CESTAT – New Delhi : Construction of hostel by assessee for Gautam Budh University could not be considered as a residential unit and hence not covered within definition of ‘construction of complex services’

CESTAT, New Delhi Bench

Commissioner of Service Tax, New Delhi vs. Gandharva Infrastructure & Projects Ltd.

Section : 65(30a), 65(91a)

S. K. Mohanty, Judicial Member And V. Padmanabhan, Technical Member

Final Order Nos. 55040-55041 Of 2017

Appeal Nos. St/380/2012 & St/56952/2013 – St [Db]

July 11, 2017

ORDER

V. Padmanabhan, Technical Member – These appeals are filed by the Revenue against the orders in original passed by Commissioner Service Tax New Delhi dated 30.11.2011. The respondent is engaged in the construction of residential complex for Greater Noida industrial development authority. The Department investigated into the allegation that the respondent has not paid service tax and on completion of investigation, show cause notices were issued covering different periods. The SCNs were adjudicated by the Ld. Commissioner in which the demand for service tax was entirely dropped. Aggrieved by the impugned orders Revenue has filed the present appeal. With the above background we have heard Ms. Neha Garg & Shri Sanjay Jain, DR for the appellant and Shri Atul Gupta & Shri Varun Gaba, Advocate for the respondent.

2. The demands for service tax were made vide the impugned show cause notices in respect of the following works carried out by the respondent:

(i) Construction of individual independent residential houses for Greater Noida, Industrial Development Authority (GNIDA) in respect of:

1. 60 separate houses in Sector Omicron-II (Part-E), 146 houses in sector XU-l (Package-I) & 48 in Sector Omicron 1A for GNIDA, and

2. Internal development work for Omicron (II) Part A including roads, drinking water, sewerage system, water supply system, cattle etc.

(ii) Construction of boys hostel in Guatam Budh University Greater Noida. The demand for service tax was made under the category of construction of complex /falling within section 65 (30a) of the Finance Act 1994 read with section 65(91a) ibid.

3. The adjudicating authority set aside the demand for service tax entirely for the following reasons:

(i) The respondent has undertaken construction of single storey houses in three different localities. The adjudicating authority has taken the view that these will not be covered within the definition of construction of complex for the reason that in one block of land only one single story house had been constructed. For the activity to fall within I the construction of complex service, a single building having atleast 13 residential units should be constructed. He has also relied upon the decision of the Tribunal in the case of Macro Marble Projects Ltd. v. CST [2008] 17 STT 479 (Chennai) which has been upheld by the Hon’ble Supreme Court.

(ii) With reference to the internal development works including construction of roads, and other infrastructure, the adjudicating authority has taken the view that these infrastructure development works cannot be classified under the category of residential complex. These activities would fall under the commercial or industrial construction on which no service tax can be levied since these are in the nature of civic amenities provided by authority constituted under the law and are not commercial activities of GNIDA.

(iii) In respect of construction of boys hostel for Gautam Budh University, he has dropped the demand for the reason that the construction of boys hostel cannot be categorized under construction of residential complex. No service tax can be levied on such construction since it is meant for the use of Guatam Budh University which is an institution established solely for educational purpose being non commercial in nature.

4. Revenue has challenged the dropping of service tax demand mainly on the following grounds:

(i) The adjudicating authority has taken the view that construction of single story house will not be covered within the definition of residential complex. He has failed to appreciate the fact that these projects of GNIDA are scientifically planned sector layouts with community and recreational centres, parks, play grounds, etc. and other facilities such as gas pipeline, optical fibre cable, etc. These facilities are evident from the planned layout of the GNIDA. The single houses being constructed as part of the project, were identical and constructed at the behest of GNIDA. The adjudicating authority has erroneously considered that the residential complex is to be constructed upon a single plot. Since each of the projects of GNIDA was a residential complex, service tax is liable to be paid by the respondent for said construction.

(ii) In respect of internal development work carried out by the respondent, the argument of Revenue is that even though the construction of roads, and power facilities is not taxable, in the present case such roads and other infrastructure facilities are constructed within the residential complex and hence liable to payment of service tax.

(iii) In respect of construction of boys hostel, Revenue has argued that such construction has been carried out by the respondent to GNIDA and not to the university and hence service tax is liable.

(iv) Revenue has also sought to distinguish the case of Macro Marvel Projects Ltd. (Supra). In the case of Macro Marvel Projects Ltd. (supra) was engaged in the construction of houses at the desire of the individual owners. However, in the present case the construction was carried out at the desire of GNIDA and all houses were identical.

5. Heard both sides.

6. The Ld. DR distinguished the present case from the facts in the case of Macro Marvel Projects Ltd.

7. The Ld. Counsel for the respondent has submitted a copy of the lay out plan of the sector XU-I. He also submitted a few photographs about the single storey house constructed by the respondent. He submitted that the decision of the Tribunal in the case of Macro Marvel Projects Ltd (supra) will be applicable to the facts of the present case since in both the cases, the activity was construction of individual residential units. He also cited several other case laws to support his argument.

8. The dispute is with respect to whether the construction activity undertaken by the respondent is leviable to service tax under the category of construction of complex services. For ready reference, we reproduce the relevant definition:

Definition and scope of service as per Section 65(30a) of the Finance Act 1994:

“construction of complex” means—

(a) construction of a new residential complex or a part thereof; or

(b) completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or

(c) repair, alteration, renovation or restoration of, or similar services in relation to, residential complex;

Definition of Residential Complex as per Section 65(91a) of the Finance Act, 1994:-

“residential complex” means any complex comprising of-

(i) a building or buildings, having more than twelve residential units;

(ii) a common area; and

(iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person.

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) “residential unit” means a single house or a single apartment intended for use as a place of residence;

“Taxable Service” as per the section 65 (105) (zzzh) of the Finance Act, 1994:

“Taxable Service” means any service provided or to be provided to any person, by any other person, in relation to construction of complex:

Explanation- For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorised by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer.

9. For the activity to be covered by the definition of residential complex, the complex should comprise of more than 12 residential units. This can be situated within one building or more than one building. Further requirement is that these residential units should have a common order and further one or more facilities such as parking, lift, community hall, common water supply, etc. From the records, we find that the respondent is engaged in the construction of individual independent residential houses. Each such house will be a residential unit for use at the place of residents. The important question to decide the issue is whether these individual independent residential units are situated as part of a complex with common area and one or more facilities. We have perused the layout plan submitted by the ld, Counsel of OMICRON-I layout. We find that the entire area is divided into several clusters of plots on which individual houses have been built for the respondent. We note that each house shares a wall with the houses on either side as well as the one in front / behind. We also find that there are common facilities such as parks, community hall, etc. and note that the layout plan of each house is provided by the GNIDA which is also one of the requirements for governing residential complex. In view of the above, we are of the view that each of these clusters of houses will form a residential complex comprising of several individual residential houses with common area and various facilities. Consequently, these will be covered within the definition of construction of complex and liable to service tax. The adjudicating authority’s interpretation that more than 12 residential units should be part of one building situated in one plot of land is without any basis. However, we note that the layout plan of only one of the layouts constructed has been submitted. Before concluding on the service tax demand it will be necessary to go through the lay out plan of all the layouts constructed by the appellant with a view to examine the factual position in the case. We also note that the nature of construction carried out by the appellant is of composite nature involving supply of materials as well as verification of services. In terns of the decision of Hon’ble Supreme Court in the case of CCE & C v. Larsen & Toubro [2015] 52 GST 1/60 taxmann.com 354 such composite construction are liable to service tax only w.e.f. 01.06.2007 under the category of works contract services. Accordingly, the portion of the impugned order dealing with construction of individual independent residential houses is set aside and matter is remanded to the original authority for a fresh decision, keeping in view the law laid down by the Hon’ble Apex Court in the case of Larsen & Toubro (supra) as well as regarding factual details for construction of residential complex in terms of the statutory definition. The respondent shall be provided adequate opportunity to place their side of case.

10. The second issue is with reference to internal development works constructed by the respondent including roads and other infrastructure development such as construction of building, water supply and other facilities. Revenue has stated in the appeal that such infrastructure facilities have been provided within the residential complex and hence should be classified within the category of construction of complex services. From the records, we find that the construction of various infrastructure facilities have been provided by the respondent along with construction of residential complex. These covered by a separate contract and from the nature of activities carried out, we are of the view that these are in the nature of civic amenities being provided by the authority constituted under law on above commercial activities of GNIDA. Such welfare activities cannot be covered by the construction of complex services and the adjudicating authority has rightly dropped the demand for service tax.

11. The third and final issue is regarding the demand of service tax on construction of boys hostel for Gautam Budh University, As is well known, a hostel cannot be considered as a residential unit and hence cannot be covered within the construction of complex services. In any case, such construction activity has been done for the use of Gautam Budh University which is an institution established solely for educational purpose. We uphold the adjudicating authority’s findings that no service tax will be payable on construction of boys hostel.

12. In view of the above discussions, the impugned order is modified as above.

13. Appeals are partially allowed as above and impugned orders are modified to the extent discussed above.