OIO NO. 33/STC-AHD/ADC(MKR)/2011-12 Page 1 of 27
BRIEF FACTS OF THE CASE
M/s Explora InfoTech Ltd (Now Gallops Infrastructure Ltd., (Unit of N.G. Group) 8th floor, Astron Tech Park, Opp. Fun Re-Public, Satellite, Ahmedabad [here in after referred to as the said service provider for the sake of brevity] were engaged in the business of constructing residentia1 complex. Intelligence gathered revealed that, they have provided construction service towards Ashwavilla Bungalows Scheme as contractor and not paid service tax, under the category of Constructionof Complex Service on the gross value received from the owner of the land/plot of M/s Savita Co-Op. Housing Society, Ahmedabad [herein after referred to as the said society for the sake of brevity].
02. Summons were issued on 12.12.2006, 05.02.2007 and the required documents such as IT returns for 04-05& 05-06, Balance Sheet for the year 04-05 05-06, details of residential building/ commercial building developed/constructed and details regarding service tax registration and payment of service tax etc. were called for, and time was fixed for recording the statement. Also, summons dtd. 05.06.2008 was issued for recording the statement.
03. In response to the summons dtd. 12.12.2006 & 05.02.2007, M/sExplora InfoTech Ltd., Ahmedabad have submitted Ledger Account of Ashwavilla Construction Advance Account of members of the plot for the year 06-07 alongwith construction agreement dtd. 01.10.2006 made with Parmpalsing Hardevsing Dhingra, a member of the Bungalow No.6 and allotment letter dtd. 25.05.2006 issued by M/s. Savita Co-Op. Housing Society for Rs.31,60,000/- in favour of Shri Parmpalsing Hardevsing Dhingra; a member (No.6) for Rs.31,60,000/-; list of members of Ashwavilla Bungalows Scheme; showing construction amount ofRs.1,15,99,601/- Rs.3,15,00,000/-, Total Rs.4,36,99,601/- received during the year 2006-07 & 2007-08 respectively; copy of Registration certificate bearing No. 22830/2006 dtd. 31.08.2006 issued by Assistant District Registrar, Dist, Panchayat, A'bad in favour of M/s. Savita Co-Op. Housing Society, copy of Service Tax Registration certificate dtd. 22.06.2007 for the service of (1) Transport of Goods by Road (2) Maintenance or Repair Service (3) Renting of immovable property services issued in the name of M/s Gallops Infrastructure Ltd.
04. In response to summons dtd. 05.06.2008, Shri N.G.Patel,
Director of M/s Explora InfoTech Ltd., Ahmedabad, remained present on 12.06.2008 for giving his statement with regard to construction activity carried out by them. On being asked he had stated that M/sExplora InfoTech Ltd., has been appointed as a contractor to construct the residential bungalow by different persons/owners of the plot who are members ofM/s Savita Co-op, HousingSociety; the construction has to be done according to plan given to them by each member; forexample, construction agreement dtd. 01.10.2006 has been made between Parmpalsing Dhingra and M/s. Explora InfoTech Ltd. As per agreement, the contractor would carry out construction work, give the contractual work to labour contractor, purchase raw material. The Owner of the plot agreed to pay Rs.21,89,000/- being construction cost. The owner would pay Legal charges, Architect fees etc. to the contractor. M/s.Explora InfoTech Ltd. had carried out construction work to the members individually during the year 2005-06 - NIL, 2006-07 & 07-08 for 18 members. The members of the plots had made payment of Rs.1,15,99,601/- and Rs.3,15,00,000/- (Total RS.4,30,99,601/-)during 06-07 & 07-08 respectively towards construction work to them.
05. It also appeared that M/s Savita Co-Op. Housing Society,
Ahmedabad having 61 units as Ashwavilla Bungalows had booked 41
members. It had got the development and plotting of its land and
common amenities i.e. common road, streetlight, water and drainage
facilities, compound wall, fencing work etc. It had sold the plots duly
developed to its members. The said society had issued allotment letters to its members who had paid the amount of land cost etc. For example, Shri Parmpalsing Dhingra, Member (No.6) had paid Rs.31,60,000/- as per allotment letter dtd. 25.05.2006 for booking of sub-plot No.6. Likewise, allotment letter had been issued by the said society to its other members. The members had got construction work done for their bungalows from contractor who had carried out construction work. The members had made construction agreement with contractor. For example, Shri Parmpalsing Dhingra Member (No.6) had made construction agreement dtd. 01.10.2006 with M/s. Explora InfoTech Ltd., as contractor. As per agreement the said owner had appointed and authorized M/s Explora InfoTech Ltd., to construct the building on the land in accordance with such plan and specification as had been decided by the owner in consultation with his architect. The owner had undertaken to get the revised sanction for construction of bungalow from AUDA / AMC. The contractor had carried out construction work as per plans and employed necessary supervisor, given the contractual work to labour contractors, purchased the raw materials and created necessary infrastructure for smooth progress of construction work. The said owner had agreed to pay the some of Rs.21,89,000/- being construction cost of the said bungalow. The cost has been decided on the basis of plans and specifications provided, more particularly attached to said agreement and the rate for construction is decided @ Rs.5500/- per sq. yards. The owner would pay the contractor such sum of money as may demand by said contractor to looking to the progress of work. It is proposed to complete the construction of the bungalow within a period of one year. The owner agreed to pay all the amounts payable under the terms and condition of agreement as and when that becomes due and payable.
06. In view of the above paras, it appeared that M/s Explora
InfoTech Ltd., a division of N.G. Group, Ahmedabad was engaged in the business of construction of residential complex. The said service provider had constructed more than 12 residential units in a single scheme viz. Ashwavilla Bungalows belonging to M/s Savita Co-op. Housing Society. All the members of the society had common and mutual Interest among themselves. Further all the members had also right to use common facilities/amenities like common road, streetlight, water and drainage facilities, compound wall, fencing work etc. Also all the residential units were having common area to use. The service providers were providing the said taxable service to their clients but they had neither obtained service tax registration for the said service nor made payment of service tax. They had also not submitted ST-3 returns for the said taxable service provided by them. It appeared that they had obtained the service tax registration certificate for the service (1) Transport of Goods by Road (2) Maintenance or Repair Service (3) Renting of immovable propertyservices issued in the name of M/s Gallops Infrastructure Ltd.
07. M/s. Explora InfoTech Ltd., had carried out construction
work of Ashwavilla Bungalows and provided construction service to the 8 members of M/s. Savita Co-Op. Housing Society Ltd., Ahmedabad during the year 2006-07,2007-08 and 2008-09. The said service provider had constructed more than 12 residential units in a single scheme viz. Ashwavilla Bungalows belonging to M/s Savita Co-op. Housing Society. All the members had common and mutual interest among themselves.Further all the members had also right to use common facilities/amenities like common road, streetlight, water and drainage facilities, compound wall, fencing work etc. Also all the residential units were having common area to use. The members of the plots had made payment of Rs.1,15,99,601/-, Rs.3,15,00,000/- and Rs.5,66,061/- during the year 2006-07, 2007-08 and 2008-09 respectively towards construction work.
08. In view of the above paras, it appeared that M/s Explora
InfoTech Ltd., had provided their taxable services to the 18 members of M/s. Savita Co-Op. Housing Society, Ahmedabad and collected construction charges of Rs.1,15,99,601/- & Rs.3,15,00,000/- from their clients i.e. total 18 members of M/s. Savita Co-Op. Housing Society. The Explora InfoTech Ltd., had therefore, provided taxable service to the members of the said society, they were liable to pay the service tax on the amount Rs.1,15,99,601/- + Rs.3,15,00,000/- + Rs.5,66,061= Total Rs.4,36,65,662/- after allowing 67% abatement of Rs.2,92,55,993/-. Thus, taxable amount came to Rs.1,44,09,668/- on which service tax was payable by M/s. Explora InfoTech Ltd., as shown below;
S.Tax / Edu. Cess
2006-07 / 1,15,99,601/- / 38,27,868/- / 4,59,344/- / 9,187/- / 4,68,531/-
2007-08 / 3,15,00,000/- / 1,03,95,000/- / 12,47,400/- / 37,422/- / 12,84,822/-
2008-09 / 5,66,061/- / 1,86,800/- / 22,416/- / 672/- / 23,088/-
Total / 4,36,65,662/- / 1,44,09,668/- / 17,29,160/- / 47,281/- / 17,76,441/-
Thus, they were liable for payment of service tax on the gross amount received by them for construction service. It also appeared that M/sExplora InfoTech Ltd., had not paid service tax due on construction of residential units voluntarily. They had chosen to evade payment of service tax thereon.
Section 65(30a) of the Act, as inserted by the Finance Act, 2005,
defines ‘construction of complex’ as follows:
(30a) “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 tilling, 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
The term ‘residential complex’ defined in Section 65(91a) of the Act
as follows:
(i)a building or buildings, having more than twelve residential units
(ii)a common area; and
(iii)anyone or more of facilities or services such as park, lift,
parking space, community hall, common water supply or effluent treatment system.
09. In view of the above discussion in the matter, M/s. Explora InfoTech Ltd., had provided their services to the members of M/s Savita Co-Op. Housing Society Ltd., for construction of residential complex and they were liable to pay service tax as shown above under the category of Construction of Complex Service as defined under Section 65 (30a) of the Finance Act.
10. In view of the above forgoing paras, M/s. Explora InfoTech
Ltd., had suppressed full value of taxable service provided for
construction of the said housing scheme to the members of M/s. Savita Co-Op. Housing Society, Ahmedabad for the year 2006-07 & 07-08 as per agreements with the said members; the service provider also failed to discharge full service tax liability for the taxable service of Construction of Complex Service as defined hereinabove within the stipulated period as prescribed under the provisions of Section 68 (1) of Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994; and the service provider also failed to obtain service tax registration and failed to file prescribed half yearly ST-3 returns properly for “Construction of Complex Services” for the half year ending 30.09.2006, 31.03.2007, 30.09.2007, 31.03.2008, 30.09.2008 and 31.03.2009 within the stipulated period as prescribed under the provisions of Section 70 of the Finance Act, 1994 read with Rule 7 of Service Tax Rules, 1994.
11. Circular No. 108/02/2009-ST dated 29.01.2009 had also
clarified that in case of construction by agreement between Promoter/Builder/Developer and the ultimate owner, the contractor, designer or similar service provider would be liable to pay service tax. In this case, as per construction agreement M/s Explora InfoTech Ltd. were the constructors and therefore they were liable to discharge their service tax liability on the gross value.
12. All the above acts of contravention as discussed in above
paras on the part of the service provider, appeared to have been committed by way of suppression of the facts and contravention of the aforesaid provisions with an intent to evade payment of service tax in as much as the service provider had not paid service tax on such value properly; not obtained service tax registration for the said service of construction of complex service; not filed ST -3 returns properly for the said taxable service; not paid service tax on the actual value of service of construction of housing bungalows for Ashwavilla Bungalow Scheme of M/s. Savita Co-Op. Housing Society for providing “Construction of Complex Service” and also not disclosed / intimated to the Central Excise / Service Tax department about any material facts.
13. Therefore, the said service tax not paid by said service
provider was required to be demanded and recovered from them with interest under the proviso to Section 73(1) read with Section 75 of the Finance Act, 1994 by invoking extended period for five years in as much as the said service provider had suppressed the facts to the department and contravened the provisions with an intent to evade payment of service tax. All these acts of contravention of the provisions of Section 68(1), 69 and 70 of the Finance Act, 1994 read with Rules 4, 6 and 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of Section 76, 77 and 78 of the Finance Act, 1994.
14. Accordingly, M/s Explora InfoTech Ltd., (Now, Gallops Infrastructure Ltd. - Unit of N.G. Group) were issued a show cause notice bearing F.No. STC-53/O&A/SCN/EITL/JC/R-XV/D-III/09 dated 15.10.2009 asking them as to why ;
(i)services rendered by them to their clients for the amounts
charged and collected on which no service tax was paid should not be considered as “taxable service” under the category of “Construction of Complex Service” as defined under Section 65(30a) of the Finance Act 1994, as amended, and the total/gross amount of Rs.1,44,09,668/- should not be considered as value of the said taxable services charged by them towards rendering of construction of residential complex for the year 2006-07 to 2008-09;
(ii)service Tax amounting to Rs.17,76,441/- (Rupees Seventeen
lakhs seventy six thousand four hundred forty one only) (Service Tax of Rs.17,29,160/- + Education Cess of Rs.47,281/-) as shown in the above para on “Construction of Complex Service” should not be charged and recovered from them under the provisions of Section 73(1) of the Finance Act, 1994, read with Section 95 of the Finance (No.2) Act, 2004 as amended;
(iii)interest at the prescribed rate chargeable under the provisions of Section 75 of the Finance Act, 1994, as amended, should not berecovered from them;
(iv)penalty under the provisions of Section 76 of the Finance Act,
1994, as amended, should not be imposed on them for failure to pay Service Tax and Education Cess as mentioned hereinabove;
(v)penalty under Section 77 of the Finance Act, 1994, as amendedshould not be imposed on them in as much as they failed to obtain service tax registration and to file the prescribed ST-3 returnsproperly within stipulated period as required under the provisions of aforesaid Section 70 read with Rule 7 as amended;
(vi)penalty under the provisions of Section 77 (i)(e) of the Finance
Act,1994 as amended, should not be imposed on them for failure to issue invoice in accordance with the provisions of the Act or Rules made their under, with incorrect or incomplete details or fails to account for an invoice in his books of accounts;
(vii)penalty under Section 78 of the Finance Act, 1994, as amended should not be imposed on them for suppressing the full value of
taxable services and material facts before the department resulting into non-payment / short payment of Service Tax and Education Cess.
DEFENCE REPLY
15.The service provider filed their defence reply vide their letter dated 08.06.2011.
15.1The said service provider submitted that the above referred show cause notice served upon them is based on assumption that they are a service provider in the Category of “Construction of Complex services” and the demand for service tax has been raised under the said category; that they denied their liability of service tax as the findings in the show cause notice is not based on facts and correct interpretation of law; that M/s Explora Infotech Limited is a company incorporated under the Companies Act, 1956 and carrying on the business of construction and Information technology; that a general summon was issued by the Service tax department Ahmedabadon NG Group of companies on 12.12.2006 and 05.02.2007, presuming the business activities carried out by them under the category of service provider Construction of Residential complex and the details of Groupcompanies/ firms were asked for; that in response to the Summons, various details with respect to Nature of business, Associate Concerns, Financial statements, Income Tax returns, Copies of agreements etc., of the company and associates were submitted to the jurisdictional Superintendent Service tax, Ahmedabad; that the authorized representative of the company, appeared from time to time during the course of scrutiny of documents and submitted clarifications / explanations / additional documents etc., as requested; that based on the scrutiny of the documents and submissions, it has been presumed by the authorities that the company provided the Service falling under the head/Construction of complex services/and liable to pay Service Tax under the said category,hence the Show cause notice has been issued.
15.2They further submitted that the Company has undertaken the construction of bunglows on behalf of individual plot owners in the scheme of Ashwavilla Bunglows - I at Nr: Morli Restaurant, Thaltej, Ahmedabad; that during the period 2005-06 to 2007-08, there were 45 members owning plots in the housing society namely M/s Savita Co-op Housing Society Limited which were allotted to individual members for construction of their residential units by the Housing society; that as the society had only allotted the plots the members were at liberty to get their residential units constructed themselves; that therefore some members entered into a separate individual construction agreement with the company to get their bunglow constructed for their personal use; that they enclosed a copy of the construction agreement entered into between the construction company and the owner; that similar agreement has been entered into between each member in the society for the construction of their individual bunglow with the company; that they have not provided any service in relation to construction of residential complex but construction of individual units as per the agreement entered with respective owners of the plots on which the construction has been carried out to be used by the owners for their residential purpose; that the construction has been undertaken as per the design and specification provided by the owners; that individual owners of the plots have got the plans approved in their names from the authorities and they were a contractor and not a Promoter/Developer or a Builder who are normally covered for levy of service tax under “Construction of Complex services”.
15.3They further submitted that Construction of Residential complex has been brought within the purview of levy of service tax w.e.f. 16.06.2005; that however as a contractor providing construction of individual units for owners for their personal use is outside the scope of levy of service tax on construction of complex services; that the amount included in the SCN for levy of service tax falls outside the purview of levy of any service tax under construction of complex services; that they as a construction contractor with the individual plot holders have provided the construction work for the individual bunglows, which is essentially a works contract and can not be covered under construction of complex services; that they have paid the applicable VAT on the works contract during the period on the construction work carried out.