OIO NO. 53/STC-AHD/ADC(MKR)/2011-12 Page 26 of 26

OIO NO. 53/STC-AHD/ADC(MKR)/2011-12 Page 26 of 26

BRIEF FACTS OF THE CASE

M/s. Shree Balleshwar Corporation, 401, Balleshwar Avenue, Opp. Rajpath Club, S.G. Road, Bodakdev, Ahmedabad are engaged in the business of Construction of Commercial & Residential Building scheme since 1998 which is taxable service under the provisions of Finance Act, 1994. M/s. Balleshwar Corporation, Ahmedabad were not registered with the service tax Department. Intelligence gathered revealed that the service provider had under taken some construction projects and they had not obtained service tax registration and hadn’t paid service tax either in the category of Real Estate Agent or Construction of Commercial & Residential Building.

02. Search was carried out at the office premises of M/s. Shree Balleshwar Corporation, Ahmedabad on 10.03.2008 under the authority of Search Warrant No. 22/2007-08. Relevant records had been withdrawn under panchnama drawn dtd.10.03.2008 at the office premises and statement of Shri Kanubhai Jivrajbhai Patel; Partner of M/s. Shree Balleshwar Corporation, Ahmedabad was recorded.

3.1. During recording the statement Shri Kanubhai J Patel had stated that he is looking after the overall work of the company. The said firm is engaged in the business of construction and development of commercial as well as residential complex. He further stated that the said firm is a partnership firm having three other partners i.e. (1) Shri Chandrakantbhai Jivrajbhai Patel (2) Shri Amrishbhai Jagdishbhai Patel & (3) Shri Chintanbhai Jagdishbhai Patel. Further, on being asked about the aspect of Service Tax, he stated that he was under impression that the activities carried out by said firm are not liable for service tax and accordingly they had neither applied for service tax registration nor paid any service tax till date. On being asked about the other firms / companies functioning from the office premises of M/s. Shree Balleshwar Corporation, he stated that apart from the above firm, the other companies functioning from the above premises are M/s. Balleshwar Infrastructure, which is a partnership firm engaged in the business of commercial as well as residential projects; the second firm functioning is M/s. Mark Developers, which is also a partnership firm engaged in the business of construction and development of residential construction projects; One other company functioning from the said premises is M/s. Sneh Corporation, which is also a partnership firm engaged in the business of construction and development of commercial and residential construction projects; there has been one more company functioning from the above premises in the name of M/s. Shri Pavan Corporation, which is engaged in the construction of construction schemes. He further stated the above mentioned firms are the prominent functioning firms from the office premises of their firm.

3.2 Further, he stated that there is one more company viz. Mark Developers which is presently engaged in the construction and development of one residential apartment project in the name of ‘Balleshwar Krupa’ which has 50 flats; In the said project, the land is owned by M/s. New Balleshwar Co-Op. Housing Society Ltd., which is having a development agreement dtd. 20.06.2006 with M/s. Mark Developers. As per the said development agreement, the responsibility of development i.e. planning, approvals, construction and selling of the residential units are of M/s. Mark Developers only and so the collections from the members of the society is received by the developer, M/s. Mark Developer. Further, he stated that as per balance sheet for the year 2006-2007 and provisional income statement for the period from 01.04.06 to 31.03.08 (till date) showing the details of advance and the money received from the purchaser to whom, they had sold some of the flats and stated, that as per the details of advances and amounts received by their firm, the total amount received as advance and amount as consideration on sale of the flats in the Balleshwar Krupa scheme as on 10.03.2008 is Rs.1,95,18,300/-. Thus it is clear that their firm M/s. Mark Developer had provided the construction service and so their firm is liable for payment of service tax under the above mentioned service in respect of the collection received by their firm in respect of the sale of residential units or for the advances received from the members. He also stated that they would furnish date wise details of payment received by their firm for the services of construction of complex service provided and they would immediately obtain service tax registration under the construction service category and pay the amount of service tax at the applicable rate.

04. M/s. Mark Developer had obtained Service Tax Registration Bearing No. AAKFM6554BST001 for the service (i) Construction of Residential Complex (ii) Construction service in respect of Commercial or Industrial Building and Civil Structure on 11.03.2008 and submitted a cheque of Rs.6,50,000/- and Rs.2,93,920/- copy of the challan dtd. 25.03.2008 & 07.07.2008 in token of proof of payment towards their service tax liability. M/s. Mark Developers had furnished the copy of the Registration Certificate, statement showing the members contribution for the year 2006-07, 2007-08 and 2008-09 (upto June’08) and copy of the challan for payment of service tax Rs.2,93,920/-, copy of the Development Agreement, Copy of the Bank Statement for the year 2006-07, Ledger Account for 2006-07, 2007-08 and copy of Balance Sheet for 2006-07 and 2007-08.

05. On examination of the documents withdrawn and submitted by them it appeared that Development Agreement had been made between New Balleshwar Co-Op. Housing Society- Land Owner and M/s. Mark Developers on 20.06.2006. In this regard, M/s. Mark Developers had paid Rs.20,91,600/- being land cost to M/s. New Balleshwar Co-Op. Housing Society and taken the responsibility for development of the land and construction of the residential flats as entrusted by the said society as per terms and condition of the said agreement. M/s. Mark Developers would book the members and collect the contribution / advance amount from the members on behalf of the said society. Also they had to prepare plan, revise N.A. and to make the other formalities as required. They had to negotiate the cost of the unit with the members. M/s. Mark Developer would be responsible for development of the land and construction of the Balleshwar Krupa scheme and after completion of the scheme they would bear the profit or loss incurred.

06. It also appeared that M/s. Mark Developers had carried out the construction work of the said Balleshwar Krupa Scheme consisting of 50 residential flats. They had furnished profit & loss account / Balance Sheet for the year 06-07, 07-08 & 08-09 upto Dec.’08. As per balance sheet / profit & loss a/c for the year 2006-07, 2007-08 & 2008-09 upto Dec.’08, the construction cost and service tax liability was worked out as under:

Year / Opening Stock (Rs.) / Purchase
(Rs.) / Expenses
(Rs.) / C.B. of Stock (-)
(Rs.) / Construction cost
(Rs.) / 33% of the Construction cost i.e. taxable value (Rs.)
06-07 / 10,300 / 63,73,652 / 29,07,593 / 3,22,069 / 89,69,475 / 29,59,927
07-08 / 3,22,069 / 1,45,51,935 / 48,81,457 / 2,43,094 / 1,95,12,367 / 64,39,081
08-09 Upto Dec.’08 / 2,43,094 / 7,78,139 / 11,18,640 / 2,43,094 / 18,96,779 / 6,25,937
TOTAL / 5,75,463 / 2,17,03,726 / 89,07,690 / 8,08,257 / 3,03,78,621 / 1,00,24,945
Year / 33% of the Construction cost i.e. taxable value (Rs.) / Rate of S.T.
(%) / Service Tax payable / Edu. Cess Payable / Total Service Tax payable / Remarks
06-07 / 29,59,927 / 12.24 / 3,55,191 / 7,104 / 3,62,295
07-08 / 64,39,081 / 12.36 / 7,72,690 / 23,181 / 7,95,871
08-09 Upto Dec.’08 / 6,25,937 / 12.36 / 75,112 / 2,253 / 77,366
TOTAL / 1,00,24,945 / 12,02,993 / 32,538 / 12,35,531

07. M/s. Mark Developers had furnished statement showing the amount of contribution received towards land cost and construction cost from the members as shown below:

Year / Amount (Rs.) / Land cost
06-07 / 25,01,100 / Sale deed dtd.20.04.06 / 7,18,500
07-08 / 1,77,11,800 / --do-- / 5,25,900
08-09 upto Dec.’08 / 93,75,000 / Sale deed dtd. 21.04.06 / 4,95,000
Sale deed dtd.20.04.07 / 12,00,000
29,39,400
Stamp duty / 1,78,055
TOTAL / 2,95,87,900 / 31,17,455

08. M/s. Mark Developers had carried out the construction work of the 50 flats of the said scheme. The details are given as under:

Floor / Block ‘A’ / Block ‘B’ / Total Flats / Sold / Un Sold
Ground floor / 5 / 5 / 10 / 7 / 3
First / 5 / 5 / 10 / 8 / 2
Second / 5 / 5 / 10 / 9 / 1
Third / 5 / 5 / 10 / 9 / 1
Forth / 5 / 5 / 10 / 6 / 4
TOTAL / 25 / 25 / 50 / 39 / 11

09. M/s. Mark Developers had obtained service tax registration on 11.03.08 for the service of (i) construction of residential complex (ii) construction service in respect of commercial or industrial building and civil structures and made the payment against their service tax liability as under:

Amount of Service Tax / Challan Dtd.
6,50,000 / 26.03.2008
2,93,920 / 04.07.2008
29,327 / 04.10.2008
59,143 / 02.01.2009
2,03,141 / 06.01.2009
12,35,531 / TOTAL paid

During the course of recording the statement on 10.03.2008, Shri Kanubhai Jivrajbhai Patel, Partner of M/s. Mark Developers had stated that they would immediately obtain Service Tax Registration under the Construction Service Category and the pay the amount of service tax at the applicable rate. M/s. Mark Developers had paid service tax of Rs.12,35,531/- as shown above against their service tax liability as calculated.

10. As per 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) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system.

11. From the above, it appeared that the said service provider had failed to obtain service tax registration on their own and had suppressed the value of the construction cost for rendering the taxable Service of Construction of Complex for the year 2006-07, 2007-08 & 2008-09 up to Dec’08; the said service provider also failed to discharge full service tax liability for the taxable service of Construction of Residential Complex 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 file the prescribed half yearly ST-3 returns for “Construction of Residential Complex Services” for the half year ending on 30.09.2006, 31.03.2007, 30.09.2007, 31.03.2008 and 30.09.2008 within the stipulated period as prescribed under the provisions of Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994.

12. All the above acts of contravention as discussed in above paras on the part of the service provider, appeared to have committed by 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 any service tax on such value (supervision charges); not filed any ST-3 return for this taxable service; not paid any service tax on the value of supervision charges for providing ‘Construction of Residential Complex Services’ and also not disclosed/intimated to the Service tax department about any material fact.

13. Therefore, the said service tax not paid by them 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 of five years in as much as the said service provider had suppressed the facts to the department and contravened the provisions with 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. Therefore, M/s. Mark Developers, 401, Balleshwar Avenue, Opp. Rajpath Club, S.G. Road, Bodakdev, Ahmedabad – 380 054 was issued a show cause notice vide F.No. TSC-152/O&A/SCN/JC/Mark/R-XV/D-III/08 dated 08.04.2010 asking them , as to why

i)  the services of construction of residential complex rendered by them to their clients, should not be considered as “taxable service” under the category of “Construction of Complex Service” as defined under Section 65(91a) of the Finance Act 1994, as amended, and the total/gross amount of Rs.1,00,24,945/- received towards rendering such services should not be considered as taxable value of the said taxable services charged by them for the year 2006-07, 2007-08 & 2008-09 upto Dec.’08;

ii)  Service Tax amounting to Rs. 12,35,531/- (Rupees Twelve lakhs thirty five thousand five hundred thirty one only) (Service Tax of Rs.12,02,993/- + Education Cess of Rs.32,538/-) 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; The amount of Rs.6,50,000/-, Rs.2,93,920/-, Rs.29,327/-, Rs.59,143/- and Rs.2,03,141/- paid by them vide challan dtd. 26.03.2008, 04.07.2008, 04.10.2008, 02.01.2009 and 06.01.2009 respectively should not be adjusted against the demand;