OIO No. 59/STC/AHD/ADC(JSN)/2012-13

2 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 BRIEF FACTS OF THE CASEM/s. V Square Projects situated at 206, Shanti Arcade, 132 FT. Ring Road, Nr. Akash-III Flats, Naranpura, Ahmedabad (hereinafter referred to as “the said assessee”) were registered with the Service Tax Department vide Service Tax Registration No. AAIFV 1955B SD001 under the category of Works Contract Services. 2. The said assessee vide their letter dated 11.03.2011 informed that they have registered with service tax department under Works Contract Services and paid service tax voluntarily. They further informed that they have paid service tax under “PROTEST”. 3. The Range office issued a letter dated 22.03.2011, wherein the said assessee was asked to explain as to why they have paid the service tax under protest when they have paid service tax voluntarily and that it was not understood as to why they had paid service tax under protest when they had paid the service tax voluntarily. The said assessee was asked to provide details of Service Tax paid, period for which service tax paid & reason of service tax paid under protest. 4. The assessee vide their letter dated 02.04.2011 informed that they have filed a writ petition before the Gujarat High Court for service tax and they also attached the copy of order. They also informed that as the decision was pending before Gujarat High Court, any service tax payment made by them and related Service Tax returns are to be considered as “under protest”. 5. The assessee filed ST-3 return for the period April-10 to September-10 and October-10 to March-11 on 28.05.2011 and April-11 to September-11 on 15.02.2012. On verification of the ST-3 returns submitted by the said assessee for the period April-10 to September-10, October-10 to March-11 and April-11 to September-11, it was noticed that they have provided works contract service and they have received gross amount of Rs.17,02,000/-, Rs.5,39,54,060/- and Rs.3,73,84,359/-during the period April-10 to September-10, October-10 to March-11 and April-11 to September-11 respectively. However, it was noticed that they had not paid service tax on gross amounts of Rs.17,02,000/-, Rs.5,39,54,060/- and Rs.1,64,34,359/- for the period April-10 to September-10, October-10 to March-11 and April-11 to September-11 respectively and they had shown the said amount received towards exempted service (other than export service).6. The assessee was issued summons dated 15.02.2012 and 01.03.2012 to give the statement and to produce the following documents. 1. Income ledgers for the F.Y. 2010-11. 2. Income Tax return along with Profit & loss account for the F.Y. 2010-11. 3. Copies of Work contracts for the F.Y. 2010-11. 4. Month wise details of amount received during the F.Y. 2010-11. 5. Details of purchase invoices for the F.Y. 2010-11. 6. Details of sales invoices for the F.Y. 2010-11.7. Statement of Shri Sureshbhai Mithabhai Patel Partner of M/s. V Square Projects was recorded on 13.03.2012, wherein he gave his statement in question answer form as under:Q.1 Do you confirm that the aforesaid facts furnished by you regarding your name, age, address and other details are correct and that the provisions of Section 14 of Central Excise Act, 1944 was properly explained to you before commencement of this statement proceedings ? A.1 Yes, I confirm. 3 OIO No. 59/STC/AHD/ADC(JSN)/2012-13Q.2. You were issued summons dated 15.02.2012 to appear on 27.02.2012 and 01.03.2012 to appear on 06.03.2012. However you have not appeared on the above dates. Please explain the reason ? A.2. I state that I was out of Ahmedabad for social work and that is why I could not appear on the said dates.Q.3. For which category of services you are registered with the department? A.3. We are registered for Works Contract Service.Q.4. what is the main business of your company. Please specify ? A.4. We are Builder and developer of the resident bunglows. We are at present developing residential scheme named Vedant Kadam at S P Ring Road, Nr. Science City Cross Road, Ahmedabad. This is 53 bungalows scheme.Q.5. By whom the contract of the scheme given to you ? A.5. We have purchased some portion of the land from the farmers and other portion of the land have been purchased by Development Right with Power of Attorney with consideration. We have launched the scheme of residential bungalows as a builder. We have approved plan from AUDA for launching scheme of 53 bungalows.Q.6. when you have launched the scheme ? A.6. We have launched the scheme in the year 2010.Q.7. Whether you have received advance payment from the purchasers of the bungalows ? A.7. We are receiving advance payment from the purchasers of the bungalows in installments towards land and construction.Q.8. Whether you are paying service tax on advance payment from the purchasers ? A.8. We are paying service tax on payment received towards construction done but we are not paying service tax on advance amount received towards land value.Q.9. When the customer is paying for the advance payment against bungalow, then how you are bifurcating the advance payment between construction and land value ? A.9. We have oral agreement (understanding) with purchaser of the bungalow for the bifurcation towards land value and construction value. We are receiving whatever amount from the purchaser is taken as a land value firstly then after we execute sale deed of land in favour of purchaser of the bungalow then after whatever amount received from the purchaser is taken as a construction value and we are paying service tax on it. Q.10. When the oral agreement is for purchase of bungalow and the price is fixed for the bungalow including land, you are artificially bifurcating the advance payment into land value and construction value just to evade service tax. Please specify ? A.10. We have oral agreement (understanding) with the purchaser of the bungalow towards price of the land and construction value. We get easily bifurcation between land value and construction value in advance. Q.11. Whether you are paying service tax at full rate of duty or availing benefit of works contract composition scheme ? A.11. We are paying service tax under Works Contracts composition scheme @ 4.12% on the construction value only. 4 OIO No. 59/STC/AHD/ADC(JSN)/2012-13Q.12. You are being shown explanation to Para 3 of the notification 32/2007-ST dated 20.05.2007 of Works Contracts composition scheme for payment of service tax rules 2007 according to which gross amount charged for the works contract shall be the sum, (a) including- (i) the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise; and (ii) the value of all the services that are required to be provided for the execution of the works contract; (b) excluding- (i) the value added tax or sales tax as the case may be paid on transfer of property in goods involved; and (ii) the cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire. According to above explanation the taxable value should be of the total gross amount charged from the customers. Please specify why you have not paid service tax @ 4.12% on the total gross amount charged. A.12. We have charged amount to purchaser land value and construction value separately and we have paid service tax @ 4.12% on full gross amount of the construction value which is included material as well as services required for the execution of the works contract.Q.13. Now you are being shown brochure V2 Projects which is download from the internet. Please give the details of Amenities given in the said brochure. A.13. I state that the brochure download from the internet is of Vedant Kadam Project and as per the above brochure we have shown the following Amenities. - Lush green theme based individual garden with water features, Water harvesting system, Hot and cold water with pressure system, Purifier and pressure pump, Remote operating attractive gate for each bunglow, Attractive main entrance gate with high end security, Video door phone, Italian or equivalent flooring in drawing and dinning area, Wooden flooring in master bedroom, Centralized air conditioned by split unit, Clubhouse with health club, Indoor games, Home theater, Event lawn and paved parking area. Q.14. How you are charging from the customers for these Amenities and common area ? A.14. We have not charged separately for the Amenities and common area land as we have charged for super built up area land which is covered all common area i.e. common plot, road etc.Q.15. Who is the owner of the common area i.e. common plot, road etc. and whether you are charging separately any amount from the customers ? A.15. At present, the owner of the scheme is V Square Projects so the common area is vested with V Square Projects. We have not charged separately for the common area. 8. Further the said assessee vide their letter dated 29.03.2012 produced following documents.1. Copies of contracts for construction. 2. Copy of Income tax return, statement of income and profit & loss account for F.Y. 2010-11. 3. Copies of Sale Deed of plots. 4. Copy of registered Development Right with power of attorney. 5. Details of payments received from members against member contribution against land & member contribution against construction. 5 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 9.1 On scrutiny of the development agreement dated 30.08.2011, it was noticed that Shri Hasmukhbhai Ugarchand Gadhecha, Jitendrakumar Babulal Sanghvi, Manojkumar Prakashbhai Sanghvi, Sobhnadevi Jayantilal Sanghvi and Shri Jigarkumar Prakashbhai Sanghvi had given the 22167 square meters of non-agriculture land to M/s V square Projects to develop the land. The market price of the land had been decided as Rs.7,60,00,000/- with the consent of both the land owners and M/s V Square Projects and M/s V square projects had agreed to develop the land on its own cost. The above persons had given the rights to M/s V square projects for sub-plotting of the land and construction on the same and sale to the members of scheme. Accordingly M/s V square projects had decided to start Vedant Kadam scheme. 9.2 On scrutiny of one of the sale deed of plot no. 50 submitted by the assessee it was noticed that the above sale deed was between land owners, M/s V Square Projects (as a Developer) and Shri Dilipbhai Amritlal Patel, purchaser of the plot or proposed member of Vedant Kadam residential scheme for sale of plot no. 50 measuring 962 square yards for Rs. 25 lacs. As per para 5 of the above sale deed, Shri Dilipbhai Amritlal Patel will have to get construction from M/s V Square Projects and for that if any agreement was required, then the same will be made and if that is not made then this sale deed will be considered as null and void.Further in para 10 of the above said sale deed, it was mentioned that in future for administrative purpose, any managing committee or registered society was to be formed, then at that time it will be mandatory to become member of the society and if he does not become member of the society, then this sale deed will be null and void.9.3 On scrutiny of one of the Construction Agreement dated 30.06.2011 it was noticed that the construction agreement was made between M/s V Square Projects and Shri Dilipbhai Amritlal Patel, Plot holder of plot no. 50 of Vedant Kadam measuring 475 square meter (as super buildup) and 397-16 sq. meter of construction for Rs.47-50 lacs. As per payment terms payment of 30% within one month and remaining 70% in 15 monthly installments. Rs.2.50 lakh already paid on 09.06.2011.10. From the documents submitted by the assesses, it appeared that the sale deed of land was not independent sale of land. As per the para 2 of the sale deed it was clear that the land purchaser has to get construction of Bungalow from M/s. V Square Projects otherwise the sale deed will be null and void. Further the land purchaser have to become a member of the society otherwise also sale deed will be null and void. Thus, this is a composite contract of construction of residential (complex) Bungalows including land and it is an indivisible contract. 11.1 Further on scrutiny of the details of the amount received submitted by the assessee it was noticed that there was a difference between the amount shown received against exempted services (other than export) in ST-3 returns and amount received shown as member contribution against land as per details submitted by the assessee. The amount received against exempted services (other than export) shown in the ST-3 returns for the period April-2010 to September-2010, October-2010 to March-2011 and April-2011 to September-2011 is Rs.7,20,90,419/- and the amount received shown as member contribution against land by the said assessee is Rs.9,64,69,869/-. The service tax liability of Rs.39,74,559/- @ 4.12% was worked out on the basis of details of amount received shown as member 6 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 contribution against land provided by the said assessee as per Annexure- A attached to the Show Cause Notice. 11.2 Further on scrutiny of ST-3 return for the period April-2011 to September-2011 and the details of the amount received as member contribution against construction submitted by the assessee it is noticed that there is a difference of Rs.5 lacs between the taxable value shown in the ST- 3 return for the period April-2011 to September-2011 and details of the amount received shown as member contribution against construction. Thus, it appeared that they had not paid service tax on the amount of Rs.5 lacs received as consideration for construction of bungalow and thus they had short paid service tax of Rs. 20,600/- under the works contract service. The service tax short paid has been worked out as per Annexure-B attached to the Show Cause Notice. 11.3 The total service tax liability comes to Rs.39,95,159/- for the period April-2010 to September-2010, October-2010 to March-2011 and April-2011 to September-2011. 12. “Works Contract Service” means services provided in relation to the execution of a works contract referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act i.e. to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation – For the purpose of this clause “works contract” means a contract wherein, —(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of carrying out a) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or b) Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or c) Construction of a new residential complex or a part thereof; or d) Completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or e) Turnkey projects including engineering, procurement and construction or commissioning (EPC) projects”13. The explanation to Para-3 of Works Contract (Composition scheme for payment of Service Tax) Rules, 2007 Notification no. 32/2007-ST, Dated. 22.05.2007 is reproduced here with. Explanation-for the purposes of this sub- rule, which gross amount charged for the works contract shall be the sum, (a) including- (i) the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise; and (ii) the value of all the services that are required to be provided for the execution of the works contract; (b) excluding- (i) the value added tax or sales tax as the case may be paid on transfer of property in goods involved; and (ii) the cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire. 7 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 And further, as per Para-(4). The option under sub-rule (3) shall be permissible only where the declared value of the works contract is not less than the gross amount charged for such works contract. 14. It appeared that the said assessee was providing services in relation to the execution of works contract of construction of new residential complex named Vedant Kadam, a residential scheme of 53 bungalows and it appeared that the said assessee has availed Works Contract (Composition scheme for payment of service tax) rules, 2007 vide Notification No. 32/2007-ST dated 22.05.2007. The said assessee entered into the development agreement to develop the land on its own cost. Then the said assessee fully developed the land with road ,parking and other amenities such as attractive main entrance gate with high end security, video door phone, centralized air conditioner by split unit, clubhouse with health club, indoor games , home theater, event lawn etc. and the cost of land includes common area, road, parking and other facilities which were fully developed with common amenities by the said assessee which involves service portion also and as such the entire cost of the land is to be charged as a part of works contract value. The said assessee has received payments in installments from its clients and accordingly the said assessee was required to pay Service Tax on the above payments received in installments from the customers. However, it appeared that to evade Service Tax they have shown the above advance payments received from customers towards land value and they have not paid Service Tax on the payments received from customers in installments. The said assessee was engaged in construction of residential complex and not engaged in selling of land to the clients. The clients were paying installments against bungalows being constructed by the said assessee which includes land, construction, fully developed common area, road, parking and other amenities such as remote operating attractive gate for each bungalow, attractive main entrance gate with high end security, video door phone centralized air conditioned by split unit, clubhouse with health club, indoor games, home theater, event lawn etc. The construction of bungalows was an integrated/composite contract. It is not a case of selling land to the clients. It is a case of construction of bungalows.15. It appeared that the said assessee artificially bifurcated the composite contract into land contract and construction contract. The documents titled as sale deed and construction contract are nothing but a colorful device to evade service tax as in reality there is only one contract for construction of residential complex (Bungalows). It is inseparable. A breach of promises of first contract is breach of second contract and vice versa. It appeared that the two contracts survive and die together. Therefore the said assessee was liable to pay service tax on total value of contract received from the clients. Section 67 of the Finance Act, 1994 provides that where service tax is chargeable on any taxable service with reference to its value then such value shall “in a case where the provision of service is for consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him”. The said assessee just to evade service tax artificially bifurcated the amount received from the clients between the value of the land and value of the construction and they haven’t paid service tax amounting to Rs.39,95,159/-. It appeared that works contract composition scheme is available only to such contracts where the gross value of the contracts includes value of all the goods used in or in relation to execution of works contract whether received free of cost or for consideration under any other contract. Therefore the value of the construction of bungalows includes the value of land whether it is shown sold separately. 8 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 16. 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. The said assessee has contravened the provisions of the said section as they have failed to make the payment of service tax amounting to Rs.39,95,159/- including Ed. Cess and Sec. and Higher Ed. Cess as explained in foregoing para for the services provided during the period April-10 to September-10, October-10 to March- 11 and April-11 to September-11 to the credit of the Government within stipulated time limit. 17. It is provided under Section 70 of the act that ‘every person liable to pay the service tax shall himself assess the tax due on the service provided by them and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and as such frequency’. The form, manner and frequency are prescribed in Rule 7 of the rules. The said assessee filed ST-3 return for the period April-2010 to September-2010 on 28.05.2011 which was to be filed on or before 25.10.2010. Therefore the said assessee liable to pay prescribed late fee of Rs.20,000/- under section 70 of the Finance Act, 1994 read with rule 7(c) of the service tax rule, 1994. Further the said assessee filed ST-3 return for the period October-2010 to March- 2011 on 28.05.2011 which was to be filed on or before 25.04.2011. Therefore the said assessee liable to pay late fee of Rs.1,400/- under section 70 of the Finance Act, 1994 read with rule 7(c) of the service tax rule, 1994. Further the said assessee filed ST-3 return for the period April-11 to September-11 on 15.02.2012 which was to be filed on or before 20.01.2012 Therefore the said assessee liable to pay late fee of Rs.1000/- under section 70 of the Finance Act, 1994 read with rule 7(c) of the service tax rule, 1994.18. In the instant case the said assessee has not assessed the tax due on the service provided by them correctly and also not furnished the correct details in the ST-3 Return filed by them and have thus short paid the service tax of Rs.39,95,159/- and thereby violated the provisions of Section 70 of the act and Rule 7 of the rules.19. It appeared that the said assessee has artificially bifurcated the amount received from the customers as the amount against sale of land and they have not paid proper Service Tax on the gross value received for the period April-10 to September-10, October-10 to March-11 and April-11 to September-11 The said assessee has thus short paid service tax amounting to Rs.39,95,159/ and thereby violated the provisions of the Section 68 of the act and Rule 6 of the service tax rules 1994.20. Scrutiny of ST-3 returns filed by the said assessee during the corresponding period revealed that the said assessee has not declared the correct amount received in their ST-3 returns nor discharged their Service Tax liabilities as discussed in the foregoing paras of the 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 miss-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. All the above acts of contravention of Finance Act, 1994, as amended and Rules made there under, on the part of the said 9 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 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. 21. It appeared that the said assessee has not disclosed full, true and correct taxable value for the services provided by them. 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. 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 and 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of Section 78 of the Finance Act, 1994 as amended from time to time.22. The failure on the part of the said assessee to make the payment of service tax as discussed above attracts penalty under Sec. 78 in addition to the interest payable under Sec. 75 of the Finance Act, 1994.23. Therefore, the said service provider M/s. V Square Projects 206, Shanti Arcade, 132 FT. Ring Road, Nr. Akash-III Flats, Naranpura, Ahmedabad was called upon to show cause to the Additional Commissioner, Service Tax, 1st Floor, ‘Central Excise Bhavan’, Near Government Polytechnic, Ambawadi, Ahmedabad as to why: - (i) The amount of land contribution received from the members should not be considered as the taxable value;(ii) the amount of Service Tax of Rs.39,95,159/-(Rupees Thirty Nine Lakh Ninety Five Thousand One hundred Fifty Nine Only) (including education cess) not paid by the assessee, should not be demanded and recovered from them under Section 73(1) of the Finance Act 1994;(iii) interest, at appropriate rate, should not be charged upon them under section 75 of the Finance Act 1994;(iv) Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994, for suppressing the value of taxable services provided by them before the department with intent to evade payment of Service Tax; and(v) late fee of Rs.22,400/- (Twenty Two Thousand Four Hundred only) should not be demanded and recovered from the under Section 70 of the Finance Act, 1994 read with Rule 7(c) of the service tax rules, 1994 for delayed furnishing of ST-3 returns.Defence Reply24. While replying to the show cause the assessee stated that they were registered under “works contract service” with service tax department. They have undergone to writ petition before the Gujarat High Court for the service tax therefore they paid service tax and filing of the service tax returns ( ST – 3 ) considered as “ Under Protest”. 10 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 25. They have also informed that they are doing business as a real estate business and contractor i.e. they purchase the land, after complete all formalities like NA / NOC, Approved Plan by local Authority etc. they sell the plots of the land separately. They are also providing works contract services to member / purchaser separately, undergone works contract with respective member / purchaser through construction agreement with specific consideration. They also undergone works contracts composition scheme for the payment of the service tax. The assessee further stated that they also paid service tax and filing of the service tax returns ( ST -3 ) within stipulated time limit as prescribed under service tax act.They have further quoted the following clarification in regard to work contract services. “ Works contract service” means as per Sub clause (zzzza) of section 65(105) of the act defines the taxable service as any service provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.Explanation: for the purpose of this sub clause, works contract means a contract wherein, 1. Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods,2. Such contract is for the purpose of carrying out, A. Erection, commissioning or installation of plant, machinery, equipment or structure whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircase or elevators; or B. Construction of a new building or a civil structure or a part thereof or of a pipeline or conduit, primarily for the purposes of commerce or industry or C. Construction of new residential complex or part thereof; or D. Completion and finishing services, repair, alteration, renovation or restoration of or similar services, in relation to (b) and (c); or E. Turnkey projects, including engineering, procurement and construction or commissioning (EPC) projects, As per para 9.1 of MF(DR) circular no. B1/16/2007 TRU dated 22-5- 2007 clarifies as follows: ‘works contract is a composite contract for supply of goods and services, a composite works contract is vivisected and,1. Vat / sale tax is leviable on transfer of property in goods involved in the execution of works contract. ( Article 366 (29A) (b) of the constitute of India ) and 2. Service tax will be leviable on service provided in relation to the execution of works contract. As per para 9.10 of MF (DR) circular no. B1/16/2007 TRU dated 22-5- 2007 clarifies as follows, 11 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 ‘contracts which are treated as works contract of the purpose of levy of VAT / Sales tax shall also be treated as works contract for the purpose of levy of service tax. This is clear from the definition under section 65 (105) (zzzza)’.Works contract describes the nature of activity more specifically than construction service and hence (construction activity on which works contract tax has been paid ) would be classified under works contract service as per provisions of section 65A – MF (DR) circular no. 128/10/2010 ST, dated 24/8/2010 issued by TRU.  The service provider can pay service tax 4% on gross amount charged for the works contract ( in addition education cess and SAH education cess will be payable) the ‘gross amount‘ shall be exclusive of VAT/Sales tax payable on the goods involved in works contract. The ‘gross amount‘ will include value of material plus services. The definition of ‘gross amount charged for works contact’ has been revamped with effect form 7-7-2009. As per Explanation to para 3 ‘gross amount charge’ is as follows –Gross amount charged for the works contract shall be the sum, a. Including (i) the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise, and (ii) the value of all the services that are required to be provided for the execution of the works contract. b. Excluding (i) the value added tax or sales tax as the case may be paid on transfer of property in goods involved, and (ii) the cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire. In Builders Association of India vs. UOA AIR 1989 SC 1371, it was held that sales tax cannot be imposed on full value of contract. The tax is on ‘transfer of property in goods involved in execution of works contract’. Thus tax on works contract can be levied only on ‘ value of goods involved ‘ and not on whole value of works contract. Now therefore, on the above discussion it is very clear that in works contract service, the service tax charged on the ‘gross amount is the value of transfer of property in goods involved in execution of works contract’. They have contract ( construction agreement ) with member / purchaser with specific consideration for the construction service and they discharged their service tax liability on that amount, therefore, the amount of land contribution received from the member / purchaser should not be added in the value of the works contract for the purpose of the discharge of service tax liability. As they have discharged their service tax liability on gross value of the contract ( as define above ) under composition scheme rate @ 4.12% , therefore they are not liable to penalty U/s. 78 and interest U/s. 75 of the Finance Act, 1994. They also informed that learned authority has not taken into account of service tax paid by them on contract value (construction contribution) Rs. 9350000/- and 11600000/- of April to June 2011 and July to September 2011 respectively.They therefore requested to consider the above facts while deciding the case. 12 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 PERSONAL HEARING26 An opportunity of hearing was granted to the assess on 5.2.2013 but it was represented by them to postpone the hearing. Accordingly, another date of hearing was granted on 18.2.2013. Shri Kalpesh R. Patel, C.A appeared for the hearing on behalf of the assessee and argued the case. He filed a written submission dated 16.2.2013 which is taken on record.DISCUSSION AND FINDINGS.27 I have carefully gone through the case records, written submissions and the arguments made at the time of personal hearing. I find that the core issue to be decided in this case is whether value of land is to be included in the gross value or otherwise, under “works contract service”.Section 65(105) of the Finance Act, 1994 provides definition of works contract service as under:“ Works Contract Service” means services provided in relation to the execution of a works contract referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act i.e. to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation – For the purpose of this clause “works contract” means a contract wherein, —(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of carrying out a) Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or b) Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or c) Construction of a new residential complex or a part thereof; or d) Completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or e) Turnkey projects including engineering, procurement and construction or commissioning (EPC) projects”The explanation to Para-3 of Works Contract (Composition scheme for payment of Service Tax) Rules, 2007 Notification no. 32/2007-ST, Dated. 22.05.2007 is reproduced here with. Explanation-for the purposes of this sub- rule, which gross amount charged for the works contract shall be the sum, (a) including- (i) the value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise; and (ii) the value of all the services that are required to be provided for the execution of the works contract; 13 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 (b) excluding- (i) the value added tax or sales tax as the case may be paid on transfer of property in goods involved; and (ii) the cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire.28 During the entire defence of the said assessee, I find that they never disputed the fact that application of service tax under works contract service was on gross value. Their only arguments is that since there are two agreements, one for transfer of land and another for construction of house, the land value was to be excluded from application of service tax. On perusal of the documents submitted by the assessee it is observed that there are two agreements that have been executed between the said asseesee and their clients, one for the sale of land and another for construction of house. Further, it is observed that land purchaser has also to get bungalow constructed from M/s. V. Square Projects only and no one else, otherwise the sale deed of land would be null and void. Further the land purchaser have also to become a member of the society otherwise also sale deed will be null and void. It thus clearly points to the fact that contract for construction of residence is inter connected with the land transaction and is an indivisible contract. 29. On a specific query, Shri Sureshbhai Mithabhai Patel, Partner of M/s. V Square Projects in his statement stated that they are receiving advance payment from the purchasers of the bungalows in installments towards land and construction but paying service tax only on construction done and not on land cost. Regarding bifurcation of advance payment between construction cost and land value, it was stated that they had oral agreement with the purchaser of the bungalow for the bifurcation towards land value and construction value. Whatever amount received from the purchaser is taken as a land value firstly, then after they execute sale deed of land in favour of purchaser of the bungalow. Then after whatever amount received from the purchaser is taken as a construction value and are paying service tax on it. 30. From the above statement, it is crystal clear that the noticee company is not paying service tax on the gross value of the bungalow as per works contracts. As per composition scheme, the rate of tax under composition is on gross value of the contract. It is further clarified that gross value does not include the amount paid by the contractor as VAT and Sales Tax. If the contractor had not made two agreements i.e. one for transfer of land and another for construction of bungalow, the gross value would have been inclusive of land value and was to pay tax on that value. It indicates that the assessee artificially bifurcated the advance payment into land value and construction value even though there is no such bifurcation/agreement/contract. The following points emerges from the agreements/sale deed executed by the said assessee:(i) In the development agreement dated 30.08.2011, it is observed that Shri Hasmukhbhai Ugarchand Gadhecha, Jitendrakumar Babulal Sanghvi, Manojkumar Prakashbhai Sanghvi, Sobhnadevi Jayantilal Sanghvi and Shri Jigarkumar Prakashbhai Sanghvi were given 22167 square meters of non-agriculture land to M/s V square Projects to develop the land. The market price of the land had been decided as Rs.7,60,00,000/- with the consent of both the land owners and M/s V Square Projects. M/s V square projects had agreed to develop the land on its own cost. The 14 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 above persons have given the rights to M/s V square projects for sub plotting of the land and construction on the same and sale to the members of scheme. Accordingly M/s V square projects had decided to start Vedant Kadam scheme. (ii) On perusal of one of the sale deed of plot no. 50 submitted by the assessee it is noticed that the sale deed is between land owners, M/s V Square Projects (Developer) and Shri Dilipbhai Amritlal Patel, purchaser of the plot or proposed member of Vedant Kadam residential scheme for sale of plot no. 50 measuring 962 square yards. (iii) As per para 5 of the above sale deed, Shri Dilipbhai Amritlal Patel will have to get construction from M/s V Square Projects and for that any agreement is required, then the same will be made and if that is not made then this sale deed will be considered as null and void. (iv) In para 10 of the above said sale deed, it is mentioned that in future for administrative purpose, any managing committee or registered society is to be formed, then at that time it will be mandatory to become member of the society and if he does not become member of the society, then this sale deed will be null and void. (v) On going through one of the Construction Agreement dated 30.06.2011 it is noticed that the construction agreement is made between M/s V Square Projects and Shri Dilipbhai Amritlal Patel, Plot holder of plot no. 50 of Vedant Kadam measuring 475 square meter (as super buildup) and 397-16 sq. meter of construction for Rs.47-50 lacs. As per payment terms, 30% of payment has to pay within one month and remaining 70% in 15 monthly installments. 31. Thus from the documents submitted by the assesses, it is apparent that the sale deed of land is not independent sale of land. As per the para 2 of the sale deed it is clear that the land purchaser has to get construction of Bungalow from M/s. V Square Projects otherwise the sale deed will be null and void. Further the land purchaser has to become a member of the society otherwise also sale deed will be null and void. Thus, this is a composite contract of construction of residential (complex) Bungalows including land and it is an indivisible contract. 32. I find that the said assessee was providing services in relation to the execution of works contract of construction of new residential complex named Vedant Kadam, a residential scheme of 53 bungalows and that the said assessee has availed Works Contract (Composition scheme for payment of service tax) rules, 2007 vide Notification No. 32/2007-ST dated 22.05.2007. The said assessee entered into the development agreement to develop the land on its own cost. Thereafter, the said assessee fully developed the land with road parking and other amenities such as attractive main entrance gate with high end security, video door phone, centralized air conditioner by split unit, clubhouse with health club, indoor games , home theater, event lawn etc. and the cost of land includes common area, road, parking and other facilities which were fully developed with common amenities by the said assessee which thus involves service portion also and as such the entire cost including land is to be charged as a part of works contract value. The said assessee has received payments in installments from its clients and accordingly they were required to pay Service Tax on the above payments received in 15 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 installments from their customers. However, to evade Service Tax they have shown the above advance payments received from customers towards land value and they have not paid Service Tax on the payments received from customers in installments. The assessee was engaged in construction of residential complex and not engaged in selling of land to the clients. The clients were paying installments against bungalows being constructed by the said assessee which includes land, construction, fully developed common area, road, parking etc. Therefore, I hold that the construction of bungalows was an integrated/composite contract. It is not a case of selling land to the clients. I therefore come to the conclusion that the said assessee artificially bifurcated the composite contract into land contract and construction contract. The documents titled as sale deed and construction contract are nothing but a colorful device to evade service tax as in reality there is only one contract for construction of residential complex (Bungalows). It is thus , inseparable. A breach of promises of first contract is breach of second contract and vice versa. The two contracts survive and die together. Therefore the said assessee was liable to pay service tax on total value of contract received from the clients. Section 67 of the Finance Act, 1994 provides that where service tax is chargeable on any taxable service with reference to its value then such value shall “in a case where the provision of service is for consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him”. The said assessee has, just to evade service tax artificially bifurcated the amount received from the clients between the value of the land and value of the construction and they have not paid service tax amounting to Rs.39,95,159/-. 33. It transpires from the agreements made between builder and the members of the society that the construction work of the entire project was to be carried out by the said assessee only. Their contention that the tax was to be paid on the value of bungalows which does not include land value is not tenable. Further the transfer of land in the individual’s name is without any right to construct the house. The agreement of land transfer was made in such a manner that the right to construct the house is again left with assessee. In short it is made clear that the entire work is a composite work, but the assessee tried to split it in a fictitious way by doing two agreements as discussed above. 34. Thus, I find that there is a calculative and systematic move on the part of the assessee by making two agreements between M/s. V Square Projects and their clients. One agreement makes the other one effective as well as null and void. The two agreements are integral to each other and cannot be read in isolation to each other. In fact the agreement is one whole and can be treated as one only.. 35. In this connection, I refer to the case law of M/s ALSTOM PROJECTS INDIA LTD. Versus COMMISSIONER OF SERVICE TAX, DELHI reported at 2011 (23) S.T.R. 489 (Tri. - Del.), wherein the issue was regarding taxability in case of an indivisible work contract. The Hon’ble Tribunal, in a landmark judgment , taking into account the judgements of M/s. Daelim Industrial Co. Ltd. {2004 (170) E.L.T. A181 (S.C.)}, M/s. Larsen & Toubro Ltd.{ 2006 (4) S.T.R. 63 (Tri. – Mumbai)} and M/s. Petrotac International Ltd. { 2006 (4) S.T.R. 63 (Tribunal)} held as under : 16 OIO No. 59/STC/AHD/ADC(JSN)/2012-13 Works contracts - Lump sum turnkey (LSTK) work contract or engineering, procurement and construction/commissioning (EPC) projects - Services provided as part of such contracts are liable to Service tax, since Section 65(105) or 66 of Finance Act, 1994 does not say that for attracting Service tax, services must be standalone activity - If it is indivisible work contract for particular service, that service is taxable under Section 65(105) ibid and question whether work contract is divisible or indivisible is irrelevant - If contract is a composite/divisible, for supply of goods and providing of service, services will attract tax under Section 65(105) ibid - For this purpose, charging of lump sum price or single point responsibility for performance of contract, is immaterial. - On going through the Tribunal’s judgment in cases of M/s. Daelim Industrial Co. Ltd., M/s. Larsen & Toubro Ltd. and M/s. Petrotac International Ltd. we find that the basis of these judgments is the preposition that a “work contract cannot be vivisected and part of it subjected to tax”. This preposition itself is fallacious. A work contract is a contract for work and labour i.e. a service contract. If it is an indivisible service contract and the service is taxable under Section 65(105); service tax would be chargeable. If it is a divisible/composite contract involving sale as well as service, the service part, if taxable under Section 65(105) of the Finance Act, 1994 would be taxable. Thus for the purpose of charging service tax, the question of divisibility or indivisibility of the work contract, which is nothing but a service contract, is irrelevant. The moment a work contract is called indivisible, the question will arise as to work contract for what? The indivisible work contract would certainly be for some service and if that service is taxable service tax would be attracted. The question of vivisection of an indivisible work contract is relevant only in the context of charging sales tax on the transfer of property in goods involved in providing of service, for which by 46th Constitutional amendment Article 366(29A) containing extended definition of “Tax on sale or purchase of goods” was introduced. But there is no need to invoke the legal fiction of Article 366(29A) for charging service tax on a work contract. [paras 4.3, 4.4.1](emphasis added)36. The assessee have relied upon a case law of Builders Association of India Vs. UOA AIR 1989 SC 1371 which is not relevant in the instant case, in view of the above judgment of the Hon’ble Tribunal in the case M/s ALSTOM PROJECTS INDIA (supra).37. From the above and looking to the nature of the contract, I come to the conclusion that the entire contract as such was a single contract and value inclusive of land should be treated as gross value of bungalows for the purpose of charging Service Tax. 38. I also find that the said assessee has contended that the service tax payment of Rs. 93,50,000/- and Rs. 1,16,00,000/-, made by them on Contract Value (Construction contribution) has not been taken into consideration. I find that the instant case is that of short payment/non- payment of service tax by the said assessee on the Gross Value, which is sum total of the Land Value and the Construction value, since it has been established to be an indivisible contract, in view of the findings in the foregoing paras. Therefore, the differential service tax has been demanded on the land value only. Thus there is a short payment of service tax and the differential service tax amount is demanded in the show cause notice. 17 OIO No. 59/STC/AHD/ADC(JSN)/2012-1339. In view of the above discussions and findings, I confirm the demand of Rs. 39,95,159/- under the category of “Works contract” and the same is to be recovered along with interest from the said assessee under Section 73 of the Finance Act, 1994 read with Section 75 of the Act. 40. With regard to imposition of penalty under Section 78 of the finance Act, 1994 for suppression and concealing the gross value from the department with sole intention of evading the tax, I find that the assessee has concealed the gross amount and have not included a part of it in the taxable value and have actually evaded tax to that extent and therefore, are liable to penalty under Section 78 of the Finance Act, 1994. The noticeee was under legal obligation to determine and discharge their service tax liability in accordance with law. Failure to do so is clearly with deliberate intent to evade the tax as there is an active arrangement to evade tax by creating two agreements (artificially) even though in substance for execution purpose it is only one. Because without the one other cannot be executed. Therefore, I impose penalty on the noticee under the provisions of Section 78 of the Finance Act, 1994. And for the same reasons, larger period of five years is invokable in this case. 41. Regarding late fee under Section 70 of the fiancé Act, 1994 read with Rule 7(c) of the Service Tax Rules, 1994 for delay in furnishing ST-3 returns, the assessee has to submit the prescribed return to the department in time failure in doing so attracts penalty of late filing of return. Since the assessee has not shown any sufficient cause for failure to submit the return, I hold that they are liable for penalty under Section 70 of the Finance Act, 199442. In the light of aforesaid findings, I pass the following order:ORDER(i) I consider the gross amount received by the assessee from their clients as taxable value. (ii) I confirm the demand of Service Tax amounting to Rs. 39,95,159/- (Rupees Thirty Nine Lakh Ninety Five Thousand One hundred Fifty Nine Only) (including education cess) under Section 73(1) of the Finance Act 1994; (iii) I confirm the interest, as applicable, on the confirmed Service Tax liability of Rs 39,95,159/- under Section 75 of the Finance Act, 1994. (iv) I impose a penalty of Rs. 39,95,159/- (Rupees Thirty Nine Lakh Ninety Five Thousand One hundred Fifty Nine Only) under section 78 of the Finance Act, 1994. The assessee shall have an option to pay the confirmed demand alongwith interest within 30 days of this order and upon such payment the penalty under this section shall stand reduced to 25% provided this 25% penalty is also paid within 30 days. (v) I impose the late fee of Rs. 22,400/- (Rupees twenty two thousand four hundred only) under Section 70 of the Finance Act, 1994 read with Rule 7(c) of the service tax rules, 1994 for delayed furnishing of ST-3 returns.(J S NEGI ) ADDITIONAL COMMISSIONER, SERVICE TAX, AHMEDABAD. 18 OIO No. 59/STC/AHD/ADC(JSN)/2012-13BY REGISTERED AD. / HAND DELIVERY F.No.STC/4-107/O&A/ADC/D-II/11-12 Date: 22.03.2013. To,M/s. V Square Projects 206, Shanti Arcade, 132 FT. Ring Road, Nr. Akash-III Flats, Naranpura, AhmedabadCopy to:1. The Commissioner, Service Tax, Ahmedabad (Attn. RRA Section)2. The Assistant Commissioner, Division-II, Service Tax, Ahmedabad.3. The Range Supdt., Service Tax, Range-VI, Ahmedabad ( along with extra copy of OIO to be served to the assesses and send the acknowledgement to this office.)4. Guard File / Office copy.

OIO No. 59/STC/AHD/ADC(JSN)/2012-13

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