KRISHNA HOMES Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) SINCE the facts of these appeals, one filed by the Revenue and the other filed by the assessee, are similar and involved identical issues, the same are being disposed of by a common order. M/s. Krishna Homes is a Proprietary concern engaged in construction of residential complex as builder, promoter and developer. The firm constructs residential complex with more than 12 residential units. The appellant firm entered into agreements with prospective customers for construction of flats against which the customers were to make payments in instalments for the flats being built by them by the appellant and thereafter the possession the flats was to be given to the customers when the entire payment had been made. There were two agreements with each customer - first agreement was between the appellant as the seller and the prospective buyer/customer as a purchaser for sale of flat, which was to be constructed up to column, beams, roof along with brick work. The second agreement was between the appellant and the prospective buyer/customer - for the purpose of carrying on the finishing work on the flat -plastering, water supply, sanitary and electric fittings, flooring, etc. The appellant engaged contractors for construction and finishing and after completion of the construction and finishing, handed over the flats to the customers. The period of dispute is from December, 2005 to October, 2006. The department was of the view that the appellant as provider of the construction of residential complex service taxable under Section 65(105)(zzzh) was liable to pay Service Tax on the amount charged by him from the buyers of the flats and accordingly the appellant was required to take Service Tax registration and pay the Service Tax. The Service Tax amounting to Rs. 8,96,303/ - was paid by the appellant during the period from December, 2005 to October, 2006. However, in August, 2006, the C.B.E. & C. (Tax Research Unit) issued a Circular No. 332/35/2006 -TRU, dated 1 -8 -2006 wherein in respect of a question as to whether Service Tax is applicable on a builder, promoter or developer who builds a residential complex having more than 12 residential units by engaging a contractor for construction of such residential complex, it was clarified that it is the contractor who shall be liable to pay Service Tax on the gross amount charged by him for construction service provided to the builder, promoter or developer under construction of complex service falling under Section 65(105)(zzzh) and that if no other person is engaged for construction work and the builder, promoter or developer undertakes the construction work on his own without engaging the services of any person, then in such cases in absence of service provider and service recipient relationship, the question of providing taxable service by any other person does not arise. On the basis of the above Circular, the appellant submitted an application dated 6 -11 -2006 for refund of the Service Tax of Rs. 8,96,303/ - paid by them during the period from December, 2005 to October, 2006. The refund application was rejected by the Deputy Commissioner vide Order -in -Original dated 10 -1 -2007. On appeal being filed to Commissioner (Appeals) against this order, the Commissioner (Appeals) dismissed the appeal vide order -in -appeal dated 27 -7 -2007. The Commissioner (Appeals) without going into the question of unjust enrichment, held that the appellant were not entitled for refund, as they were the provider of construction of complex service to various buyers of the flats for whom the flats had been constructed by them under the agreements. The Commissioner (Appeals) observed that the appellant had entered into a work contract agreement, with the customers and, therefore, their transactions with the customers are the transactions of service which is the service of construction of residential complex. Against order of the Commissioner (Appeals), the Appeal No. ST/635 of 2007 had been filed.

(2.) IN the other case, where Revenue is in appeal, the respondent - M/s. Raj Homes Pvt. Ltd., Bhopal [hereinafter referred to as Raj Homes] had entered into the agreements with their customers for construction of residential units of certain specifications and certain designs. The prospective buyers were to make payment for the residential units being build by them in instalments and on completion of the residential complex and making full payment for the residential units, the possession of the same was to be handed over to the customers. Here also M/s. Raj Homes engaged contractors for construction of the residential complexes. The contractors were paying Service Tax on the amount being received by them from M/s. Raj Homes. The department was of the view that M/s. Raj Homes have provided construction of complex service taxable under Section 65(105)(zzzh) to their customers -buyers of the flats and as such they were liable to pay Service Tax on the amount received by them as builders. On persuasion of the Department, M/s. Raj Homes took the Service Tax registration and started paying Service Tax under protest. However, on the issue of the above -mentioned clarification of the Board vide Circular dated 1 -8 -2006 they on 14 -11 -2006 applied for refund of Service Tax of Rs. 40,50,000/ - paid by them during the period from 16 -6 -2005 to 31 -7 -2006. The refund claim was rejected by the Jurisdictional Deputy Commissioner vide Order -in -Original dated 10 -1 -2007. The Deputy Commissioner in his order rejected the claim observing that M/s. Raj Homes have not submitted documents to prove that their contractors have discharged the Service Tax liability and that even if the contractors have discharged Service Tax liability then also, M/s. Raj Homes would be liable to pay the Service Tax, as they by their own admission, have undertaken construction of residential complex on which Service Tax is to be paid by them as per the clarification issued by the TRU. On appeal being filed against this order, the Commissioner (Appeals) vide Order -in -Appeal dated 17 -7 -2007 allowed the appeal holding that M/s. Raj Homes are not liable to pay Service Tax and that there is no unjust enrichment involved as a number of the customers have given affidavits to the effect that M/s. Raj Homes have not charged any amount towards service tax from them. Against this order of the Commissioner (Appeals), the appeal has been filed by the Revenue.

(3.) SHRI Prabhat Kumar, Advocate, the learned Counsel representing the respondent M/s. Raj Homes in Appeal No. ST/556 of 2007 and the appellant M/s. Krishna Homes in the Appeal No. 635 of 2007, pleaded that M/s. Raj Homes the respondent in Appeal No. ST/556 of 2007 and M/s. Krishna Homes, the appellant in the Appeal No. ST/635 of 2007, are the builders who had entered into agreements with prospective buyers for building residential units for them on the land owned by them (the builders), that in terms of the agreements, during construction the payments for the residential units were to be made by the prospective buyers in instalments and on completion of the residential complex and full payment having been made by the customers, the possession of the residential units was to be given to them, that for construction of the residential complexes, contractors had been engaged by the builders, that in terms of Circular No. 332/35/2006 -TRU, dated 1 -8 -2006 of the Board, when a builder/developer builds a residential complex having more than 12 residential units by engaging a contractor, it is the contractor who shall be liable to pay Service Tax on the gross amount charged for the construction service provided by him to the builder/promoter/developer under Section 65(105)(zzzh), that in view of this, during the period of dispute, the builders - M/s. Raj Homes and M/s. Krishna Homes could not be held to have provided the construction of complex service and no Service Tax could be charged from them on the amount charged by them from their customers for whom the residential units had been constructed in terms of agreements with them, that it is only w.e.f. 1 -7 -2010 that an explanation was added to Section 65(105)(zzzh) providing that construction of a new building, which is intended for sale wholly or partly by a builder or any person authorized 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 the person authorized by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being enforce) shall be deemed to be service provided by the builder to the buyer, that explanation to Section 65(105)(zzzh) added w.e.f. 1 -7 -2010 expands the scope of this clause and as such is a prospective amendments and it is only from 1 -7 -2010 that such builders/developers would be liable to pay Service Tax on the amount received by them from the prospective customers with whom they entered into a contract for construction of residential units, that this explanation cannot be given a retrospective effect, that the Tribunal in the case of CCE, Chandigarh v. U.B. Construction (P) Ltd. reported in : 2013 (32) S.T.R. 738 (Tri. -Del.) has held that the explanation to Section 65(105)(zzzh) added w.e.f. 1 -7 -2010 expands the scope of this clause and hence the same is not a clarificatory amendment and, as such, it cannot be given retrospective effect and accordingly during period prior to 1 -7 -2010, when this explanation was not there, no Service Tax can be charged on the amount received by the builders/developers from the prospective buyers, that same view has been taken by the Tribunal in the case of R.F. Properties & Trading Ltd. v. CCE, Jaipur reported in : 2013 (31) S.T.R. 578 (Tri. -Dei), that in view of this, in both the cases, the appellant/respondent are eligible for refund on merits, that in both the cases the refund claims are not hit by limitation, as in the case of M/s. Krishna Homes, the refund claim for the period from December, 2005 to October, 2006 had been filed on 6 -11 -2006, and in the case of M/s. Raj Homes, Service Tax had been paid under protest and, as such, limitation period prescribed under Section 11B was not applicable, that unjust enrichment is not applicable as no amount had been charged from the customers towards Service Tax and that in view of this, while the Commissioner (Appeals)'s order in the case of M/s. Krishna Homes is not correct, there is no infirmity in the Commissioner (Appeals)'s order in the case of M/s. Raj Homes.