OIO No.18/STC-AHD/ADC(MKR)/2011-12 Page 39 of 39

OIO No.18/STC-AHD/ADC(MKR)/2011-12 Page 39 of 39

BRIEF FACTS OF THE CASE

M/s. Anubhuti Estate Pvt. Ltd. situated at S. N. House, Opp. Rock Regency Hotel, Nr. Lal Bungalow, Ellisbridge, Ahmedabad (hereinafter referred to as “the said service provider”) has been engaged in the business of providing Commercial or Industrial construction services for construction of Commercial projects and thereby engaged in the business of providing taxable services under the ‘Commercial or Industrial Construction Services’ as defined under Section 65 of the Finance Act 1994 (as amended). Intelligence gathered revealed that in the past years, a sister concern of the said Company i.e. M/s S. N. Organisers P Ltd and some other companies were functioning from the above-mentioned premises and were mainly engaged in the business of providing Construction services. However, they were neither registered with Service Tax department for the said services, nor paying any Service Tax. Therefore, a Search Warrant No. 41/2006-07 dated 23.02.2007 was issued by the Commissioner of Service Tax, Ahmedabad authorizing the Asstt. Commissioner, Service Tax, Ahmedabad to search premises under the provisions of Section 82 of the Finance Act 1994 and accordingly a search was carried out at the above-mentioned premises of the company under Panchnama dtd. 23.02.2007 in presence of two independent Panchas and Shri Satishbhai Nyalchand Shah, one of the Director of the said Group of Companies.

2. During the course of search, Shri Satishbhai Nyalchand Shah revealed that there are few other companies functioning from the said premises and most of these companies are engaged in the business of construction of both Commercial and Residential complexes. He further informed that as part of their business, usually the Companies are floated for every commercial or residential scheme / project they undertake and nearly all the companies are Private Limited Companies incorporated as per Companies Act, 1956.

3. A Statement of Shri Satishbhai Nyalchand Shah, the Director of M/s S. N. Organisers P Ltd., Ahmedabad was recorded on 23.02.2007 under the provisions of Section-14 of Central Excise Act, 1944 read with Section 83 of Finance Act, 1944, wherein, he stated that he is one of the Directors of the said Company and the said company is engaged in providing construction service. He further confirmed the facts of the Panchnama dtd. 23.02.2007 drawn at the office premises of their company.

4.1 During the course of the investigation, scrutiny of the documents withdrawn and the documents submitted M/s Anubhuti Estate Pvt. Ltd. was carried out and it was found that the said company had been incorporated in the month of September in which Shri Satishbhai Nyalchand Shah, Shri Chitrakbhai S. Shah and Shri Taralbhai S. Shah were the Directors of the said Company. Further, the said company has been engaged in construction of a Commercial construction project, which is consisting of shops and offices and the said project has been named as ‘Shivalik-V’, located at a land situated near Mahalaxmi, Nr. Paldi Bus Stop, Paldi, Ahmedabad. From the purchase deed (sale deed) of the land, it is found that the said service provider had purchased the said land vide the sale deed dtd. 05.04.2005 and the purchase price of the said land was Rs.2,88,94,982/-, which is inclusive of stamp duty paid by the Service provider.

4.2 After purchase of the above land, the said Service provider conceived the construction of a commercial construction project on the land, for which they prepared the plans of the building and got the plans approved from the concerned authorities. Thereafter, they had sought the ‘Commencement letter’ dtd. 30.03.2007 from the Ahmedabad Municipal Corporation and started the construction of the said project. The construction of the three showroom located at the ground floor has been completed and part BU permission for the said three shops of the building has been obtained by the Service provider on 17.09.2007 from Ahmedabad Municipal Corporation. While the remaining project is under construction stage only. Further, from the bank statements, the account ledgers and other documents submitted by the said Service provider, it was found that the said Service provider had received advances from some of their prospective buyers during the stage of construction of the said commercial project, before issuance of the ‘Building for use’ permission, from the concerned approval authorities, which in the present case is Ahmedabad Municipal Corporation.

5.1 Therefore, a statement of Shri Satishbhai Nyalchand Shah, the Director of M/s Anubhuti Estate Pvt. Ltd., Ahmedabad was recorded on 04.12.2008 under Section-14 of Central Excise Act, 1944 readwith Section 83 of Finance Act, 1994, wherein he stated that he is one of the Directors of the said company and apart from him Shri Chitrakbhai S. Shah and Shri Taralbhai S. Shah are the other director of the said company. He further stated that he has been looking after the day-to-day work of the above company, which is engaged in the business of building / Construction of Shops and offices, in the name of ‘Shivalik-V’, located near Mahalaxmi, Nr, Paldi Bus Stop, Paldi, Ahmedabad. He further deposed that their company purchased land situated at the above-mentioned place on 05.04.2005 for which a sale deed of Rs.2,88,94,982/- has been executed and the amount is inclusive of the stamp duty paid by their company. He further stated that in this regard, the copy of sale deed of the land and the ledgers for the payments made in respect of the land, the registration charges and Stamp duty have already been furnished by their company vide their letter dtd. 27.10.2008.

5.2. He further stated that after purchase of the above-mentioned land, their company conceived a construction project consisting of shops and offices to be build on the said land, the plans were prepared and approval was obtained from the concerned authorities. On being asked, he stated that the construction project is consisting of four floors above the ground floor and it contains 39 units offices. The construction of the said commercial construction project was initiated by the company after obtaining the necessary ‘Commencement letter’ dtd. 30.03.2007 from the Ahmedabad Municipal Corporation. The construction work of the three showrooms has been completed and the BU permission for the three units was issued by the Ahmedabad Municipal Corporation on 17.09.2007. He further stated that the said three showrooms have been sold and the Sale proceeds have been received by their company. He also stated the remaining major part of the said construction project is still under construction.

5.3 On being specifically asked that whether some of the offices of the said commercial construction project were booked by some clients before or during the work of construction and any booking amounts or advances were received by the company for it, he stated that some of the offices were booked by few prospective buyers and their company had received amounts as advances for it. The said company had submitted the chart showing the details of all the offices of the said project, specifying the date of sale deed and the amounts received as sales alongwith the dates on which the amounts were received. Thereafter, the said Chart showing the above-mentioned details, was shown to him and after reading and understanding the details given in it, he confirmed the details given in it and stated that as on 21.11.2008, the total sales proceeds of all the offices of the above-mentioned construction project i.e. ‘Shivalik-V’ had been Rs.69,92,125/-. On being specifically asked about whether the said company has been registered under Commercial construction service or any other taxable service as defined under Section 65 of the Finance Act, 1994, he stated that their company has not been registered with Service Tax department till date, as they are not providing any taxable services.

5.4 On the issue of receipt of advance amounts from some of their customers, he submitted that the amount received as advance for booking has been considered and reflected in the books and accounts of their company. He also stated that the amounts received as advances were for purchase of particular office / unit and it was not for carrying out construction of particular unit or office for the buyer who has paid the advance, as their company conceived the project at their own and as per their own specifications. Such an amount received from the prospective buyer is for consideration towards sale of the particular office sold under a sale deed. Further, at the time of receipt of such an advance, no rights, conveyance or ownership had been passed on to those clients, because, no sale deed had been executed between their company and the purchasers. The work of construction of the said projects was carried out by the company at its own, arranging funds themselves and by taking project finance loan, also the work carried out is not as per the instruction or specification of any buyer. He further stated that their company has sold most of the units of the said project after completion of the scheme and obtaining BU permission from the concerned authorities and the amounts received as advances were as per mutual understanding with the prospective buyers and the said amounts were considered towards sale of fully constructed units / shop / office.

5.5 He further stated that their company has not entered into any written agreement / contract with any of their prospective buyers, before the beginning of the construction or during the course of the construction of the above-mentioned project. Therefore, the advances received by their company had been consideration towards sale of the units and not towards construction of the units on behalf of the particular buyers. Further, their company has executed conveyance deeds for the selling of units, only after the construction was completed and/or possession is handed over and the conveyance or sale deeds have executed have been for land as well as constructed unit. He also stated that during the development of the project, if any mishap happens, no property in goods passes to the buyer, as there is no works contract, the liability remains with the Company itself and therefore, whatever amount has been received has been received towards sale consideration of Chattel and not towards any works contract of the unit/s. In this matter, they rely on the decisions given by Gauhati High Court in the case Magus Construction Pvt. Ltd Vs Union Of India {2008-TIOL-323-HC-GUW-ST} and by Allahabad High Court in Assotech Realty Pvt Ltd Vs State of U.P. {2007(7) S.T.R.129 (All.)}, wherein it has been held that builders booking units before completion of construction of the project and receiving advance of part payment, is towards the sale of the particular unit and facilitation of the sale. Therefore, according to them, their company has not provided taxable service to any client. Further, as given in the Judgment in the case of Magus Construction Pvt. Ltd., the CBEC in circular No. 332/35/2006-TRU dated 01/08/2006, if there is no service provider and service recipient relationship, question of providing taxable service to any person by any other person does not arise. Applying the same principle in their case, no contract/agreement for service has been entered into at all by their company, so their company has not provided any service to any prospective buyer. Therefore, their company is not liable to pay Service Tax on the income received from ‘Sale proceeds’ and also on the booking amounts received. So, they have not obtained any Service Tax registration under construction service.

6.1 Investigations in the matter revealed that the said company purchased plot of land located near Mahalaxmi, Near Paldi Bus Stop, Paldi, Ahmedabad on 05.04.2005 and for the purchase of the above-mentioned plot, the Directors of the said company arranged finance from their own resources. Further, in the said project, the construction of the three units situated at the ground floor has been completed and the remaining part of the project is still under construction stage only. However, on scrutiny of the Audited Balance sheets, profit & loss accounts, account ledgers and the bank statements submitted by the Service provider, it was found that the said Service provider had received advances from the prospective buyers of 11 units the said Commercial project i.e. Unit Nos. 01, 03, 106, 202, 203, 204, 205, 208, 302, 305 and 308. In this regard, though the said Service provider has not entered into any written agreement with the prospective buyers of the units of the above-mentioned commercial construction project, they have received amounts as advances for booking of the above-mentioned units from the prospective buyers, during the financial years 2006-07, 2007-08 and 2008-09, before completion of the above-mentioned commercial project and issuance of BU permission i.e. during the course of construction of the said project. Further, as per the balance sheets, account ledgers, sale-deeds and the sales data submitted by the said Service provider, the amounts received as advances by the said Service provider in the financial year 2007-08 are as under :

Year / Amount received as advances as per figures given in the Accounting ledgers (Rs.)
Upto 31.03.2008 / Rs. 1,07,69,750/-
2008-09 (upto 21.11.2008) / Rs. 87,42,113/-

6.2 The above mentioned amount of advances received by the said Service provider from the proposed buyers of the units/shops/showrooms of the above-mentioned Commercial construction project, clearly proves that the said Service provider has provided Commercial construction service as defined under Section 65(25b) of the Finance Act, 1994 to the proposed buyers from whom they have received the advances as well as to the buyers of the units with whom sale deed have been executed before issuance of BU permission. Further, the said Service provider vide their letter dtd. 27.10.2008 have submitted the details of sale-deeds and receipt of payment details in respect of the three units of said commercial construction project, situated at the ground floor, as well as some other units of the said project for which they have received advances for booking of the said units. As per the said details, it is found that for the unit nos. 01, 03, 106, 202, 203, 204, 205, 208, 302, 305 & 308, the said Service provider has received amounts as advances during the financial year 2006-07, 2007-08 and 2008-09 (upto 21.11.20008), before completion of the said project. In this regard, as per the provisions of section 67 introduced vide the Finance Act, 2005, from 16.06.2005, the amount received by any Service provider from any Service receiver, for providing the service in future, such an amount is also liable for payment of Service tax under the category of Service, which is to be provided. In the present case, the said Service provider has received the above-mentioned amounts as advances during the years 2006-07, 2007-08 and 2008-09 (upto 21.11.2008), as provision of Commercial Construction service to be provided by them to the Service receivers i.e. the proposed buyers of the units / offices of the commercial construction project in question. Thus, the said Service provider has rendered taxable Commercial construction service to the proposed buyers of the units of above-mentioned commercial construction project constructed by them and they are required to pay Service tax payable as per the provisions of Section 66 of Finance Act, 1994.