27.04.2022- Board Circulars/Clarifications Are Binding On Revenue – CESTAT Ahmedabad

The Hon’ble CESTAT Ahmedabad vide its order dated 12th April 2022 in the matter of Jagdish Pala Vs. Commissioner of Central Excise & ST, Rajkot in Service Tax Appeal No. – 12268 OF 2019- (DB) held that the circulars/clarifications issued by Board are binding on the department/revenue and thereby set aside the order confirming demand on Construction Services.

The Appellant preferred the appeal assailing the Order-in-Appeal No. RAJ-EXCUS-000-APP-139-2019 dated 09.07.2019 passed by the Commissioner (Appeals), Rajkot.

Facts:

  • That an investigation against the Appellant revealed that the Appellant has constructed residential as well as commercial complexes and also received booking amounts, instalments amount from buyers but had not obtained Service Tax registration and paid Service tax.
  • The Appellant entered in to agreement with his buyers for sale of shops during the construction services provided by it.
  • That based on the above investigation a show cause notice was issued to the Appellant proposing demand under the category of ‘Commercial and Industrial Construction’ invoking Section 73(1) of the Finance Act along with levy of interest and imposition of penalties under Section 76,77,78 of the Act.
  • The Adjudicating authority while adjudicating the matter dropped the proceedings vide order-in-original dated 03.2018, however aggrieved with said order-in-original department preferred an appeal before the Commissioner Appeals, who allowed the department’s appeal by way or remand for quantification of demand.

Appellant’s Plea:

  • It was submitted on the behalf of the appellant the Ld. Commissioner (Appeals) has travelled beyond the scope show cause notice and the appeal filed by the department, it has grossly erred in finding that the explanations are clarificatory in nature and does not introduce new taxable service but explain the service already taxable.
  • The Ld. Commissioner (Appeals) has not given a single finding on the grounds of appeal of the Department i.e., ‘that the adjudicating authority erred in extending the benefit of exemption in view of the Circular 108/02/2009-ST dated 29.01.2009 for construction of commercial complex or residential cum commercial complex. Secondly. it has wrongly interpreted the wording of D.O.F. No. 334/1/2010-TRU dated 26.02.2010 as in the instant case entire consideration was received after the completion of construction.
  • That as per clarification issued by CBEC vide Circular No. B1/6/2005-TRU dated 07.2005 that residential complex may also contain other facilities such as market or shopping complex. Thus, the Assistant Commissioner was correct in placing reliance on Circular No. 108/02/2009-ST dated 29.01.2009.
  • That relying on the decisions of Magus Construction Pvt. Ltd. Vs. UOI- 2008(11) STR 225 (Gau.), Commissioner of Service tax vs. Sujal Developer – 2013 (31) STR 523(Guj), Saumya Construction Pvt. Ltd. Vs. CST, Ahmedabad- 2016(STR) 723 (Tri. Ahmd), submitted that the impugned order is illegal and frivolous as passed without going through the provisions of Section 65(30a) prior to and after 06.2005 and the circulars dated 17.09.2004, 27.07.2005, 29.01.2009, 26.02.2010, 01.07.2010, 10.02.2012 referred by the appellant.
  • That the levy on ‘Construction Service’ [65 (30a)] was introduced from 09.2004 and with effect from 16.06.2005, with the insertion of clause (25b). It means that with effect from 16.06.2005, “Construction Service” at clause (30a) was renumbered and replaced by “Commercial or Industrial Construction Service” at clause (25b) and new levy on “Construction of Complex” means construction of a new residential complex or a part thereof etc. was introduced and defined at clause (30a). The said taxable services were defined at clause 65(105) (zzq) as Commercial or Industrial Construction Service and at 65(105) (zzzh) as Construction of Complex.
  • The Appellant also referred to the circular D.O.F. No 334/1/2010-TRU dated 26.02.2010 wherein it has been clarified that ‘it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e., after issuance of completion certificate by the competent authority), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and the service tax would be charged accordingly’
  • It was further submitted on the behalf of the appellant that CBEC at the time of enactment of Finance Bill, 2010 on 08.05.2010 again clarified that vide Finance Act, 2010 eight new services were added to the list of taxable service while scope of nine existing services were modified. As these changes became effective from 01.07.2010, activities that are covered under taxable service categories due to above addition or modifications would start attracting services from this date.
  • The appellant relying on circular CBEC circular No. 151/2/2012-ST dated 02.2021 and Circular No. 108/2/2009-ST dated 29.01.2009, submitted that it is quite evident that Service tax on construction service provided by builder/promoter/developer came in to effect from 01.07.2010 however before that the levy of Service Tax was on contractor, designer but not on promoters/builders/developers.
  • Lastly, relying on the decision of CESTAT, Delhi in Adhikrut Jabti Evam Vasuli vs. Commissioner of Central Excise, Indore, it was submitted that there is no suppression, thus extended cannot be invoked.

 

On the other hand, the findings of the impugned order were reiterated on the behalf of the respondents.

Held:

  • The Hon’ble CESTAT, after considering the submissions from the both sides and law applicable on the issue, observed that the appellant is engaged in construction of residential and commercial complexes and received the booking amount as well as instalments amount from the buyers.
  • The proceedings were initiated against the appellant for evasion of Service Tax on the services provided to their customers under the category of ‘Commercial or Industrial Construction’ for the period 2004-2005 to 2008-09.
  • Further taking reference of the explanation added by Finance Act, 2010 in Section 65(105) (zzzh) whereby it was clarified ‘Construction of complex which is intended for sale by a builder before, during or after construction except where consideration is not received before the grant of completion certificate, shall be deemed to be service provided by the builder to the buyer’., and circular No. 151/2/2012-S.T., dated 10-2-2012 relied upon by the appellant held that prior to 1-7-2010 builders/developers are not liable to pay service tax for the Construction Service and in the present case, the period involved is from 2004-2005 to 2008-09. Thus, the impugned order is not sustainable.
  • Lastly, the Hon’ble Bench referring to the decisions of Collector of Central Excise, Vadodara v. Dhiren Chemical Industries -2002 (139) E.L.T. 3 (S.C.) & Collector of Central Excise, Meerut vs. Maruti Foam P. Ltd. – 2004 (164) E.L.T. 394 (S.C.) held ‘that circulars are binding on department and it is quite evident from the perusal of the circulars that construction service provided by the builder/developer will not be taxable for the period prior to 01.07.2010.’

 

The Hon’ble CESTAT with the above findings set aside the impugned order and allowed the appeal with consequential relief.

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