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OFFICE OF THE PRINCIPAL COMMISSIONER OF C. G. S. T., AHMEDABAD - SOUTH.

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G. S. T. BHAVAN, AMBAVVADI, AHMEDABAD - 380 015 ^F>. 31^, 3n<Hstiai^|, 3ie<Hc;iEiic; - o?t3

- ^T.F. F. No. STC/04-35/HN Safal/OA-1/18-19DIN no. 20200764WS000070C798

SUtlT HTf^GT: Date of Order: 22.07.2020oTTfr cfr^- rTTiNsT: Date of Issue : 22.07.2020

<r?777' v//?rf / Passed by: Shri Mohit Agmwal, ADDITIONAL COMMISSIONER* :t: *******************************************’l-**************************:**¥****

ZfpT 3ITt?r zf./Order-fn-Original No.07/CGST/Ahmd-South/ADC/MA/2020!/::t!t:t******************************** *******************************************

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This copy is granted free of charge for private use of the person(s) to whom it is sent.

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Any person deeming himself aggrieved by this Order may appeal against this order in Form E.A.l to Commissioner (Appeals), Central GST, Central GST Bhavan, Near Government Polytechnic, Ambawadi, Ahmedabad -15 within sixty days from date of its communication. The appeal should bear a court fee stamp of Rs.2.00/- only.

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The Appeal should be filed in form No. E.A.-J in duplicate. It should be filed by the appellants in accordance with provisions of Rule 3 ofthe Central Excise (Appeals) Rules. 2001. It shall be accompanied with the following:3^cT 3EftcT #T yfFT I Copy of the aforesaid appeal.

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^t^TT ICopies of the Decision (one of which at least shall be certified copy of the order appealed against) or copy of the said Order bearing a court fee stamp of Rs. 2.00/-.

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An appeal against this order shall lie before the Commissioner (Appeal) on payment of 7.5% of the duty demanded where duty or duty and penalty are in dispute, or penalty, where penalty alone is in dispute."

•Bc^/Reference :yyT°T^?TT3ft TTyRTT yr.Tf. F. No. VI/l(b)/CTA/Tech-14/SCNN/HN Safal/1 8-19 dated

10.09.2018, issued to M/r. HN Safal Realty, 1006, 10th Floor, Safal Profitaire, Corporate Road,Opp. AUDA Garden, Prahaladnagar, Anand Nagar, Ahmedabad-380 015

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Brief Facts of the Case:

M/s. HN Safal Realty, 1006, 10th Floor, Safal Profitalre, Corporate Road, Opp. AUDA Garden, Prahaladnagar, Anand Nagar, Ahmedabad-3 80 015 (hereinafter referred to as ‘the assessee5 or ‘the said assessee’ or ‘the noticee’, for the sake of brevity) is engaged in providing taxable services. The said assessee was holding Service Tax Registration No. AAHFH9915LSD001.The said assessee was also availing the facility of Cenvat Credit under CENVAT Credit Rules, 2004.

During the course of audit conducted by the Officers of the Central Tax Audit Commissionerate, Ahmedabad, on verification of the records, and as reflected in Para-5 of the Final Audit Report No. 2083/2017-18-Service Tax dated 29.06.2018, issued by the Assistant Commissioner, Cixle-IV, COST Audit, Ahmedabad, it was noticed that the said assessee was engaged in the activity of Construction of complexes intended for sale to a buyer, wholly or partly and was also availing Cenvat Credit of the Service Tax paid on the services received by them for their construction activity and utilizing the same for the payment of Service Tax.

2.

It was also noticed, during the course of audit, that out of the various commercial premises constructed in a complex, some of them remained unsold/un-booked as on the date of issuance of the Completion Certificate/Building Use Permission (hereinafter referred to as ‘BU’ or ‘BU Permission’, for the sake of brevity) dated 25.01.2017, issued by the competent authority i.e. Ahmedabad Municipal Corporation (AMC) and some or all of them had been booked and sold after the issuance of BU permission. However the assessee had availed Cenvat credit of tax paid on the services used in units sold/ booked prior to BU, qualifying to be ‘service’ as well as on the services used in the units remaining unsold/unbooked as on the date of BU, not qualifying to be ‘service’ and always remaining ‘non service’ for good and all.

Under the negative-list based regime of Service Tax, with effect from 01.07.2012, certain activities have been made chargeable to Service Tax, as “Declared Services” by virtue of Section 66E of the Finance Act, 1994 (hereinafter referred to as ‘the Act’, for the sake of brevity). One such declared service is ‘Construction of a complex intended for sale to a buyer, wholly or partly’ and the relevant text of the statute reads as under:

[Section 66E. Declared Services.The following shall constitute declared services, namely :—

3.

4.

a)construction of a complex, building, civil structure or a part

thereof including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.

b)

Explanation.— For the purposes of this clause,—(I) the expression “competent authority “ means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely :—(A) architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972); or(B) chartered engineer registered with the Institution of Engineers (India); or

3

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(C) licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(II) the expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure;]

According to the above provisions, by virtue of the words, ‘wholly or partly’, used in clause (b) of Section 66E of the Act. the activity related to each part, i.e. individual separately identifiable unit {hereinafter referred to as ‘UNIT5 or ‘UNITS’,/or the sake of brevity), will attract treatment, individually and independently, to fall in the definition of ‘declared service’, as and when each such unit, is booked for sale, prior to issuance of BUP. Therefore each such transaction of booking for sale of a unit would need to be evaluated as to whether the activity' related thereto would fall under ‘declared service’ or not. In the case of a transaction of sale, of an individual separately identifiable unit, involving construction activity therein, does not fall under ‘declared service’, the construction activity involved therein will be a NON-SERVICE.

4.1

4.1.1 Thus, as soon as any such unit is booked for sale prior to issuance of BU, it attracts the declaratory provision under clause (b) of Section 66E, ibid, and accordingly, the construction activity involved in such booked unit finds place under the definition of ‘declared service' to the only limited extent of that part i.e. to the extent of that particular specific unit only. Consequentially, to that extent it will be a ‘service’ liable for service tax. Accordingly, it will qualify to be called an ‘output service’ under Cenvat Credit Rules, 2004, to the only limited extent of that part i.e. to the extent of that particular specific unit only. This cycle goes on till the exhaustion of all UNITS or issuance of BU Permission, whichever occurs first. In case the UNITS exhausts before issuance of BU Permission, the activity related to construction of whole complex, will turn out to be ‘declared service’ and will be treated as ‘service’ and the consequences shall follow as per the service tax laws and the Cenvat Credit Rules.

4.1.2 But if all the UNITS do not exhaust before issuance of the BU Pennission, the output activities relating to remaining unsold units will never be able to be declared as ‘sendee’, by virtue of exclusion as to non-receipt of consideration prior to issuance of BU, under clause (b) of Section 66E. ibid.

4.1.3 Although the sale of a unit before BU Permission, is also a transaction of immovable property, in common parlance, but by mischief of clause (b) of Section 66E. * ibid, such sale of unit before BU Permission has been brought out of the purview of a transaction of immovable property and it has been brought under the definition of ‘declared service’, liable for service tax. But, the output activities relating to remaining units not yet booked for sale, prior to BU. would never be able to be declared as ‘service’ under clause (b) of Section 66E ibid, and would turn out to remain only ‘immovable property’ forever and any transaction relating thereto should fall under the exclusion clause (a)(i) of clause (44) of Section 65B of the Act and shall never fall under the definition of‘service’.

4.1.4 Consequentially, ‘construction activity* related to the unsold/unbooked units as on the date of BU had always remained out of the purview of ‘declared service’, before the date of BU, by virtue of exclusion as to ‘whole consideration received after BU’under clause (b) of Section 66E ibid. AND ALSO such ‘construction activity5 related to the unsold/unbooked units, as on the date of BU, would always remain out of the purview of ‘service’, a fter the date of BU, by virtue of exclusion clause (a)(i) of clause (44) of Section 65B of the Act. Thus, unsold/unbooked units would not ever attract service tax

f

and other consequences. Thus, ‘construction activity’ related to units booked/sold prior to the issuance of BU, only, qualifies to be a ‘declared service’ and hence subjected toservice tax. Till a unit is not booked or sold before BU, the construction activity, related to it, remains a ‘non service’, not only during the period prior to issuance of BUP but also during the period after the issuance of BU. Therefore, due to the fact of being ‘NON SERVICE’, it shall not become subject to service tax and would not be able to be considered as ‘OUTPUT SERVICE’ under Cenvat Credit Rules, 2004. The services used for such output activity, would not qualify to be "input services', and consequentially the tax paid on such services, not qualifying to be "input services \ would not be eligible for Cenvat credit under Rule 3(1) of Cenvat Credit Rules, 2004 (here-in- after referred to as ‘the Rules’, for the sake of brevity). The relevant text of Section 65 (B) (44) of the Act, reads as under:

[(44)another for consideration, and includes a declared service, but shall not include—

“Service ” means any activity carried out by a person for

(a) an activity which constitutes merely,

a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or

(i)

(Hi) a transaction in money or actionable claim;]

4.1.5 From the above definition, it is clear that sale/transfer of title of immovable property, by way of sale, gift or in any other manner is excluded from the definition of service, subject to not being declared as ‘service’ under clause (b) of Section 66E ibid, Therefore, such a sale remaining from being declared as service under clause (b) of Section 66E ibid, does not constitute “Service”.

A conjoint reading of the above provisions of law makes it explicit that the each independent and separately identifiable UNIT of the whole activity of construction of a complex, attracts Service Tax, if a part or whole of the consideration towardj such construction is received prior to Completion Certificate/Building Use permission. The activity of construction of a part (UNIT), in which the entire consideration is received after Building Use Permission, has been kept out of the scope of “Declared Services”.

Accordingly, the said assessee paid Service Tax, only for those UNITS, which had been booked /sold before the issuance of Building Use (BU) Permissions dated 25.01.2017, obtained for their scheme, namely ‘SUMEL-9’, under Section 66B of the Act read with the Service Tax Rules, 1994 and consequentially, no Service Tax was paid for those UMTS, which had remained unsold/unbooked as on the date of BU and would have been sold after the issue of B. U. Permission.

4.2

4.3

The builders undertake the construction of the building having different separately identifiable UNITS. However, the agreement for sale (booking) in respect of different UNITS can be at different stages, right from Bhoomi-poojan to various phases of construction or even after completion of construction and obtaining Completion Certificate/BU Permission. Elowever, during the course of construction of complex, the builder/developer utilizes the services of various labour contractors such as construction

.x

5

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contractors, electrical contractors, furniture contractors (for doors/ windows), tiles fitting contractors, colour contractors, etc., constituting major part of expenditure incurred by the builder/developer, directly related to a UNIT under construction. In addition, they also utilize certain services, but of nominal volume, such as security service, telephone service, housekeeping service, etc. The builder/developer receives Service Tax paid invoices from such contractors/service providers and avails the Cenvat Credit of Sendee Tax paid by the contractors/service providers, on all the services used for advance booked UNITS, being eligible input services as well as those used for un­booked UNITS, being wrongly availed.

The eligibility and admissibility of Cenvat Credit flows from the authority of Rule 3(1) of the Rules, 2004, which provides that a manufacturer or producer of final products or a provider of output service shall be allowed to take CENVAT credit of the duties, taxes and cesses specified in the said rule, paid on -

any input or capital goods received in the factory of manufacture of final product or by the provider of output service on or after the 10th day of September. 2004; and(ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004.

6.

(0

6.1 Although, construction of a complex or a building, intended for sale to a buyer, wholly or partly, is considered to be a 'declared service1 under clause (b) of Section 66E of the Act. yet it cannot be considered as ‘declared sendee1 to the extent of non sale of a part of it. before completion. Therefore, a developer/builder cannot be said to have provided or have agreed to provide such service in respect of an individual flat/unit/shop, till such unit is booked/sold prior to issuance of BU, on full or part payment. This situation exists because non-booking for sale of unit before receipt of ‘Completion Certificate1 OR ‘the sale of unit after receipt of ‘Completion Certificate1does not constitute ‘service’ to the extent of each unit.

6.2 in the typical case of Construction of a complex intended for sale to a buyer, ‘service1 is said to be provided to each individual who books/purchases flats/units/shops, on payment of part/full consideration and not in respect of the entire building constructed. In other words, the builder provides or agrees to provide services to multiple service recipients in respect of individual Hat/unit of the same project. Till thetime, an individual flat/unit/shop is booked/sold, before completion, there is no element of provision of service involved inasmuch as there is no service recipient but just have potentiality to be booked before BU and to come under ‘declared service1. But as soon as BU is issued, this potentiality is lost and the activity turns out to be always out of the purview of‘declared service*' or ‘service* and the natural corollary that follows is that no service is provided or agreed to be provided in respect of un-booked UNITS remaining as on the date of BU permission. In such a situation, there is no service involved, therefore, the developer/builder cannot be said to be the provider of output service for the flats/units not booked/sold, by the time the requisite permission from the competent authority is issued. This will be the case for each individual fiat/unit constructed. This is the crux of the matter especially in light of the words 'wholly or partly’ used in clause (b) of Section 66E of the Act and the interpretation of the term “Declared Service” at Section 6513(22) of the Act, which reads as follows:

Q

(22) “Declared service ” means any activity carried out by a person for another person for consideration and declared as such under section 66E;

6.2.1 In other words, the developer/builder is deemed to be the provider of output service only in those cases, where the flats/units are booked/sold prior to obtaining the ‘Completion Certificate’ from the competent authority. Consequentially, no Cenvat Credit can be availed in terms of Rule 3(1) supra, till the time a flat/unit is booiced on part/full payment of consideration, as till such time the person indulged in construction cannot be said to be the “Service Provider”, insofar as the flats/units not booked/sold. Fact remains that the builder is very well aware of the booking status of the individual flats/units and this leads to his knowledge of the fact whether he is an Output Service Provider for that particular flat/unit or otherwise. This position is very clear in light of the provisions of Section 65B(22), supra, read with clause (b) of Section 66E, supra, to which the builder cannot claim ignorance. Thus, the said assessee cannot be held to be an Output Service Provider for the individual flat/unit till such time every single flat/unit is booked, prior to obtaining Completion Certificate. This is especially so in light of the fact that in the event that the unit is booked after receipt of Completion certificate, the builder is engaged in the activity of only sale of immovable property and only if the unit is booked before receipt of Completion certificate, then and then only, the activity falls under the definition of ‘service’ and the builder is said to be engaged in providing the said services to the proposed owner of the unit, who shall be recipient of service.

In a nutshell, till the time a flat/unit is booked before BUP, on payment of part/full consideration, no service can be said to be provided or agreed to be provided. Thus, the said assessee cannot be said to be an Output Service Provider in respect of such flats/units in as much as there is no ‘service’ involved, in view of the exclusion at clause (b) of Section 66E, ibid and as much as no recipient for such flats/units is in existence and no consideration is involved and resultantly no service is provided or agreed to be provided. After BU, such non-sold units will turn out to remain forever out of the purview of ‘service’, in view of the exclusion clause (a)(i) under clause (44) of Section 65B, ibid as much as it is considered ‘immovable property’ only.

6.3

In view of the above, it appears that the said assessee is not entitled to take Cenvat Credit of the services utilized for Construction of flats/units which have not been booked/sold prior to receiving Completion/B.U. Certificate, i.e., UNITS for which, the said assessee is not an Output Service Provider. Rule 3(1) of Cenvat Credit Rules clearly stipulates that only an output service provider is entitled to take Cenvat Credit.

6.4

It is pleaded by the assessee that at the time of incurring expenses or availing services, it is not known whether the ‘output activity’, in which such services are being used, will turn out to be ‘output service’ or not, till issuance of BU. As the output activity will turn out to be ‘output service’ upon booking of a UNIT (i.e. part of the output activity) before BU, limited to that PART only. For the remaining units un­booked/unsold as on the date of BU, the output activity will culminate into mere immovable property and will remain, to that extent, out of the purview of ‘output service’ forever. Therefore, in relation to a unit, the assessee may not turn out to be ‘provider of output service’, till booking/sale of it before BU and the assessee remains to be provider of ‘no service’, in respect of the units remaining unsold/unbooked as on the date of BU and becomes not liable for payment of Service Tax, in respect of such units. So far so good, but the availment of Cenvat credit of the entire expenses incurred on services, even for those flats/units which remained unsold as on the date of BU and some or all of them were sold after receipt of completion certificate and where no service is provided and

6.5

7

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where no service tax is paid, is not in consonance with law. At least at the time of obtaining “Completion Certificate5', the said assessee would be well aware about how much quantity of activity has fallen under the definition of ‘service5 and what is remaining quantity of activity turning out to be immovable property and getting always excluded from the definition of service. At that time they will be well aware that they had taken ineligible Cenvat Credit in respect of units, the sale of which, in future, would never be able to constitute a ‘service, in any remote possibility. If the assessee had no malafide intention, they would have paid back the ineligible Cenvat Credit at the time, the BU is obtained. The said assessee has therefore, wrongly taken the Cenvat Credit, in respect of those UNITS which do not constitute ‘service5, in violation of the Rule 3(1) of the Cenvat Credit Rules. 2004, read with definitions under Rule 2(1) and 2(p)of Cenvat Credit Rules, 2004.

In the case of construction service every project is a differently identifiable business and the provision of service element would begin on the booking of each individual unit, to the extent of that unit and would cease on completion of the transaction involved and therefore, as exemplified above no output service is said to be provided til) the individual unit is booked on payment of part/full consideration, prior to obtaining Completion/B.U. Certificate. Moreover, as soon as the Completion/B.U. Certificate is obtained, no service element exists in respect of the flats/units remaining unsold/unbooked or sold/booked thereafter. However, majority of input services are used for the entire project and the Cenvat Credit of the tax paid thereon is availed much prior to the completion of the project and obtaining Completion/B.U. Certificate and is also utilized for payment of Service Tax on the UNITS booked/sold prior to obtaining such certificate. Hardly any credit availed, is in balance which would lapse on completion of the project/obtaining of Completion Certificate. In such a scenario the exchequer would be defrauded of its legitimate dues in so far as the Cenvat Credit, of the tax paid on the services used in the construction of units/flats sold after Completion/B.U. Certificate is obtained, is availed, and in which case there is neither any element of service nor any Service Tax is paid.

6.6

To exemplify, suppose, a builder starts construction of project having 100 units. All the services of landscaping, works contractor (for construction), electrical fittings, architect service, furniture contractors (for doors/windows), tiles fitting contractors, color contractors, etc., are availed and utilized prior to completion of the project subsequent to which a Completion /B.U. Certificate is issued. Assuming that Rs.10 lakhs of Cenvat Credit is involved/availed in the construction of these hundred units, which works out to say Rs. 10.000/- per unit, assuming all the units are of equal dimensions. Now, if out of 100 units constructed, only 20 units are sold/booked prior to obtaining the Completion Certificate, output service would be said to be provided on these 20 units only in terms of provisions of Service Tax Act/Rules and Service Tax would be paid on the value of these 20 units only. In fact no service is provided in respect of the remaining 80 units & no Service Tax is payable on these units. Consequentially, the builder should be entitled to Cenvat Credit proportionate to the units in case where output service is provided, i.e. Rs. 2 lakhs (20 x 10000) and should have availed the same only as and when they provided output service to those persons who booked the UNITS prior to obtaining Completion Certificate/B.U. Permission. Therefore, availing and utilizing entire credit of Rs.10 lakhs (say excess credit of Rs. 8 Lakhs) was neither intended by law nor is in consonance withthe provisions of Cenvat Credit Rules. The availment of Cenvat Credit, in respect of all

100 units while paying Service Tax only in respect of 20 units, goes not only against thewill of the statute but also enriches the said assessee by permitting him to pay almost all his dues utilizing Cenvat Credit, which in fact was never available to him. Permitting the Cenvat Credit of all the services used for the entire project would result in double benefit

6.7

and unjust enrichment of the builders at the cost of exchequer. This cannot be countenanced by law. Therefore, Cenvat Credit wrongly availed in excess of the entitlement is required to be recovered under the provisions of Rule 14 of the CenvatCredit Rules.

7. Further, in terms of Rule 2(1) of Cenvat Credit Rules, 2004, “Input Service” means any service used by a provider of output service for providing an output service (emphasis supplied). Rule 2(1) reads thus:

[(l) “Input Service ” means any service. -

(i) used by a provider of output service for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal, J

As amply discussed hereinabove, the said assessee is not an Output Service7.1Provider in respect of the UNITS, which have not been booked/sold, before the date the Completion Certificate/B.U. Permission is received. Resultantly, the portion of services utilized for construction of such UNITS would not qualify as “Input Service” in as muchas such portions of services have not been utilized for providing an output service. Therefore, the said assessee is not eligible to take Cenvat Credit of tax paid on such portion of services, utilized in an activity, which does not constitute “Service”.

The Cenvat credit scheme has been introduced with a view to avoid the cascading effect of taxes. The question of cascading effect would not arise in respect of the activity on which no Service Tax is payable. Consequently, the Cenvat Credit would not be admissible in respect of such activities which are not chargeable to Service Tax. The sale of units with full consideration after ‘completion certificate’ is received or no sale takes place at all, shall constitute NO ‘service; at all. Such an activity is entirely out of the scope of ‘service’ in terms of definition provided at Section 65B(44) of the Finance Act, 1994. Therefore, the Cenvat credit in respect of such non-taxable activity not constituting ‘service’ is not admissible in terms of Rule 3(1) of the Cenvat Credit Rules, 2004, read with the definitions under Rule 2 accorded to the terms, 'input service' and ‘output service ’ used in Rule 3(1) of the Cenvat Credit Rules, 2004.

8.

Further Section 66B of the Finance Act provides as under:-

[SECTION 66B. Charge of service tax on and after Finance Act, 2012.—There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.]

9.

From the foregoing, it is explicit that Service Tax is levied only on the value of the services provided or agreed to be provided by one person to another and conversely no Service Tax is levied when no service is provided, as in the case where the flats/units remain unsold as on the date of obtaining requisite permission from the competent authority.

9.1

9

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5?

In view of the above, it appears that the assessee is liable to follow the provisions of Rule 3(1) to avail the Cenvat credit of tax paid on the services to the extent used for providing taxable output services only, which restrict the amount of availment of Cenvat credit only on the services used for providing output services. Following the same, the assessee is required to reverse the excess (disproportionate) credit, if any availed by them.

9.2

However, in the instant case, the assessee has taken Cenvat Credit in respect of services received for the construction of the entire building/complex and the unit-wise segregation of such input services is not done, although major portion of such inward services is directly related to UNITS under construction. In such circumstances, the best recourse to determine such ineligible Cenvat Credit on a composite project would be to ascertain it on proportionate basis, either based on the number of units, if all the units are of equal dimension or on the basis of constructed area if the units are having different dimensions.

10.

In view of the above discussion, it appears that the builder/developer including the said assessee in this case, was eligible to take proportionate credit only for the units booked on payment of consideration, either based on the total area of construction or number of units (if all the units are of equal dimensions). In such a scenario, neither undue credit would be availed nor there would be any requirement of recovery of excess credit availed. This will also not entail any financial burden on the builders as they will avail the proportionate credit at the time of booking the flats and the Service Tax will also be paid thereafter on receipt of payment/advance payment including Service Tax from the service recipient.

11.

Without prejudice to the above, even if the said assessee had taken Cenvat CreditU.lin respect of all the services utilized for construction of the whole project/building, under the influence that they will book or sell all units before issuance of BU, but at least at the time of obtaining “Completion Certificate”, the said assessee would be well aware abouthow much quantity of activity has fallen under the definition of 'service’ and what isremaining quantity of activity turning out to be mere immovable property and gettingalways excluded from the definition of service. At that time they will be well aware thatthey had taken ineligible Cenvat Credit in respect of units, the sale of which, in future.would never be able to constitute a ‘service, in anv remote possibility. Then also the said assessee should have paid back the ineligible Cenvat Credit at the time, the BU is obtained, if they had no malafide intention to evade the payment of service tax. Therefore, at least at the time the ‘‘Completion Certificate" was obtained, the said assessee ought to have paid back the excess amount of Cenvat Credit availed of the tax paid on services used for the UNITS, construction activity of which would not constitute ‘output service'. Even the fact, of obtaining "Completion Certificate", when he will be sure that no output activity left to be provided, will ever come under the definition of

‘output service ’ and by virtue of which the liability) of the assessee to pay back ineligible Cenvat Credit availed, if any, in excess or disproportionate to the taxable output services, would certainly be known to the assessee, was never disclosed to the Department. The said assessee had suppressed these facts from the Department to illegally avail the Cenvat Credit which was ineligible by virtue of Rule 3(1) of the Cenvat Credit Rules read with definitions under Rule 2(1) and 2(p) of Cenvat Credit Rules, 2004.

Whereas, it appears that in the instant case, the said assessee has taken and utilized11.2the CENVAT Credit of the services used for the construction of entire project, i.e., for the UNITS booked/sold prior to obtaining the B.U. permission on which Service Tax was

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Therefore, such Cenvat Credit is found to have been availed by the assessee in contravention of provisions of Rule 3(1) read with definitions under Rule 2(1) and 2(p) of the Cenvat Credit Rules, 2004, with intent to evade the payment of Service Tax, as the said wrongly availed inadmissible Cenvat Credit has been used for payment of Service Tax.

13.

Further, Rule 9(6) of Cenvat Credit Rules, 2004 stipulates that the burden of proof regarding the admissibility of Cenvat Credit on input services shall lie upon the manuiacturer or provider of output services, taking such credit. In this era of self- assessment, the onus of taking legitimate Cenvat Credit has been passed on the said assessee in terms of the said Rule. In other words, it is the responsibility of the said assessee to take Cenvat Credit only if the same is legally admissible. In the case of M/s. Rathi Steel & Power Ltd. [2015(321)ELT200(A11)], the High Court of Judicature at Allahabad held that:

14.

[32. We further find that under Rules, 2004, a burden is cast upon the manufacturer to ensure that Cenvat credit is correctly claimed by them and proper records are maintained in that regard.

33. The assessee, in response to the show cause notice had stated that there is no provision in Centra! Excise. Law to disclose the details of the credit or to submit the duty paying documents, which in our opinion is false and an attempt to deliberately contravene the provisions of the Act, 1944 and the rules made there under with an intent to evade the duty.]

14.1 Similarly, once the assessee avails credit, without entitlement, it amounts to contravention of the rule with the intention of evading payment and the extended period of limitation would be available to the Revenue, as held by Homble High Court of Judicature for Andhra Pradesh at Hyderabad, in the case of M/s Sree Rayalseema Hi- Strength Hypo Ltd. [2012 (278)ELT 167(AP)], reproduced as under:-

[9. The contention of the learned counsel for the assessee that the extended period of limitation offive years for recovery of the duty under the proviso to Section 11A(1) of the Central Excise Act, 1944 would not be available to the Revenue in this case, as the penalty proposed to be levied was dropped, does not hold water. The extended period of five years for recovery of duties either levied or short-levied arises undervarious situations such as fraud, collusion, wilful mis-statement, suppression offacts or contravention of the provisions of the Act or the Rules made thereunder with intention to evade payment of duty. It is no doubt true that the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty [Union of India v. Rajasthan Spinning and Weaving Mills - (2009) 13 SCC 448 2009 (238) E.L.T. 3 (S.C.)]. But merely because the ingredients for both are the same, it would not mean that in case penalty is not imposed, the duty also cannot be recovered. Once the assessee availed credit under Rule 2(k) of the Rules of2004 without entitlement it amounts to contravention of the rule with the intention of evadingpayment and the extended period of limitation would be available tothe Revenue, notwithstanding the decision not to propose penalty upon the assessee.]

15. Further, it appears that the said assessee has contravened the provisions of the Finance Act, 1994 and the Service Tax Rules, 1994 in as much as they have >

(1) contravened Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994 in as much as they failed to pay the Service Tax to the credit of the Central Government, by the 5th of the quarter immediately following the calendar quarter, in which the service tax was short-paid by virtue of wrong availment of Cenvat credit, as discussed hereinabove; and

(2) contravened Section 70 of the Finance Act. 1994 read with Rule 7 of the Service Tax Rules, 1994 in as much as they failed to properly self-assess their Service Tax Liability in such manner and within such period as discussed supra and Failed to submit a correct half-yearly return.

16. The Government has from the very beginning placed full trust on the manufacturers/service providers and accordingly measures like self-assessments etc., based on mutual trust and confidence are in place. Further, a manufacturer/service provider is not required to maintain any statutory or separate records under the provisions of the Finance Act and Rules made there under, as considerable amount of trust is placed on them and private records maintained by them, for normal business purposes are accepted, practically for all the purposes. All these operate on the basis of honesty of the said assessee; therefore, the governing statutory provisions create an absolute liability when any provision is contravened or there is a breach of trust placed on them. From the evidences, it appears that the said assessee has knowingly availed ineligible Cenvat Credit with intent to evade payment of Service Tax. The deliberate short-payment of tax by availing and utilising ineligible Cenvat Credit and suppression of ineligible Cenvat credit and value of non- taxable activities are in utter disregard to the requirements of law. This act and omission on the part of the assessee is a breach of trust deposed on them, and are certainly not in tune with government’s efforts in the direction to create a voluntary tax compliance regime.

Further, it appears that the assessee has wrongly taken Cenvat Credit of tax paid on various services, proportionate to those used in the constructions of flats/units, booked/sold after obtaining BU permission, inasmuch as they are neither the provider of output service nor are these services (proportionate to the flats/units, booked/sold prior to obtaining BU permission) used for providing an output service as contemplated in Rule 2 (1) and 2(p) of Cenvat Credit Rules, 2004. The provisions of the Cenvat Credit Rules, 2004 are very much explicit inasmuch as they clearly lay down the provisions for eligibility/ineligibility for availing credit of duty paid on goods and capital goods as well as Service Tax paid on services. What construes “Capital Goods”, “Inputs' and "Input Services” is well defined under the Rules. Therefore, there cannot be any ambiguity regarding the eligibility for availing Cenvat Credit and the said assessee could not have bred any doubt as regards the same. However, the said assessee in sheer disregard to the provisions of law. availed and utilized ineligible Cenvat Credit and thereby, they contravened the provisions of Rule 3(1) of the Cenvat Credit Rules, 2004, read with Rule 2(1) and 2(p) of the Cenvat Credit Rules, 2004, as discussed hereinabove. Further, it appears that the event of obtaining of B.U. was never disclosed to the Department and consequent reflecting ot the non-taxable value in the ST-3 returns was never brought to the notice of the Department by the said assessee. Thus, it appears that the said assessee has suppressed the said facts with intent to evade payment of tax by utilizing such inadmissible

17.

13

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&

Cenvat Credit. Moreover, in the present regime of liberalization; self-assessment and filing of ST-3 returns online, no documents whatsoever are submitted by the said assessee to the department and therefore the department would come to know about such wrong availing of Cenvat Credit only during audit or preventive/other checks. Therefore, the Government in its wisdom has incorporated the provisions of sub-rules (5) and (6) of Rule 9 of the Cenvat Credit Rules. 2004 to cast upon the burden of proof of admissibility of Cenvat Credit on the manufacturer or output service provider taking such credit. In the case of M/s. Lnlit Enterprises |20i0 (17) STR 370 (Tri Chennai)], it was held that in (he light of the fact that verification of the records resulted in the Department coming to know that, the assessees did not. disclose receipt of service charges, therefore, five years period has been correctly invoked and applied against the assessee as the case falls within the proviso to Section 73(f) of the Finance Act, ]994 end the demand is not barred by limitation. In the case of M/s Mahavir Plastics[2010 (255) ELT 241 (Tri Mumbai)], it has been held that if facts are gathered bydepartment in subsequent investigation, it is not correct to say that the relevant facts were known to the' department during the period of dispute, in such a situation, the decisions of the Apex Court cited by the Id. Counsel would not be of any avail to the assessee. As the wrong and inadmissible credit taken is in contravention of the provisions of the Cenvat Credit Rules, 2004 by resordng to suppression and misrepresentation, the same is required to be recovered under the proviso to Section 73(1) vf the Finance Act. 1994 read with Rule 14(1 )(ii) of Cenvat Credit Rules, 2004, by invoking extended period, along with applicable interest at the appropriate rate under Section 75 of the Finance Act. 1994 read with Rule 14(l)(ii) of the Cenvat Credit Rules, 2004. All the above-mentioned acts of contravention of the provisions of the Finance Act and Rules framed there under on'the part of the said assessee have been committed with intent to evade payment of duty and thereby they have rendered themselves liable for penalty under Section 78(1) of the Finance Act, 1994 read with Rule 15(3) of the Cenvat Credit Rules, 2004.

Pre-Show Cause Notice consultation for Litigation Management and DisputeResolution, in terms of instructions issued from File N0.1080/09/DLA/Misc/2015 dated 21-12-2015 was granted on 30.08.2018 before the Joint Commissioner, Central Tax Audit. Ahmedabad. Nobody appeared for the assessee for the pre-show cause notice consultation on 30.08.2018. Therefore their reply dated 08.05.2018, received against query memo issued to the assessee by audit, has been considered their submission.

18.

A bare perusal of the reply dated 08.05.2018. received against query memo issued to the assessee, reveals that the said assessee had contended that before obtaining BU, their services were taxable and hence, they have availed and utilized credit of input services purchased before the said date. Further, it is contended by the said assessee that the eligibility of the Cenvat Credit is to be checked at the time of availment of such credit and not subsequently. Further, there is no restriction on utilization of Cenvat Credit under Cenvat Credit Rules, 2004. once the said credit is availed.

18.2 It appears that the contention of the assessee is not tenable as the objection of the department is explicit to the effect that there is no element of service insofar as the UNITS are not booked/ sold on payment, of part/full consideration prior to receipt of completion certificate/B.U. Permission and therefore, the assessee is not a service provider in case of such UNITS. Therefore, the assessee ought NOT to have taken credit for the UNITS not booked/sold prior to the obtaining of Completion Certificate/B.U.Permission as they were not entitled to avail Cenvat Credit at all, in terms of Rule 3(1) of the Rules ibid. Further, Cenvat credit which has been wrongly availed in contravention of

18.1

14

•

Rule 3(1) of the Cenvat Credit Rules, 2004: read with Rule 2(1) of the Cenval Credit Rules, 2004, cannot be allowed to be utilized for payment of service tax on output services provided by the said assessee.

18.3 The assessee, therefore is making a feeble attempt to confuse the issue with that of exempted service, (when there is no element of service involved in their case) and deceptively leading to the issue of reversal of Cenvat credit under Rule 6(3) of the Cenvat credit Rules, whereas the assessee was not entitled to Cenvat credit at all in terms ofRule 3(1) ofthe Rules, ibid.

The said assessee was earlier registered under the Jurisdiction of the Commissioner of Sendee Tax, Ahmedabad. Consequent to the issue of the Notification No. 12/2017 Central Excise (NT) to 14/2017 Central Excise (NT) all dated 09.06.2017, appointing the officers of various ranks as Central Excise officers Sc reallocating the jurisdiction of the Central Excise Officers and Trade Notice No. 001/2017 dated 16.06.2017 issued by the Chief Commissioner. Central Excise & Service Tax, Ahmedabad Zone, the said assessee is now registered under the Jurisdiction of the Commissioner, Central Goods and Service Tax. Ahmedabad. South.

19.

The then effective provisions of the Central Excise Act, 1944 and the Central Excise Tariff Act. 1985, as repealed vide Section 174(1) of the COST Act, 2017 and the then effective provisions of the Chapter V of the Finance Act, 1994, as omitted vide Section 173 of the COST Act, 2017, and the then effective provisions of the Cenvat Credit Rules, 2004, as superseded vide notification no. 20/2017-CE (NT) dated 30.06.2017, have been saved vide Section 174(2) of the CGST Act, 2017 and notification no. 20/2017-CE (NT) dated 30.06.2017. Therefore, the provisions of the said repealed/amended Acts and Rules made there under are enforced for the purpose of demand of duty, interest, etc. and imposition of penalty under this notice.

20.

21.Road, Opp. AUDA Garden, Prahaladnagar, Anand Nagar. Ahmedabad-380 015, were called upon by the Joint Commissioner of Central Tax. Audit Commissionerate. Ahmedabad, vide Show Cause Notice dated 10.09.2018. issued from File no. VI/l(b)/CTA/Tech-14/SCN/HN SafaI/18-19, to show cause to the Additional/Joint Commissioner of Central GST, Ahmedabad South, having his office at Central GST Bhavan. Opp. Polytechnic, Panjrapole, Ambavvadi, Ahmedabad, Gujarat 380015, as to why:-

Therefore, M/s. ITN Safal Realty. 10th Floor, 1006, Safal Profitaire, Corporate

Wrongly taken and utilized Cenvat Credit of Rs.72,42,657/- (Rupees Seventy Two Lakh, Forty Two Thousand, Six Hundred and Fifty Seven only) as detailed above, should not be disallowed and recovered from the said assessee, under the proviso to Section 73(1) of the Finance Act. 1994 read with Rule 14(l)(ii) of the Cenvat Credit Rules.2004 by invoking extended period of limitation;

(i)

Interest should not be charged and recovered under Section 75 ofthe Finance Act, 1994 read with Rule I4(l)(ii) ofthe Cenvat Credit Rules, 2004; and

Penalty should not be imposed upon them under Section 78(1) ofthe Act read with Rule 15(3) of the Cenvat Credit Rules, 2004.

(ii)

(iii)

15

5*£

%

Defense Reply:

The assessee replied to the said SCN. vide their letter dated 10.06.2020, denied, at the outset, each and every allegation made against them in the show cause notice and submitted inter-alia as under:-

CENVAT Credit correctly availed, in terms of the provisions of CENVAT Credit Rules, 2004 as amended from time to time.

21.1.1period of the respective project; and then, at the time of availing the disputed input services, the Noticee was rendering taxable output services and liable to pay Sen/ice Tax and therefore, the Noticee has correctly availed CENVAT Credit on the disputed input servic'-s.

21.

21.1

It is submitted that the CENVAT Credit was taken during the construction

It is submitted that in the impugned SCN, it has been alleged that the21.1.2.Noticee is ineligible to take CENVAT Credit as per Rule 3(1) of the CCR, 2004, and that it is an undisputed fact that construction of complex, building, civil structure intended for sale to the buyer is chargeable to Service Tax if the entire or part of consideration is received before issuance of completion certificate by the competent authority in terms of the provisions of Section 66E of the Finance Act. 1994.

It is submitted that Noticee has complied with the provisions of Rule 4(7) of the CENVAT Credit Rules, 2004 at the time of availment of CENVAT Credit on input services: and that Rule 4(7), nowhere specifies the requirement of reversal of CENVAT Credit on account of units remaining unsold at the time of B.U. permission.

21.1.3

It is submitted that Rule 6 of CENVAT Credit Rules 2004 casts obligation upon provider of output service for availment of CENVAT Credit only if input service has been used for providing taxable output service; that Rule 6(1) of CENVAT Credit Rules 2004 provides that the CENVAT Credit shall not be allowed for provision of exempted services and it is to be noted that the only upon receipt of completion certificate for the projects, the output activity of sale of units is considered as exempt services as per Explanation 3 to Rule 6(1) which was introduced w.e.f. 01.04.2016 vide Notification No. 13/2016-CE (NT) dated 01.03.2016.

21.1.4

21.1.5 It is submitted that upon insertion of the said explanation, if a registered person has provided the activity of sale of residential units, post completion certificate, during a tax period, he is not eligible to claim CENVAT Credit of tax paid during the said tax period; that accordingly, the restriction on availment of CENVAT Credit: as per Rule 6(1 )is only in respect of the Service tax paid during the tax period in which the said exempted service is provided; and that it is reiterated that the CENVAT Credit was availed only prior to obtaining BU permission for which the impugned SCN is issued.

21.1.6service in terms of declared services as provided under Section 66E(b) of the Act; and that the Noticee has availed Cenvat credit of Service tax paid on input services when the Noticee was providing taxable services: and that the Noticee has complied with the conditions enumerated under Rule 4 and 6 of CENVAT Credit Rules 2004;

It is submitted that the Noticee has been paying Service tax on construction

16

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21.1.7 It is submitted that on conjoint reading of Rule 4(7) and Rule 6 of CENVAT Credit Rules, it is revealed that the service provider can avail Cenvat credit of Service tax paid on input services used for providing taxable services: and that in the present case the Noticee has complied with both the conditions prescribed under Rule 4(7) read with Rule 6(1), and therefore the Noticee has rightly availed Cenvat credit.

21.1.8requirement of reversal of CENVAT Credit in a situation where the output service provider provides exempted and non-exempted services; and that the Noticee duung the construction period of the relevant projects were providing taxable services only and therefore, reversal under Ruie 6(3) is not applicable to the present case.

It is submitted that Rule 6(3) read with Rule 6(3A) deals with the

21.1.9 It is submitted that Rule 11 of CENVAT Credit Rules, 2004 deals with Transitional provisions;'/to Rule 11(4) of CENVAT Credit Rules 2004 provides that the provider of output service shall be required to pay an amount equivalent to CENVAT Credit if any taken by him in respect of input received for providing taxable services and is lying in stock or contained in taxable service pending to be provided when he opts for exemption from payment of Service tax levied on such taxable service under notification issues section 93 of the Finance Act 1994; and that accordingly, Rule 11 is applicable only to the inputs and not to input services.

21.1.10recovery of CENVAT Credit wrongly taken or erroneously refunded; that none of the other provisions cast responsibility upon the provider of output service for reversal of Cenvat credit legitimately availed in accordance with the provisions of CENVAT Credit Rules 2004.

It is submitted that Rule 14 of CENVAT Credit Rules 2004 deal with

It is submitted drat it has been alleged that the Noticee is not eligible to take CENVAT credit to the extent of the amount attributable to the unsold units at the time of BU permission as per Rule 3(1) of the CENVAT Credit Rules; that Rule 3(1) does not restrict the availment of CENVAT Credit used for providing the taxable output service at the time of availment of such service; and that if the intention of the legislature is to restrict the provider of output service from availment of such Cenvat credit, the legislature would have provided with clear wording under the provisions of CENVAT credit Rules.

21.1.11

It is submitted that it is a settled law that tax cannot be levied merely by21.1.12inferences or presumption; that words cannot be added or substituted so as to give a particular meaning; and that reference can be made to the observations of a Constitution Bench ofHon’ble Supreme Court in the case of Matluiram Agrawal V. State of Madhya Pradesh [(1999) 8 SCC 667), wherein it held that the intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous and in a taxing Act it is not possible to assume any intention or governing purpose of the slate more than what is stated in the plain language.

It is submitted that it is a settled legal position including the view of the21.1.13Hon’ble Apex Court that the credit availed during the period when the finished goods manufactured are dutiable/output service provided is taxable, the same is not require to be reversed in the future when such goods become non dutiable/such services become

17

i

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non-taxable; and that reference can be made to the following cases in support of this

contention:HMT 2008(232) E.L.T. 2!7(Tri-LB)HMT(TD) Ltd. 2015(322) E.L. T. 342(P&H)TAFELtd. 2011(268) E.LT. 49( Kar.)TAPE Ltd. 2015 (320) E.LT. A185 (S.C.)TAPE Ltd. 2015 (322) E.L. T S64(Kar. )PSL CORROSION CONTROL SERVICES LTD. 2016 (339) E.L.T. 406 (Guj) PSL Corrosion Control Services Ltd. - 2016 (339) E.L. T. A208 (S.C.) Ashok.Iron & Steel Fabricators — 2003 (156) E.L.T. A212 (S.C.)Ashok Iron and Steel Fabricators — 2002 (140) E.L.T. 277 (Tribunal-LB) Dai IchiKarkaria Ltd. 1999 (112) ELT 353 (SC)

It is submitted that situation of non-taxability of units sold after B.U.21.1.14permission is similar to "remission" being granted under Central Excise laws, wherein the finished goods will not attract Central .Excise duty and still it was held that the credit cannot be denied to the asscssee even when duty will not be paid on the finished goods since there was no specific provision prohibiting such credit entitlement to the assessee.

It is submitted that although the BU permission was granted to the Noticee21.1.15on dated 25.1.2017. but the CENVAT Credit on input services in respective project was availed for the period prior to the date of BU permission and therefore, the Noticee rightly availed the CENVAT Credit; that the input services like “Painting Services”, “Erection, Commissioning & Installation Services". “Consulting Services” etc. were the basic services to construction activities without which, even the BU permission cannot be granted by the Ahmedabad Municipal Corporation (local body) and therefore, it clearly reveals the fact that the Nolicee has received the input services prior to the date of BU Permission.

It is submitted that a harmonious reading of Rule 3 of the CCR, 2004 read with Rule 6 and Rule 11 of the said Rules will suggest that eligibility/entitlement to credit has to be examined only at the time of receipt of input service and once it is found to be availed at a time when output service is wholly taxable, and the said credit is availed legitimately, the same cannot be denied and/or recovered unless specific machinery provisions are made in this regard: that even if one assumed sale of immovable property after completion certificate to be “exempt service”, even then there is no legal requirement to reverse any credit availed on “input services” in the past (prior to obtaining completion certificate) at all.

21.1.16

21.1.177/ (Tri. A/tni.)], wherein a similar issue was raised before the Homble CESTAT, Ahmedabad about requirement of reversal of CENVAT Credit after completion certificate; and that Hoif ble CESTAT. Ahmedabad. held that the assessee is eligible to claim full CENVAT credit for the period where the output services were taxable at 100% rate and the same is not required to reversed after the completion certificate; that the aforesaid decision was challenged by the Department before the Hon’ble Gujarat High Court [2019 (29) G.S.T.L. 625 (Guj.)J, which was dismissed and the Order as passed by the CESTAT, Ahmedabad, was upheld by the Homble Gujarat High Court.

It is submitted that in the case of M/s. Alembic Limited [2019 (28) GSTL

18

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21.2 Extended Period of limitation not invocable.21.2.1 It is submitted that demand is barred by limitation as the Noticee is not

or suppression of fact as the disputed periodguilty of any fraud, willful misstatement

was already audited by the Department and no query was raised.

21.2.2the disputed period from April 2014 to March 2017 and therefore, demand for the disputed period is barred by limitation and the extended period of limitation cannot be invoked; that th& larger period of limitation can be invoked only on those grounds which are specifically provided under the Statute viz. suppression, omission or failure to disclose information with intent to evade the payment of Service tax; that if the department seeks to invoke the extended period of limitation on the ground other than those mentioned in the statue, then such invocation of extended period of limitation is bad in law.

It is submitted that the Show Cause Notice was issued on 10.09.2018 for

It is submitted that the Noticee was under Audit for the period from 1st March 2017 for which the Final Audit Report vide FAR No.

21.2.3April 2014 to 312083/2017-18- service tax dated 29.06.2018 was issued by the Assistant Commissioner, Circle - IV. COST Audit. Ahmedabad; that the Noticee availed CENVAT Credit onInput Services during the period which was covered under the Audit; that BU permission was also received during the said audited period of Cl April 2014 to 31st March 2017; that it cannot be said that the Noticee had suppressed material facts or information with an intend to wrongful avaiiment of CENVAT credit; and that in Sunil Forging & Steel Ind [2016 (332) E.L.T. 341 (Tri - Mumbai)], Hoifble CESTAT had held that “Department cannot say that said audit was for procedural issues and not for seeing classification of product.

It is submitted that the CENVAT Credits were correctly availed by the21.2.4Noticee as per the provisions of the law and therefore the larger period of limitation cannot be extended in the present case; that in Mafatlal Industries Ltd. / 2009 (245) ELT 265 (Tri. Ahmed.)], Hon’ble Tribunal held that during the relevant period Larger Bench of the Tribunal as also Hon !ble Gujarat High Court decision was in favour of the assessee and as such, it cannot be said that there M-as any suppression or mala fide on the part of the respondent so as to justifiable to invoke a longer period.

It is submitted that the Hoifble Supreme Court in the case of Pahwa Chemicals Private Limited [2005 (189) E.L. T. 257 (S.C.)J, had inter alia held that mere failure to declare does not amount to willful mis-declaration or willful suppression and there must be some positive act on the part o f the parly to establish either willful mis- declaration or willful suppression. "

21.2.5

It is submitted that the Noticee had disclosed all the material facts in their21.2.6Service tax returns which was apt as there was no other specific field to disclose such details; that in Meghmani Dyes & Intermediate Ltd.]2013 (288) ELT 514 (Guj.)], a similar issue was raised wherein the Hon’ble Gujarat High Court bad held that extended period is not invocable if the details/information provided by him were in accordance to the format prescribed in the returns.

It is submitted that the Hon’ble Supreme Court in the case AnandNishi21.2.7Kawa Co. Ltd. [2005 (188) E.L.T. 149(SC)[ wherein it was observed that ‘Suppression of facts’ can have only one meaning that correct information was not deliberately- disclosed to evade payment of duty, when facts were known to both the parties,

19

Sn

omission by one to do what he might have done not that he must have done would not render it suppression; {hat mere failure to declare does not amount to willful suppression; that there must be some positive act from the side of the assesses to find willful suppression; and ihal the Noticee has not suppressed any fact from the department and has fulfilled all the details in their Excise Returns and therefore it can’t be held that the department came to know about the activities of the Noticee only during the audit.

It is submitted that as none of the conditions necessary for invoking the21.2.Sextended period of limitation are satisfied in the present case, the extended period of limitation cannot be invoked against the Noticee and to this extent, the demand is clearly liable to be dropped

21.3 Penalty is not imposable and Interest is not leviable as the Duty demanded is not justifiable.

it is submitted that for the reasons set out hereinabove the entire demand21.3.1itself is unsustainable, as there was no contravention to the provisions of avaihnent of the CENVAT Credit, hence, the imposition of penalty and interest also cannot be sustained; that in the case of HMM Ltd [1995 (76) ELT 497 (SC)], it was inter alia held by the Hon'hle Supreme Court that where the demand is unsustainable, the imposition of penalty cannot sustain. It has also been similarly held by the Hon’ble Supreme Court in the case of Balakrishna Industries [(2006 (201) ELT 325 (SC)J and by the Hon’ble Tribunal in the case of Hyva India Pvt Ltd [200S (226) ELT 264] and Godrej Soaps [2004 (174) (1)EL T 25 (Tri- LB)]

It is submitted that without prejudice to the aforesaid, penalty under proviso to Section 78(1) of the Finance Act, 1994 read with Rule 15(3) cannot be imposed as there was no suppression or willful misstatement on part of the Noticee to avail wrongful availment of CENVAT credit as mentioned herein above.

21.3.2

The assessee further requested that an opportunity of personal hearing may kindly be granted before the case is adjudicated in the interest of justice.21.4

The case was posted for personal hearing on 15.06.2020, when Shri Arjun Akruwala, Chartered Accountant, appeared on behalf of the assessee and re-iterated their earlier submission and further submitted that they place reliance on a recent judgment in the case of Mis Alembic Ltd. [2019 (7) TMI 908 - GUJARAT HIGH COURT), passed by the Gujarat High Court, wherein the Cervat credit availed, before the BU is received, has been allowed.

22.

Discussion and Findings:

I have carefully gone through the Show Cause Notice, relevant case records and the assessee’s submissions both, in written and in person. I find that the assessee had been engaged in the activity, of construction of complexes or buildings, in the fonn of

as

23.

construction of individual separately identifiable UNITS (hereinafter referred to ‘UNIT’ or ‘UNITS ’) in a complex or building, intended for subsequent sale to different potential buyers. The assessee had been paying service tax, on their constructionactivity, for the units which were advance booked, prior to completion (i.e. while under construction), for subsequent sale, as being subject to service tax, by virtue of the

20

'3

provision of clause (b) of Section 66E of the Act. Thus, the assessee had paid service tax, on their construction activity, for the UNITS, admeasuring built up area of 22,991 SQ FT. (17% only) out of the total built up area of 1,34,118 SQ FT., which were advance booked, prior to completion (i.e. while under construe}ion), for subsequent sale.

Here, I feel it necessary to refer the relevant provisions under Section 66B read with clause (44) of Section 65B and clause (b) of Section 66E of the Finance Act, 1994 and to analyze the same vis-a-vis the activities carried out by the assessee. For ready reference, the relevant provision of Section 66B, clause (44) of Section 65B and clause (b) of Section 66E of the Finance Act. 1994. are reproduced, as under:-

23.1

[SECTION 66B. Charge of service tax on and after Finance Act, 2012.—There shall be levied a lax (hereinafter referred to as the service tax) at the rate of fourteen percent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.]

[(44) ^Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shallnot include—

an activity which constitutes merely,—(fa transfer of title in goods or immovable property, by way

of sale, gift or in any other manner: or0)

]

The following shall constitute[Section 66E. Declared Services.declared services, namely :—(a)(b) construction of a complex, building, civil structure or a part thereof including a complex or building intended, for safe to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.]

Going through the above provisions, first and foremost, I find that23.1.1‘SERVICE’ was NOT goods or immovable property BUT an ACTIVITY) Since Service Tax was levied on the value of services, provided or agreed to be provided, by one person to another, as per ’Section 66B, ibid, no goods or immovable property had been made subject to service tax. ONLY 'ACTIVITY' had been made subject to service tax.

I also find that a transfer of title in immovable property was NOT a23.1.2service. BUT activity of construction by builders (related to immovable property, against Advance Booking) had been declared to constitute ‘declared services’, to the extent, provided or agreed to be provided, wholly or partly, while under construction, prior to COMPLETION.

21

• -s-i'.x’rttfii. ■

t

?

I find that the assessee a builder, who obtained necessary permission23.1.3for developmental work on different nieces of land and undertook the activities as to construction of complexes or buildings, in the form of construction of individual separately identifiable UNITS in a complex or building, intended for subsequent sale to different potential buyers. They earned on the activities as per the approved plans.

Meanwhile they accepted advance booking (orders/requisilion) for the UNITS for subsequent sale after completion and accepted advance amounts (known as booking token or bona in common parTnce) from the buyers, against the price fixed for the advance booked UNITS, while..p;(f/cr^Cfptsn-uc/ion, prior to COMPLETION of construction. A document commonly known as TOKEN RECEIPT or BANAKHAT was prepared, at the time of advance booking, as an agreement for subsequent sale upon COMPLETION.

23.1.4

I hey carried on the construction activities related to pre-booked UNITS-23.1.5and then, after COMPLETION, entered into a SALE DEED (or VECHAN KHAT) with each buyer for each pre-booked UNIT end handed over the possession of each such pre­booked UNIT separately to respective buyers and thus completed the provision, of service of construction. Such construe/ion activities, carried out for a recipient, i.e. buyer, against an explicit order for service requisition in the form of advance booking. white.prior to COMPLETION ONLY, were made the subject matter of taxation under service tax as ‘declared service' under clause (b) of Section 66E of the Act. to the limited extent of UNITS so ore-booked. Thus, the sale or agreement for subsequent sale of a UNIT, while UNDER CONSTRUCTION, ONLY would constitute ‘declared service’.

23.1.6NOT so pre-booked UNITS as well. Ifni! of the UNITS were not so pre-booked. till the time of COMPLETION, the remaining ! ‘NITS would also get COMPLETED and cannot be said to be under construction'. Die UNITS, agreed to be sold, against advance booking, while under construction form part of ‘declared services’, BUT. the remaining un-booked UNITS, not 'n>wer construction' but COMPLETED UNITS, would only fit to fall under the category nf immovable property.

They also carried on the construction activities related to un-booked i.e

23.1.7 Since SERVICE was not an immovable property but an ACTIVITY only. Therefore, what was NO'] an AC'U'MTY. would never form part of SERVICE. Therefore a transaction in IMMOVABLE PROPERTY would never form part of SERVICE. But in respect of construrdon by builders, against advance booking, the CONSTRUCTION ACTIVITY would MM prevail/stili exist in respect ofthe UNITS not yet COMPLETED, but are UNDER CONSTRUCTION.

Therefore an agreemenl /HANAKHAT) for subsequent sale, by a builder,23.E8against advance booking of a UNIT (wh'ic under construction), prior to COMPLETION, would form a ‘PROVISION OF SERVICE’. BU T. an agreement (BANAKHAT) for subsequent sale or an agreement, of sa.le (VECHANKHAT), by a builder of a UNIT (which is NOT under construction but COMPLETED), after COMPLETION of construction, would NEVER constituR a ‘PROVISION OF SERVICE’. Thus, Advance Booking, prior to COMPLETION oi construction, is the criteria for a builder’s transaction to fall under SERVICE or ■'nder MERE IMMOVABLE PROPERTY.

The phrase, relevant to U c activity oi'construction by the assessee reads

as, "construction of a complex or building,intended for sale to a buyer, wholly or partly, except where the entire consideration is

23.1.9including a complex or building

22

received after issuance of completion-certificate by the competent authority’, in clause (b), supra.

23.1.10complex or building may be intended for sale to a buyer, as a whole or in parts, as the case may be. If the complex or building is not intended for sale as a whole, then each part, i.e. each 'UNIT', will attract treatment, individually and independently, to fall in the definition of ‘declared service*, as and when each such (individual separately identifiable) UNIT, is intended for sale to a buyer, while the UNIT is under construction, by way of advance booking for the UNIT by a buyer.

Analyzing the words, wholly or partly ', used in the phrase, I find that the

Analyzing the words, 'construction of a complex or building intended for sale to a buyer ', used in the phrase, I infer that there must exist a buyer, to whom, the construction services, wholly or partly, can be provided to or with whom, it can be the agreed to provide construction services, wholly or partly. As per dictionary meaning, buyer, is one who buys. Therefore. foiyan jntentipn for sale to take tob?..T buyer in,.existence. I further infer that existence of the construction services is also an essential element, to be provided or to agree to provide thenceforth. The construction services cannot come into existence after COMPLETION. Therefore construction services can be provided or can be agreed to be provided, ONLY, while the UNIT is under construction, prior to COMPLETION. In view of this, I hold that provision of construction services can be made ONLY to an existing buyer of UNIT or agreement to provide construction services can be made ONLY with an existing buyer of UNIT, while the UNIT is 'under construction'.

23.1.11

Analyzing the words, ‘intendedfor sale', used in the phrase, I also infer that the word, i intended', (past tense form of the verb, ‘intend ) had been purposely used here to mandate that the intention for sale to a buyer, should have been well established before COMPLETION of construction, i.e. ‘WHILE UNDER CONSTRUCTION'. Therefore, there must exist a buyer, there must exist construction services, in a UNIT intended for sale and such intention for sale to a buyer, should be well established by wav of BOOKING RECEIPT or BANAKHAT. It is a matter of fact that the construction services cannot come into existence after COMPLETION. Therefore construction services can be provided or can be agreed to be provided (in other words intended for safe), ONLY, while under construction, prior to COMPLETION. In view of this, I hold that provision of construction services can be made ONLY to an existing buyer of UNIT or agreement to provide construction services can be made ONLY with an existing buyer of UNIT, while the UNIT is 'under construction', and an agreement, for subsequent sale after completion, in the form of BOOKING RECEIPT or BANAKHAT shall establish such intention for sale to a buyer.

3.1.12

Analyzing the words, ‘except where the entire consideration is received after issuance of completion-certificate by the competent authority', used in the phrase, I again infer that provision of construction services can be made ONLY to an existing buyer of UNIT or agreement to provide construction services can be made ONLY with an existing buyer of UNIT, while the UNIT is 'under construction', prior to COMPLETION of construction. If advance booking (orders/requisition) for the UNITS for subsequent sale after completion, has NOT been accepted, while under construction, prior to COMPLETION of construction, then only entire consideration is received after issuance of completion-cert ftcate, i.e. COMPLETION of construction, Even otherwise. after COMPLETION, no construction services, remain pending to be provided, as the

23.1.13

same would already have ended in 'MERE IMMOVABLE PROPERTY'. Therefore,

23

*

&

booked COMPLETED UNITS, merit to beupon COMPLETION, the remaining categorized as, 'MERE IMMOVABLE PROPER! )' , only-

nn-

Thus, I see that the phrase used herein itself makes a specific exclusion for an activity of construction of a complex or building or a part thereot. to be declared as ‘declared service' that if the whole or a part ol a complex or building is not intended for sale to a buyer, while under construction, i.e. prior to COMPLETION, against advance booking, then, it can never be a ‘declared service7 to the extent of whole or a part of a complex or building, respectively. In other words, if advance booking (orders/requisition) for the UNITS for subsequent sale after completion, has NOT been accepted, while under construction, prior to COMPLETION of construction, then the entire consideration would be received after issuance of completion-certificate, i.e. COMPLETION of cons/ruction. Receiving the whole consideration after COMPLETION of construction, i.e. after issuance of completion-certificate, will only establish that no intention for sale to a buyer existed prior to COMPLETION.

23.1.14

In view of the above, I come to conclusion that the activity of construction23.1.15of a complex or building, has to pass ihe following tests, for the whole or a part thereof, to be declared as ‘declared service7, under clause (b). ibid, as under:-

Whether the whole or a part of a complex or building is intended for sale0)to a buyer; and

Whether such intention for sale lo a buyer as a whole or in parts is well established, while under construction, i.e. before completion, by way of advance booking token or banakhat etc, as discussed hereinabove.

(ii)

Therefore. I also conclude (hat the activity of construction of a complex or23.1.15.1building, in absence of advance booking, for the whole or a part thereof, while under construction, i.e. prior to completion, would fail to fall under ‘declared service7 and it would rather end in. 'Mere Immovable Property7.

1 find that the entry at clause (b). supra, .rend as ‘construction of a23.1.16complex, building, civil structure or a part thereof including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority': pertain to construction activities. Out of this entry, the phrase, read as, ‘construction of a complex or building,or partly, except where /he entire consuh’ration is received after issuance of completion- certificate by the competent authority ', used in the entry at clause ON. supra, specifically deals with activities of the builders, i.c. the activity of construction of a complex or building, against advance booking, for the whole or a part thereof, while under construction, i.e. prior to completion of construction. Other general construction activities undertaken by various coniactors. as mere labour contractors (for only labour/job work) or as works contractors (for labour work along with material) are covered under the phrase 'construction of a complex, building, civil structure or a part thereof’ used in the entry at clause (b). supra. The construction activities undertaken by builders, involve not only labour work and cost of material but also the value of LAND.

including a complex or building, intended for sale to a buyer, wholly

The land and anything attached therewith, is an immovable property.Service tax could not be levied on land and other construction materials used for an

immovable property BUT could only be levied on construction services (saylabour/job work), involved therein, provided, against Advance Booking, while under

23.1.17

24

M

construction, prior to COMPLETION. Upon COMPLETION, the construction activities, in absence of advance booking, would only end in mere immc/able property. Therefore advance booking/sale while under construction only could be declared as ‘service’ for the reason that consfruction services could be provided at the time of construction only and not after COMPLETION at any rate, because NO construction activities would remain pending thereafter to be provided, to the buyer.

23.1.18construction of a complex or building, aaainsi advance booking, for the whole or a partthereof, while under construction, prior to completion of construction’, under servicetax net, the phrase, ‘construction of a complex or building,...... , including a complex orbuilding intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority?'', found place under the entry at clause (b). supra, to declare builders’ services, while under construction, as 'declared services'.

To bring the builders’ construction services, i.e. ‘the activity of

23.1.19contractors, same way, abatement for the cost of LAND and construction material was considered for builders also. Keeping in mind the prevalent characteristics of ‘an immovable property’ in the booked UNIT, for the value of land and other materia’, used in construction, included in the price fixed for the advance booked UNIT, exemption equal to 70% / 75% of the price of advance booked UNIT, subject to non availment of credit on inputs, had been allowed to effectively consider 30% / 25% ofprice of advance booked UNIT, as the value of services of construction charged by the builder, as per notification no. 26/2012-ST dated 20.06.2012.

Like abatement for the cost of material was considered for works

Since ‘provision of service of construction’ exists ONLY while a23.1.20complex or building is under construction, specific exclusion had been made to exclude ‘mere immovable property’ (i.e. land and anything attached thereto), from the purview of ‘service’ by way of exclusion clause (a)(i) under clause (44) of Section 65B of theAct, which reads as ‘a transfer of title in goods or immovable property'. The same wav, ‘mere immovable property’ had also been excluded from the definition of 'declared service' by way of providing for exclusion under clause (b) of Section 66E of the Act, in respect of builders’ transaction in immovable property, taking place after COMPLETION, by adopting the phrase, 'except where the entire consideration is received after issuance of completion-certificate by the competent authority?’, under the entry at clause (b), ibid.

As per the common trade practice in builders’ business, at the time of23.1.21advance booking (whole complex or building or a UNIT thereof), while accepting any initial/advance amount (commonly known as BANA/TOKEN) trom the buyers, against the price fixed for the advance booked UNITS, while under construction, prior to COMPLETION of construction, a document commonly known as TOKEN RECEIPT or BANAKHAT is prepared, as an agreemenf for subsequent sale after COMPLETION ofconstruction.

The builders do carry on the construction activities related to pre-booked23.1.22UNITS and then., after COMPLETION, enter into a SALE DEED (or VECITAN KHAT) with each buyer for each such pre-booked UNIT and hand over the possession of each such pre-booked UNIT separately to the respective buyers and thus complete the provision of service of construction. Such construction activities, carried out for a recipient, against an explicit order, Tor service requisition, in the form of advance booking, while under construction, prior to COMPLETION ONLY, are the subject

25

■t

£

matter of taxation under service lax as 'declared service' under clause (b) of Section 66E of the Act, to the limited extern of l:NI fS so advance booked, as ONLY, the sale or agreement (banakhat) for subsequent sale of a UNIT, against advance booking, while UNDER CONSTRUCTION, only would constitute ‘declared service’.

Thus, the TOKEN RLCldPT/BANAKHAT initiates the service activity of construction and subsequent VI:C1 iANKHA I7SALE DEED completes the service activity of construction. If the hanakkat/ioken receipt is prepared for the agreement for subsequent sale of a complex or building as a whole, it will mean that the subject complex or building is intended for subsequent sale to a buyer as a whole. Likewise, if the bemakhat/token receipt is prepared for the agreement for subsequent sale of only a part, i.e. an individual separately icientiiiable UNIT, like a flat, an apartment, a shop, an office or a bungalow etc., in a complex or building, it will mean that the subject complex or building is not intended for subsequent sale to a buyer as a whole, but specific part of a complex or building is intended for subsequent sale to the buyer.

23.1.23

Thus. RECEIPT/BANAKHAT23.1.24VECHANKHAT/SALE DEED will speak as to whether a complex or building is intended for sate or not AND as to whether a complex or building is intended for sale as a whole or in parts.

the TOKENonly or

In case, if a complex or building is NOT intended for sale as a whole, the23.1.25legal position allows treating each pari separaKdy for taxation purpose, by virtue of the words ‘wholly OR partly' used in the phrase, 'a complex or building intended for sale to a buyer, wholly or partly \ That means, if the complex or building is not being sold as a whole, every transaction in relation to a part thereof will be treated separate and independent of each other. Thus, if tiic banakhat/token receipt is prepared for the agreement for subsequent sale of a part. i.e. individual separately identifiable UNIT, like a flat, an apartment, a shop, an office or a bungalow etc., in a complex or building, it will mean that the subject complex or building is not intended for sale to a buyer as a whole. but specific part of a complex or building is intended for sale to a buyer.

23.1.26 Absence of any of such documents, entered into, namely, the TOKEN RECEIPT or BANAKHAT or VEC1IANKHAT or SALE DEED, in respect of the whole complex or building, will show that no complex or building, is intended for sale.

23.1.27RECEIPT or BANAKHA I or VEOIANKHA.r or SALE DEED, in respect of arty individual separately identifiable UNIT or UNITS, in the complex, will show that such remaining UNIT or UNITS of a complex or l>nilding are NOT intended for sale to a buyer. The part or parts or whole of a complex or building, which were not intended for sale to a buyer (in absence of advance booking) and failed to find a buyer, by way of advance booking or sale before completion, i.c. while under construction, would render themselves ‘mere immovable property and the construction services involved therein., will also end in ‘mere immovable property'.

Absence of any of such documents, entered into, namely, the TOKEN

23.1.28 Actually sale of land along with a constructed UNIT on land, is prime facie, a transaction of an immovable property and excluded from the purview of ’service' by virtue of exclusion clause [a)(i) under Clause (44) of Section 65B of the Act and excluded from the purview of 'declared service* by virtue of exclusion under Clause(b) of Section 66E. of the Act.

26

.d

23.1.29 But in the ease of builders, they took orders, in the form of advance booking for UNITS (known as booking token or buna in common parlance), while underconstruction, prior to completion of construction, for subsequent sale and then carried out the construction activity related to pre-booked UNITS and then, after completion, entered into sale deed and handed over possession of the advance booked UNITS andthus completed the provision of service of construction.

Such construction activity, by builders, as discussed above, carried out for a recipient, against an explicit order for service requisition, in the form of advance booking token or banakbat, ONLY, was the subject matter of taxation under service tax as ‘declared service' under clause (b) of Section 66E of the Act, to the limited extent of the pre-booked UNITS. Thus, the sale or agreement for subsequent sale of a UNIT, v/hile UNDER CONSTRUCTION, ONLY would constitute ‘declared service’. Further. I have already elaborated that each such UNIT will attract treatment, individually and independently, to fall in the definition of'declared service'.

23.1.30

23.1.31property* in the advance booked unit, for the value of land and other inputs used in construction, included in the price fixed for the advance booked unit, exemption equal to 70% / 75%-of the price of advance booked unit, subject to non availment of credit on inputs, had been allowed to effectively consider 30% / 25% of price of advance booked unit, as the value of services of construction charged by the builder, as per notificationno. 26/2012-ST dated 20.06.2012.

I find that keeping, in mind the prevalent characteristics of ‘immovable

It is a settled legal position that a service can be said to be provided, when some activity exists or is brought in existence to be undertaken to be done. In respect of construction by builders, prior to completion of a unit, they may undertake to do some activity (say construction activity) for the service recipients, as elaborated above but once construction work is completed, no activity remains there, or can be brought into existence there, to be undertaken by the builder to be done for a recipient of the activity, so no activity can be said to be provided after completion of a UNIT. So. it is the tAdvance Booking prior to COMPLETION' that sets CRITERIA for establishing, in respect of an immovable property (or a UNIT), as to whether, it involves ‘‘provision of service’ OR 6mere immovable property’. It is already elaborately elucidated that each such UNIT will attract treatment, individually and independently, as to whether it would fall in the definition of‘declared service'- or NOT.

23.1.32

Upon COMPLETION, all the construction activities, related to unbooked/unsold UNITS will only end in the immovable property, and will not be available for ‘‘provision oj service' to a recipient, i.e the buyer, after completion. That's why, only advance booking/sale, while under construction, could be made subject to be ‘declared service*.

23.1.33

Issuance of completion certificate (or say BU permission) is merely the23.1.34end point of ‘COMPLETION* of construction activities. No such certificate ran be considered as grantin^..exemptipn, or turning out a service to non service. Upon completion, no services exkl or can be brought into existence to be provided, therefore there arises no question of exempting any services or turning any service out to be non service. Therefore, the UNITS, which failed to find buyer,'by way advance booking or sale, while under construction, before completion, would render themselves ‘mere immovable property'.

27

£Although, ihe sale of a UNIT by a builder, before issuance of BU23.1.35

permission, is also a transaction of immovable property, in common parlance, but by the mischief of clause (b) of Section 6615 ibid, such sale of UNIT (for construction services involved therein, against Advance Booking by a buyer) before completion only has been brought out of the purview of transaction o\' immovable property and it has been brought under the definition of'declared service' liable for service tax. The construction activity.in absence of Advance Booking, \vhich failed to find place under the definition of 'declared service for any reason w-ha/soever, resulted in ‘mere immovable property'.

In view of this. I find that 'the output activity5 of construction by a builder23.1.36in relation to an individual separately identifiable UNIT in a complex, ends in, EITHER "declared serviced liable for service tax OR "mere immovable property3t attracting NOservice tax, depending upon ihc ciiteria of Advance Booking prior to Completion,discussed hereinabove. At the end. I find that a buyer may come to acquire a UNIT in a complex being constructed by a builder, by adopting following two alternative methods:-

(i) BOOKING (in advance) for a UNIT while under construction.

(ii) PURCHASING a {reach built) UNIT after completion of construction.

On the basis of the outcome of the elaborative discussion, hereinabove, I come to conclude, in respect of the outpui activity of construction by a builder in relation to an individual separately identifiable UNIT in a complex, in respect of above discussed two situations, as under:-

23.1.37

(A) ADVANCE BOOKING of a UNIT while under construction:

IN SUCH cases, I hold that, the transaction would fall under ‘declared service’, as elaborately elucidated in foregoing paras.

(B) PURCHASING a {ready built) UNIT after completion of construction:

IN SUCH cases, I hold that, the transaction would fall under ‘mere immovable property’ excluded from the purview of‘declared service’, as elaborately elucidated in foregoing paras.

I have also found that the assessee had NOT paid service tax, on their construction activity, for the parts (uuhs). admeasuring built up area of 1,11,127 SQ FT. (approximately 83% of the whole built up saleable area of },s4,J 18 SO FT.), which were NOT advance booked {jbr subsequent sale), while under construction, till the time of obtaining BU permission, i.e. COMPLETION of construction on 25.01.2017 and were rendered as ‘mere immovable property *. as being NOT subject to service tax, by virtue of the provision of exclusions in clause (b) of Section 66E of the Act and exclusion clause (a)(i) under clause (44) of Section 65B of the Act.

23.2

23.3 As already elaborated, once construction work is completed, there remains no activity to be undertaken by the builder to be done for a recipient of the activity, so no activity can be said to be provided after completion of a unit. So, it is the Advance Booking prior to Completion' that had set criteria as to establish in respect of an immovable property (or a UNIT) as to whether, it involved "provision of service3 OR'‘mere immovable property'. Issuance of completion certificate (or say BXJ permission) ismerely the END POINT' of 'COMPLETION'. Upon COMPLETION, all theconstruction activities, in absence of advance booking, related to un-booked/unsold

28

!

(iii) I impose a penalty of Rs.72,42,657/- (Rupees Seventy Two Lakh, Forty Two Thousand, Six Hundred and Fifty Seven only) on the assessee in terms of the provisions of Section 78(1) of the Finance Act, 1994 read with Rule 15(3) of the Cenvat Credit Rules, 2004. However, in view of clause (ii) of the second proviso to Section 78(1), if the amount of Service Tax confirmed and interest thereon is paid within a period of thirty days from the date of receipt of this Order, the penalty shall be twenty five percent of the said amount, subject to the condition that the amount of such reduced penalty is also paid within the said period of thirty days.

(Mohit Agrawal) Additional Commissioner

Ahmedabad South

F. No. STC/04-35/HN Safal/OA-I/18-19 Date: - 22 .07.2020

BY HAND DELIVERY/REGD POST A.D.To,M/s. HN Safal Realty,1006, 10th Floor, Safal Profitaire,Corporate Road, Opp. AUDA Garden, Prahaladnagar, Anand Nagar, Ahmedabad-380 015.

Copy to:-

(1) The Principal Commissioner, COST, Ahmedabad - South.(2) The Assistant/Deputy Commissioner (RRA), Central GST, Ahmedabad

South.(3) The Assistant/Deputy Commissioner, Central GST, Division-VIII,

Ahmedabad South.

(4) The Superintendent, Central GST, Range-I, Division-VIII, Ahmedabad ✓'South.

\J(&) The Assistant Commissioner (System)(6) Guard File.

, Central GST, Ahmedabad South.

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A,thereby they have rendered themselves liable for penalty under Section 78(1) of the Finance Act, 1994 read with Rule 15(3) of the Cenval Credit Rules. 2004.

37. The above discussions amply demonstrate that the assessee has suppressed the facts and contravened the provisions of the Cenvat Credit Rules. 2004 as specified above and as such the consequences shall automatically follow. The Hon'ble Supreme Court has settled this issue in the case of M/s Dharamendra Textile Processors [2008 (231) E.L.T. 3 (S.C.)] and further clarified in the case of M/s Rajasthan Spinning & Weaving Mills [2009 (238) h.L.T. 3 (S.C)j. Uoivble Supreme Court has said that the preset ce of malafde intention is not relevant for imposing penalty and mens rea is not an essential ingredient for penalty for tax delinquency which is a civil obligation. Therefore, I hold that the assessee is liable for penally under Section 78( 1) of the Finance Act, 1994 read with Rule 15(3) of the Cenvat Credit Rules. 2004.

38. I find that the said assessec was earlier registered under the Jurisdiction of the Commissioner of Service Tax. Ahmedabad. Consequent to the issue of the Notification No. 12/201 7-Ccnlral Excise (NT) to 14/2017-Central Excise (NT) all dated 09.06.2017. appointing the officers of various ranks as Central Excise officers & reallocating the jurisdiction of the Central Excise Officers and Trade Notice No. 001/2017 dated 16.06.2017 issued by the Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone, the said assessee is now registered under the Jurisdiction of the Commissioner, Central Goods and Service Tax. Ahmedabad South.

Further, the then effective provisions of the Central Excise Act, 1944 and the Central Excise Tariff Act. 1985. as repealed vide Section 174(1) of the CGST Act, 2017 and the then effective provisions of the Chapter V of the Finance Act, 1994, as omitted vide Section 173 of the CGST Act. 2017, and the then effective provisions of the Cenvat Credit Rules. 2004. as superseded vide notification no. 20/2017-CE (NT) dated 30.06.2017, have been saved vide Section 1 74(2) of the CGST Act. 2017 and notification no. 20/2017-CE (NT) dated 30.06.2017. repealed/amended Acts and Rules made there under are rightly enforceable for the purpose of demand of duty. tax. interest, etc. and imposition of penalty under this notice.

39.

fherefore. the provisions of the said

40. In view of my above findings. I pass the following order:

ORDER

(i) I disallow the wrongly taken and utilized Cenvat Credit of Rs.72,42,657/- (Rupees Seventy Two l.akh forty Two Thousand. Six Hundred and Fifty Seven only) as detailed above and order for recovery of the same from the assessee. under the proviso to Section 73( 1) of the Finance Act, 1994 read with Rule 14(l)(ii) of the Cenvat Credit Rules.2004 by invoking extended period of limitation:

Interest at the appropriate rate should also be charged and recovered on the above confirmed demand in terms of the provisions of Section 75 of the Finance Act. 1994 read with Rule 14(1 )(ii) of the Cenvat Credit Rules, 2004; and

(ii)

66

$

L\

[32. We further find that under Rules. 2004. a burden is cast upon the manufacturer to ensure dial Cenval credit is correctly claimed by them and proper records arc maintained in that regard.

33. The assessee. in response to die show' cause notice had stated that there is no provision in Central Excise Law to disclose the details of the credit or to submit the duty paying documents, which in our opinion is false and an attempt to deliberately contravene the provisions of the Act, 1944 and the rules made there under with an intent to evade the duty.]

Similarly, once the asscssec avails credit under the Rules of 2004. without entitlement, it amounts to contravention of the rule with the intention of evading payment and the extended period of limitation would be available to the Revenue, as held by Hon’ble High Court of Judicature for Andhra Pradesh at Hyderabad, in the case of M/s Sree Rayalseema Hi-Strength Hypo Ltd. ['2012 (278)ELT 167(AP)]. reproduced as under:-

34.

[9. The contention of the learned counsel for the assessee that the extended period of limitation of five years for recovery of the duty under the proviso to Section 11A(!) of the Central Excise Act. i944 would not be available to the Revenue in this case, as the penalty proposed to be levied was dropped, does not hold water. The extended period of jive years for recovery of duties either levied or short-levied arises under various situations such as fraud, collusion, willful mis-statement, suppression of facts or contravention of the provisions of the Act or the Rules made thereunder with intention to evade payment of duty. It is no doubt true that the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty [Union of India v. Rajasthan Spinning and Weaving Mills - (2009) 13SCC 448 - 2009 (238j E.L.T._3 (S.e.)j. But merely because theingredients for both are the same, it would not mean that in case penalty is not imposed, the duty also cannot he recovered. Once the assessee availed credit under Rule 2(k) of the Rules of2004 without entitlement it amounts to cot.fravention oj the rule with the intention of evading payment and the extended period of limitation would be available to the Revenue, notMnthstanding the decision not to propose penalty upon the assessee.]

35. Therefore, 1 hold that there is intention to evade payment of Service Tax and they have contravened the provisions of Rule 3(1) read with 2(1) and 2(p) of the Cenvat Credit Rules, 2004 & explanations under Rule 6 of the Cenval Credit Rules. 2004 and important facts have been suppressed, therefore, the wrongly availed and utilized Service Tax Credit as discussed hereinabove, is liable to be recovered by invoking extended period of five years under proviso to Section 73(1) of the Finance Act, 1994, read with Rule 14(l)(ii) of the Cenvat Credit Rules. 2004. Applicable interest is also to be demanded and recovered from them in terms of Section 75 of the Act ibid read with Rule 14(l)(ii) of the Cenval Credit Rules. 2004.

36. As already discussed hereinabove. | find that all the above-mentioned acts of contravention of the provisions o! the Finance Act and Rules framed there under on the part of the said assessee have been committed with intent to evade payment of duty and

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29. The Government has from the very beginning placed full trust on the inanufacturers/service providers and accordingly measures like self-assessments etc., based on mutual trust and confidence are in place, further, a manufacturer/service provider is not required to maintain any statutory or separate records under the provisions of the Finance Act and Rules made there under, as considerable amount of trust is placed on them and private records maintained by them, for normal business purposes are accepted, practically for all the purposes. All these operate on the basis of honesty of the said assessee; therefore, the governing statutory provisions create an absolute liability when any provision is contravened or there is a breach of trust placed on them.

From the evidences, il appears that the said assessee has knowingly availed ineligible Cenvat Credit with intent to evade payment of Service Tax. The deliberate short-payment of lax by availing and utilising ineligible Cenvat Credit and suppression of ineligible Cenvat credit and value of non- taxable activities are in utter disregard to the requirements of law. This act and omission on the part of the assessee is a breach of trust deposed on them, and are certainly not in tune with government's efforts in the direction to create a voluntary lax compliance regime.

Further, 1 find that the assessee has wrongly taken Cenvat Credit of tax paid on various services, disproportionate to those used in the constructions of flats/UNITs, advance booked/sold prior to obtaining BW permission, inasmuch as they are neither the provider of output service nor are these services [proportionate to the flats/UNJTs, NOT advance hooked/sold prior to obtaining BU permission) used for providing an output service as contemplated in Rule 2 (I) and 2(p) of Cenvat Credit Rules, 2004.

30.

31.

As the wrong and inadmissible credit taken is in contravention of the provisions of the Cenvat Credit Rules. 2004 by resorting to suppression and misrepresentation, as discussed hereinabove, the same is required to be recovered under the proviso to Section 73( 1) of the Finance Act. 1994 read with Rule 14(l)(ii) of Cenvat Credit Rules. 2004. by invoking extended period. Interest at the appropriate rate is also required to be recovered from them under Section 75 of the Finance Act, 1994 read with Rule ]4(I)(ii) of the Cenvat Credit Rules, 2004. All the above- mentioned acts of contravention of the provisions of the finance Act and Rules framed there under on the pari of the said asscssec have been committed with intent to evade payment of duty and thereby they have rendered themselves liable for penalty under Section 78(1) of the Finance Act. 1994 read with Rule 15(3) of the Cenvat Credit Rules. 2004.

32.

I find that Rule 9(6) of Cenval Credit Rules. 2004 stipulates that the burden of proof regarding the admissibility of Cenvat Credit on input services shall lie upon the manufacturer or provider of output services, taking such credit. In this era of self- assessment. the onus of taking legitimate Cenvat Credit has been passed on the said assessee in terms of the said Rule. In other words, it is the responsibility of the said assessee to take Cenvat Credit only if the same is legally admissible. The assessee, being a big corporate house, cannot be said to be unaware of their liability with respect to payment of service tax and availmeni of legitimate Cenvat credit. They were required to take appropriate steps to ensure the eligibility of Cenvat credit they are availing. They have faded on this front and availed ineligible credit. Although they categorically admit that definition of'input service' under Rule 2(1) of Cenvat Credit Rules, 2004 requires the nexus of input service to the output service, yet they contravened the provisions ofRule 3(1) read with 2(1) and 2(p) of the Cenvat Credit Rules, 2004 & explanations underRule 6 of the Cenvat Credit Rules. 2004. In the case of M/s. Rathi Steel & Power Ltd. [2015(321)ELT200(A11)], the High Court of Judicature at Allahabad held that:

33.

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. t.fciTW.

i

the sale of which would not constitute service. At least at the time of obtaining “Completion Certificate", the said assessce would he well aware that they had takenineligible Cenvat Credit in respect of UNI I s. ihe sale of which, in future, would never be able to constitute a ''service, in anv remote possibility. Even the fact, of obtaining “Completion Certificate", when he will be sure that no activity left to be provided, will ever come under the definition of 'service. was never disclosed to the Department. The said assessee had suppressed these facts from the Department to illegally avail the Cenvat Credit which was ineligible by the virtue of Rule 3(1) of the Cenvat Credit Rules read with definitions under Rule 2(/) and 2(/;) of the Rules and Explanation III/2 under Rule 6(3) of the Rules. Therefore, S hold lhat this is a fit ease to invoke the provision of extended period in view of proviso to Section 73( 1) of the Finance Act. 1994.

27,7 I find that the assessee had suppressed these facts from the Department to illegally avail and utilise the Cenvat Credit which was ineligible by the virtue of Rule 3(1) of the Cenvat Credit Rules read with definitions under Rule 2(1) and 2(p) of Cenvat Credit Rules, 2004 and explanations under Rule 6(3) of the Cenvat Credit Rules, 2004. As the event of obtaining of B.U. was never disclosed to the Department and consequently the assessee failed to reflect the non-taxable value and reversal of Cenvat credit under PART - 13 and PART - 1. in the ST-3 returns and this was never brought to the notice of the Department b\ ihe said asscssee. I notice that the allegation as fabricated by the assessee. in ihe given situation, at this juncture, further exposes the intention of the assessee that the assessee had suppressed the said facts with intent to evade payment of tax by utilizing such inadmissible Cenvat Credit. Further such allegations, far from the facts, cannot be a reason for bonafidc belief. It is illogical to think that the assessec entertained a belief in their favour under the spell of these contentions which are far from the facts. In the circumstances. I am unable to accept the plea made by the assessee based on bona ikie belief or the case law cited by him in support of such plea.

28. Moreover, in the present regime of liberalization, sell-assessment and filing of ST-3 returns online, no documents whatsoever arc submitted by the said assessee to the department and therefore the department would come to know about such wrong availing of Cenvat Credit only during audit or preventive/other checks. Therefore, the Government in its wisdom has incorporated the provisions of sub-rules (5) and (6) of Rule 9 of the Cenvat Credit Rules. 2004 to cast upon the burden of proof'of admissibility of Cenvat Credit on the manufacturer or output service provider taking such credit. As the wrong and inadmissible credit taken is in contravention of the provisions of the Cenvat Credit Rules, 2004 by resorting to suppression and misrepresentation, the same is required to be recovered under the proviso to Section 73(!} of the Finance Act. 1994 read with Rule 14(l)(ii) of Ctnval Credit Rules. 2004. by invoking extended period. In the case of M/s. Lalit Enterprises 12010 (1 7) STR 370 (Tri Chennai)], it was held that in the light of the fact that verification of the records resulted in the Department coming to know that the assessees did not disclose receipt of service charges, therefore, five years period has been correctly invoked and applied against the assessee as the case falls within the proviso to Section 73(1) of the Finance Act, 1994 and the demand is not barred by limitation. In the case of M/s Mahavir Plastics [2010 (255) ELT 241(Tri Mumbai)], it has been held that if facts are gathered by department in subsequent investigation, it is not correct to sav that the relevant facts were known to the department during the period of dispute, in such a situation, the decisions of the Apex Court cited by the Id. Counsel would not be of any avail to the asscssee.

63

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providing an output service as contemplated in Rule 2 (/) and 2(p) of Cenvat Credit Rules. 2004.

The provisions of the Cenvat Credit Rules. 2004 are very much explicit, inasmuch as they clearly lay down the provisions for eligibility/ineligibility for availing credit of duty paid on goods and capital goods as well as Service Tax paid on services. What construes ''Capital Goods''. "Inputs” and "Input Services" is well defined under the Rules. Therefore, there cannot be any ambiguity regarding the eligibility for availing Cenvat Credit and the said assessee could not have bred any doubt as regards the same. However, the said asscsscc in sheer disregard to the provisions of law. availed and utilized ineligible Cenvat Credit and thereb\. they contravened the provisions of Rule 3(1) of the Cenvat Credit Rules. 2004. read with Rule 2(1) md 2(p) of the Cenvat Credit Rules, 2004 and explanations under Rule 6 of the Cenvat Credit Rules, as discussed hereinabove.

27.4

The Revenue, at the time of Audit only, came through the fact that the assessee had obtained the completion certificate on 25.01.2017 for their scheme ‘SUMEL-9' by the competent authority and out of total built-up area of 134118 SQ. FT., an area of 22991 SQ FT (17.14% ONL Y). had been advance hooked or sold prior to this and an area of 1,11,127 SO I T {as much as whopping 82.86%) remained unsold at the time of receipt of BU permission. 13ased upon these facts, the SCN, in the present case is issued. I find that once the assessec avails credit under (he Rules of 2004, without entitlement, it amounts to contravention of the rule with the intention of evading payment and the extended period of limitation would be available to the Revenue, as held by Hon’ble High Court of Judicature for Andhra Pradesh at Hyderabad, in the case of M/s Sree Rayalseema Mi-Strength Hypo Ltd. |20I2 (278JELT 167{AP)]. reproduced as under:-

27.5

[9. The contention of the learned counsel for the assessee that the extended period of limitation of five years for recove y of the duty under the proviso to Section 1IA(I) of the Central Excise Act, 1944 would not be available to the Revenue in this case, as the penalty proposed, to be levied wms dropped, does not hold water. The extended period of five years for recovery of duties either levied or short-levied arises under various situations such as fraud, collusion, willful mis-statement,- suppression of facts or contravention of the provisions of the Act or the Rules made thereunder with intention to evade paymeru of duty. It is no doubt true that the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty f Union of India v. Rajasthan Spinning and Weaving Mills - (2009) 13 SCC 448 = 2009 (238) E.L.T. 3 fS.e.)]. But merely because the ingredients for both are the same, it would not mean that in case penalty is not imposed, the duty also cannot be recovered. Once the assessee availed credit under Rule 2(k) of the Rules of2004 without entitlement it amounts to contravention of the rule with the intention of evading payment and the extended period of limitation would be available to the Revenue, notwithstanding the decision not to propose penalty upon the assessee.]

Most important, here, 1 find that if the assessee had no malafide intention, ar least at the time the "Completion Ccriilicaie5* was obtained, the Sdldassessee ought to have paid the excess amount of Cenvat Credit availed on the UNITs,

27.6

62

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*

it

construction in which no element of 'output service' was involved is not admissible as discussed supra. Thus, this amount of Cenvat credit is the amount availed in excess of the eligible amount, attributable to input services used for providing output services.

The assessee has advanced pleas on the grounds of limitation that the demand is barred by limitation as they are not guilt) of any fraud, willful misstatement or suppression of fact as the disputed period was alreadv audited by the Department and no query was raised. However. I find that the Show Cause Notice was issued on 10.09.2018 for the disputed period from April 2014 to March 201 7. The wrong availment as discussed in the subject SCN was detected during the Audit, conducted for the period from 1st April 2014 to 31M March 2017. Against the contention of the assessee, I find that a query memo was issued, vide f. No. VI/i(b)-2 18/C-lV/Audit/AP-28/Ahmd/l 1-18 dated 28.03.2018, with a direction to reverse the excess credit availed on the sendees used for UNITS, remaining unsold as on 25.01.20 I 7. The asscssee failed to pay back the excess credit and issue was raised as audit objection vide Para 5 of the Final Audit Report vide FAR No. 2083/2017-18* service lax dated 29.06.2018. issued by the Assistant Commissioner, Circle - IV. CGS I Audit. Ahmedabad. This very same detection resulted into issuance of the subject SCN.

I find that paia nos. 1 l.l. 14. 15. 16 and 17 of the SCN explicitly discuss about the grounds for invoking extended period. In respect of construction activities, which are taxable as 'declared services', the most important event, most relevant to Cenvat credit, is that an aclivitx ceases to be a non service and eventually becomes taxable and eligible for Cenvat credit, as soon as a UNIT (involving the construction activity) is advance booked/sold but only prior to issuance of completion certificate. The other event is that an activity ceases to have anv option i.e. loses all chances to cease to be a non service and eventually turns out to be merely immovable property and renders itself to remain non service FOREVER, as soon as a completion certificate, is issued, in respect of UNITS (involving ihc construction activity) not yet advance booked or sold.

27.

27.1

27.2 Here, 1 find that no such information or intimation in respect of the advance booking or selling of constructed UNI IS and availmenl of credit on advance booked UNITS or any excess availmem on non advance booked UNITS OR the fact of receipt of completion certificate and the quantity and volume of activity in the form of UNITS or area remaining unsold unbooked as on the date of receipt of BU permission, involving reversal of credit if any availed on these UNITS and the data of reversal quantified have never been disclosed by the assessec with the department. Therefore, I hold that the fact of disproportionate (excess) credit availed by the assessee, as alleged in the SCN. were never disclosed to the Department and left out to be detected till the audit in the present case, culminating in the present SCN.

27.3 I find that the said asscssce had suppressed these facts from the Department with intent to illegally avail and utilise the Cenvat Credit which was ineligible by the virtue of Rule 3(1) of the Cenvat Credit Rules read with definitions under Rule 2(7) and 2(p) of Cenval Credit Rules. 2004 and explanations under Rule 6(3) of the Cenvat Credit Rules. 2004. The said assessce has wrongly taken Cenvat Credit of tax paid on various services, disproportionate to those used in the constructions of flats/UNITs, advance bookcd/sold prior to obtaining BU permission, inasmuch as they are neither the provider of output service nor are these services (proportionate to the jlats/UNITs. NOT advance hooked/sold prior to obtaining Bid permission) used for

61

providing taxable service and exempted service, and the procedures to be followed under the provisions of Rule 6(3) of the CCR. 2004 when failed to maintain separate records for taxable and exempted services and also not taken into cognizance the Rule 2(1) of Cenvat Credit Rules, 2004 pertains to "input service".

26.30 I conclusively hold that it is not the fact that upon receipt of completion certificate for the projects, the output activity of sale of residential UNITS becomes'non-service as mistakenly construed under the provisions of Section 65B of the Finance Act, by the said appellant, but the tact, in respect of activities of construction of UNITS remaining unsold/unbooked as on the date of is spa nee of completion certificate, is that actually output excluded from the definition of 'service under clause (44). ibid. It is not the sale of residential units, which attracts service lax. Actually, it is construction activity involved therein, which attracts service tax, only in a condition, of ADVANCE

tivitx of sale of residential UNITS was alreadyac

BOOKING prior to COMPLETION.

26.31is NON SERVICE in absence of ADVANCE BOOKING prior to COMPLETION. Such NON SERVICE activity remains NON SERVICE even after COMPLETION, in a case, where NO ADVANCE BOOKING had taken place, in respect of remaining un-booked UNITS, prior to COMPLETION and as a residt REMAINED ‘non service’ FOREVER, /or the first reason, because before issuance of completion certificate, they are not advance booked/sold and remain excluded from the definition of ‘declared service’ by virtue of exclusion under clause fb) of Sec. 66E of the Finance Act, 1994 and for the second, because after issuance of completion certificate, whether sold or not, they again remain excluded as immovable property’ from the definition of'service' by virtue of exclusion clause (a)(i) under clause (44) of Sec. 65B of the Finance Act. 1994.

The output activity of construction of a UNIT being carried out by builders

26.32take Cenvat credit, in respect of such UNITS for which no consideration had been received prior to issuance of BU permission and as such they are not entitled to take Cenvat credit of the services used for construction of such UNITS for which the entire consideration has been received after issuance of BU permission or not sold at all. Secondly the services used for providing an activity not falling under the definition of output service, shall not be held eligible 'input service* and no credit of tax paid on such services shall be available, in terms of the provisions of Rule 3(1) of the Cenvat: Credit. Rules. 2004 read with Explanation III ; Explanation 2 under sub-rule (3) of Rule 6 of Cer ^at Credit Rules. 2004, and the delmitions accorded to the terms used therein. Therefore, I hold that the assessec has wrongly taken the Cenvat credit on services used for construction of UNITS for which no consideration has been received prior to issuance of BU permission.

26.33their scheme 'SUMEL-9' by the competent authority. The assessee carried out output activity for total saleable built-up area of. 1,34,118 SQ FT., out of which, an area of 22,991 SQ FT. (17.14%). only had been advance booked or sold prior to this and was considered by the assessee as provision of output service and remaining area of 1,11,127 SQ FT. (82.86%) remained unsold at the time the BU permission was received and was kept out of 'declared service' and resultantly out of 'output service'. Therefore the Cenvat credit amounting to Rs. 72,42,657/-. availed and utilized for the part of the

Accordingly, the assessee does not qualify as a person who is entitled to

I find that BU permission was obtained by the assessce on 25.01.2017 for

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&

may not be applied, without understanding it but it has to be properly analyzed, with reference to the facts and circumstances of a particular case, honouring judicial hierarchy.

26.28 I find that the only reason behind the adverse judgment by the CESTAT in the case of M/s Alembic Ltd, supra, is that neither the fact, as to theactivity! of construction of UNITs. that remain unsoUl/unhooked as on the date of issuance of completion certificate, of being non service forever (because not only after issuance of completion certificate but also before it. these UNITS always missed to find place under the definition of 'service ') was raised in the said SCN issued to M/s Aiembie Ltd, NOR the fallacious argument {the main culprit for refund of ineligible credit in that case, next to non raising of dispute u/r 3(1) for the concerned period at the time of issuance ofSCN), put forth by the Ld. Counsel for the appellants, as observed atpara 6 of the CESTAT order, supra, that upon receipt of completion certificate for the projects, the output activity of sale of residential UNITS becomes ‘non-service ’ as per provisions of Section 65B of the Finance Act. 1994. was duly objected by the Revenue side at the appellate forum. The relevant text of Para 6 of the CESTAT order, supra, are reproduced as under for case of refcrencc:-

[6. We find some merits in the submission made by the Ld. Counsel for the appellants thatcertificate for the projects, the output activity of sale of residential UNITS becomes "non-service" as per provisions of Section 65B of theFinance Act. 1994

That upon receipt of completion

■]

26.29order granting relief, without taking cognizance of the provisions of the Rule d(l) of Cenvat Credit Rules, 2004 on admissibility of Cenvat credit, on the basis of fallacious argument of the appellant that output activity of sale of residential UNITS becomes ‘non-service’ as per provisions of Section 65B of the Finance Act. 1994. upon receipt of completion certificate for the projects, against the factual position that non­booking/non-sale of the part of output activity was also 'non-service', till receipt of completion certificate for the project, as also it remained 'non service ’ AFTER receipt of completion certificate for the project, forever, was not raised before the Hon’ble High Court, while filing Appeal, as evident from para 1 of the order dated 12.04.2019 [20I9(29)GSTL 625(Gitj)l, in R/Tax Appeal no. 140 of 2019, of which the relevant text is reproduced as under for ease of referenee:-

I also find that substantial question of law, on the issue of CESTAT

[Revenue has filed this appeal under Section 35G of the Central Excise Act, 1944 read with Section 174(2) of the Central Goods and Services Tax Act, 2017 raising the following question of law stated to be substantial question of law from Final Order No. 12229-12232/2018. dated 23-10-2018 rendered in Appeal No. ST/I0018/20I8 passed by the Customs. Excise and Service Tax Appellate Tribunal (CESTAT). Western Zona/ Bench. Ahmedabad ("the Tribunal "for short):

‘‘Whether the Final Order passed by CESTAT can be said to be an order passed in accordance with law wherein the Tribunal has granted relief without taking cognizance of (he provisions of the Ride 6(1) of Cenvat Credit Rules. 2004 on admissibility of Canvat credit. Rule 6(2) of Cenvat Credit Rules, 2004 regarding maintenance of separate records for

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the said order, M/s Alembic I.Id had already duly intimated the fact of receipt of completion certificate, to the Revenue, along with their intention that they shall be availing only proportionate Cenvat credit on input services received by them after obtaining completion eerlilieate. on basis of square feel area, which suffered the levy of Sendee Tax. However, no such information or intimation of the fact of receipt of completion certificate, was ever furnished to the Revenue, but Revenue itself, at the time of Audit, came through the fact that the asscssec had obtained the completion certificate on 25.01.2017 for their scheme *SUMEL-9‘ by the competent authority and out of total built-up area of 1,34,118 SQ. FT., an area of 22,991 SQ FT. (17.14%). only had been advance booked or sold prior to this and an area of 1,11,127 SQ FT. (82.86%) remained unsold at the time the BU permission was received. Result of which, is this SCN.

It is in the backdrop of this finding dial the show cause notice in question,in the instant case, alleges that the assessec has wrongly taken and utilized Cenvat credA in respect of the services (which did nol fall under the definiiion of input service, as explained hereinabove) used for construction of those UNITS for which the entire consideration has been received or is receivable alter issuance of BU permission (which did not fall under the definition of output service, as explained hereinabove). In other words, the present show cause notice alleges that the asscssee is found to be not qualifying as a person who is eligible to lake Cenvat credit and the services procured by the assessee are not found to be eligible input services in terms of the provisions of Rule 3(1) of the Cenvat Credit Rules. 2004 read with explanation III / Explanation 2 under sub-rule (3) of R.ule 6 of Cenvat Credit Rules. 2004, and the definitions accorded to the terms used therein.

26.25

26.26 In a nutshell, the present show cause notice alleges wrong taking of Cenvat credit and seeks to disallow such wrongly taken Cenval credit for violation of Rule 3(1) of the Cenvat Credit Rules. 2004. whereas, the case of M/s Alembic Ltd. sought to recover an amount equivalent to a fixed percentage of value of the exempted services in view of the provisions of Rule 6(3)(i) of the Cenvat Credit Rules. 2004. The present show cause notice does not enter into the realm of Rule 6(3)(i) of the Cenvat Credit Rules, 2004, to demand an amount as fixed percentage of the value of non taxable activity. Thus. 1 find that the matter under consideration in the case of M/s Alembic Ltd. vvas totally on a different footing than the facts of the case at hand and as such the ratio ofthe said case law is not applicable to the instant case

26.27reference to dispute of availmem of Cenvat credit under Rile 3(1) of Cenvat Credit Rules, 2004. where credit of tax paid on services used in the construction of UNITS remained unbooked/unsold as on the date of BU permission was received, did not address the issue whether the revenue authorities ought to have raised separate and specific demand, for such amounts for the input services availed during the period tillobtaining completion certificate. Whereas, this very same is the core issue of the present SCN. Present SCN disputes very availment of Cenvat credit under Rule 3(1) of the Cenvat Credit Rules, 2004. It totally deals with a situation where the assessee has availed ineligible Cenvat credit under Rule 3( 1) of Cenvat Credit Rules, 2004, of tax paid on services, which have been used in the construction of UNITS that remained unbooked/unsold as on the date of BU permission was received, which do not fall under definition of ‘output service'. The services thus used were nol falling under the definition of‘input services*, therefore the credit availed is ineligible. Therefore. I find that the Question raised in the present SCN was no! the subject matter ol adiudicarion in respectof the said SCN to M/s Alembic Ltd. Aim decision taken by the Hoifble superior authorities, on an SCN with different grounds and for a different period/situation/issue,

I find that the CESTAT, as observed at para 25 of its order, with

58

ft

not addressing the issue of bona fide belief and the demand being time- barred in light of the same.]

26.21 The above text, at paras 1.5. 2.9. 4, 20 and para 25. clearly indicates that the Revenue had sought to recover, an amount equal to 6%/8%/10%o of the value of UNIT sold after obtaining Completion certificate, under Rule 6{3)(i) of the Cenvat Credit Rules. 2004 and no demand was raised at all for the period prior to obtaining completion certificate and the availment under Rule 3(1) was not disputed but the dispute was limited to whether the appellants were required to reverse any portion of the Cenvat credit availed by them after receipt of completion certificate for the projects. Secondly, as observed ai para 1.3. 1.5 and para 2.1. ground of raising the demand has been narrated as. 'the appellants were engaged in providing taxable as well as exempt services and had not maintained separate records in respect of the Cenvat credit taken'. Thirdly, it is observed, at para 1.3. 1.5 and para 2.1. that the demand was confirmed by the department under Rule 6(3)(i) of the Cenvai Credit Rules. 2004. for an amount equal to 6%/8%/I0% of the value of UNIT sold after obtaining Completion certificate, however M/s Alembic Ltd. had already reversed proportionate credit under due intimation of the fact of receipt of completion certificate, that they shall be availing only proportionate Cenvai credit on input services received by them after obtaining completion certificate. on basis of square feet area, which suffered the levy of Service Tax.

26.22that the impugned show cause notice does not dwell on the premises that the assessee was engaged in providing taxable as well as exempt services and had not maintained separate accounts in respect of the Cenvai credit taken, alter receipt of completion certificate. The entire show cause notice in question, nowhere states that the assessee had taken Cenvat credit on common input services used for providing taxable as well as exempted services. The present show cause does not seek to demand an amount equivalent to 6%/7% of the value of the UNIT sold after obtaining Completion certificate, under Rule 6(3)(i) of the Cenvat Credit Rules, 2004. There is no charge in the show cause notice to the effect that the assessee had violated the provisions of Rule 6(3 )(i) of the Cenvat Credit Rules, 2004. as is the case of M/s Alembic Ltd., supra.

Whereas, a brief comparison of the facts under the case at hand reveals

26.23cause notice disputes very availment of Cenvai credit under Rule 3(1) of the Cenvat Credit Rules, 2004. It totally deals with a situation where the assessee is found to be not qualifying as a person who is eligible to take Cenvat credit and the services procured by the assessee are not found to be eligible input services in terms of the provisions of Rule 3(1) of the Cenvat Credit Rules. 2004 read with Explanation III / Explanation 2 under sub-rule (3) of Rule 6 of Cenvai Credit Rules. 2004, and the definitions accorded to the terms used therein, in respect of the non taxable activity i.c. the UNITS, no pre­booked and no consideration for sale of w hich hud been received prior to issuance of BU permission. The present SCN covers the whole period, when credit of taxes paid on services used for the activities of construction of UNITS in the complex, have been utilised, which includes the period prior to obtaining completion certificate as well. WhereaSy as observed in para 4. 20 and para 25 of the CESTAT decision, supra, in respect of the SCN to M/s Alembic Ltd., no demand was raised at all for the period prior to obtaining completion certificate.

Contrary to the said SCN to M/s Alembic Lid. supra, the present show

26.24M/s Alembic Ltd. supra, on the count that as observed by CESTAT at para 1.3 and 2.1 of

The facts of the present show cause notice also differed from said SCN to

57

whereas no credit will he availed in respect of the percentage of property (on square foot basis) which was converted into immovable property and for which no advance was ever received bv them at all.]

[2.9 As regards the refund issue, it was argued that in the eventuality the main demand itself does not survive, the refund will ipso facto become applicable. It was argued by the appellants that even otherwise, since no show cause notice is issued for the period from 2010-2011 to 2014-2015 at all qua such proportionate reversal made by the appellant, seeking to appropriate the amounts paid under protest, the Revenue authorities have 110 right to retain the same and d has to be diih' returnecUrefunded to the appellants forthwith. The appellants relied upon various case laws in support, of this contention.]

[4. We have carefully considered the submissions made by both the. sides and perused the records. We find that the appellants had availed Cenvat credit in the course of constructing the real estate projects developed by them, in terms'of Rule 3 of the Cenvat Credit Rules. 2004. There is no dispute on such availment of credit in the present proceedings. The dispute is limited to whether the appellants are required to reverse any portion of the Cenvat credit availed bv them after receipt of completion certificate for the projects, since thereafter, they will not be discharging Service Tax liability on properties sold thereafter, where no advance was received prior to receipt of completion certificate at all. The appellants however, (were) paying Service Tax in case of properties which were not yet sold hy way of sale deed even after obtaining completion certificate, however where advances were received for such properties prior to the date of obtaining such completion certificate.]

[20. It has been rightly pointed out hy the Ld. Counsel for the appellants that in case of '‘demand of 8%/10%" confirmed vide the impugned orders involved in the present bunch of appeals, the period considered was only after receipt of completion certificate and even penalties are imposed as such. That no demand has been raised under Rule 6 or Rule 14 of the CCR. 2004 for period prior to obtaining completion certificate at all while, the appellants had reversed Cenvat credit under protest based on CERA objection, for the period 2010 till obtaining completion certificate on the basis that such input services cannot he wholly said to be used for providing 100% taxable output service.]

[25. Since we have already reached to the above conclusion, we are not addressing the issue whether the Revenue authorities ought to have raised separate and specific demand under Rule 6 read with Rule 14 of the CCR, 2004 for such amounts paid under protest for the input services availed during the period 2010 till obtaining completion certificate. We are also

56

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Rules, 2004, instead of proportionate credit already reversed., {under due intimation of the fact of receipt of completion certificate, that they shall be availing onlyproportionate Cenvat credit on input services received by them after obtainingcompletion certificate, or basis of .square feet area, which suffered the lew of ServiceTax), by M/s Alembic Ltd, during the period after obtaining completion certificate. alleging that they provided taxable as well as exempted services using common input services and did not maintain separate accounts.

26.20reversal (payback) of Cenvat credit availed under Rule 3(1) prior to obtaining completioncertificate and such availment was even not disputed BUT the dispute was limited to whether the appellants were required to reverse any portion of the Cenvat credit, availed by them after receipt of completion certificate for the projects, as is evident from the observation at para 1.3, para 1.5. para 2.1. para 2.9. para 4, para 20 and para 25 of theCESTAT decision [2019 (28) GSTL 71 (Tri-Ahmd)J. in the same case of M/s Alembic Ltd, vide Final Order Nos. A/12229-12232/2018-WZB/A1 ID. dated 23-10-2018 in Appeal Nos. ST/11475-11476 & 10017-10018/2018-DB. (which has been upheld by the Hon’ble High Court of Gujarat, vide its order dated 12.04.2019, supra [2019(29)GSTL 625(Guj)], in R/Tax Appeal no. 140 of 2019). of which the relevant text is reproduced as under for ease of reference:-

Importantly, the Revenue, in the SCN to M/s Alembic Ltd, did not seek

[1.3 The appellants had given due intimation to jurisdictional Service Tax authorities after receipt oj completion certificate that they shall be availing only proportionate Cenvat credit on input services received by them after obtaining completion certificate, on basis of square feet area basis, which suffered the levy of Service Tax as compared to the area which was converted into immovable property and on which no Service Tax would be paid.]

[1.5 That while such amounts were paid under protest and no SCN was issued by Revenue authorities in this regard, the appellants had sought refund thereof. Subsequent thereto, the Revenue authorities issued separate SCNs, demanding 6%/8%/I0% amount of sale of immovable property after obtaining completion certificate where no Service Tax was paid by the appellant, on the ground that they had availed Cenvat credit and provided taxable as well as exempt services (sale of immovable property), and they had no/ maintained separate accounts. The amounts paid under protest for input services received during the period 2010 till obtaining completion certificate, viz. Rs. 1.17.68,904/- (in case of M/s. Alembic) and Rs. 65.30,867/- (in case of M/s. Shreno). were also sought to be appropriated againsi such demands. Such demand were confirmed against the appellants under Rule 6 of OCR. 2004, vide the impugned orders passed by the Ld. Commissioner, f

[2.1 It was further argued that both the appellants had duly informed the Revenue Authorities in writing, at the time of receiving completion certificate, whereby they had informed that since completion certificate was obtained for the project, they shall he availing credit only in respect of the percentage of property on which service tax was paid (on square foot basis)

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booked/unsold inventory as on the dale of completion, were only 'mere immovable property' and were always a NON SKRVIC1Z. Availmcnl of CENVAT Credit of tax paid on services used for a NON SERVICE ACTIVITY, even prior to obtaining BU permission, was always restricted, as clearly explained in Explanation 111/2, under sub­rule (3) of Rule 6 of Cenval Credit Rules. 2004,

26.17entire project would result in double benefit and unjust enrichment of the builders at the cost of exchequer. Therefore, the exchequer would not be allowed to be defrauded of its legitimate dues in so far as it relates to availnicnt of the Cenvat Credit, of the duties and tax paid on input or services used in the construction of UNITs/flats remaining unsold/unbooked as on the date of Completion/B.U. Certificate is obtained. It should NOT be allowed to the asscssce and should be restricted to the true spirit of Rule 3 (1) and Explanation HI / Explanation 2 under sub-rule (3) of Rule 6 of Cenvat Credit Rules. 2004, ibid. In such a scenario, il credit for the non taxable activity is also allowed, neither the input services bear the burden of tax, nor, any Servi' e Tax is paid on the output activity. This cannot be countenanced by law. Therefore, Cenvat Credit wrongly availed in excess of the entitlement is required to be reversed under the provisions of Rule 14 of the Cenval Credit Rules.

1 find that permitting the Cenvat Credit of all the services used for the

I find that the issue on hand relates to use of said ineligible input services for providing non taxable activities. Explanation HI / Explanation 2, as discussed hereinabove, is inserted under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004 to explain the true spirit of ‘CENVAT Credit Scheme' as to mitigating cascading effect of tax on tax. by way of set off of the tax borne by input, or input services, as ‘CENVAT credit', while taxing the output goods or services, clearly meaning that no Cenvat credit needs be set off if either the input goods or activity has not borne the harden of tax or the output goods or activity does not attract tax. Rule 3(1) itself and clarification vide Explanation HI / Explanation 2 under sub-rule (3) of Rule 6 of Cenvat Credit Rules. 2004. and the definitions accorded to the terms used therein, already elaborately clarifythe situation, as discussed hereinabove, to raise the demand legitimately. It is trite law that in terms of Rule 3(1) of the CCR. 2004. Cenvat Credit of Service Tax paid on input services used to provide output service, is eligible, which means that there must be a nexus of input service to the output service. iMissina of any link would automatically render such credit ineligible.

26.18

26.19[2019 (28) GSTL 71 (Tri. Alwt.)J, wherein a similar issue was raised before the Hon’ble CESTAT. Ahmedabad about requirement of reversal of CENVAT Credit after completion certificate and the Hon'ble C'ES i AT. Ahmedabad. held that the assessee is eligible to claim full CENVAT credit for the period where the output services were taxable at 100% rate and the same is not required to reversed alter the completion certificate. The assessee has also contended that the aforesaid decision was challenged by the Department before the Hon'ble Gujarat High Court 12019 (29) G.S.T.L. 625 (Guj.)f which was dismissed and the Order as passed by the CESTAT, Ahmedabad, was upheld by the Hon'ble Gujarat High Court. In this regard, I find that the factual matrix of grounds and period of demand in the said SCN to M/s Alembic Ltd and the present SCN at hand is entirely different. In the case of M/s Alembic Ltd, the Revenuewas seeking payment of an amount as a fixed percentage of the sale value of nontaxable activity (i.e. sale of immovable property), being sold after obtaining completion certificate, in terms of the provisions of Rule 6(3)(i) of the Cenvat Credit

The assessec has further contended that in the case o\'M/s. Atembic Limited

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26.15received prior to the date of BU Permission and the CBNVAT Credit on input services in respective project was availed for the period prior to the date of BU permission and therefore, they rightly availed the CENVAT Credit. However, as already elaborated hereinabove, I find that the assessec has not utilised the disputed input services for providing output services but for mere immovable property. Rule 2(/), ibid, clearly defines that the services utilised for providing output services only are eligible input services. The wordings of Rule 3(1) read with Rule 2(/) of the Rules, clearly indicate that it is not only the receipt of input services but also the use of these services for providing output services which makes these services eligible for availing Cenvat credit of tax paid on them. The output activities in relation to un-booked UNITS were NON SERVICE not only after the issuance of BU permission but also prior to issuance of BU permission and therefore were OUT of purview of OUTPUT SERVICE. Therefore services used for NON SERVICE activities were not INPUT SERVICES. Explanation III/2, under sub-rule (3) of Rule 6 of Cenvat Credit Rules. 2004. explicitly explains that No Cenvat credit shall be taken on the dutv or tax paid on anv goods and services thatare not inputs or input services. It is a fact that SERVICE is not goods or immovable property but ACTIVITY of construction involved therein, provided or agreed to be provided, against Advance Booking, prior to completion. Upon completion, there remain no services pending to be provided. After completion, no services can be brought into existence for provision of service. Therefore the un-booked/unsold inventory as on the date of completion, were only 'mere immovable property'’ and were always a NON SERVICE. Availmenl of CENVAT Credit of lax paid on services used for a NON SERVICE ACTIVITY, even prior to obtaining BU permission, was always restiicted, as clearly explained in Explanation 111/2. under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2Q04.

The assessee has also further submitted thal the input services were

26.16OCR, 2004 read with Rule 6 and Rule 11 of the said Rules will suggest that eligibility/entillemenl to credit has to be examined only at the lime of receipt of input service and once it is found to be availed at a lime when output service is wholly taxable, and the said credit 'is availed legitimately, the same cannot be denied and/or recovered unless specific machinery provisions are made in this regard and even if one assumed sale of immovable properly after completion certificate to be "‘exempt service”, even then there is no legal requirement to reverse any credit availed on "‘input services” in the past {prior to obtaining completion certificate) at all. However, as already elaborated hereinabove. I find thal ihc assessce has not utilised the disputed input services for providing output services but for mere immovable property. Rule 2(7), ibid, clearly defines that the services utilised for providing output services. only are eligible input services. The wordings of Rule 3(1) read with Rule 2(/) of the Rules, clearly indicate that it is not only the receipt of input services but also the use of these services for providing output services, which makes these services eligible for availing Cenvat credit of tax paid on them. The output activities in relation to un-booked UNITS were NON SERVICE not onl\ after the issuance of BU permission but also prior to issuance of BU permission and therefore were alw ays OUT of purview7 of OUTPUT SERVICE. Therefore se.vices used for NON SERVICE activities were not INPUT SERVICES. Explanation 111/2. under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004, explicitly explains that No Cenvat credit shall be taken on the dutv or tax paid on any goods and services that are not inputs or input services. It is a fact that SERVICE is not goods or immovable properl}' but ACTIVITY of construction involved therein, provided or agreed to be provided, against Advance Booking, prior to completion. Upon completion, there remain no services pending to be provided. After completion, no services can be brought into existence for provision of service. Therefore the un-

The assessee has contended that a harmonious reading of Rule 3 of the

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stated in the plain language, as observed by Constitution Bench of Hon'ble Supreme Court in the case of Mathuram Agramil K State of Madhya Pradesh 1(1999) 8 SCC 667]. However, as already elaborated hereinabove. I find that the output activity of construction of un-booked UNI IS in a complex or building was always a NON SERVICE, as excluded from the purview of definition of'service' and 'declared service’. Therefore, what is not service, cannot he considered as ‘output service’ eligible for availing Cenvat credit of tax paid on services utilised for such output activity, in view of the definition of output service under clause (/;) and the definition of input service under clause (!) under Rule 2 of the Rules and Explanation II1/2 under Rule 6(3) of the Rules. Therefore, I hold that Rule 3(1) read with Explanation III / Explanation 2 under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004, and the definitions accorded to the terms used therein, when applied in its true spirit of CenvatCredit Scheme, provide clear authority lo

(excess) availmeni under Cenvat Credit Rules. 2004. There are a plethora of judicial pronoimcements that when a certain Credit is not required to be availed, but availed, upon reversal of the same, it shall tantamount to fulfillment of the condition of non-availment.

demand for reversal of disproportionate

26.13 The assessee has further submitted that it is a settled legal position including the view of the Hon'hie Apex Court that the credit availed during the period when the finished goods manufactured are dutiablc/output service provided is taxable, the same is not require to be reversed in the future when such goods become non dutiable/such services become non-laxable. However, as already elaborated hereinabove, I find that the issue in the present SCN docs npt__pcj-tain to Cenvat credit availed services utilised for providing taxable services, being exempted later on, as contended by the assessee. The issue in the present SCN pertains to Cenvat credit availed on services. NOT utilised for providing OUTPUT SERVICES. Therefore, it is a case of ineligible, input services exclusively used in NON SERVICE activity, in contravention of Rule 3(1) read with definitions under Rule 2(1) and.2(p) and Explanation 111/2 under Rule 6(3) of the Rules. The reversal as demanded, under Rule 14 of the Rules, in the subject SCN is. just being asked for UN-DOING (PAY BACK) the wrong availment of credit, at the first hand, in view of.Rulc 3( I) of the Cenvat Credit Rules. 2004.

on

The assessee has also submitted that situation of non-taxability of units sold after B.U. permission is similar to "remission" being granted under Central Excise laws, wherein the finished goods will not attract Central Excise duty and still it was held that the credit cannot be denied to the assessee even when duty will not be paid on the finished goods since there was no specific provision prohibiting such credit entitlement to the assessee. However, as already elaborated hereinabove. I have held that the PROVISION OF SERVICE, is not similar to MANUFACTURE OF GOODS. Even in a case ol remission, the CENVAT credit taken on the inputs and input services is required to be reversed, as provided under sub-rule (5C) of Rule 3 of the Rules. The relevant text of the same reads as under:-

6.14

[(5C) Where on any goods nutnufactured or produced by an assessee, the payment oj duty is- ordered to he remitted■ under rule 21 ofi the Central Excise Rules. 2002, the- CENVAT credit taken on the inputs used in the manufacture or production of said goods and the CENVAT credit taken on input services used in or in relation to. the manufacture or production of said goods shall be reversed.]

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The assessee has further contended that Rule 11(4) of CENVAT Credit Rules 2004 provides that the provider of output service shall be required to pay an amount equivalent to CENVAT Credit if any taken by him in respect of input received for providing taxable services and is King in stock or contained in taxable sendee pending to be provided when he opts for exemption from payment of Service tax levied on such taxable service under notification issues section 93 of the Finance Act 1.994 and accordingly, Rule 11 is applicable only to the inputs and not to input services. However, as already elaborated hereinabove. ! find that the issue in the present SCN dees, not pertain to Cenvat credit availed on services utilised for providing taxable services, being exempted later on. as contended by the assessce. The issue in the present SCN pertains to Cenvat credit availed on services NOT utilised lor providing OUTPUT SERVICES. Therefore, it is a case of ineligible input services exclusively used in NON SERVICE activity, in contravention of Rule 3(1) read with definitions under Rule 2(1) and 2(p) and Explanation III/2 under Rule 6(3) of the Rules. The reversal as demanded in the subject SCN is just being asked for UN-DOING (PAY BACK) the wrong availment of credit, at the first hand, in view of Rule 3( 1) of the Cenvat Credit Rules. 2004.

26.9

The asscssee has also contended that Rule 14 of CENVA1 Credit Rules26.102004 deal with recovery of CENVAT Credit wrongly taken or erroneously refunded and none of the other provisions cast responsibility upon the provider of output service for reversal of Cenvat credh legitimately availed in accordance with the provisions of CENVAT Credit Rules 2004. Hovvevc*r. as already elaborated hereinabove, I find thatthe issue in the present SCN pertains to Cenvat credit availed on services NOT utilised for providing OUTPUT SERVICES. Therefore, it is a case of ineligible input services exclusively used in NON SERVICE activity, in contravention of Rule 3(1) read with definitions under Rule 2(1) and 2(p) and Explanation 111/2 under Rule 6(3) of the Rules. The reversal as demanded, under Rule 14 of the Rules, in the subject SCN is just being asked for UN-DOING (PAY BACK) the wrong availment of credit, at the first hand, in view of Rule 3(1) of the Cenval Credit Rules. 2004.

26.11 The assessee has also further contended that Rule 3(1) does not restrict the availment of CENVAT Credit used for providing the taxable output service at the time of a.vailment of such service and if the intention of the legislature is to restrict the provider of output service from avaiiment of such Cenvat credit, the legislature would have provided with clear wording under the provisions of CENVAT credit Rules. However, as already elaborated hereinabove. I find that the output activity of construction of un­booked UNITS in a complex or building was ahvavs a NON SERVICE. Therefore, what is not service, cannot be considered as ‘output service’ eligible for availing Cenvat credit of tax paid on services utilised for such output activity, in view of the definition of output service under clause (/;) and the definition of input service under clause (/) under Rule 2 of the Rules. Rule 3( 1) read with Rule 2(/), ibid, provides that a provider of output service can take CENVAT credit of lax paid on input services used for providing output service. Explanation 111/2 under Rule 6(3) of the Rules, explicitly explains that No Cenvat credit shall be taken on the duly or tax paid on anv goods and services that are not inputs or innut services.

26.12 The assessee has submitted that it is a settled law that tax cannot be levied merely by inferences or presumption and words cannot be added or substituted so as to give a particular meaning. The asscssee has also submitted that the intention of the legislature in a taxation statute is to he gathered from the language of the provisions particularly where the language is plain and unambiguous and in a taxing Act it is not possible to assume any intention or governing purpose of the state more than what is

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providing taxable services and have complied with the conditions enumerated under Rule 4 and 6 of CENVAT Credit Rules 2004. However, as already elaborated hereinabove, I find that the un-booked/unsold inventory as on the date of completion, were only ‘mere immovable properly' and were always a NON SERVICE and NO service tax is paid on such NON SERVICE, Activities. As vividly discussed hereinabove, the assessee has failed to comply with Rule 3(1) and Rule 4(7) read with definitions under clauses (/) and {p) under Rule 2 of the Rules and failed to comply with Explanation III/2, under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004 and availed ineligible credit of tax paid on services NOT utilised for providing output services of construction of advanced booked UNITS but utilised in respect of UNITS not advance booked, forming NON SERVICE activities of MERE IMMOVABLE PROPERTY.

The assessee lias also further submitted that on conjoint reading of Rule4(7) and Rule 6 of CENVAT Credit Rules, it is revealed that the service provider can avail Cenvat credit of Service tax paid on input services used for providing; taxable services and they have complied with both the conditions prescribed under Rule 4(7) read with Rule 6(1). and therefore they have rightly availed Cenvat credit. However, as already elaborated hereinabove. I find that the un-booked/imsoid inventory as on the date of completion, were only 'mere immovable property and were always a NON SERVICE and NO service tax is paid on such NON SERVICE Activities. The subject show cause notice also pertains only to the question of excess (disproportionate) Cenvat credit, availed by the assessee on services, used for the activities of construction of UNITS, in the complex, which were NOT advance booked till the time of obtaining BU permission, i.e. completion certificate, and were NOT subject to service tax, at the output stage. It is a matter of fact that the asscssec has not paid service tax on the remaining UNITS not booked prior to completion of construction, apparently for the reason believed by the assessee themselves that // did not involve Service '. A NON SERVICE activity can NOT be an OUTPUT SERVICE. Therefore services used for NON SERVICE activities were not INPUT SERVICES. Explanation III. later re-numbered as Explanation 2. under sub-rule (3) of Rule 6 of Cenvat Credit Rules. 2004. explicitly explains that No Cenvat credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services As vividly discussed hereinabove, the assessee has failed to comph with Rule 3(1) and Rule 4(7) read with definitions under clauses (/) and (p) under Rule 2 of the Rules and failed to eompK with Explanation III/2, under sub-rule (3) of Rule 6 of Cenval Credit Rules.' 2004 and availed ineligible credit of tax paid on services NOT utilised for providing output services of construction of advanced booked UNITS but utilised in respect of UNITS not advance booked, forming NON SERVICE activities of MERE IMMOVABLE PROPERTY.

26.7

The assessee has contended that Rule 6(3) read with Rule 6(3A) deals with the requirement of reversal of CENVAT Credit in a situation where the output service provider provides exempted and non-cxemptecl services but during the construction period of the relevant projects, they were providing taxable services only and therefore, reversal under Rule 6(3) is not applicable to the present case. However, as already elaborated hereinabove. I find that the issue in the present SCN pertains to Cenvat credit availed on services NOT utilised for providing OUTPUT SERVICES. Therefore, it is a case of ineligible input services exclusively used in NON SERVICE activity, in contravention of Rule 3(1) read with definitions under Rule 2(/) and 2{p) and Explanation II1/2 under Rule 6(3) of the Rules. The reversal as demanded in the subject SCN is not as being asked for reversal of credit validly a\ ailed on common input or input services asenvisaged under Rule 6(3)(i) of Cenval Credii Rules. 2004 but it is just being asked forUN-DOING (PAY BACK) the wrong availment o( credit, at the first hand, in view of Rule 3(1) of the Cenval Credit Rules. 2004.

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reversal of CENVAT Credit on account of units remaining unsold at the time of B.U. permission. However, as already elaborated hereinabove. I fine! that Rule 4(7) allows taking credit only on eligible input services and NOT on ineligible input services. When Credit is not eligible at the firs! hand, it is required to be reversed under Rule 14 of the Rules.

26.4 The assessee has submitted that Rule 6(1) of CENVAT Credit Rules 2004 provides that the CENVAT Credit shall not be allowed for provision of exempted services and only upon receipt of completion certificate for the projects, the output activity of sale of units is considered as exempt services as per Explanation 3 to Rule 6(1) which was introduced w.e.f. 01.04.2016 vide Notification No. 13/2016-CE (NT) dated 01.03.2016. However, as already elaborated hereinabove. I find that it is not the sale of UNITS, what attracts service lax for being 'provision of services Actually, it is construction activity involved therein, provided or agreed to be provided prior to completion, i.e. Advance Booking, while under construction, only, is the subject matter of‘provision of service'. The output activity of construction of UNITS in a complex or building for "mere immovable properly' was always a NON SERVICE. Therefore, what is not service, cannot be considered as 'output service’ eligible for availing Cenvat credit of tax paid on services utilised for such output activity, in view of the definition of output service under clause {p) and the definition of input service snder clause (if) under Rule 2 of the Rides. Rule 3( 1) read with Rule 2(1). ibid, provides that a provider of output service can take CRN VA f credit of tax paid on input services used for prpyidjng output service. Explanation III. inserted w.e.f. 01.04.2011, vide notification no. 3/2011-C.E. (N.T.), dated 1-3-201 i. under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004, explicitly explains that No Cenvat credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services.

26.5 The assessee has further submitted that upon insertion of the said explanation, if a registered person has provided the activity of sale of residential units, post completion certificate, during a tax period, he is not eligible to claim CENVAT Credit of tax paid during the said tax period and accordingly, the restriction on availment of CENVAT Credit as per Rule 6( 1) is only in respect of the Service tax paid during the tax period in wnich the said exempted service is provided, but in their case the CENVAT Credit was availed by them only prior to obtaining BU permission for which the impugned SCN is issued. However, as already elaborated hereinabove, I find that Rule 3(1) read with Rule 2(1). ibid, provides that a provider of output service can take CENVAT credit of tax paid on input services used..lor..providina..output..service. Explanation III/2, under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004, explicitly explains that No Cenvat credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services. It is a fact that SERVICE is not goods or immovable property but ACTIVITY of construction involved therein, provided or agreed to be provided, against Advance Booking, prior to completion. Upon completion, there remain no services pending to be provided. After completion, no services can be brought into existence for provision of service. Therefore the un-booked/unsold inventory as on the date of completion, were only 'mere immovable property’ and were always a NON SERVICE. Availment of CENVAT Credit of tax paid on services used for a NON SERVICE ACTIVITY, even prior to obtaining BU permission, was always restricted, as clearly explained in Explanation 111/2, under sub-rule (3) of Rule 6 of Cenvat CreditRules, 2004.

The assessee has also submitted that they have been paying Service tax on construction service in terms of declared services as provided under Section 66E(b) of the Act and availed Cenval credit of Semcc lax paid on input services when they were

26.6

49

5=service’. Instead, the assessce failed to disclose even the (act, of obtaining Completion Certificate, when he would have been sure that no output activity were left to be provided, which would ever come under the definition of‘output service’. Therefore,, I hold that the said assessce had suppressed these facts from the Department to illegally avail the Cenvat Credit, which was ineligible by virtue of Rule 3(1) of the Cenvat Credit Rules read with definitions under Rule 2U) and 2{p) of Cenvat Credit Rules. 2004 and Explanation Ill / Explanation 2 ibid under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004.

26. After having amply discussed all the issues coming in the way, I undoubtedly hold that the asscssee has wrongly availed Cenvat credit of tax paid on services which were not input services and the output activity also was not output service and assessee was not provider of output services, in respect of sale of ready built UNITS in the complex. Now, 1 would proceed to examine the contentions of the assessee in this regard.

26.1 The asscssee has contended that the CENVAT Credit was taken during the construction period of the respective prqjccl and at the time of availing the disputed input services, they were rendering taxable output services and liable to pay Service Tax and therefore, they have correctly availed CENVAT Credit on the disputed input services. However, as already elaborated hereinabove. I find that the asscssee has not utilised thedisputed input services for providing output services but for mere immovable property. Rule 2(1), ibid, clearly defines that the services utilised for providing output services only are eligible input services. The wordings of Rule 3(1) read with Rule 2(1) of the Rules, clearly indicate that it is not only the receipt of input services but also the use of these services for providing output services, which makes these services eligible for availing Cenvat credit of tax paid on them. The output activities involved in un-booked UNITS {constituting the 82.86%) of the total output activity as being NON SERVICE, was not output service, as admitted by the assessee himself. It is a fact that the activities involved in these tin-booked UNITS, (in absence of advance hooking) were NONSERVICE at the time of receipt of inward services, for utilising in these NONSERVICE output activities. The same UNITS remained out of purview of serviceupon receipt of completion certificate and remained NON SERVICE for ever andfailed to find place under OUTPUT SERVICES. Therefore services used for NON SERVICE activities were not INPUT SERVICES. Explanation III. inserted w.e.f. 01.04.201 1, vide notification no. 3/201 1-C.H. (N.T.). dated 1-3-201 1, under sub-rule (3) of Rule 6 of Cenval Credit Rules. 2004. explicitly explains that No Cenvat credit shall be taken on the duty or tax paid on anv eoods and services that are not inputs or inputservices.

The assessee has further contended that it is an undisputed fact that construction of complex, building, civil structure intended for sale to the buyer is chargeable to Service Tax if the entire or part of consideration is received before issuance of completion certificate by the competent authority in terms of the provisions of Section 66E of the Finance Act. 1994. However, as already elaborated hereinabove, I find that it is also an undisputed fact that the output activity of construction ol'a complex or building or a part (UNIT) thereof. NOT provided or agreed to be provided prior to completion, i.e. NO Advance Booking, while under construction, is NOT the subject matter of ‘provision of sendee’ BUT was always a NON SERVICE- and MERE IMMOVABLE PROPERTY.

26.2

The assessee has also contended thai they have complied with the26.3provisions of Rule 4(7) of the CENVAT Credit Rules. 2004 at the time of avahment of CENVAT Credit on input services and Rule 4(7) nowhere specifies the requirement of

48

CONSTRUCTION, such output activities of construction by builders shall not oualify to be ‘output service’, in respect of that UNIT. As the output activity will turn out to be ‘output service’ upon advance hooking of a UNIT (i.e. part of the output activity) before BU Permission, limited to that UNIT only. Therefore, for that part only, the assessee would become eligible to claim Cenvat credit because, then he becomes provider of output service and the services utilised therein become eligible to be ‘input services’ for the reason of being utilised for 'providing output service'.

I also find that the major services received, like, masonry work, plaster25.11.1work, flooring, tiling, glazing, electrification, plumbing, colouring, wood work and interior designing etc. are directly related to a UNIT under construction. Therefore, ineligibility of services received and utilised exclusively in un-booked UNITS is well within the knowledge of the assessee. liven in respect of other services attributable to ‘output services’, it would be established perfectly at the time of receipt of completion certificate as to what quantity or volume has been utilised for providing the output services. Because, as on the date of issuance of completion certificate, there would remain no services to be provided, so there would be no addition to the volume of output services. Also, all activities of construction would have reached the completion, therefore, there would be no new receipts of inward services, after completion. As. upon completion, all remaining UNITS un-bookcd/unsold as on date of completion, the output activity will culminate into mere immovable property and will remain, to that extent, out of the purview of ‘output service*/brever. Therefore, in relation to such UNITS, theassessee would not be eligible to avail credit on ineligible input services used not for‘P^oy.WingputpiiUseryic.y.

25.12all the services utilized for construction of all parts of the whole project/building {irrespective of the fact that some of die services were not eligible input, services), with a plea that they have to avail the Cenvat credit in respect of input service, on or after the day of receipt of the invoice or bilk but within one year of the date of issue of invoice or bill, in view of the fifth proviso under sub-rule (7) of Rule 4 of the Rules. However, I find that Rule 4(7) allows taking credit only on eligible input services and NOT on ineligible input services. The relevant provision under Rule 4(7) of the Rules, reproduced as under:-

It is also observed that the assessee had taken Cenvat Credit in respect of

[(7) The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received :

25.12.1 Even the assessees had taken Cenvat Credit in respect of all the services utilized for construction of all parts of the whole projccl/building {irrespective of the fact that some of the services were not eligible input services), under the influence that they will advance book or sell all UNITS before Completion, i.e issuance of BU Permission, But at least at the time of obtaining ''Completion Certificate”, the assessee would be well aware of the eligibility of'input services' as to having been used for the activity that had fallen under the definition of 'output service' and about the remaining ineligible ‘input services’ as to having been used for the activity that has not fallen under the definition of ‘output service’.

25.13of service tax, then at least at the time of obtaining the BU Permission, the should have paid back the ineligible availment of Cenvat Credit of the tax paid services used for the UNITS, construction activity of which would not constitute ‘output

I find that if Ahc.M^!Ssee,Jiad jio majaiide jntentipn.to.eyade the paymentassessee

on

47

t-

To provide or to agree to provide a service can come into existence only when the second parly at the other end comes into existence, to whom service is provided or agreed to be provided. In absence of a recipient of service to whom the service is to be provided or agreed to be provided, existence of provision of service can even not be imagined. Therefore it is of utmost necessity for provision of service to have a recipient of service. Therefore, the output activities related to only UNITS advance booked prior to completion, can form part of service provision. On COMPLETION, unbooked UNITS will only become part of inventory, as MERE IMMOVABLE PROPERTY and will not attract service tax provisions. After completion of a UNIT, no service can exist to be provided as the completed UNIT had ahead}- finishcd/completcd as ready built UNIT being immovable property at the time of issuance of completion certificate.

25.7

25.8 In other words, for the UNITS not advance booked till completion, no service could be provided. In absence of an 'output service neither the service tax laws can be applied to demand service tax. nor die. CVnycp credit lUdcs can be taken shelter of by..fhe assessce....lbr a\}ajJ.ing .Cc!iyai. C AL.UA..Pf id...Qn.. serviccs used, for mereimmovable properly. Therefore, I hold that the activity for 'mere immovable property’ is not an ‘output service' and any service used for mere immovable property cannot find place under the definition of ‘input service '. In view of this. I conclusively hold that the activity in relation to any part of a complex or building for 'mere immovable properly' was never a service and would never be able to be a service. Therefore any theory put forth by the assessee. in relation to their activities related to mere immovable property, that their activities were services before issuance of BU Permission and are becoming non service on completion OR that their activities were taxable services and are becoming non-taxable at the lime of issuance of completion certificate, is purely vague, misguiding and illegal.

In view of the above. I come to the conclusion that the output activity, in above case, shall be considered as 'service', to the extent of each part being advance booked/sold, exclusively and independently, before issuance of completion certificate. The words ‘output service', 'input service’, 'recipient of service', 'provider of service’ and 'provider of output services' shall be construed in respect of each UNIT or part, independently, being advance booked/sold, fetching their respective meanings from the word, ‘service’ as elaborately discussed and analyzed hereinabove.

25.9

25.10 It is also pleaded by the assesscc that at the time of incurring expenses or availing services, it is not known whether the 'output activity', in which such services arebeing used, will turn out to be 'output service' or not. till issuance of BU Permission. However, I find that although, the output activities of construction by builders, either falling under DECLARED SERVICES or ending in MERE IMMOVABLE PROPERTY, appear similar, but it is the event of ADVANCE BOOKING prior to COMPLETION, that makes all the difference. As already elaborated in foregoing paras, output activities of construction by builders, against ADVANCE BOOKING prior to COMPLETION, while a UNIT is UNDER CONSTRUC TION, attracts provisions under clause (b), ibid, to be ‘declared service". In absence of ADVANCE BOOKING prior to COMPLETION, while a UNIT is UNDER CONSTRUCTION, such output activities of construction by builders shall not qualify to be 'declared service' but would end in MERE IMMOVABLE PROPERTY.

I further find that the advajw.wbp.O.ki.O.E.SHUk'.S .O.ff‘..U.Nl"l...i?..U.VX?iys.known25.1 1to the assessee. Therefore, it is always under the knowledge of the assessee that in absence of ADVANCE BOOKING prior to COMPLETION, while a UNIT is LINDER

46

srl/Z

makes it a ‘service’. It is the event of Advance Booking, for such construction, that would make it fall under the definition of 'service’.

25.4 Output services arc always provided against an order or demand, unlike manufacturing of the final products, which can be manufactured or produced even without instant orders or demand. In absence of order, the manufacturing activity will create stock of final products, but in absence of order, output services can even NOT be initiated, i.e. very provision of service will not come into existence. In other words, in absence of order, there has emerged no recipient of services, therefore no provision of service could be initiated, in respect of a UNIT, till advance booking of it. before completion. Therefore, for providing output service, there must necessarily be arecipient of service. Advance booking of a UNIT involves construction activity provided to buyer. But buying a ready built UNIT involves NO service provision. The construction shall be part of immovable property, upon completion, which cannot be sold as activity of construction but only as an immovable property excluded from ‘service’. Therefore, till a UNIT is not advance booked before completion, resulting in j-tockvillns, construction involved therein cannot be called an 'output service' BUT*mere immovable property. It is not the sale of a UNIT, which attracts service tax. Actually, it is construction activity involved therein, which attracts service tax.Further the existence of construction activity alone would not. make it a 'service’. It is the event of Advance Booking prior to completion, for such construction, that would make it fall under the definition of ‘service'.

25.5 With specific reference to Rule 3(1) read with Rule 2(1) of Cenvat Credit Rules, 2004, I find that the Cenvat credit of tax paid on input services in respect of manufacturer of final products is allowed for manufacturing or producing final products, not necessary to be cleared for final supply and can be stocked. Whereas, Cenvat credit of tax paid on input services in respect of provider of output services is allowed for providing an output service. It is a fact that the service being provided cannot be stocked. Provision of service will begin only against an order, so provision of service' will either be ‘in-progress' and remain pending to be finally provided OR the service would have been finally provided. There will be no situation as to completion of service vet not provided but stocked. Therefore, in the case of builders, the part, which is not stocked on completion but had been advance booked prior to completion for sale, the activity related thereto, can be called to be provided to a recipient and the same is only declared to be ‘service' BUT the pan. which is stocked on completion and not provided, i.e. not advance booked prior to completion for sale, is merely an immovableproperty’.

The output activities relating to remaining unsold UNITS not yet auvance booked for sale, prior to BU Permission, will never be able to be declared as ‘service’ under clause (b) of Section 66E //;/<:/. That what could not be 'declared service’ was only an immovable property and on completion, it would turn out to remain ‘merely an immovable property’/brerer. Rendering ‘mere immovable property’, for non existing customer is not same as providing a service. 'Mere Immovable Property’ shall ONLY be part of inventory for the builder. Bui the provision of service can come into existence only when it is provided or agreed to he provided. A SERVICE is an ACTIVITY and ACTIVITY cannot he STORliP for FUTURE SALE. Therefore, construction of UNITS against advance booking is ‘provision of service’ to the extent of construction activities involved therein BUT once completed, no construction services would be provided to future buyers. Therefore activity of construction is declared service to the extent of advance booking prior to completion only.

25.6

45

individual part, till completion of the related transaction., it is considered as ‘service’ for that part individually and independently and resultanily becomes 'taxable service’, to that extent only.

Such activity is considered as 'service', because it is intended forMyth (7).sale.

Clarification: No. it is not so. Before advance booking, such activity remains to be non service till advance booking. The intention to do an act can be established only by doing it In absence ofanv of the documents, entered into between the assesses and the buyer, namely, the TOKEN RECEIPT or BANAKHAT or VECIIANKHAT or SALE DEED, in respect of the whole or part of property, i.c UNIT or UNITS, in the complex, prior to COMPLETION, it can only be inferred that there exists no complex or building or a part thereof, intended for sale. II such a document is prepared lor some parts, i.e. UNITS, in a complex or building, it will mean that the subject complex or building is not intended for sale to a buver as a whole, hut specific parts of a complex or building is intended for sale to a buyer. Therefore, before advance booking/sales, wholly or partly, ttte intention of sale, wholly or partly, cannot he proved. The event of sale/booking of a part (ITsJIT) of the whole activity (a complex) will prove the intention of sale of that part only.

Such activity is considered 'service', as a whole, even if only apart of it, is advance booked or sold prior to issuance of completion certificate.

Clarification: No. it is not so. Only part of the activity, that is advance booked or sold prior to issuance of completion certificate, can be considered as 'service’. The activity related to remaining part shall continue to remain to be 'non service' till advance booking of each part. Only after advance booking till completion of the transaction, independently, in respect of each part, only to the extent of the part which is being advance booked or being sold, such activity is considered as ‘service’. If the whole is being advance booked, then only, such activity for the whole shall be considered as 'service'. The words 'wholly or partly’ used in clause (b) of Section 66E of the Finance Act, 1994, shall play their role, to mean that an advance booking hanakhat for sale of a part will be considered as declared service limbed to that ‘part' of whole activity and an advance hooking hanakhat for sale of the whole will he considered as declared service for the 'whole ’ activity, independent of each other. So, each part when advance booked/sold before COMPLETION, shall be independently considered as ‘service’ limited to that part, till the transaction involved therein completes.

Myth (8).

Having come through above fallacious or half true myths, it will be appropriate to make efforts to find out the root cause behind these fallacies. I find that the assessee makes a misguiding plea by confusing to equate the providing of output services by builders with that o\' manujaciuring oi final products. Unlike manufacturing final products, provision of output services cannot he slocked as inventory. Provision of services, is not the same as supply of tangible goods that can be stored for future use. Services are not goods or property but ACTIVITY. Activity is the matter of providing, not the matter of stocking of production. That what is being stocked by buildets after completion is 'mere immovable property’ {kept our of purview of ‘service;) and cannot be equated with 'providing of output services’. It is not the case, that there comes an exemption in between on issuance of completion certificate. This isthe case, where ‘provision of service' has even not been initiated in absence of the ADVANCE BOOKING prior to COMPLETION. As A!ready_dis^the. foregoing .paras,_ ex_istSUlt^._rtf _'J:^S;liAvtlL.iU'_ ^^i'.V.Lc-c-L.-'A._a_n _css_en tial._el_eme_nt_._fpr‘provision of service'. Actually, it is not the existence of construction activity alone that

25.3

• A ’ •

44

4

•S'4

to COIVIPLETION, will never be able to be declared as ’service' under clause (b) of Section 66E ibid, and will render 'mere immovable property^ forever.

Such activity is wholly taxable at the time of construction, till obtaining BU permission, on the ground that after receipt of completion certificate, the property would become immovable property and in case of future sale thereof, no service tax would be payable.

Clarification: No, it is not so. Before advance booking, such activity remains to be non service till advance booking, prior to COMPLETION, i.e. BU permission. So, it remains out of tax net, in respect of each individual part (UNIT), till its advance booking prior to BU permission. Only after advance booking of a UNIT till completion of the transaction, such activity is considered as 'service' and becomes taxable, to the extent ofthe part (UNIT) being advance booked, oniv. The fact that after receipt of completion certificate, the property would become immovable property is also HALF TRUE. Actually, the fact is that after receipt of completion certificate, the property would, NOT become but would ONLY remain, ’mere immovable property', as already explained hereinabove. The fact that after receipt of completion certificate, the property would only remain, ‘mere immovable property ', and in case of future sale thereof no service tax would be payable, is not a valid ground to hold that whole activity shall be considered as wholly taxable at the time of construction, till obtaining BU permission. To re­iterate, I hold that it will not be wholly taxable unconditionally but it will be taxable to the extent of part (UNIT) of the whole complex, on the condition of being, sold/advancebooked prior to COMPLETION. Actually, it is not the existence of construction activity alone that makes it a "service’. It is the event of Advance Booking, for such construction, which would make it fall under the definition of ‘service’.

Myth (3).

Such activity is wholly taxable at the time of construction, till obtaining BU permission, but the sale after completion certificate does not attract service tax because of the fact of exclusion of consideration as a whole received after BU

Myth (4).

permission.Clarification: No. it is not so. Before advance booking, such activity remains to

be non service till advance booking, prior to COMPLETION. So, it remains out of tax net, in respect of each individual part (UNIT), till its advance booking prior to COMPLETION i.e. BU permission. Only after advance booking of a UNIT, till completion of the transaction related thereto, such activity is considered as 'service’ andbecomes taxable, to the extent of the pan (UNIT) being advance booked. Aftercompletion certificate, although constructed before it. the activity related to each unsold UNIT will continue to remain 'non service' due to above exclusion and therefore will not be liable to tax. Issuance of BU permission does NOT grant any exemption from tax. It is NOT Ihe event that brings the activity out of tax net, but makes the relevant activity to continue to remain ‘non service' FOREVER and makes it lose all options to ever come under tax net for good and all.

Myth (5). Such activity becomes ’non-service5, upon receipt of completioncertificate,

Clarification: No. it is not so. Such activity not becomes but still remains ‘non­service’, as it was before receipt of completion certificate, in the cases of each part (UNIT) of the activity not yet advance booked or sold.

Myth (6).receipt of completion certificate.

Clarification: No. it is not so. Before advance hooking, such activity remains to be non service till advance booking of each UNIT. Only after advance booking of an

Such activitx as a whole is considered as ’taxable service' before

43

*

therein, in absence of advance booking, does not fall under ‘declared service’, the construction activity involved therein will be ‘mere immovable property’. That what could not find place in 'declared service*, will always remain as ‘mere immovable property’; ant!

I conclusively hold (hat it is not the sale of a 'mere immovable property’, which attracts service tax. Actually, it is construction activity involved therein, which attracts service tax. Further the existence of'construction activity alone would not make it a ‘service*. It is the event of Advance Booking, for such construction, that would make it fall under the definition of'service’.

(iii)

Based upon the above conclusions, now. I come to the fallacious myths, tamed by the assessces. in respect of the activity of ‘construction of complex or a or building intended for sale to a buyer', (hereinafter in this para referred to as 'such activity / one by one and clarify with reasons in respect of each of them, as follows;-

25.2

Such activity is considered as 'service* till receipt of completionMyth (1).certificate.

Clarification: No. it is not so. Before advance booking, such activity remains to be ‘non service’ in relation to a UNIT, till advance booking of that unit, prior to BU permission. Only after advance booking, till completion of the transaction, related to the UNIT advance booked, such activity is considered as. 'service', limited to the extent of the UNIT advance booked, only. In absence of a BOOKING TOKUN RECEIPT or a BANAKHAT or any other such document, the intention for sale, as a whole or in part, is NOT established. Therefore, such activity related to UNITS, remaining unsold, as on the date of COMPLETION, is not service. That what could not find place in ‘declared service*, will always remain as ‘mere immovable property’. It is not the sale of a UNIT, which attracts service tax. Actually, it is construction activity involved therein, which attracts service tax. Further the existence of construction activity alone would not make it a 'service'. It is the event of Advance Booking, for such construction, that would make it fall under the definition of'service*.

Myth (2). After receipt of completion certificate, the property would become immovable property, not subject to service tax.

Clarification: No. it is not so. 'Flic fact that after receipt of completion cerdficate, the property would become immovable property is F1A1.F TRUK. Actually sale of land along with a constructed UNIT on land, is a transaction of an immovable property at every stage. But in case of builders, ^ho book UNITS in advance, while under construction, prior to COMPLF.TION of construction, for sale and then carry out the construction activity related to pre-booked UNI f and then after COMPLETION, enter into sale deed and give possession of the advance booked UNIT and thus complete the provision of service of construction, such construction activity, carried out for the recipient, is the subject matter of taxation under service lax as 'declared service’. Thus, the advance booking/sale of a UNIT prior to COMPLETION, is also a transaction of immovable property, in common parlance, but by mischief of clause (hj of Section 66Eibid, such advance booking/sale, of a UNIT prior to COMPLETION, has been brought out of the purview of a transaction of immovable property ami it has been brought under the definition of‘declared service' liable for service tax. Thus, the fact is that after receipt of completion certificate, the property would. NOT become but would ONLY remain, ‘MERE IMMOVABLE PROPERTY as il was be tore receipt of completion certificate.

The output activities relating to remaining UNKIS. nol yet advance booked for sale, prior

42

- A

4“r

24.10.3ILLEGAL TO CONSTUUE th:U in the event of receipt of completion certificate for the projects, the output activity of sale of residential UNITS becomes ‘non-service* as per provisions of Section 65Bofthe Finance Act, 1994.

Therefore, I hold that the argument of the assessee is extremely

24.10.4of UNITS remaining unsold/unbooked, upon COMPLETION, i.e. as on the date of issuance of completion certificate, no event (in absence of advance booking) takes place cither as to such activity ceasing to be 'non service' and eventually becoming ‘service’and coming under tax net or as to such activity ceasing to be ‘service' and eventuallybecoming 'non service' and comma out of tax net. Actually, when such activity in relation to a UNIT, never comes under tax net, then there arises no question of ever coming out of tax net at all, as argued by the assessees. Rightly put in plain Hindi, jab hoi activity tax net me kabhi ati hi nahi he to tax net se bahar nikalne ka sawai hi nahin ayega.

Therefore, I conclusively hold that in respect of activities of construction

Here, I feel that it is necessary to discuss with regard to some of the fallacies, tamed by the assessees. in respect of the activity oF'construction of complex or a or building intended for sale to a buyer, wholly or partly', i.e. the activities or a part of activities, which may becomes taxable, subject to fulfillment of two important conditions. The conditions are that first, the activity (as a whole or a part (hereof) is advance booked for sale or is sold, and second, the completion certificate is not received before such advance booking or sale. Now. let me refer the relevant provision under clause (b) of Section 66E of the Finance Act, 1994. once again, as reproduced as under:-

[Section 66E. Declared Services. - The following shall constitute declared services, namely :—

25.

(a)(b) construction of a complex, building, civil structure or a part thereof including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.

On the basis of the above provisions of clause (b) of Section 66E of the Act. supra, relevant in the present case. I have reached to the following conclusions:-25.1

(i) 1 find that by virtue of the words, ‘wholly or partlyused in clause (b), supra, activity' related to each part, i.e. individual separately identifiable UNIT, will attract treatment, individually and independently, to fall in the definition of ‘declared service*, as and when each such individual separately identifiable UNIT, is advance booked for sale:

(ii) I find that by virtue of the words, 'except where the entire consideration is received after issuance oj' completion-certificate by the competent autnority ’ used as exclusion in clause (b). supra, activity related to each part. i.e. individual separately identifiable UNIT, will attract treatment, individually and independently, to fall in the definition of 'declared service5, as and when each such unit, is advance booked for sale, while under construction, prior to COMPLETION, i.e. issuance of BU Permission. Therefore each such transaction for sale of a UNIT would need to be evaluated as to whether theactivity related thereto, is advance booked, prior to completion and would fallunder ‘declared service* or not. In the case, where a transaction of sale, of an individual separately identifiable UNIT, involving construction activity

41

The other event is COMPI.KTION i.e. issuance of completion certificate, when the output activities of construction by builders would come to AN END. No output activities of construction by builders, would then remain to become ‘declared service5. All activities, in relation to the un-booked UNITS would end in ‘MERE IMMOVABLE PROPERTY' to always remain NON SERVICE, forever.

24.7

Therefore, in absence of advance booking, while under construction, prior to completion, the output activities, remain, NON SERVICE, and not fit to be considered as OUTPUT SERVICE. A service used NOT for providing output service is NOT an ‘INPUT SERVICE1. Rule 3(1), ibid, allowed credit of input services only. Explanation III / Explanation 2, ibid, explicitly clarified that No Cenvot credit shall be taken on the duty or lax paid on any goods and services that are not inputs or input services.

24.8

In view of the above, I conclusively hold that the assessee CANNOT be allowed ANY Cenvat credit of the tax paid on any services that had been used for MERE IMMOVABLE PROPERTY, not falling under the definition of OUTPUT SERVICES.

24.9

In respect of the argument of the assessee that in the event, of receipt oj24.10completion certificate for the projects, the output activity of sale of residential UNITS becomes ‘non-service ’ as per provisions oj Section 658 of the Finance Act, 1994, I find that it is & fallacious mis-understanding of the law. and a myth tamed by the assessees. Actually output activity of sale of residential UNITS was already excluded from thedefinition of 'service under clause (44), ibid. It is not the sale of residential units, which attracts service tax. Actually, it is construction activity involved therein, which attracts service tax, only in a condition, of ADVANCE BOOKING prior toCOMPLETION. The output activity of construction of a UNIT being carried out by builders is NON SERVICE in absence of ADVANCE BOOKING prior to COMPLETION. Such NON SERVICE activity remains NON SERVICE even after COMPLETION, in a case, where NO ADVANCE BOOKING had taken place, in respect of remaining un-booked UNITS, prior to COMPLETION.

Therefore, in the event of receipt of completion certificate for the projects, there comes no effective change of status of the output activity of construction by builders in respect of a UNIT, after issuance of completion certificate. Because,/hr the first reason, construction of the UNITS, advance hooked or sold prior to it. involved taxable service and would remain so till the completion of the transaction pertaining thereto. And because for the second reason, construction of the UNITS, not yet sold/booked were non service prior to it and would remain so forever.

24.10.1

In view of this, I come to conclusion that the only event that makes change, is the event of ADVANCE BOOKING prior to COMPLETION, which makes all the difference. Upon Advance Booking, prior to Completion, the output activities of construction by builders, while a UNIT is UNDER CONSTRUCTION, attracts provisions under clause (b). ibid, to become 'declared service1, and thus would come out of the purview of NON SERVICE to come under SERVICE. Upon issuance of completion certificate, the change that I can see is that the output activities of construction by builders would come to THE END. No output activities of construction by builders, would then remain to become 'declared service1. All activities, in relation to the un-booked UNITS would end in 'MERE IMMOVABLEPROPERTY' to always remain NON SERVICE, forever.

24.10.2

40

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*

culminate in ‘mere immovable property’. Then, there will be no service involved, no service lax levible and it will just be an output activity for ‘mere immovable property’ and will not be fit to be called 'output service’. Also the services used therein are not eligible ‘input services’, therefore, no Cenvat credit on services used For it. will be available under Rule 3(\) of CenvatCredit Rules. 2004.

24.2 In view of the above, only in the event, the advance booking or selling of UNIT in the complex or building has taken place, while under construction, prior to Issuance of Completion certificate of the complex or building, i.e. COMPLETION, then and then only, it will be a service, so service lax levible and it will be fit to be called‘output service’. Also the services used therein are eligible ‘input services’, therefore, Cenvat credit on input services used for it. will be available under Rule 3(1) of Cenvat Credit Rules, 2004.

Although, the output activities of construction by builders, either falling under DECLARED ^SERVICES or ending in MERE IMMOVABLE PROPERTY^

appear similar, but it is the event of ADVANCE BOOKING prior to COMPLETION, Avhich makes all the difference. As already elaborated in foregoing paras, output activities of construction by builders, against ADVANCE BOOKING prior to COMPLETION, while a UNIT is UNDER CONSTRUCTION, attracts provisions under clause (b), ibid, to be ‘declared service . In absence of ADVANCE BOOKING prior to COMPLETION, while a UNIT is UNDER CONSTRUCTION, such output activities of construction by builders shall not qualify to be ‘declared service’ but end in MERE- IMMOVABLE PROPERTY.

24.3

24.4 Therefore, a developer/builder cannot be said to have provided or agreed to provide such service in respect of an individual flai/unit/shop, till such UNIT is advance booked/sold, while under construction, prior to issuance of BU Permission, i.e. COMPLETION, on full or part payment. This situation exists because non-booking of UNITS, while under construction, before COMPLETION (i. e. receipt of Completion Certificate), ending in ‘mere immovable property’ does not constitute ‘declared service’ to the extent of such non-booked UNITS, in view' of the exclusions in clause(b) of Section 66E ibid.

24.5 Therefore, I conclusively hold that the services used for hAERE IMMOVABLE PROPERTY’, (i.e. used in constructing the UNITS not sold/booked, while under construction, prior to COMPLETION. BUT remained unbooked/unsold as on the date of COMPLETION;, are not eligible 'input services', therefore, no Cenvat credit on services used for ‘mere immovable property’, will be available under Rule 3(1) read with definitions under Rule 2(1) and Rule 2(p) and explanations under Explanation Ill/Explanation 2 to sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004.

24.6 Having analyzed ail the facts of the case. I also come to conclude that in the present case, the most important event, most relevant to Cenvat credit, is the event of‘ADVANCE BOOKING prior to COMPLETION', when an activity ceases to be a non service and eventually becomes SERVICE and eligible for Cenvat credit, as soon as a UNIT [involving the construction activity pending to be carried out) is advance booked/sold but only, while under construction, prior to COMPLETION, i.e. before issuance of completion certificate.

39

%

as provider of output service', but he is just an owner of 'mere immovable property .

24. Having travelled thus far a.s regards the analysis of the facts under dispute, analysis of the relevant provisions of Cenvat Credit Rules. 2004 and taking recourse to the relevant provisions of Chapter V of the Finance Act, 1994, by virtue of clause (t) of Rule 2 of Cenvat Credit Rules. 2004. I come to conclusion that there two important events during the course of activity of 'construction of a complex, building, civil structure or a pari thereof intended for sale to a buyer'. which are:-

occur

(a) Advance Booking : When a UNIT in a complex or building (being constructed or constructed or to he constructed) is advance booked for sale or sold, by way of BOOKING TOKEN RECEIPT or RANAKHAT or VECI1ANKI1AT or SALE DI.ED: and

Completion : When Completion Certificate (Building Use Permission) for the complex or building, constructed, is issued by the competent authority.

(b)

24.1 Based on the happening of the above two events, there may arise four situations, in respect of the activity of 'construction of a complex, building, civil structure or a part thereof intended for sale to a buyer' and accordingly taxability of output activity as well as eligibility of Cenvat credit on services used therein, is ascertained, as under:-

When the event neither of advance booking or selling of UNIT in the complex or building nor of issuance of Completion Certificate of the complex or building, has taken place. Then there will be no service involved, no service lax ievible and it will just be an output activity, culminating in

vable properly\ and will not be fit to be called ‘output serviced Also the services used therein are not eligible ‘input services5, therefore, no Cenvat credit on services used lor it. will he available under Rule 3tU of

(a)

Cenvat Credit Rules. 2004.

When the event of advance booking or selling of UNIT in the complex or building has taken place, but the event of Issuance of Completion Certificate of the complex or building, has not taken place. Then only, it will be a service, so service tax levible and it will be fit to be called ‘output service’. Also the services used therein are eligible ‘input services’, therefore, Cenvat credit on input services used for it, will be available under

(b)

Rule 3(1) of Cenvat Credit Rules. 2004.

When the event of advance booking or selling of UNIT in the complex or building has not taken place, but the event of Issuance of Completion Certificate of the complex or building, has taken place. Then also, the output activit) will culminate in 'mere immovable property’. There will be no service involved, no service tax levible and it will just be an output activity for 'mere immovable property' and will not be III to be called ‘output service'. Also the services used therein arc not eligible 'input services’, therefore, no Cenvat credit on services used for it. will be available under Rule 3( 1) of Cenvat Credit Rules. 2004.

(c)

When'the event of advance booking or selling of UNIT in thecomplex or building has taken place, after the event of Issuance of Completion Certificate of the complex or building, lias taken place. Then also, it will

(d)

38

... *,•

' ^$

Explanation III, inserted w.e.f. 01.04.2011, vide notification no. 3/2011-23.28C.E. (NT.), dated 1-3-201 1, under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004, reads as under:-

[Explanation III. - No Cenvat credit shall he taken on the duty or tax paid on any goods and services that are not inputs or input services.]

Explanation 111, ibid, was rc-numbcred w.e.f. 01.04.2016, vide notification23.29no. 13/2016-C.E. (N.T.), dated 1-3-2016. as Explanation 2 under sub-rule (3) of Rule 6 of Cenvat Credit Rules. 2004, which reads as under:-

[Explanation 2. - No Cenvat credit, shall be taken on the duty or tax paid on any goods and services that are not inputs or input services.]

In the instant case, as elaborated above, the activity of ‘construction of UNITS in the complex which were not advance booked, while under construction, till the time of obtaining Bid permission, i.e. COMPLETION, and rendered to be ‘mere immovable property*, is NOT an 'output service', therefore, any of the said services used for ‘mere immovable property* arc NOT 'input services’ in the true sense of Cenvat Credit Rules, 2004. Further, as per Explanation HI / Explanation 2, ibid. No Cenvat credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services.

23.30

23.31 Therefore, the assessee is not eligible to take Cenvat Credit of tax paid on such services or portion of services, which were utilized in ‘mere immovableproperty, (which, in absence of a recipient, i.e. buyer, due to non Booking in Advance, while under construction, did not constitute 'output service’), in terms of the provisions of Rule 3(1) read with Rule 2(1) and 2( p) of the Cenvat Credit Rules. 2004. The same intent of law has been explicitly expressed vide the Explanation III / Explanation 2 ibid under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004.

23.32take Cenvat Credit of tax paid on such services or portion of such services, utilized in ‘mere immovable property’, in terms of the provisions of Rule 3(1) read with Rule 2(1) and 2(x>) of the Cenvat Credit Rules. 2004 and in terms of Explanation III / Explanation 2 under sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004, for the following reasons:-

In view of the above, I conclusively hold that the assessee is not eligible to

the output activity of ‘construction of UNITS in the complex which were not advance hooked, while under construction, till the time of obtaining BU permission, i.e. COMPLETION, and rendered to be ‘mere immovable property’, is NOT a ‘service’ and resultamly NOT an output service*.

(i)

(ii) the services or portion of services utilized for ‘mere immovable property, (not falling under the -definition of output service) do NOT qualify as‘Input Services’: and

(•ii)utilized for construction of UNITS in the complex which were not advance booked, while under construction, till the time of obtaining BU permission, i.e. COMPLETION, culminating in ’mere immovable property’, does NOT qualify

the person availing the Cenvat credit of tax paid on services

37

»

“5.

&

COMPLETION of conslruciion. i.e till the tune of obtaining L'L! permission. This situation arises when there turns out NO buyer at all in respect oN.ome of the UNITS, before completion of the construction of the complex. Advance Booking Status will be well known to the assessce in respect of each UNIT and the assessee cannot make excuse of ignorance about it.

23.25 The natural corollary to the above analysis when applied to the assessee infers that the output activities, in the cases of the UNIT'S, 'where b was not established to be intended for sale, by accepting advance booking (bana or token) while under CAWSfX.ucflPJ.b prior to COMPLETION', such activities, remained on! of the purview of 'service’. Therefore, in respect of the UNITS, under question, left to be pre-booked (for (he reason of non receipt of any part of consideration prior to issiutnce of completioncertificate), as on the date of completion, die output activities, invol-ed therein, did notqualify to tall under the definition of'output service'. In absence of advance booking prior to completion, there existed NO 'recipient of output service ol construction of the UNITS not so pre-booked. !n.abscnce of hnitpur service’ and in absence of‘recipient of outpuf seryicehrThc assessee eannop bc qipd.i.bed to be considered as ‘provider of P.^^put.se^yice,.

Therefore, the assessce did not qualify as a 'provider of output services’ in respect of the UNIT'S in the complexes for which no consideration had been received prior to issuance ol' BU permission, i.e. no advance booking of such UNITS had been accepted prior to completion. Resultamly. the assessce did not qualify under the class of persons who are eligible for taking Cenval credit in terms of the provisions of Rule 3(1) of the Cenvat Credit Rules. 2004. in respect of the activity related io such un-booked UNITS, left out to find a buyer as on the date of completion. Therefore in absence of the existence of 'output service* and 'recipient of such service’, the assessee is just an owner of 'mere immovable property', not qualifying to be a 'provider of output services’. Therefore. No credit of tax paid on services used for Mere Immovable Property could be availed by the assessec. not being eligible person, in view of Rule 3(1) read with definitions under Rule 2(1) and 2(p) and explanations under Explanation III / 2 under Rule 6(3) of Cenvat Credit Rules. 2004. The'assessee makes an excuse that they have availed credit under the impression that the services received by them would be used in providing taxable services, but Hnalh the services received by the assessee ended in Mere Immovable Property, [not qualifying us output services), under very knowledge of the assessee as to Advance Booking status of the UNIT'S under construction. The assessee even failed to reverse, w hen he came to know of it. at the time of issuance of completion certificate and again w hen the auditors pointed out the excess availment at the time of audit. Explanations under Explanation 111 / 2 under Rule 6(3) of Cenvat Credit Rules, 2004. clarify beyond doubt that No Cenvat credit shall he taken on the duty or tax paid on any goods and services that are not inputs or input services.

23.26

Here, it will be relevant to refer once more to the provisions contained in Rule 3(1) ibid, along with provisions contained in Explanation HI / 2, under Rule 6(3) of the Rules. Rule 3(1) ibid, provides that a provider of output service cam take CENVAT credit of tax paid on input services used for providing output service. Explanation III / 2. under Rule 6(3) of the Rules provides that No Cenvat credit shall be taken on the duiv or tax paid on anv goods and services that arc not inputs or input

23.27

services.

36

4

Accordingly, if the assessec is to be construed as ‘provider of output there ought to inevitably be an 'output service* and a 'recipient of such

23.19serviceservice’. Thus, it needs to be examined w hether, there existed an ‘output service and a ‘recipient of such service1, in respect of each individual separately identifiable UNIT of a complex, for providing the activity, of construction of UNITS in the complex,culminating either in ‘declared service or in ‘mere immovable property5.

In the instant case, it is an undisputed fact that the assessee is engaged in the activity of construction of a complex, which attracts provisions, as specified in clause (b) under Section 66E of the Finance Act. 1994, in respect of 'declared services5 to the extent the consideration of the same (whether in full or in part) is received prior to issuance of completion-certificate by the competent authority. This indicates that the activity of construction of complex is not a service in respect of a UNIT, if it was not advance booked prior to the completion of construction of complex. Thus, upon Completion, in absence of advance booking, such un-booked UNITS, have rendered to be ‘MERE IMMOVABLE PROPERTY’ involving NO provision of service and resultantly being out of the purview of output service. In absence of advance booking of a UNIT, there can come NO existence of 'output service5 and 'recipient of such output service’, in such cases.

23.20

The existence of'output service* and 'recipient of output service5 comes into play only in the event that the output services of 'construction of a complex or building or a part thereof i.e. UNIT' are carried out against Advance Booking, prior to completion, i.e. consideration (wholly or partly) had been received before the issuance- completion certificate. I have already discussed hereinabove, in respect of two alternative methods, either of which may be adopted by a buyer of a UNIT in a complex being constructed by a builder. 1 had come to conclude, that in case of advance booking of a UNIT while under construction, the transaction would fall under ‘declared service’ and in case of purchasing a ready built UNIT after completion of construction, the transaction would fall under ‘mere immovable property’, excluded from the purview of‘declared service*.

23.21

Now, at this juncture, it is natural to have a question as to the status of the a.ssessee in respect of activities of 'construction of a complex or building or a part thereof i.e. UNIT’ are carried out. prior to completion, but such UNITS were not advance booked by any buyer and no consideration had been received by the assessee before issuance of completion certificate.

23.22

The wording used in the phrase under clause (b). ibid, as to ‘construction of a. complex or building intended for sale to a buyer, wholly or partly', clarifies that the transaction may be for the whole complex or building or a part (UNIT) thereof. Therefore, the status, as to 'provider of output service5 has to be established, in respect of each UNIT independently. Accordingly, in respect of UNITS, advance booked, prior to completion, the assessee would be treated as 'provider of output service5. But in respect of UNITS, not advance booked, prior to completion, no service will be involvedand therefore the assessee would not be treated as 'provider of output service5.

23.23

23.24the relevant time for each UNIT. While the Units are under construction, either the buyer may come forward before completion for advance booking of a UNIT or there may turn out NO buyer at all in respect of all or some of the UNITS, before completion of the construction of the complex. The issue under consideration pertains to construction of UNITS in the complex, that were not advance booked, while under construction, prior to

Advance booking of a UNIT is dependent upon the existence of buyer at

35

?

vC

Cenvat Credit Rules.. 2004. clarify beyond doubi that No Cenvat credit shall he taken on the dx jy or tax paid on any poods and services that are not inputs or input services.

23.16 Now, 1 come to the last question, as to whether, the person availing the Cenvat credit of tax paid on services, used in providing the output activity under question, lull under the definition of 'provider of' output services’.

23.16.1Cenvat Credit Rules. 2004 or Chapter V of the finance Act, 1994. Thus, the meaning of the said term has to be construed as per the general laws of linguistic construction. This can be done by vivisecting the said term in two pans viz. 'provided and 'output services'.

The term 'provider of output services' had not been defined in either the

The term 'output service' has been defined under clause (p) of Rule 2 of the Rules, ibid, as any service provided by a provider of service. The term ‘output service’ essentially involves 'service'. It has already been vividly discussed in the foregoing paras about (he output activities of the assessce and it has been held that the activity of 'construction of UNITS in the complex which were not advance booked, while under construction, till the time of obtaining BU permission, i.e. COMPLETION, have ended in ‘MERE IMMOVABLE PROPERTY and the activity rendering ‘mere immovable property ' cannot be held to be ‘output service’, under Cenvat Credit Rules, 2004.

23.16.2

The term 'provider' is to be read in terms of the linguistic construction.23.16.3The word 'provider' is a noun for which the corresponding verb is to ‘provide’. The dictionary meaning of the word 'provide' is to give someone something that they need. Thus the term 'provider' would mean a person who provides something to someone. Thus, in such a transaction for an activity to be provided, there would be a person for whom, the activity has to be carried out and then there would be a provider, who carries out the activity for another.

These same element as to 2 (two) separate parties in the transaction of23.17service are essential ingredients of the definition of the term, ‘service', under clause (44) of Section 65B ibid, {any activity carried, out by a person for another) and of the definition of the term, 'declared service', under clause (22) of Section 65B ibid, {any activity carried out by a person for another person) and of the declaratory provisions under clause (b) of Section 66 K ibid, {a complex or building intended for sale to a buyer).I also find that existence of service receiver has been given even more weightage, in relation to the "declared services* of construction of a complex or building, by the words ‘including a complex or building intended for sale to a buyer' used under clause (b) of Section 66E ibid. Existence of a buyer is pre-condition for establishing intention for sale of a complex or building or a pari of it. WHILE UNDER CONSTRUCTION, for being declared as ’declared service' under clause (b). supra.

Conjoint reading of the above 'legal and linguistic terminology indicates23.18that provider of output service' would mean a person who carries out an activity for someone at his behest and that activity should fall under the definition of output service. The inference that can be drawn from the same is that there must essentially be anoutput service’ and a recipient of such service' for the existence of a provider of

output service. In other words there can be no 'provider' in absence of a ‘service1 and in absence of‘a recipient of service'.

34

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before COMPLETION of a UNIT, such UNIT would remain out of purview of ‘declared service5 and upon completion thereof, it would rather end in MERE IMMOVABLE PROPERTY. Actually, it is not the existence of construction activity7 alone that makes it a ‘service’. It is the event of Advance Booking, for such construction, which would make it fall under the definition of ‘service’.

As already discussed, the term 'output service’ essentially involved23.14.7‘service’. Therefore, what is NOT ’service’, will NOT qualify to be an ‘output service’.The activity of ‘construction of UNITS in the complex which were not advance hooked, while under construction, till the time of obtaining BU permission, i.e. prior to Completion, had ended in 'MERE IMMOVABLE PROPERTY . As already held. Immovable Property7’ is NOT a 'service’ due to being out of the purview of the definition of ‘service’. Therefore, such activity not fit to fall under the definifon of ‘declared sendees’ BUT ending in 'mere immovable property’, cannot be held to be ‘output service’, under Cen>*ai Credit Rules, 2004.

In view of the above, in respect of first question, I hold that such output23.14.8activities, in respect of un-booked UNITS, will remain out of the purview of thedefinition of ‘output services’. Therefore. No credit of tax paid on services used forMere Immovable Property could be availed in view of Rule 3(1) read with definitionsunder Rule 2(1) and 2(p) and explanations under Explanation III 12 under Rule 6(3) ofCenvat Credit Rules. 2004. The assessce makes an excuse that thev have availed credit*under the impression that the services received by them would be used in providing taxable services, but finally the services received by the assessee ended in Mere Immovable Property, {not qualifying as output services), under very knowledge of the assessee as to Advance Booking status of the UNITS under construction. The assessee even failed to reverse, when he came to know of it. at the time of issuance of completion certificate and again when the auditors pointed out the excess availment at the time of audit. Explanations under Explanation ill / 2 under Rule 6(3) of Cenvat Credit Rules, 2004. clarify beyond doubt that No Cenvat credit shall he taken on the duty or tax paid on any goods and services that are not inputs or input services.

Now. 1 come to the second question, regarding eligibility of input services. As per Rule 2(/) of the Rules, ibid, input service is the one which is used for providing an output service. As already elaborated above, the activity under question, rendered to be ‘mere immovable property, has been held not to fall under the definition of‘output service’. Therefore, the services used in such activities, not falling under the definition of output service, will NOT qualify io be 'input services’ in the true sense of Cenvat Credit Rules, 2004.

23.15

In view of the above, in respect of second question, J hold that the23.15.1services, used in ‘mere immovable property, not falling under the definition of output service, will remain out of the purview of the definition of‘input services’. Therefore. No credit of tax paid on services used for Mere Immovable Property could be availed in view of Rule 3(1) read with definitions under Rule 2(1) and 2(p) and explanations under Explanation III / 2 under Rule 6(3) of Cenvat Credit Rules, 2004. The assessee makes an excuse that they have availed credit under the impression that the services received by them would be used in providing taxable services, but finally the services received by the assessee ended in Mere Immovable Property, {not qualifying as output services')} under very knowledge of the assessee as to Advance Booking status of the UNITS underconstruction. The assessee even failed to reverse, when he came to know of it. at the lime of issuance of completion certificate and again when the auditors pointed out the excess availment at the time of audit. Explanations under Explanation 111 / 2 under Rule 6(3) of

33

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$

V

(ii) such transfer, delivery or supply of any poods which is deemed to he a sale within the meaning of clause (29/1} of article 366 of the Constitution; or

(Hi) a transaction in money or actionable claim;]

23.14.2most relevant ones here, are declared services, involvement of 2 parties and exclusion of imm vable property. The term 'declared service', as used in above definition of ‘service’, has been defined in clause (22) of See. 65B of the Finance Act, 1994 as under:

'I hus. the definition of'the term 'service' discusses about the ingredients,

[(22) “declared service " means any activity carried out by a person for another person for consideration and declared as such under section66E;]

23.14.3 Under Section 66H of the Finance Act, 1994, as referred in above definition of‘declared service*, it has been declared, as undcr:-

[Section 66E. Declared Services.declared services, namelv .—

The following shall constitute

(a)(b) construction of a complex, building, civil structure or a part thereof including a complex or budding intended for sale to a buyer, wholly or partly, except where the enti/e consideration is received after issuance of completion-certificate hr the competent authority.

Explanation.(1) the expression "competent authority'’ means the Government or any authority

for the purposes of this clause.—

1

Based upon the definition of‘service5 and 'declared service’ as above and provisions of clause (b). supra and provisions of exclusion clause (a)(i) under the definition o\'~service' as above, relevant to the present case, I have already analyzed the activities carried out by the asscssec vis-a-vis the above said provisions, in foregoing paras and I have held that 'SERVICE' was NOT goods or immovable property BUT an

‘A CTIVITY \ A transfer of title in immovable property was NOT a service BUT activity of construction by builders (related to immovable property, against advance booking) had been declared to constitute 'declared services’, to the extent, provided or agreed to be provided, wholly or parjiy. while under construction, prior to COMPLETION, against Advance Booking.

23.14.4

Analyzing the relevanl phrase, in clause (h). supra, I have held that the23.14.5complex or building may be intended for sale to a buyer, as a whole or in parts. If the complex or building is no! intended for sale as a whole, then, each part, i.e. each ‘UNIT’, will attract treatment, individually and independently, to fall in the definition of ‘declared service', as and when each such, individual separately identifiable UNIT, is intended for sale to a buyer and such intention is established by way of accepting advance booking token or bana under token receipt or banakhat, while the complex or building is under construction, i.e. prior to completion of construction.

i had already come to conclusion in respect of the output activities under23.14.6question with regard to un-booked UNFI’S that in absence of accepting advance booking

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(ii) used by o manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal. J

A conjoint reading of the above two statutes, i.e. Rule 3(1) and Rule ;(1) of the Rules clearly specify as to a 'provider of output service' can claim Cenvat credit of tax paid on ‘input services' used for providing ‘output services’. Therefore, following questions need to be answered to come to conclusion, as to the eligibility of Cenvat credit, under dispute, in the present SCN:-

23.13

whether, the output activity, under question, falls under the definition of ‘output service';

(0

whether the services, used in providing the output activity under question, fall under the definition of‘input services’; and

(ii)

whether, the person availing the Cenvat credit of tax paid on services, used in providing the output activity under question, fall under the definition of‘provider of output services*.

(iii)

Now. 1 first come to the first question. The output activity under question relates to construction of UNITS, in the complex, which were not advance booked, while under construction, prior to COMPLETION of construction, i.e till the t'me of obtaining BUpermission. Thus, such activity had ended only in ‘MERE JMjylQVABLE PROPERTY’. As already discussed hereinabove. Immovable Property had been excluded from the definition of ‘service'. The term 'output service' has been defined in Rule 2(p) of the Rules, as under:

23.14

[(p) “output service” means any service provided by a provider of service located in the taxable territory but shall not include a service, - (J) specif ed in section 66D of the Finance Act; or(2) where the whole of service tax is liable to be paid by the recipient of service.]

As per the above definition, the term ‘output service5 essentially involves ‘service5. The term service' has not been defined in the Cenvat Credit Rules. 2004, but. by virtue of clause (i) of Rule 2 of Cenvai Credit Rules. 2004: which provides that the words and expressions used in these rules and not defined but defined in the Excise Act or the Finance Act shall have the meanings respectively assigned to them in those Acts, recourse has to be taken to the Finance Act. 1994. Clause (44) of Section 65B of the Finance Act. 1994, defines ‘service’, which reads as under:

23.14.1

[(44) “Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

(a) an activity which constitutes merely.—

a transfer of title in goods or immovable properly, by way of sale, gift or in any other manner: or

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*

V

scheme is implemented through Cenviit Credit Rules, in such a way that tax borne by input or input services are given set olT as 'CHNVAT credit' while taxing the output goods or services. Thus, two important features of CCNVAT credit scheme are (i) there should be a tax paid on input or input services involved and (ii) the resultant output goods or services should also be subject to tax. The Ccnvat Credit Rules, 2004, applicable in the instant case, are also devised to give effect to the basic theme of the CENVAT credit scheme, as to giving set off of the tax borne by input or input services, as ‘CENVAT credirh while taxing the output goods or services. Rule 3, Rule 6 and Rule 11 of the Cenvat Credit Rules, 2004, specifically deal with this basic theme.

23.10 The issue under consideration is whether the assessee is eligible to avail Cenvat credit of tax paid on the services used for construction of UNITS in the Complex, which were not advance booked, while tinder construction^ prior tO COMPLETION of construction, Lc till the time of obtaining BU permission. Thus, such inward services ended oniv in 'MERE IMMOVABEE PROPERTY’.

The answer to this question would lie in the analysis of the conditions of eligibility of the Cenvat credit. The core issue to be examined while examining the eligibility criteria of the Cenval credit is limited only to the Cenvat credit availed by the assessee on the services used for ‘mere immovable property'.

23.11

To proceed further, 1 have to ascertain as to who can claim such credit of23.11.1tax paid on what eligible services and for what purpose can such eligible services be used for. Rule 3(1) of the Rules, the most prominent enabling provision, specifies the persons who are eligible to claim Cenvat credit; specifies the nexus of input/input services with output goods/aelivilies. in respeel of which Cenvat credit can be claimed; and specifies the duties, lax and ccss of what credit can be availed. The relevant text of the same is reproduced, as under:

/RULE 3. CENVAT credit.—(1) A manufacturer or producer offinal products or a provider of output service shall he allowed to take credit (hereinafter referred to as the C'ENVAT credit) oj-

(specified duties, tax or cess)

paid on -(i) any input or capital goods received in the factory of manufacture of final product or by the provider of output service on or after the 10th day of September. 2004; andHi) any input service received by the manufacturer affinal product, or by the provider of output services on or after the 10th day of September, 2004, ]

23.12credit of tax paid on input service received by him. As per Rule 2(1) of the Cenvat Credit Rules, 2004, input service is (he one which is used for providing an output service. Clause (1) of Rule 2 defines ‘input service* as umler:-

As per Rule 3(1) ibid, a provider of output service can take CENVAT

[01) “input service " means anv service.

(i) used by a provider of output service for providing an outputservice: or

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LMTS would only end in ‘mere immovable properly’. Therefore, after completion, no services exist or can be brought into existence to be provided, therefore, there arises no question of providing any service after completion of a unit.

Thus, the construction activity carried out by the assessee, in relation to the parts. NOT advance booked: while under construction, prior to COMPLETION, for sale, ending in ‘mere immovable property’ were NOT ‘service’. Following the same view, the assessee had not paid service tax. on their activity, for the parts (units), admeasuring built up area of 1,11,127 SQ FT. {approximately 83% of the whole built up saleable area of 1,34,118 SQ FT.), which were NOT advance booked {for subsequent sale), while under construction, till the lime of obtaining BU permission, i.e. COMPLETION of construction on 25.01.2017 and were rendered as ‘mere immovable property*.

23.4

23.5 1 find that the assessee had availed Ccnval credit of tax. paid on services used for the activities of construction of such UNITS in the complex which were advance booked prior to the time of obtaining BU permission, i.e. while under construction’ amounting to Rs. 14,98,429/-. proportionately attributable to input services used for ‘output services’. Such activities constituted 'declared services' and hence were subject to service tax. as per clause (b) of Section 66E. ibid. Resultantly. such activities were ‘output services', and the services used for providing such output services found place under Unput services'. Therefore. Cenvat credit of tax paid, proportionately attributable to these input services had not been challenged in the subject SCN.

23.6 I also Find that the assessee had availed Cenval credit of tax. proportionately attributable, amounting to Rs. 72,42.657/-, paid on services, NOT used for the activities of construction of such UNITS in the complex which were advance booked prior to the time of obtaining BU permission, BUT were used for output activities, that ended in ‘mere immovable property1. Therefore, the output activities not resulted in output services, and the services used for providing such output activities were not eligible to find place under 'input services'. Thus. I come to the conclusion that the Cenvat credit of tax paid on the services not used in output services but for ‘mere immovable property’ has been rightly challenged in the subject SCN.

1 find that in the subject SCN. the Ccnval credit availed by the assessee on the services used for the activities of construction of'UNITS in the complex which were advance booked till the time of obtaining BU permission, and were subject to service tax. has not been questioned. But the Cenvat credit availed by the assessee on services used for the activities, of construction of UNITS in the complex that were NOT advance booked, while under construction, till the time of obtaining BU permission, i.e. COMPLETION, which rendered to be ‘mere immovable property* and were NOT subject to service tax, has only been questioned in the subject SCN.

I also Find that reversal as demanded in the subject SCN is NOT as being asked for reversal of credit validly availed or any demand of an amount equal to a fixed percentage of the value of don taxable output activity' as envisaged under Rule 6(3) (i) of Cenvat Credit Rules, 2001 BUT it is just being asked for UN-DOING (PA V BACK) the wrong availment of credit, at the first hand, in view of Ride 3(1) read with Rule 2(1) and 2(p) of the Cenvat Credit Rules, 2004 and read with Explanation III/Exptanation 2 under sub-rule (3) of Rule 6 of Cenvat Credit Rates, 2004.

The principle objective of CENVAT credit scheme (formerly known as MODVAT credit scheme) is to mitigate cascading effect of tax on lax. Therefore, the

23.7

23.8

23.9

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