Chennai CESTAT: No Tax Liability On Buildings Constructed Less Than 12 Flats Before 1st July 2010

The Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that no tax liability is there on the petitioner for the impugned flats made before July 1, 2010, that has less than 12 units or flats.

The bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) witnessed that just four residential units or flats were constructed in the same matter and therefore, under this alone, the petitioner’s case does not get covered beneath the definition of residential units as the definition shields any complex of a building or buildings having more than 12 residential units.

On May 2, 2008, there was a development agreement between the petitioner and the developer for the construction of a residential complex or apartment, in which Rs. 29,31,752 was filed before the developer for service tax.

The petitioner furnished the refund application assuming that no tax obligation was there claiming a refund of the aforesaid service tax filed before the developer, which resulted in the issuance of an SCN by the Revenue.

The matter was carried out for adjudication, and, per order, the adjudicating authority denied the refund claim. According to the original authority, the service tax was filed for the work contract service furnished via the developer, which was very much in order.

The petitioner filed a petition to the first appellate authority and denied the petition by sustaining the rejection order. In the appeal order, the first appellate authority claimed that the only receiver of service was the appellant, the developer initiated the activity of construction dated 31.5.2013, and on 24.9.2015 the invoice was raised and therefore towards the taxation rules the service was furnished post 01.07.2012.

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FAA observed from the invoice issued via the developer that despite the state VAT was indeed filed and the service tax was paid during the relevant rate of the service contract.

The FAA concluded that the appellant’s claim that the construction brought by the developer shall come under residential complex service as the argument that the number of units was less than 12 did not have any weight. On March 4, 2013, the plan approval was received, and the construction activity began on June 31, 2013, the explanation inserted to the tax works contract service w.e.f July 1, 2010, applied to the appellant’s case.

The same is against this order that the present petition has been preferred by the assessee. The petitioner argued that even the definition of the residential complex is not pleased as just a few, i.e., less than 12 units or flats, were constructed, and therefore, for any levy, the same must be a residential complex including more than 12 residential units or flats, and hence, there was no obligation to service tax.

Even otherwise, the development and construction of residential units were planned for personal use, and therefore, under the CBEC circular No. 108/2/2009-ST clarification the construction for personal use shall counted under the exclusion portion of the definition of a residential complex as described u/s 65(91)(a) of the Finance Act 1994.

As per the tribunal no tax obligation was there on the petitioner for the impugned flats made before 1st July 2010 that have less than 12 units and therefore the claimed refund via the petitioner was very much in order. In denying the valid refund claim the council has erred and lastly, the order could not be kept.