By TIOL News Service

NEW DELHI, MARCH 14, 2014: THESE are two appeals decided together - one is a Revenue appeal in which the respondent is Raj Homes and in the other appeal, the appellant is Krishna Homes where the respondent is the Commissioner of Central Excise.

The Advocate for the parties submitted that both the parties are builders who had entered into agreements with prospective buyers for building residential units for them on the land owned by them (the builders)

++ that in terms of the agreements, during construction the payments for the residential units were to be made by the prospective buyers in instalments and on completion of the residential complex and full payment having been made by the customers, the possession of the residential units was to be given to them;

++ that for construction of the residential complexes, contractors had been engaged by the builders, that in terms of Circular No. 332/35/2006- TRU dated 01/08/06 of the Board, when a builder/developer builds a residential complex having more than 12 residential units by engaging a contractor, it is the contractor who shall be liable to pay service tax on the gross amount charged for the construction service provided by him to the builder/promoter/developer under Section 65 (105) ( zzzh ), that in view of this, during the period of dispute, the builders - M/s Raj Homes and M/s Krishna Homes could not be held to have provided the construction of complex service and no service tax could be charged from them on the amount charged by them from their customers for whom the residential units had been constructed in terms of agreements with them;

++ that it is only w.e.f . 01/7/10 that an explanation was added to Section (105) ( zzzh ) providing that 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 enforce] shall be deemed to be service provided by the builder to the buyer;

++ that explanation to Section 65 (105) ( zzzh ) added w.e.f . 01/07/2010 expands the scope of this clause and as such is a prospective amendment and it is only from 01/7/10 that such builders/developers would be liable to pay service tax on the amount received by them from the prospective customers with whom they entered into a contract for construction of residential units;

++ that this explanation cannot be given a retrospective effect and accordingly during period prior to 01/7/10, when this explanation was not there, no service tax can be charged on the amount received by the builders/developers from the prospective buyers,

++ that same view has been taken by the Tribunal in the case of R.F . Properties & Trading Ltd. vs. CCE , Jaipur reported in 2013-TIOL-46-SC-CT- LB;

++ that in view of this, in both the cases, the appellant/respondent are eligible for refund on merits;

++ that unjust enrichment is not applicable as no amount had been charged from the customers towards service tax.

The Tribunal observed ,

The expression "construction of complex" was defined in sub-Section ( 30a ) of Section 65 and accordingly this expression covered -

"(a) construction of a new residential complex or a part thereof or

(b) completion of finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or

(c) repair , alteration, renovation or restoration of, or similar services in relation to, residential complex". The expression residential complex was defined in Section 65 ( 91a ) of the Finance Act, 1994 as any complex comprising of -

"(i) a building or buildings, having more than twelve residential units;

(ii) a common area; and

(iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by any authority under law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person".

The dispute in these appeals is as to whether the assessees would be liable to pay service tax on the amounts charged by them from their customers with whom they had entered into agreements for construction of the residential units and whose possession was to be handed over on completion of the construction and full payment having been made by the customers.

It is seen that on this point, the Tax Research Unit of the Central Board of Excise & Customs, which is a wing of the CBEC dealing with legislation work, had vide Circular No. 332/35/2006- TRU dated 01/8/06 clarified that in case where a builder, promoter, developer builds a residential complex having more than 12 residential units by engaging a contractor for construction of such residential complex, the contractor shall be liable to pay service tax on the gross amount charged for the construction service provided to the builder/promoter/developer under construction of complex service falling under Section 65 (105) ( zzzh ) of the Finance Act, 1994 and that if no person is engaged by the builder, promoter, developer for construction work who undertakes construction work on his own without engaging the services of any other person than in such cases, in absence of the service provider and service recipient relationship, the question of providing taxable service to any person by any other person does not arise.

With effect from 01/7/10 an explanation was added to Section (105) ( zzzh ) which was as under :-

"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.]"

Thus, in terms of this explanation, when a builder/promoter /developer got a residential complex constructed for his customers with whom he had individually entered into agreements, in terms of which the prospective customers were required to make payments for the residential units to be constructed in installments and the possession of the residential units was to be given to the customers on completion of the complex and full payment having been made, the builder/ promoter/developer was to be treated as a deemed provider of construction of residential complex service to his customers. Thus, by this explanation the scope of the Clause (zzzh) of Section 65 (105) has been expanded and this amendment by adding an explanation has been held by this Tribunal in the case of CCE , Chandigarh vs. U.B . Construction (P) Ltd. as prospective amendment.

In view of the above, though in view of the Apex Court judgment in the case of M/s Larsen & Toubro Limited and others vs. State of Karnataka & others - 2013-TIOL-46-SC-CT-LB, the agreements entered into by a builder/promoter/developer with prospective buyers for construction of residential units in a residential complex against payments being made by the prospective buyers in installments during construction and in terms of which the possession of the residential unit, is to be handed over to the customers on completion of the residential complex and full payment having been made, are to be treated as works contracts, it has to be held that during the period of dispute, there was no intention of the Government to tax the activity in terms of such contracts a builder/developer with prospective customers for construction of residential units in a residential complex. Such works contracts involving transfer of immovable property were brought within the purview of taxable service by adding explanation to Section 65 (105) ( zzzh ) w.e.f . 01/7/10, and therefore, it has to be held that such contracts were not covered by Section 65 (105) ( zzzh ) during the period prior to 01/7/2010.

Are refund claims are hit by unjust enrichment ?. In terms of Section 12A of Central Excise Act, 1944, notwithstanding anything contained in this Act or any other law for the time being enforce, every person who is liable to pay duty of excise on any goods shall at the time of clearance of the goods, prominently indicate in all the documents relating to assessment, sales invoices and other like document, the amount of such duty which will form part of the price at which such goods are to be sold. Under Section 12B of the Central Excise Act, 1944 every person who has paid excise duty on any goods under this Act, shall, unless the contrary is proved, be deemed to have passed on full incidences of such duty to the buyers of such goods. By virtue of Section 83 of the Finance Act, 1994, Section 12A and 12B of the Central Excise Act, 1994 are applicable to service tax matters. Department's plea is that in view of the provisions of Section 12B as made applicable to service tax matters as Section 83 of the Finance Act, 1994, the burden is on the assessees to prove that the incidence of the service tax whose refund is claimed had not been passed on by them to their customers. However, the finding of the Commissioner (Appeals) in one case is that he has seen sample invoices and in none of the invoices, any amount towards service tax has been charged. Similarly, in the other case also, there is no evidence that they had charged any amount towards service tax from their customers. The presumption under Section 12B of the Central Excise Act, 1944 is a rebuttable presumption and when an assessee shows invoices issued by him in support of his claim that no amount representing service tax had been charged by him from his customers, the burden would shift to the department to produce evidence that the incidence of the tax, paid whose refund is sought had been passed on to the Customers. In this case no such evidence has been produced by the department. In view of this, the refund claims are not hit by unjust enrichment.

So, the Tribunal allowed the appeal by the party and dismissed the appeal filed by Revenue.

(See 2014-TIOL-402-CESTAT-DEL)