NEEL SIDHI ENTERPRISES Vs. COMMISSIONER OF SERVICE TAX

JUDGEMENT

(1.) THE appeal and stay applications are directed against the Order -in -Appeal No. BR/13/2012 dated 25/07/2012 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone -I. The appellant, M/s. Neel Sidhi Enterprises, Navi Mumbai constructed flats for sale during the period May, 2006 to December, 2006. During the period of construction, they entered into agreement of sale which on completion of the construction was sold to the prospective buyers. In the case of K. Raheja Development Corpn. v. State of Karnataka : [2005] 2 STT 178 (SC) the hon'ble Apex Court clarified that the activities undertaken by the builders constructing flats/buildings for and on behalf of prospective buyers for consideration in cash or deferred payment is covered by the Works Contract and not under sale. Subsequent to this judgment, the Directorate General of Direct Tax issued a circular stating that service tax liability would arise under 'Works Contract Service' in respect of construction undertaken by the builder for prospective customers under the agreement for sale. However, vide circular dated 01/08/2006 the Central Board of Excise and Customs clarified that liability to pay service tax is on the person who undertook actual construction and not on the builder. In view of the confusing legal position, the appellant collected sums from the prospective buyers of flats as "contingent liability" towards the service tax amount, if any, payable to the Central Excise department for the sale of the flats. It was also made clear at the time of collection of this contingent liability that the matter is pending decisions before various judicial forums and the amount will be returned if the outcome of the decision pending before various High Courts are in favour of the builders. Subsequently, the Central Board and Excise vide a Circular No. , dated 29/01/2009 clarified as follows:

(2.) AFTER issue of this circular the appellant returned the entire money collected as contingent liability to the buyers of the flats. In the meanwhile a show -cause notice was issued to the appellant vide notice dated 22/04/2009 demanding a sum Rs. 44,96,441/ - collected as contingent liability under the provisions of Section 73A(2) of the Finance Act, 1994. The said notice was adjudicated vide order dated 22/06/2010 and the demand was confirmed along with interest thereon apart from imposition of penalty Rs. 5,000/ -. The appellant preferred an appeal and vide the impugned order the same was dismissed and hence the appellant is before us.

(3.) LEARNED Additional Commissioner (AR) appearing for the Revenue reiterates the findings given in the order of the lower adjudicating and appellate authorities.