By TIOL News Service

MUMBAI, FEB 28, 2016: M/s AM Patel Infra Private Ltd. is registered as a provider of "construction of residential complex service" since 10th August 2010.

The appellants had jointly procured a three-storied bungalow from the builder vide a sale deed 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.

The sale deed dated 31st December 2013 reveals 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.

The appellants sought refund of service tax claiming that this transaction was not liable to tax.

The Assistant Commissioner rejected the refund claim on the following grounds viz.

•  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 be altered in such a way that it could become three separate units;

•  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.

•  that the purchase price was paid by the applicants before the competent authority issued a completion certificate and hence taxable.

The Commissioner (A) too found merit in the grounds given by the Assistant Commissioner and, therefore, their appeal was rejected.

Aggrieved the appellants are before the CESTAT.

The Single Member Bench of the CESTAT held thus -

Ground (a):

+ 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 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.

Ground (b), (c) & (d):

+ 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.

It appears that the appellant then raised the claim that they are entitled to the fundamental exclusion in section 65B of Finance Act, 1994 inasmuch as that they are not in receipt of any service at all.

The said section 65B is extracted below -

(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) *****

********

To this submission, the Single Member (Technical) had the following to say -

++ 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.

++ 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 was allowed with consequential relief.

In passing:

65B(44) - "service" means any activity carried out by a person for another for consideration, and includes a declared service , but shall not include -

Declared Services 66E (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.

Missing the wood for the trees…

(See 2016-TIOL-528-CESTAT-MUM)