By TIOL News Service

NEW DELHI, MAY 03, 2017: THE facts are that the appellants built a residential complex having multiple units. They collected from their clients a fixed amount towards corpus fund in respect of each dwelling unit, apart from the consideration for construction of the residential unit. The said fund is to be transferred to the welfare association of residents, as and when formed, for maintenance and management of the said complex. As the project was ongoing and the welfare association was yet to be formed, the appellants undertook the work of maintenance of the whole project premises, which included already sold dwelling units in which some of the residences were occupied.

Revenue entertained a view that the appellants have rendered service of management, maintenance and repair of the said dwelling units/ complex and are liable to pay service tax.

As there was no direct consideration received from the occupants of the flats, Revenue invoked the provisions of Valuation Rules to arrive at equivalent consideration for tax value. The interest, based on prime lending rate on the corpus fund deposited by the buyers of the flat, was considered on notional basis and tax demand was confirmed against the appellant.

The original authority apart from confirming the service tax liability of Rs.9,96,844/- imposed penalties. This order was upheld by Commissioner(A).

Before the CESTAT, the appellant submitted -

+ The project was still under completion and as a promoter - builder, they were bound to maintain the said complex in good condition as some of the residential units are yet to be disposed of. Such maintenance of their own project cannot be taxed under management, maintenance and repair service.

+ As the corpus fund was never spent, there can be no consideration to be taxed under the said tax entry and the method of taxing notional interest on such corpus fund is not supported by law.

The AR justified the demand by reiterating the findings of the lower authorities.

The Bench observed -

On Merits:

+ Admittedly, the appellant did not receive any separate consideration from the occupants of the flats for such management/ maintenance of their property.

+ However, a fixed amount of deposit was received, alongwith consideration for construction of the flats, with a specific reason for transferring the same to the welfare association which will be in-charge of management and maintenance of the said complex. Till the formation of the association the appellants as a builder/ promoter did undertake the work of management / maintenance of the complex.

+ As such, we are of the opinion that the appellant did provide taxable service to various occupants of the complex under tax entry of "management, maintenance and repair service" which specifically talks about management and maintenance of immovable properties.

On Valuation:

+ Admittedly, there is no evidence regarding accrual of interest to the appellant on the deposit/ corpus fund received from the occupants of the flats. No such finding has been recorded by the lower authorities. The appellant also contested that all the residential units in the complex were not sold or occupied by various owners. A portion of the building is still under the control / maintenance of the appellants themselves.

+ While tax liability of the appellant has to be upheld, the method of arriving at the tax value has to be in terms of Rule 3(b). For applying the provision of Rule 3(b), the stipulation is that the value shall not be less than the cost of provision of such taxable service. The equal money value has to be arrived at based on the documents and supporting evidence to be submitted by the appellant. In case, no separate supporting evidences are available, a value, not below minimum benchmark value of cost of provision of such taxable service should be arrived at .

The matter was remanded.

(See 2017-TIOL-1475-CESTAT-DEL)