTAT-New Delhi].
29. They also requested for invocation of Section 80 of the Act, for waiver of penalty under section 76, 77 and 78 because of reasonable cause for default as they were under a bonafide belief that service tax was not payable on the amount received from clients. They relied on the judgment of CCE, Chennai, Vs. Military Ex-Servicemen Services (2008) STJ 363 (CESTAT-Chennai).
30. They further submitted that a subordinate authority is bound to follow the decision of the higher authority and cannot take a different view. They relied on the following judgments:-
a) Pratik Marbles vs. CCE, Jaipur-II 2007 (7) STR 240 [Tri. Delhi]. b) CCE vs. L. H. Sugar Factories Ltd. 2006 (3) STR 715 SC. c) Gujarat Ambuja Cement Ltd vs. UOI 2006 (3) STR 608 SC. d) The Motor Industries Company Ltd. vs. CST, Bangalore [2007] 10 STJ 96 [CESTAT-Bangalore]. e) CST, Bangalore vs. Indian Rayon Industries Ltd. [2007] 10 STJ 89 [CESTAT-Bangalore]. 23
Discussion and Findings:-
31. I have carefully gone through the content of show cause notice, relevant records relied upon for the purpose of show cause notice, written submission of M/s SCPL and other evidences produced by them in support of their claim.
32. The issues to be decided in this case are: i) Whether, M/s SCPL is liable to pay service tax of Rs. 46,65,051/- under the category of “Construction of Complex Service” as proposed in the show cause notice or they are covered under CBEC Circular No.108/02/2009 – ST dated 29.01.2009 and Circular No. 151 /2 /2012-ST issued from F.No.332/13 /2011-TRU dated 10.02.2012 and not liable to pay service tax. ii) Whether, M/s SCPL is liable to pay service tax of Rs. 36,63,686/- under the category of “support services of business or commerce” for providing service to M/s SIPL( Now known as M/s Safal Realty Pvt. Ltd) as proposed in the show cause notice or they were another co-developer obliged to carry out the agreed work for common object of development and construction of the scheme.
32. The show cause notice was raised against the said service provider for recovery of Service tax of Rs. 46,65,051/- under the category of “Construction of Complex Service”. The main allegation in this regard was that M/s SCPL had provided construction of Complex Service to Sameet (Bodakdev) Owners Association, a non trading corporation (herein after referred to as Sameet) and Shri Samprat Co-Operative Housing Society Ltd. Vibhag-II, a society registered under the Gujarat Co-Operative Societies Act, 1961 (herein after referred to as Samprat) and it’s members. However, on going through the facts of the case clarified by the said service provider referring to the same agreement which is referred in the show cause notice, I find that the said service provider is a Developer of Land/Builder, who had provided finance to both Sameet and Samprat for purchase of land and had obtained substantial development rights over the land owned by both Sameet and Samprat. They constructed the residential units in the said scheme on their own on the said land which were developed by them. They purchased material required for the construction of the residential units of the said scheme, they had identified the prospective buyers i.e. members of the said society and collected the price of the residential units as shown in the specimen sale deed executed with Mr. Sunil Kumar Gambhir (HUF) which includes the cost of un apportioned land, however, no separate cost of land was reflected in the said agreement. I observe that pending sale of the residential units, activity of construction was continuously in progress before the booking of the residential unit by the prospective members/buyers and would continuously go on even after booking of the residential units by the prospective members/buyers. All these facts sufficiently suggest that M/s SCPL was Developer/Builder and not the person who had actually carried out the construction activities themselves, however they had hired the services of the labourers/ contractors who had actually carried out the construction activities.
32.1 As the facts emerge explicitly, I find that this is a case of ‘self service’ as referred in the CBEC’s Circular No. No.108/02/2009 – ST dated 29.01.2009.
32.2 Looking to the facts of the case it is clear that the model adopted in this case is ‘Tripartite Business Model’ and parties in the model are (i) landowner; (ii) builder or developer; and (iii) contractor who undertakes construction.
This model is covered by the CBEC Circular No. 151 /2 /2012-ST issued from F.No.332/13 /2011-TRU dated 10.02.2012. The relevant portion of the said circular in this regard is reproduced as under. 24
“ Many issues have been referred by the field formations, in the recent past, seeking clarification regarding the levy and collection of service tax on construction services [clauses (zzq),(zzzh) of section 65(105) of the Finance Act, 1994], in the light of varying business models. Across the country, divergent business models and practices are being followed in the construction sector. Some of these business models and practices could be region specific.
2. From the issues referred by the field formations, important ones have been identified model wise, examined and clarified as follows:
2.1. Tripartite Business Model (Parties in the model: (i) landowner; (ii) builder or developer; and (iii) contractor who undertakes construction): Issue involved is regarding the liability to pay service tax on flats/houses agreed to be given by builder/developer to the land owner towards the land /development rights and to other buyers.
Clarification: Here two important transactions are identifiable: (a) sale of land by the landowner which is not a taxable service; and (b) construction service provided by the builder/developer. The builder/developer receives consideration for the construction service provided by him, from two categories of service receivers: (a) from landowner: in the form of land/development rights; and (b) from other buyers: normally in cash.
(A) Taxability of the construction service:
(i) For the period prior to 01/07/2010: construction service provided by the builder/developer will not be taxable, in terms of Board’s Circular No.108/02/2009-ST dated 29.01.2009.
(ii) For the period after 01/07/2010, construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land was received by the builder/ developer before the issuance of completion certificate and the service tax would be required to be paid by builder/developers even for the flats given to the land owner.”
32.3 The facts of the present case on hand are covered under the aforesaid circular which clarifies that “For the period prior to 01/07/2010: construction service provided by the builder/developer will not be taxable, in terms of Board’s Circular No.108/02/2009-ST dated 29.01.2009”. Therefore, in view of the said circular I find that the present demand for service tax of Rs. 46,65,051/- under the category of “Construction of Complex” which pertains to the period from 18.4.2006 to 31.3.2010 (which is prior to 01.07.2010) is not sustainable on merits. Consequently, the proposals for interest and penalty also do not survive.
33. Now, I come to the second issue where service tax of Rs. 36,63,686/- is demanded from the said service provider under the category of “Support Service for Business or Commerce”. I find that M/s Pegasus Commercial Co-op. Society Ltd who are the land owners and M/s Safal Infrastructure Pvt Ltd who are the developers have entered into a ‘Development Agreement’ dated 5/9/2006 for developing the land owned by the said co-op. society which is also evident from para (A) of the ‘Co-Development Agreement’ dated 1.11.2006. I further find from para (B), (C) & (D) of the ‘Co-Development Agreement’ dated 1.11.2006 that it was not possible for M/s SIPL to handle the scheme alone by itself as they had less experience of marketing, liasoning, etc with the Government departments and follow up with the sanctioning authorities. Therefore, they established contact with 25
M/s SCPL and both of them agreed to develop the said land jointly. I find that it is not disputed in the show cause notice or in the written submission that M/s SCPL had entered into the aforesaid agreement under which they and Safal Infrastructure (P) Limited (SIPL) (now known as M/s Safal Realty Pvt. Ltd), were obliged to carry out the work agreed therein for common object of development and construction of Commercial or Industrial construction complex and that the ratio of profit sharing was fixed as 75% and 25% respectively on the amount which was left after deduction of expenses relating to building construction from the gross income offered in the Proft & Loss account. Under the said co- development agreement functions of both are specifically and categorically defined which they are required to carry out by performing defined activities separately. I find that there is no dispute lodged by the said service provider i.e. M/s SCPL that they had not carried out the limited activities of marketing and liasoning etc., for the project with the Government Departments and follow up with sanctioning authorities and obtaining all licenses, approvals, permissions, consents, no objections certificates, etc., for implementing the Pegasus Commercial Complex for which M/s SIPL were not competent and hence had obtained the said services from M/s SCPL. The said fact is also evident from para 6.2 of the said agreement. These facts were also admitted by Shri Maharshi Umeshbhai Shah, Senior Accountant of M/s SCPL in his statement dated 30.9.2011. Therefore, I find that M/s SCPL had rendered the services to M/s SIPL. Accordingly I find that M/s SCPL is the service provider and M/s SIPL is the service recipient from M/s SCPL and therefore existence of service provider and service recipient is expressly evident. The service of M/s SCPL was hired by M/s SIPL as supplementary service as M/s SIPL did not have expertise in the area of activities which M/s SCPL do have.
33.1 Once the existence of service provider and service recipient is established then the question that has to be decided is the taxability of the receipts of the said service provider under an appropriate taxable category of service. To decide it will be worthwhile to have look at the above Co-development agreement. I have gone through the co- development agreement. In the said agreement M/s Safal Infrastructure Pvt. Ltd., has been referred to as “party of the First Part”, M/s Safal Construction Pvt. Ltd [SCPL] is referred as the “party of the second part” and M/s Pegasus Commercial Co. Op Society Ltd., is referred to as “Party of the third Part” or “the Land Owner”. Therefore, evidently there are three parties to the agreement.
33.2 In the supplementary agreement portion of the said agreement it is clearly stated at clause 1 that “ the parties of the First Part and second part hereto as co- developers have agreed to carry out the Joint development of the scheme on the said land by contributing their expertise, Financial resources, manpower etc.
In clause 2 it is mentioned that “the parties hereby specifically agree that this agreement for joint development shall not constitute partnership between the parties hereto and neither shall be agent of any body”.
The reading of clause 9 of the said agreement clearly revealed that it is mutually agreed by all the parties that Original title deeds of the said land will be retained with the party of the First Part i.e. [M/s SIPL]. The party of the First part agreed to provide the original sale deed at any time required to be shown it to the authorities for permissions purpose, financial institutions and purchasers for verification etc. The said land was originally owned by the third party and title for development is vested with the First party. From various clauses available in the said agreement, I find that the role of Second party i.e. of M/s SCPL is merely supplemental to the deficiencies of M/s SIPL for which they will get share of 25% as discussed above. However, the First party was vested with the development right over the land, that it had financed the project, that First party had maintained 26 account including profit and loss account and share of Second party was decided based on the Profit and loss account maintained by the First Party. Therefore, what I find is that 25% of the said Profit was given by first party to second party as consideration for the services rendered by the second party to the first party. This fact will clearly prove that ‘Third party’ had transferred development right to ‘First party’, that ‘First party’ had financed the project and the ‘second party’ had contributed its expertise. Therefore, as corollary of the aforesaid findings I conclude that the second party i.e. M/s SCPL is the supplemental service provider to the first party i.e. M/s SIPL. There is nothing on record to suggest that Joint venture accounting have been maintained. On the contrary, in the instant case the First party i.e. M/s SIPL had maintained the accounts in its independent capacity and had made payment as per the predetermined share of 25% to M/s SCPL for providing service to them. The said sharing of 25 % of SCPL is nothing but the fees of M/s SCPL Under the circumstances I find that the transaction between M/s SIPL and M/s SCPL are on one to one basis and independent of other relationship. Accordingly, I hold that M/s SCPL had rendered service independently to M/s SIPL and the said service can in no way be treated as self service provided by co- developer as claimed by the said service provider. As M/s SIPL is engaged in the business of Developing/ Building of Commercial or Residential complexes, the service rendered by M/s SCPL to M/s SIPL is appropriately classifiable under the category of “Support Service for Business or Commerce” as defined in section 65(104c ) of the Finance Act, 1994 as under: “support services of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, [Operational or administrative assistance in any manner], formulation of customer service and pricing policies, infrastructural support services and other transaction processing. Explanation. — For the purposes of this clause, the expression “infrastructural support services” includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;]
The said service is accordingly liable to service tax under section 65(105)(zzzq) of the Finance Act,1994.
33.3 Accordingly I find that the contention of M/s SCPL that they had not provided services to anybody, but had carried out the activities, as agreed under the co-development agreement, for its own and, therefore, there was no service receiver and in the absence of relationship of service receiver and service provider, no service tax can be demanded is not acceptable. In view of this, the ratio of the judgments relied upon by M/s SCPL cannot be applied in the case before me.
33.4 Further the said service provider denied service tax liability citing CBEC’s letter issued from FNo. 334/4/2006-TRU, dated 28-2-2006 which I have gone through. The relevant portion of the text is as under.
3.13 Business Support Services : Business entities outsource a number of services for use in business or commerce. These services include transaction processing, routine administration or accountancy, customer relationship management and tele-marketing. There are also business entities which provide infrastructural support such as providing instant offices along with secretarial assistance known as “Business Centre Services”. It is proposed to tax all such outsourced services. If these services are provided on behalf of a person, they are already taxed under Business Auxiliary Service. Definition of support services of business or commerce gives indicative list of outsourced services 27
The meaning of out sourcing as available in http://www.sourcingmag.com/content/what_is_outsourcing.asp is explained as under. Outsourcing - What is Outsourcing?
So, what is outsourcing? Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. An insurance company, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcing services are third- party providers, or as they are more commonly called, service providers. Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently, and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel.
33.5 I have already arrived at the conclusion that M/s SIPL had hired the services of M/s SCPL for which they donot have expertise which is nothing but outsourcing and is clearly covered by the meaning of outsourcing as explained above. Therefore their contention in this regard is found to be mis-constructed and not acceptable.
33.6 In view of the above discussions, I find that an amount of Rs. 3,01,46,632/- received by M/s SCPL as detailed in Annexure-B to the show cause notice, is the taxable value under the category of “Support Service for Business or Commerce” as defined in section 65(104c ) of the Finance Act, 1994 and service tax of Rs. 36,63,686/- (inclusive of Edu.cess and Higher Edu. Cess) on the said taxable value is recoverable from them under proviso to Section 73(1) of the Finance Act, 1994 along with interest under Section 75 ibid.
34. I observe that so far as ‘suppression of facts’ is concerned, the phrase implies that withholding of information is suppression of facts. P. Ramanatha Aiyar’s Concise Law Dictionary [1997 Edition Reprint 2003 – page 822] defines the phrase lucidly and accurately as – Where there is an obligation to speak, a failure to speak will constitute the “suppression of fact” but where there is no obligation to speak, silence cannot be termed “suppression”. It is manifestly clear from this that intention to evade payment of duty is implied in the suppression of facts. Since M/s SCPL was liable to self assess the liability to pay service tax, they had an obligation to furnish the correct and complete information and the value of services whether taxable or otherwise.
34.1 It is needless to recapitulate that the present show cause notice has arisen because of the audit of records of M/s SCPL conducted by the officers of audit section of Service Tax Commissionerate, Ahmedabad. Had they not detected the case, the evasion of service tax would have remained unnoticed. Therefore, this is a case of improper assessment amounting to deliberate non-declaration and suppression of vital information with a willful intention to evade payment of service tax. Accordingly, the invoking of extended period under proviso to Section 73(1) of the Act in the case before me is fully justified.
34.2 I find that in the present system of self-assessment, documents like invoices and other transaction details are not supplied to the Department alongwith the ST-3 returns. They did not furnish the required details of receipt of payment from M/s SIPL in any other way to the Department. Once the details are not submitted to the Department, mis-declaration or suppression is rightly invoked. I, therefore, conclude that the element of suppression with intent to evade payment 28 of service tax is conspicuous by the peculiar facts and circumstances of the case as discussed above and, therefore, the extended period of limitation under Section 73(1) of the Finance Act, 1994 is rightly invokable for recovery of service tax demanded in the impugned show cause notice. In view of the above discussion and findings, the ratio of cases relied upon by M/s SCPL can not be applied in the case before me.
35. I now take up the issue of imposition of penalty under section 76, 77 and 78 of the Act.
35.1 In view of the above discussion, I hold that M/s SCPL have suppressed the facts with intention to evade payment of service tax. Thus penalty under Section 78 is mandatorily imposable as has been held by the Apex court in the case of Dharmendra Textile Mills Ltd-2008 (231) ELT 3 (SC) and Rajasthan Spinning & Weaving Mills Ltd-2009 (238) ELT 3 (SC). Therefore, penalty is imposable on M/s SCPL under Section 78 of the Finance Act, 1994. In view of the above discussion the ratio of the judgments relied upon by M/s SCPL can not be applied in this case.
35.2 As regards the issue of imposition of penalty under Section 76 of the Finance Act, 1994, I observe that penalty under Section 76 and 78 of the Finance Act, 1994 are mutually exclusive and once penalty under Section 78 is imposed, no penalty under Section 76 can be imposed in terms of the proviso inserted in Section 78 w.e.f 10.5.2008 in this regard. Therefore, no penalty under Section 76 is imposable for the period from 10.5.2008 onwards. In the case before me, the demand of service tax is for the period 18.4.2006 to 31.3.2009, therefore, I hold that penalty under Section 76 of the said Act is not imposable on M/s SCPL for the period from 10.5.2008 onwards. However, for the period upto 9.5.2008, as M/s SCPL has not paid service tax within the stipulated time period as prescribed under Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, I hold them liable to penalty under Section 76 of the Finance Act, 1994.
35.3 As regards imposition of penalty under section 77(1)(a) of the Finance Act, 1994, I observe that as discussed above M/s SCPL was liable to pay service tax under the category of “Support Service for Business or Commerce” defined under Section 64(104c) of the Finance Act, 1994, as provider of service, but M/s SCPL failed to obtain registration as required under section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994. M/s SCPL had provided the aforesaid services prior to obtaining the service tax registration in the said category. The said contraventions have made M/s SCPL liable to penalty under section 77(1) (a) of the Finance Act, 1994.
35.4 As regards imposition of penalty under section 77(2) of the Finance Act, 1994, I observe that as discussed above M/s SCPL was liable to pay service tax under the category of “Support Service for Business or Commerce” defined under Section 65(104c) of the Finance Act, 1994 as provider of service, but they failed to self assess the tax due on the value received for the said service provided by them. They also failed to furnish return as prescribed. These are contraventions to Section 70(1) and 70(2) of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994. The said contravention has made the said assessee liable to penalty under Section 77(2) of the Finance Act, 1994.
35.5 As regards their contention for invoking Section 80 of the Finance Act, 1994 for waiver of penalty, I find that M/s SCPL has not produced any reasonable cause for the failure to pay service tax except suggesting that it was their bonafide belief that service tax was not payable by them. I have already 29 discussed the issue of taxability under the category of “Support Service for Business or Commerce” defined under Section 65(104c) of the Finance Act, 1994. Therefore, I consider it appropriate to hold M/s SCPL liable to penalty under Section 76, 77 and 78 of the Finance Act, 1994. In view of the above discussion and findings, the ratio of cases relied upon by M/s SCPL can not be applied in the case before me.
36. In view of the foregoing discussion, I pass the following order:
O R D E R
(i) I order to consider amount of Rs. 3,01,46,632/- (Rupees Three crore one lakh forty six thousand six hundred and thirty two) as detailed in Annexure B to the show cause notice as the taxable value under the category of “Support Service for Business or Commerce” as defined in Section 65(104c ) of the Finance Act, 1994;
(ii) I confirm the demand of service tax of Rs. 36,63,686/- (Rupees Thirty six lakh sixty three thousand six hundred and eighty six only), (including Education Cess and Secondary and Higher Education Cess) as detailed Annexure B to the show cause notice, on the above taxable value, under the category of “Support Service for Business or Commerce” under Section 73(2) of the Finance Act, 1994 and order to recover the same from M/s SCPL;
(iii) I order to recover interest on the above confirmed demand of Rs. 36,63,686/- (Rupees Thirty six lakh sixty three thousand six hundred and eighty six only) at the prescribed rate from M/s SCPL under Section 75 of the Finance Act, 1994;
(iv) I impose penalty of Rs.200/- (Rupees Two hundred only) per day for the period during which failure to pay the tax continued, or at the rate of 2% of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax upon M/s SCPL under Section 76 of the Finance Act, 1994, for the period from 18.4.2006 to 9.5.2008; provided further that the amount of penalty payable in terms of this section shall not exceed the service tax payable by M/s SCPL for the period upto 9.5.2008.
(v) I impose penalty of Rs. 36,63,686/- (Rupees Thirty six lakh sixty three thousand six hundred and eighty six only) on M/s SCPL under section 78 of the Finance Act, 1994. In the event of M/s SCPL opting to pay the amount of service tax along with all other dues as confirmed and ordered to be recovered, within thirty days from the date of communication of this order, the amount of penalty liable to be paid by them under Section 78 of the Finance Act, 1994 shall be 25% of the said amount. However, the benefit of reduced penalty shall be available only if the amount of penalty is also paid within the period of thirty days from the communication of this order, otherwise full penalty shall be paid as imposed in the above order;
(vi) I impose penalty under section 77(1)(a) on M/s SCPL who shall be liable to pay a penalty of five thousand rupees or two hundred rupees for every day during which such failure continues, whichever is higher, starting with the first day after the due date, till the date of actual compliance as required under section 69 of the Finance Act, 1994 read 30
with Rule 4 of the Service Tax Rules, 1994.
(vii) I impose penalty of Rs. 5,000/- (Rupees Five thousand only) under Section 77(2) of the Finance Act, 1994 on M/s SCPL for failure to comply with the provisions of Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994.
(viii) I drop the demand of service tax of Rs. 46,65,051/- (Rupees Forty six lakh sixty five thousand and fifty one only ) under the category of ‘Construction of Complex Service’ as detailed in Annexure A to the show cause notice.
(A.K. Gupta) Commissioner Service Tax, Ahmedabad
F.No. STC/4-82/O&A//11-12 Dated : 7/6/2012
By Regd. Post AD/ by hand
To, M/s Safal Construction Private Limited, B- Safal House, Nr. Tej Motors, B/h. Mirchmasala Restaurant, Off. S G Highway, Ahmedabad.
Copy to;- 1) The Chief Commissioner, Central Excise, Ahmedabad Zone, Ahmedabad. 2) The Assistant Commissioner, Service Tax, Division-II, Ahmedabad. 4) The Superintendent, Service Tax, AR. VI, Div. II Ahmedabad. 5) The Guard File.