By TIOL News Service

NEW DELHI, JUNE 27, 2013: THE appellant undertook construction of a project known as World Trade Park, a commercial complex. The assessee received advance / application money from the persons desirous of purchasing the space/shop/office. Revenue, on the assumption that assessee is liable to remit service tax under the taxable head "commercial and industrial construction" defined under Section 66(25) (b) read with Section 65(105 )( zzq ) of the Act, issued a show cause notice culminating into the adjudication order.

The adjudicating authority concluded that though title to the property in the office/space/shop in the WTP had not passed to the prospective buyers, since advances were received and constructions made by the assessee (by employing a construction agency), the assessee must be held to have rendered, a taxable service, Commercial and industrial construction service.

The CESTAT observed:

+ An explanation was appended to Section 65(105 )( zzq ) by Finance Act 2010 with effect from 1.7.2010. This explanation reads:

Explanation: For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorized by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force shall be deemed to be service provided by the builder to the buyer.

+ The consequence of the 'explanation' fell for consideration by the Bombay High Court in Maharashtra Chamber of Housing Industry vs. UOI (2012-TIOL-78-HC-MUM-ST). The High Court proceeded to analyse the text and structure of the Explanation introduced by the Finance Act, 2010 and concluded that the Explanation was brought in to expand the scope of the existing taxable service; and that prior to the Explanation, the view taken was that since a mere agreement to sell does not create any interest in the property in favour of the prospective buyer and title to the property continues with the builder, no service was provided to the buyer and the service, if any, would be in the nature of a service rendered by the builder to himself.

+ Since admittedly the transaction in issue in the present appeal falls during the period 4.7.05 to 30.6.2006 (prior to introduction of the Explanation to Section 65(105 )( zzq ) and the service offered by the assessee in relation to the construction of commercial or industrial complex in respect of WTP cannot be said to be service provided or to be provided to another person, the transaction falls outside the purview of the taxable service. As a consequence of this analysis and conclusion, the impugned adjudication order cannot be sustained and is accordingly quashed.

(See 2013-TIOL-971-CESTAT-DEL)