Vasantha Green Projects ….. Appellant(s) Vs. CCT ... · Appeal No: ST/31095/2017 (5) submission...

Appeal No: ST/31095/2017

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CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD

Division Bench Court – I


(Arising out of Order-in-Original No. HYD-EXCUS-004-COM-006-17-18, dated 31.05.2017 passed by CCCE&ST, Hyderabad-IV)

Vasantha Green Projects ….. Appellant(s)

Vs.

CCT, Rangareddy GST ….. Respondent(s)

Appearance Shri Alok Barthwal & Sh. Ch. Nageswara Rao,Advocate and Consultant

for the Appellant.

Shri J Sreenivas, Superintendent /AR for the Respondent.

Coram:

Hon’ble Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL)

Hon’ble Mr. Madhu Mohan Damodhar, Member (Technical)

Date of Hearing: 01.02.2018

Date of Decision: 11.05.2018

FINAL ORDER No. A/30559/2018

[Order per: M.V. Ravindran]

1. This appeal is directed against Order-in-Original NO. HYD-

EXCUS-004-COM-006-17-18, dated 31.05.2017.

2. The relevant facts that arise for consideration are that appellant is

registered with the Department under the category of construction of


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residential complex services and works contract services; entered into

joint development agreement for construction of houses and residential

premises with different land owners, in respect of one joint development

agreement, an area admeasuring 9,07,270 sq.ft was to be developed

and a built up area of 2,71,628 sq.ft. was to be given to land owners fully

developed; entered into an agreement with prospective buyers of the

flats of his area at the rate of Rs. 5,495/- per sq.ft; appellant, on the

basis of audit objection, was issued a show cause notice dated

06.02.2017 for payment of differential service tax for the period April

2012 to March 2015 with an allegation that they had not discharged the

service tax liability towards the amount received from land owners

towards allotted share of developed property. The allegations in the

show cause notice also invoked the extended period of limitation and the

said show cause notice relied upon the clarification given by the Board

dated 10.02.2012 wherein the service tax liability has been vested on the

builders/developers on the construction service involved in flats/houses

given to land owners as per the agreement. The demand was issued on

the basis of nearest sale value of the villas to the new prospective

customers of the property which lies with the appellant. The appellant

contested the show cause notice on limitation as well as on merits,

taking the stand that the value of Rs. 5,495/- per sq. Ft in respect of the

land owner share is incorrect as the entire value of the land was


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considered by them while discharging the service tax liability in terms of

Section 67 (1)(iii) of Finance Act, 1994 read with Rule 3(a) of Service

Tax (Determination of value) Rules, 2006 and claim the benefit of

abatement as per various notifications. The adjudicating authority, after

due process of law, confirmed the demands raised alongwith interest

and imposed penalties.

3. Ld. Counsel Shri Alok Barthwal appeared alongwith Shri Ch.

Nageswara Rao, Consultant for the appellant. It is his submission that

demand has been wrongly confirmed; that at the time of sale of Villas to

prospective customers, appellant had included the cost of land in the

price of villas and paid service tax on such sale price as provided in the

statute; that in consideration of the land given by the land owners they

constructed villas for land owner and gave them free of cost; that the

service tax due on the consideration received from the land owners in

the form of land is actually discharged. He submitted Chartered

Accountant Certificate evidencing that service tax has been paid by them

on whatever considerations that have been received and the

adjudicating authority has sought to bifurcate the joint development

agreement into two transactions, which is incorrect; that CBEC has

issued instructions on construction services/commercial or industrial

construction services under letter No. V/DGST/22/Audit/Misc/1/2004,


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dated 16.02.2006 wherein it has been directed that different practices

and financial arrangements exists which influence the taxable value

under these services; that in all such situations, the taxable value under

section 67 of the Finance Act, 1994 shall be gross amount charged by

service provider (builder in this case) for such services provided or to be

provided and these instructions are applicable on Revenue and has not

been withdrawn.

4. Ld. DR after reiterating the findings of the lower authorities,

submits that to arrive at gross value for discharge of service tax, the

value of construction of villas which are given free of cost to the

landlords also needs to be considered as recorded by the adjudicating

authority in para Nos. 21 to 23. It is his submission that they have

adopted the value for inclusion of discharge of service tax on the portion

of the land developed and given to the land owners @ Rs. 1,779/- per

sq.ft. is totally wrong going by the provisions of Section 67 (1) of Finance

Act, 1994 read with rule 3(a) of the Service Tax (Determination of value)

Rules, 2006 and as clarified by the Board vide circular dated 10.02.2012

and the value that should be adopted for discharging the service tax

liability on the land owners share of Villas is to be arrived as per the price

received by them from independent prospective customers. It is his


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submission that the payment of tax for the said project is not in tune with

the circulars issued in Board’s circular dated 10.02.2012 and that they

have not effectively countered the findings of the adjudicating authority.

5. We have considered the submissions made at length and perused

the records as also the Board circulars and instructions in this regard.

We find that in the present case, Revenue has demanded service tax

from appellant on the ground that it was not paid correctly on the villas

which were constructed by appellant for land owner, as a part of

compliance of the agreement entered with the land owners. We find that

adjudicating authority has confirmed the demands holding that

transactions between builder and land owner and builder and buyers

have to be understood as two separate transactions. It is undisputed

that appellant has provided construction services to the land owner and

as a consideration, received legal rights on his share of land, constructed

Villas on that land and sold them, which would mean that appellant is

investing the consideration received from first transaction of land owners

right to construct in second transaction. In our view, merely because the

consideration received from land owners is invested in construction of

villas to other buyers on which service tax is paid, it cannot be concluded

that service tax paid on consideration received from land owners has to

be evaluated differently.


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6. There is no dispute as to the following facts:

a) Appellant and land owners entered into joint development

agreement under which appellant has to construct villas on the

land owned by land owner and sale the same to prospective

customers on which service tax liability is discharged.

b) In consideration of such land, appellant has constructed villas for

the land owner and the value of villas sold to the prospective

customers including the cost of acquisition of such land.

c) Instead of paying the consideration in cash to the land owner, the

same has been paid in kind by constructing and handing over villas

to the land owner.

d) That appellant has discharged the service tax liability of the

transaction entered by them with the prospective customers from

whom they received consideration in cash for the sale of said

villas.

e) It is undisputed that for the sale of villas to the prospective

customers, the cost of land is included in the value so arrived i.e.

Rs.5,495/- per sq.ft.

f) In case of villas, which were constructed for land owner, the same

were not for sale in the market but for their own use (as

residences).


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7. It has to be construed, in the above factual matrix, that construction

of villas for the land owners is a consideration towards the land on which

villas were constructed and offered for sale to prospective customers. It

would not be a rocket science to understand that the value which has

been arrived at for sale of villas to prospective customers, would include

the consideration paid or payable for acquisition of land. It is not a case

that appellant has not discharged the service tax liability on the value

received for the villas from prospective customers. In our view, if the

consideration towards the acquisition of the land has been included in

the value of the villas sold to prospective customers and appropriate

service tax liability has been discharged the same value, it cannot be

again made liable to service tax under the premise that sale value of the

villas given to land owners is a consideration on which service tax liability

was not discharged. It would be imperative to reproduce the provisions

of Section 67 of the Finance Act, 1994 which would apply in the case in

hand, as also rule 3 of the Service Tax (Determination of the Value)

Rules, 2006.

“24. For the purpose of analyzing the valuation aspect of the impugned transactions, the following relevant legal provisions are considered: 67. Valuation of taxable services for charging Service Tax-

(1) Subject to the provisions of this chapter, service tax chargeable on any taxable service with reference to its value shall,-


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(i) In a case where the provision of service is for a consideration in money,be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii) In a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;

(iii) In a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.

(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.

(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.

(4) Subject to the provisions of sub-sections (1), (2) and (3), the value

shall be determined in such manner as may be prescribed under Rule 3 of Service Tax (Determination of value) Rules, 2006 (hereinafter “valuation Rules.”

“Rule 3. Manner of determination of value- subject to the provisions of section 67, the value of taxable service where such value is not ascertainable, shall be determined by the service provider in the following manner:- (a) The value of such taxable service shall be equivalent to the

gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration;

(b) Where the value cannot be determined in accordance with clause (a), the service provider shall determine the equivalent money value of such consideration which shall, in no case, be less than the cost of provision of such taxable service.”

8. On perusal of above reproduced Section 67 of Finance Act, 1994,

it can be observed that service tax is liable to be paid on gross amount

charged i.e. to say consideration received from land owners in kind and


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consideration received from prospective customers i.e. total gross

amount. In the case in hand, the amount attributable to the

consideration received by appellant in the form of land rights from the

land owner stands included in the value of villas sold to prospective

customer which would mean that whatever consideration was received

by the appellant in form of developmental right was considered in

assessable value. The Chartered Accountant’s certificate placed on

record by appellant goes into detail and certifies that appellant has

discharged the service tax on consideration received by them and in

such a case there is no reason to again demand service tax on the villas

constructed and handed over to the land owners.

9. The Chartered Accountant certificate has clearly stated that to

arrive at the value of construction, areas of villas to be shared to land

owners, the Developer (the appellant herein) had undertaken an

exercise to determine the value of construction per sq.ft for the villas and

the said construction value of the villas built up area which was shared

free of cost to the land owner, was considered while arriving at the

service tax liability. We find that the annexure to the said certificate talks

about the financial arrangements which we have explained herein above.

The said Chartered Accountant certificate and the annexure thereto are

reproduced:


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10. The adjudicating authority, in the impugned order, had relied upon

Board Circular No. 151/2/2012-ST, dt. 10.02.2012 to arrive at the value

in the case of flats given to land owners to be determined based upon

the value of the villas sold to prospective customers seems to be

inappropriate reasoning and when the cost for acquisition of land has

already been considered for discharge of service tax of an amount

received from prospective customers, taxing the same under the laws of

service tax liability for the consideration received for the services to land

owners, seems to be incorrect, as also on the case of LCS City Makers

Pvt. Ltd. [2013(30) STR 33 (Tri.-Chennai)].

11. We find that CBEC vide circular dated 16.02.2006 in respect of

collection of service tax under construction of complex services had

issued instructions under section 57 (B) of Central Excise Act, 1944

which are made applicable to service tax under section 83 of Finance

Act, 1994, in para No. 8 of the said instructions stated as under:

“8. It is noticed that in the construction business different practices and financial arrangements concerning (a) promoters, developers & builders, (b) land owners (c) contractors and (d) buyers exist. These practices influence the ‘taxable value’ under the construction of complex services. In all such situations, the taxable value under section 67 shall be the gross amount charged by the service provider (builder in this case) for such services provided or to be provided by him. This read with notification No. 18/2005-ST, dated 07.06.2005 entitles a builder/contractor an abetment of 67% on the gross amount charged, which shall include the value of goods


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and material supplied. Further, there is no deductions/exemptions provided for computation of such taxable value in the composite contract.” (emphasis supplied)

12. It can be seen from the above said instructions, the gross

amount charged by the builder is liable to tax. The said instructions are

in force till today and has not been withdrawn by the Board. As already

detailed herein above, the appellant has discharged the service tax

liability on the gross amount charged i.e. consideration received from

land owners in the form of kind other than cash (value of the

land/development rights) + consideration received from prospective

buyers in cash by way of financial arrangements on the construction

services undertaken by the appellant on joint development basis. We

also note that appellant had declared the same in the books of accounts

like IT returns and ST 3 returns which has been certified by Chartered

Accountant wherein it is stated that service tax compliance is towards

the payment of gross amount of the construction undertaken on joint

development basis and received from the customers has been made.

This leads to conclusion that it is evident that appellant has complied the

service tax liability on the construction undertaken on joint development

basis on the value of construction which is mandated in Section 67 of

Finance Act, 1994, read with rules made thereunder. In our view, if once

the service tax liability has been discharged on the gross amount,


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demand of service tax on the same amount again would amount to

double taxation.

13. The reliance placed by Ld. DR on the case of LCS City Makers Pvt.

Ltd. will also not carry the case of Revenue any further, as in that Bench

upheld the contention of the Revenue that recording that “the facts and

circumstances of the case do not warrant assessment of a different value

for services in respect of flats sold to individual buyers as compared to

flat handedover to the land owners”; and recorded that the flats which

were allotted to land owners were sold by land owners. In the case in

hand, the facts are different.

14. In respect of the arguments put forth on limitation, we do find that

in the situation wherein the interpretation of the provisions of Section 67

and the rules were involved and there could be different interpretation. It

is undisputed that appellant had declared the value received from

prospective customers in their returns and discharged the service tax

liability thereon, which include the value of consideration paid in kind

towards the land, there cannot be any allegation that there was a

deliberate intention on the part of the appellant as to non-payment of

differential service tax liability. In our view, in the peculiar facts and

circumstances of this case, it cannot be held that there was a malafide

intention on the part of the appellant to suppress any facts or make mis-


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statements, with an intention to evade service tax liability. Accordingly,

we hold that demands are also hit by limitation and extended period

cannot be invoked for the demands received.

15. In the light of peculiar circumstances of the case and in view of the

foregoing, we hold that demand is not sustainable on merits as well as

on limitation.

16. We set aside the impugned order and allow the appeals with

consequential reliefs, if any.

(Pronounced in open Court on 11.05.2018)

(MADHU MOHAN DAMODHAR) (M.V. RAVINDRAN) MEMBER (TECHNICAL) MEMBER (JUDICIAL) vrg

Vasantha Green Projects ….. Appellant(s) Vs. CCT ... · Appeal No: ST/31095/2017 (5) submission...

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Transcript of Vasantha Green Projects ….. Appellant(s) Vs. CCT ... · Appeal No: ST/31095/2017 (5) submission...