Sumeet C Tholle & Pratima S. Tholle vs Aurangabad

[Arising out of Order-in-Appeal No: AV(211)229/2014 dated 30th September 2014 passed by Commissioner of Central Excise & Customs (Appeals), Aurangabad.]

For approval and signature:

Honble Shri C J Mathew, Member (Technical)

1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? :

Yes

2. Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? : Yes 3. Whether Their Lordships wish to see the fair copy of the Order? : Seen 4. Whether Order is to be circulated to the Departmental authorities? : Yes

Sumeet C Tholle & Pratima S. Tholle

Appellant Vs

Commissioner of Central Excise & Customs

Aurangabad

Respondent

Appearance:

Appellant in person

Shri S V Nair, Asstt. Commissioner (AR) for the respondent

CORAM:

Honble Shri C J Mathew, Member (Technical)

Date of hearing: 21/08/2015 Date of decision: 18/02/2016

ORDER NO: ____________________________

Shri Sumeet Tholle and Smt Pratima S Tholle are jointly in appeal against order-in-appeal no. AV(211)229/2014 dated 30th September 2014 passed by Commissioner of Central Excise & Customs (Appeals), Aurangabad, concurring with the Assistant Commissioner of Central Excise & Customs (Service Tax), Aurangabad in rejecting the claim for refund of service tax alleged to have been collected from them contrary to law. 2. The appellants had jointly procured a house in the project of M/s AM Patel Infra (P) Ltd at Satara vide sale deed of 31st December 2013 and, along with the purchase price, were asked by the vendor to pay service tax of Rs 2,59,700 for which receipt dated 27th March 2014 is in possession of the appellant. It would appear from the sale deed dated 31st December 2013 that the vendor is the owner of the entire land and had obtained approvals for execution of a group housing scheme comprising 50 bungalows, 108 apartments and 14 shops with common facilities. One such three-storied bungalow, along with proportionate undivided interest in the common areas and facilities, was sold to the appellants jointly for a consideration of Rs 70,00,000.

The agreement also insisted upon issue of two cheques for discharge of service tax and VAT liability for Rs 2,59,700 and Rs 70,000 respectively. From the records, it appears that M/s AM Patel Infra Private Ltd has been registered as a provider of construction of residential complex service since 10th August, 2010. 3. The appellant sought refund of tax claiming that this transaction was not liable to tax. The Assistant Commissioner rejected the refund claim on the ground that the joint application did not enclose proof that the tax paid by them had indeed been deposited to the credit of the government by the vendor of the property; that the plan of the house was such that, with minor alterations, it could altered in such a way that it could become three separate units; and on the further ground that the project of vendor was not restricted to their residential unit but was a larger complex of which their residence was only a part. 4. In the impugned order, the first appellate authority held that vendor/promoter had constructed an entire complex and, therefore, discarded the claim of the appellants that house was not liable to service tax.

Relying on the presumption that the project must have been in execution since 2010, reference was made to section 65(105)(zzzh) of Finance Act, 1994 and definitions in section 65(91a) of Finance Act, 1994 to conclude that the house was part of complex containing more than twelve units; that building permissions were obtained for the whole and not separately for the house; and, there being no contract between the builder and appellant, it was not possible to accept their claim of having contracted for construction of a single residential unit. It goes on to argue that the taxability and classification had been settled by the promoter during the construction before the appellants entered into the picture and it was not open to the buyer to seek an alteration in classification. Further, it holds that the contention of the appellant for escapement from tax by reliance on the decision of the Honble Supreme Court in re Larsen & Toubro [(2013) 41 STT 113 (SC)] i.e. if contract with flat purchaser is entered only after construction is completed, goods used in the construction cannot be deemed to have been sold by the builder since at that time there is no purchaser and no VAT can be levied is not admissible owing to the definition in section 65 that deems a service to have been rendered if payments had been made before issuance of completion certificate.

5. A ground for rejection of application for refund was the lack of evidence that tax had been credited to the Consolidated Fund of India. The regime of indirect taxation entrust the responsibility for deposit of tax with the supplier of goods or services. Such responsibility cannot be alienated even if the supplier is unable to collect the tax from the recipient of goods or services. To eliminate the risk of potential liability, suppliers would not concede to any doubt of taxability on the part of the recipient. A recipient of goods or services who is, thus, compelled to be taxed at a metaphorical gunpoint cannot be expected to insist upon being furnished with proof of subsequent deposit of the amount in government account. Tax authorities are also surely not oblivious that consolidated remitting of tax by service provider subsumes the tax collected from each recipient; that no marker can ever identify the contribution of the appellant to the tax kitty. Insistence upon on such evidence, especially in a scheme that bars the taxpayer from claiming refund when the incidence is borne by another, appears to be without purpose.

It is, therefore, mystifying that the original authority conceived of this objection while processing the claim for refund. An applicant for refund can only establish that tax has been included in the amounts made over to the supplier; the tax authority, with its spread and reach, is empowered by statute to initiate action for recovery of the tax that was collected by the supplier if there be any dereliction in deposit. Recovery of tax collected but not deposited and sanction of refund of tax collected are independent actions the former does not lend itself as pre-condition for proceeding with the latter. Evidence of payment of tax is a necessary condition for refund but not evidence of deposit. The original authority should have limited its satisfaction to the tendering of tax amount by the appellants to the supplier which is the condition in section 11B of Central Excise Act, 1944. By the imaginative exclusion from the definition of single residential unit in 2(ze) of notification no. 25/2012-ST dated 20th June 2012, the original authority has clearly exhibited its disinclination to consider the refund claim on merit i.e. the taxability of the transaction.

It is not the plan of the house or its potential that determines coverage under this definition. In practical terms, the specific transaction entered into is that of the appellants who are a family. The definition does not encompass determination of size, the number of doors or the adaptability at a future date; a future transaction will be adjudged for taxability only when it occurs. These flaws in the order of the original authority have not been addressed by the first appellate authority. These findings are not tenable in resolution of the dispute before the Tribunal. 6. The finding in the impugned order that the taxability had been settled before the appellants were made to pay the tax along with purchase price is not consistent with the provisions of Finance Act, 1994. Service tax is not levied on the persona of a business entity but on each separate activity for which consideration is received by a provider from a recipient of the service. The vendor may have borne the incidence of tax in the course of constructing the house purchased by the appellants. No refund of that has been sought in this claim.

Refund sought is merely that of the tax paid along with the consideration for the purchase of the property. There is, therefore, no basis for the conclusion by the first appellate authority that taxability is a settled issue. The incidence of tax has been borne by the appellants and it is well within their rights to claim that the transaction is not taxable. Constitutional authority to collect tax is not vested in a service provider but in the proper officer who is not expected to alienate the responsibility to determine the taxability. It is also seen that the transaction pertains to the period after June 2012; it is clearly enunciated in the findings of the lower authority that there is no evidence of any contract preceding the sale agreement. In the absence of such an agreement, attempt to rely on section 65 of Finance Act, 1994, which had ceased to be in force after June 2012, is not legally sustainability. The wisdom of an erstwhile legislation may, undeniably, provide insights into a prevailing legal provision but recourse to that erstwhile statute to refute contentions of a disputant is without authority of law.

Presumptions of construction having occurred prior to the date of transaction is neither relevant nor acceptable in tax determination. 7. Casting aside the above issues that were relied upon to dispose the claim, denial of the refund by the two lower authorities appears to rest on two main planks: (a) that the house purchased by the applicant is part of a housing scheme and (b) that the purchase price was paid by the applicants before the competent authority issued a completion certificate and hence taxable. 8. Refuting the grounds relied upon by the lower authorities, the appellant contends that service tax can be levied only in relation to construction of buildings comprising more than twelve residential units and will not apply even if there are many buildings in a complex as long as each has no more than the stipulated twelve units. The decisions in Commissioner of Service Tax v Macro Marvel Projects Ltd [2012 (25) STR J 154 (SC)], Macro Marvel Projects Ltd v Commissioner of Service Tax [2008 (12) STR 603 (CESTAT-Chennai)], AS Sikarwar v Commissioner of Central Excise, Hyderabad [2012 (28) STR 479  CESTAT Delhi], Sai Teja Construction v Commissioner of Central Excise, Hyderabad [2013 (31) STR 291  CESTAT Bangalore] and Arihant Construction v Commissioner of Central Excise, Jaipur II [2013 (30) STR 64 (Tri Delhi)] were cited in support.

Attention was also drawn to circular no. 201/01/2014-CX.6 dated 20th June 2014 that was allegedly ignored by the two lower authorities. Citing notification no. 25/2012-ST dated 20th June 2012, appellant contends that paragraph 14(b) exempts single residential unit otherwise than as a part of a residential complex from the ambit of service tax. It was also submitted that all single residential units, whether single-storeyed or multi-storeyed, are eligible for the cited exemption and that being provided with access to common facilities in return for monetary contribution for maintenance would not detract from the description of the purchased property as a single residential unit. Relying on the decision in Larsen & Toubro v State of Karnataka referred to supra, it was claimed that their transaction with the builder was sale of immoveable property and not for receiving of a service. 9. Learned Authorized Representative reiterated the findings of the lower authorities and contended that the exemption at sl no. 14 in notification no. 25/2012-ST dated 20th June 2012 was intended to eliminate tax burden on those who get a residential unit constructed by a contractor whereas the building of the appellant was one in a group housing project.

10. This is a dispute that has arisen because the service provider is, in the normal course of its business, liable to tax under Finance Act, 1994. In the erstwhile tax regime that prevailed prior to June 2012, a registered service tax assessee could provide a service without collecting tax if the activity was believed to be outside the scope of any of the services in section 65 of Finance Act, 1994. With the introduction of negative list regime, service providers, being uncertain about coverage under the definition of taxable service in section 65B (44) of Finance Act, 1994, prefer to avoid the risk of being burdened with recovery proceedings on a later date. Such collection is never to their detriment and the person who bears the incidence of tax is entitled to claim a refund. More so, when the tax liability, such as in housing ventures, is not likely to be negligible 11. The size of the construction industry and the multifarious services that have emerged to cater to that sector is such as cannot be ignored in public finance. More so, with the emergence of the developer as an intermediary  an enlargement of the business of contractor.

Developers are a one-point interface between the ultimate user and the various providers that at one time had to be contracted individually, whether for residential or commercial purposes. Ease of taxation was a spinoff from this emergence. The levy of tax under Finance Act, 1994 has seen many repairs to the statutory provisions to plug the various leakage points that were found while administering the tax. Crafting of the tax provisions posited a dilemma arising from the peculiar characteristics of the industry and the need to fence out some beneficiaries of the service from the tax net. The findings of the two lower authorities appear to have stemmed from this dilemma. 12. Shelter is a fundamental and age old human need. For many, it is a dream that takes time for fulfillment. Taxing of such a need would not only be heartless but also pit the state against its citizens. More so, considering the concept of tax on services. Generally, the service sector has emerged in consequence of the awareness that it is more economically viable to outsource many activities that were otherwise being performed within.

It is those outsourced services that are sought to be taxed. Implicit in such tax is the availability of the option of self-performance of the activity. Construction is an enterprise that cannot, except in very rare circumstances, lend itself to exercise of such an option. The scale, complexity and professional expertise required put it beyond the scope of that option. Especially, for individuals who seek fulfillment of their housing dreams. Tax provisions are devised to provide escapement to those who have such aspirations without providing a loophole for those who are intended to be taxed. This is achieved through a hierarchy of exemption, exception and exclusion. 13. The developer of a project, single or complex, enables various activities to be procured for the ultimate consumer and even to the extent of bringing a community into being with common ownership of land and constructed facilities. To eliminate the scope for entertaining any doubts, construction is, therefore, liable to tax as a declared service in section 66E of the Finance Act, 1994. 66E. Declared Services. The following shall constitute declared services, namely:-- (a) xxxxxxxxx (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.

Explanation. - xxxxxxxx (II) the expression "construction" includes additions, alterations, replacements or remodeling of any existing civil structure; This includes the services availed by the developer as well as the service rendered to the potential owner of the built-up property. The transaction between the developer and the intended owner is placed outside the ambit of declared service if no consideration is rendered to the developer before issuance of completion certificate. Impliedly, such a buyer has not availed of any of the bundled services that are provided by the developer. The issuance of completion certificate is thus considered to be the legal deadline for service having been rendered. Even where consideration has been paid before the issuance of completion certificate, exemption is provided by notification no. 25/2012-ST dated 20th June 2012 to 14. Services by way of construction, erection, commissioning, or installation of original works pertaining to,- (b) a single residential unit otherwise than as a part of a residential complex; Single residential unit and residential complex is defined as: (zc) "residential complex" means any complex comprising of a building or buildings, having more than one single residential unit; (ze) "single residential unit" means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family; From this, it would appear that service of a developer or contractor availed for constructing a residence is intended to be exempt from tax even though it is covered for tax liability as a declared service. This exemption does not extend to residence constructed as part of a complex.

The specific role of developer is to procure services in common for those who intend to occupy the complex and a residential complex will contain within it more than one residential unit. As the particular service rendered by developer in a complex, other than bundling the various input services, is the aggregation of residential owners on a common property, the perceptible legal distinction between the single unit and unit in a complex appears, from the above definitions, exemption and the tax objective, to be the transfer of share of land and constructed facilities in common as an undivided share to the buyer who has been making over consideration before issuance of certification of completion. 14. The vendor, in the present instance, is liable to be taxed on any activity outsourced by it in undertaking any construction. The vendor was not in possession of the completion certificate at the time of receipt of consideration from the appellants. Therefore, the transaction between appellants and vendor does not fall within the exception to the declared service. The appellants claim that theirs is a single residential unit.

However, a perusal of the sale agreement reveals transfer of land and built-up facilities along with the constructed house; this would include a share in the common roads, community facilities and other land that is not assigned specifically to a house owner. That is part of the agreement for transfer and the consideration includes these assets. The residential unit, therefore, cannot but be part of a complex. Hence, the exemption under notification no. 25/2012-ST dated 20th June 2012 is not available to the appellants. 15. The appellants claim that they are entitled to the fundamental exclusion in section 65 B of Finance Act, 1994 in that they are not in receipt of any service at all. (44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include (a) an activity which constitutes merely, (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) ****** (b) ***** ********

There can be no doubt that the agreement between the appellants and the vendor is for transfer of immoveable property by way of sale. The vendor renounces all rights to any part of the property that is transferred. The transaction is squarely covered by the exclusion from service and, therefore, outside the ambit of tax. The tax collected from the appellants by the vendor and deposited in the government account is without authority of law and is liable to be refunded under section 11B of Central Excise Act, 1944 as made applicable to Finance Act, 1994.

16. The appellants have borne the incidence of the tax. Deposit of tax collected from the appellants by the vendor in the government account is established to the extent that it is humanly possible. The appeal is, therefore, allowed with consequential relief.

(Pronounced in Court on 18/02/2016)

(C J Mathew) Member (Technical)

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