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ST - Land owner executing PoA in favour of Applicant for constructing complex - as title is not transferred, applicant cannot be treated as owner of land - prima facie applicant has provided Construction of Complex Service: CESTAT

By TIOL News Service

MUMBAI, MAY 28, 2014: A service tax demand of Rs.46,75,705/- has been confirmed against the applicant with penalties and interest on the ground that they provided Construction of complex service. 

As the appeal was dismissed by the Commissioner (A) on account of failure of the applicant to comply with the order of pre-deposit, the applicant is before the CESTAT.

It is submitted that the applicant has not provided any Construction of complex service since they had entered into agreement with the land owner for construction of residential complex and also entered into agreements with the prospective buyers; that they were collecting in installments, during the construction of the complex, the amounts for construction as well as on behalf of the land owner in respect of the land also.  Inasmuch as since the applicant had entered into agreement with the land owner for development of the complex and the land owner executed a power of attorney in favour of the applicant, the applicant becomes the owner of the land and they have constructed the complex hence it cannot be said that the applicant provided any taxable service to any other person, hence the demand is not sustainable. 

It is also submitted that only w.e.f 01.07.2010 the explanation was added to the definition of ‘construction of complex service’ whereby persons similar to the applicant became liable for service tax.  In the present case, the construction was undertaken prior to 01.07.2010 and the explanation being prospective in nature the demands are not sustainable, the applicant submitted.

The Revenue representative submitted that the holder of power of attorney cannot be treated as the owner of the land; that the title of the land was not transferred in favour of the applicants but they were only authorized by the land owner to enter into the land in question and develop the same; that the applicants constructed the residential complex and also entered into agreements for sale of the flats with the prospective buyers and the payments were received on construction basis, therefore, the applicants had provided service of construction of complex and the demands are rightly made.

The Bench observed -

"6. We find that the land owner executed a power of attorney in favour of the applicants for entering upon the land for construction of the complex.  The title of the land is not transferred to the applicants.  In these circumstances, prima facie we find that the applicants are not the owner of the land on which the complex is constructed.  As the applicants had undertaken construction of complex service which is taxable, therefore, prima facie the applicants have not made out a case for total waiver of the service tax."

Noting that no financial hardship is pleaded, the CESTAT ordered the applicant to make a pre-deposit of Rs.20 lakhs and report compliance for obtaining stay.

(See 2014-TIOL-877-CESTAT-MUM)


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