By TIOL News Service

BANGALORE, JULY 17, 2018: THIS is an appeal filed by the Revenue before the Karnataka High Court.

The substantial questions of law as framed by the Revenue are :-

1. Whether the Tribunal erred in coming to the conclusion that the "Residential Complex" constructed by the assessee falls within the meaning of "personal use" under Sec.65(91a) of the Finance Act, 1994 and therefore not liable to pay service tax?

2. Whether the Tribunal erred in coming to the conclusion that the activity of the assessee is covered by Circular dated 24-05-2010 issued by CBEC and therefore not liable to pay service tax?

3. Whether the Tribunal erred in coming to the conclusion that the demands made in Show Cause Notice dated 08-07-2009 do not fall within the extended period of limitation prescribed under Sec.73(1) of the Finance Act, 1994?

The issue is regarding Levy of Service Tax on the 'Residential Complex' constructed by the Respondent Assessee, M/s. Nithesh Estates Limited for the Company, M/s. ITC Limited at Bangalore, the Contract of construction for which was given in turn by Respondent – Assessee- M/s. Nithesh Estates Limited to M/s. Larsen and Toubro Limited (M/s. L & T Ltd.).

The CESTAT held in favour of the Respondent - Assessee by concluding that the said construction activity fell within the Exclusion Clause of the definition of 'Residential Complex' as defined in Section 65(91a) of the Finance Act, 1994. Reliance was also placed on the TRU letter dated 24/05/2010.

In appeal, the counsel for the Revenue pleaded for setting aside the impugned order and upholding the service tax demand.

The respondent assessee inter alia submitted that being the Principal Contractor, it was bound to receive the contractual sums from the Awarder of the Contract, viz. M/s. ITC Limited which in turn was substantially paid to the sub-contractor, M/s. L & T Limited; that since the Service Tax Liability with respect to the said construction activity stood discharged by payment of such Service Tax by the subcontractor, M/s. L & T Limited, as per the provisions of law as explained by CBE&C itself, there was no question of the Revenue again demanding the Service Tax from the Respondent Assessee M/s. Nithesh Estates Limited on the basis of Audit objection raised by the Department.

Furthermore, the respondent urged that the 'Residential Complex' in question was constructed for 'personal use of ITC Limited' and, therefore, the same was excluded from the definition of 'Residential Complex' as defined in Section 65 (91a) of the Finance Act, 1994.

Reliance is also placed on the Board Circular No. 108/2/2009-S.T. dated 29/01/2009 as well as the TRU letter (supra) cited by the Tribunal.

The High Court considered the submissions and after adverting to the Board Circular dated 29.01.2009 observed thus -

"21. In view of this clear position of law indicated by the CBE&C itself, we are of the considered opinion that the Revenue cannot be allowed to argue against the legal position rightly explained by the CBE&C itself which can certainly be invoked and applied by this Court for interpreting the provisions of law on the Principles of interpretation of Contemporenea Expositio and the Central Board of Excise and Customs or the highest Administrative body of the Respondent Department itself has interpreted the provisions that the construction activities of this nature where Bi-parte or Tri-partite Agreements are entered into is clearly indicated in the said Circular, which clearly and rightly hold the sub-contractors liable to pay the Service Tax as it is the Sub-contractor who actually undertakes the construction activity.

22. In view of the undisputed factual matrix of the present case, that the sub-Contractor M/s. Larsen and Toubro Limited has duly discharged the obligations to pay the Service tax in the present Contract, we are at a loss to understand how the Revenue could again demand the Service Tax from the Respondent Assessee M/s. Nithesh Estates Limited, the Principal Contractor or the Developer, who did not undertake any construction activity in the present case.

23. In our opinion, the learned Tribunal was perfectly justified and correct in applying the Circular dated 24/05/2010 also, while holding that if the Government of India Department could be treated as using the 'Residential Complex' in question constructed by NBCC for its 'personal use', how another Corporate body like M/s.ITC Limited in the present case could be denied the benefit of that type of user of 'Residential Complex' to be occupied by its Managerial Staff. The law does not envisage any such distinction among the Private Sector Corporate Entities and the Departments of Government or Government Companies or Undertakings."

Opining that the Tribunal was perfectly justified and correct in applying the Circular dated 24/05/2010, the High Court concluded that the case of the Revenue appeared to have emanated from a misconceived Audit objection raised by the internal Auditors of the Department.

The order of the Tribunal was upheld and the Revenue appeal was dismissed as being devoid of merits.

Quick reference:

Section 65(91a) of Finance Act, 1994 reads –

"Residential Complex" means any complex comprising of-

(i) xxx;

(ii) xxx; and

(iii) xxx.

Explanation- For the removal of doubts, it is hereby declared that for the purposes of this clause,-

(a) "personal use" includes permitting the complex for use as residence by another person on rent or without consideration;

(b) xxx:

(See 2018-TIOL-1369-HC-KAR-ST)