By TIOL News Service

MUMBAI, SEPT 13, 2013: THE appellant shared common expenditure such as, staff expenses, space used, computer software and maintenance charges, electricity charges, repairs and maintenance expenses, printing and stationery and vehicle expenses with their group companies during the period 2003-04 to 2005-06.

On the said expenses which was recovered from their group companies, the department was of the view that service tax is payable under the category of ‘Business Auxiliary Service. The service tax demand in this regard is Rs.45,04,294/-.

The appellant is also engaged in construction of residential flats on which they discharged service tax liability. However, they collected maintenance charges/deposits from the flat buyers which are used for payment of property tax, electricity charges, water charges, security charges and other maintenance expenses till such time the flats are actually handed over to the Housing Co-operative Society found by the buyers of the flats. The department was of the view that such charges/deposits recovered from the flat buyers are taxable under the category of ‘Management, Maintenance or Repair Service' and accordingly, demanded service tax amounting to Rs.1,21,54,570/- during the period 16/06/2005 to 30/09/2007.

The appellant was also running a health club at Marve and they collected charges from the users of this club for use of the club facilities such as Gym, swimming pool, etc. A service tax demand of Rs.1,31,824/- was made under the Health and Fitness Services during the period October 2002 to March 2007.

Another demand of Rs.1,23,78,690/- was made in respect of ‘Management, Maintenance or Repair Service' for the period 01/10/2007 to 30/09/2008 apart from a demand of Rs.56,881/- towards Health and Fitness Club during the period 01/10/2007 to 31/03/2008.

All these demands were confirmed by the CCE, Mumbai-V along with interest thereon and also by imposing penalties.

Hence the appellant is before the CESTAT & submits -

+ As regards the first activity undertaken by them, they have been discharging service tax liability w.e.f. 01/05/2006 under the category of ‘Business Support Service' and the department has accepted the same & so the demand of Rs.45,04,294/- under BAS for the period 2003-04 to 2005-06 does not survive.

+ As regards demand under ‘Management, Maintenance or Repair Service' the deposits have been collected from the flat owners as per the provisions of Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963, which provides that the promoter shall, while he is in possession, shall pay all outgoings (including ground rent, municipal or other local tax, tax on income, water charges, electricity charges, revenue assessments, etc.) until he has transferred the property to the person taking over the flats or to the organization of any such person. Accordingly, they have collected deposits/maintenance deposits from the flat purchasers and kept them in a separate account and the said sum was used for making payment towards municipal and property taxes, electricity charges, water charges and other maintenance charges. The said amount has not been utilised for any other purpose except for the above and wherever there is any surplus, the same is handed over to the housing co-operative society of the flat owners when the flats are actually handed over. In other words, they are acting as a pure agent of the flat owner while collecting these charges and making payments and therefore, question of levy of service tax on such charges under the category of ‘Management, Maintenance or Repair Service' does not arise.

+ As regards the demand for service tax under ‘Health and Fitness Club Service' they have discharged the service tax liability.

In view of the above,they pray for grant of stay.

The Bench inter alia observed -

+ As regards the demand for service tax on commonly shared expenses under the category of ‘Business Auxiliary Service', we find that the transaction does not involve any of the categories mentioned in BAS….In any case, the appellant has been discharging service tax on the said activity under Business Support Services effective from 01/05/2006 and the department has been accepting such payment. In view of the above, prima facie, we are of the view that the services rendered by the appellant does not come under the category of ‘Business Auxiliary Service' at all.

+ As regards the demand of service tax under ‘Management, Maintenance or Repair Service', it is seen that the appellant is collecting security/maintenance deposits from the flat owners….Since the amount is collected for discharging statutory obligations and amount is utilised for incurring those statutory obligations, it cannot be said that the appellant was rendering management, maintenance or repair service to the flat owners….Thus the appellant was acting as a pure agent and was performing custodial functions. Therefore, the demand of service tax under ‘Management, Maintenance or Repair service' does not appear to be sustainable in law.

Holding that the appellant has made out a strong case in their favour, the Bench granted unconditional waiver from pre-deposit of the adjudged dues and stayed the recovery.

In passing: Also see K.Raheja Real Estate Service Pvt. Ltd. - (2013-TIOL-535-CESTAT-MUM) & Hiranandani Constructions - (2013-TIOL-1051-CESTAT-MUM).

(See 2013-TIOL-1357-CESTAT-MUM)