F.NO.STC/4-90/O&A/11-12

Brief Facts of the Case:-

1.1 Intelligence gathered by the Directorate General of Central Excise Intelligence, Zonal unit, Ahmedabad indicated that M/s. Savvy Infrastructure Ltd having registered office at B-900, Shapath - IV, Opp - Karnavati Club, SG Highway, Ahmedabad - 380 051 (herein after referred to as “M/s. SIL” for the sake of brevity) have been hiring services of foreign architect firms for their various projects but service tax is not being paid by them. An inquiry was instituted to ascertain whether M/s. SIL was paying service tax on such services on reverse charge basis under Section 66A of the Finance Act, 1994 or not by issuing letter dated 30-12-2009. 1.2 M/s. SIL vide letter dated 31-12-2009 informed that they have not availed any service from foreign architects firms for their projects. So they were not required to be registered & deposit tax. M/s. SIL have produced copies of sample input service invoices under which services were received for their project Shapath – V vide their letter dated 16-01-2010.

1.3 Examination of the information received and other information sourced, indicated that M/s. SIL has not been paying appropriate service tax in respect of their project Shapath - V. Therefore the scope of investigation was extended further to examine their records. M/s. SIL was summoned to appear on 28-05-2010 along with the details of income generated from construction service and service tax paid during the years 2005-06 to 2009-10.

STATEMENT DATED 23-6-2010 OF SHRI SHREYANS SHAH, CEO:

2.1 Shri Shreyans Shah, CEO of M/s. SIL in his statement dated 23-06-2010 had interalia stated that they had obtained service tax registration No. AACCS14288ST001 in the year 2005 from Service Tax Commissionerate, Ahmedabad under Construction of Complex Service, Works contract service and as a recipient to pay service tax on services rendered by Goods Transport Agency Service; the details of service tax paid during the year 2006-07, 2007-08, and 2008-09 is furnished; Shapath V project is a commercial project initiated by M/s. SIL, on the land owned by M/s. Savvy Realty and Infrastructure Private Limited (M/s. SRIPL); that both M/s. SIL and M/s. SRIPL have signed a joint development agreement in the year 2007-08; that as per the agreement M/s. SIL will develop/construct Shapath V and M/s. SRIPL would sell the units of Shapath V; that entire booking amount for Shapath V- is received in the name of M/s. SRIPL, however at the year ending the entire amount is shown in the account of M/s.SIL; that all payments to the vendors and other services providers at Shapath-V were made by M/s. SIL, and in case there is a shortage of fund then said amount is received by them from M/s. SRIPL as funding in lumpsum; that they have paid service tax on the services provided to the following clients only :-(i) M/s. Shiva Satya Hotels Pvt. Limited;(ii) M/s. Millenium Park Holdings Pvt. Limited;(iii) M/s. Savvy Homes Company;(iv) M/s. Savvy Infrastructure Company.

(i) M/s. Shiva Satya Hotels Pvt. Limited : - M/s Shiva Satya Hotels Pvt. Limited, have given them a contract to construct a hotel in the name of “Crown Plaza” located at Shapath V. Earlier they had purchased land from M/s. Savvy Reality and Infrastructure Pvt. Limited, their subsidiary company in the year 2007-08 for Rs.12 crores. M/s. SIL have 75% stake in M/s. SRIPL. The written agreement to construct hotel building for Rs.148 crore is with M/s. SRIPL. The construction work is being carried out by M/s. SIL.

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(ii) M/s. Millenium Park Holdings Pvt. Limited :- M/s.SIL have provided supervision service for plot developments, in which M/s. SIL advise them for plotting scheme of their residential service. M/s. SIL used to raise monthly bill for Rs.2,50,000/- on which M/s. SIL had discharged service tax. The said unit is their related company.

(iii) M/s. Savvy Homes Company:- It is a partnership firm. To this unit also M/s. SIL had provided supervision services at the rate of Rs.80,000/- per month.

(iv) M/s. Savvy Infrastructure Company:- It is partnership firm, to them also M/s. SIL provided supervision services at the rate of Rs.60,000/- per month.

2.2 He stated that they have no written agreement with these companies mentioned at Sr. No. (ii), (iii) and (iv) above and the service tax was paid under “Construction of Complex Service”; that service tax on the services provided to M/s. Shiva Satya Hotels Pvt. Ltd have been paid under Works Contract Service; that initially they had received payment of Rs.38,00,00,000/ in the month of December, 2007 and later on the payments were received as per the conditions of completion of the contract and due service tax was discharged on the same; that they had not paid service tax on the initial amount of Rs.38 crores, however after initiation of investigation by DGCEI, the service tax of Rs.76,69,998/- along with interest of Rs.24 lakhs had been paid on 18-06-2010, and accordingly they are also going to file a revised ST-3 return; that they have paid service tax of Rs.88,00,306/- (through cash payment of Rs.31,30,456/- and through CENVAT credit account of Rs.56,69,850/-).

3. DETAILS OF AGREEMENTS ENTERED FOR SHAPATH-V:- 3.1 It is noticed that M/s. SIL has been developing their project in the name of Shapath-V after entering into development agreement with Shri Empire State Shops Offices and Premises Co-operative Housing Society Limited (herein after referred to as “the Society”). Therefore copies of development agreement entered in this regard were called for and the extracts of the agreements are discussed herein below.

3.2 AGREEMENT DATED 29-11-2006 BETWEEN THE SOCIETY, M/S. GOYAL & COMPANY AND M/S. DEEP INFRASTRUCTURE PVT. LTD.:

As per this agreement, contracting parties have agreed to dissolve their earlier agreements entered dated 27-04-2005 and 12-08-2006, under which Shri Empire State Shops Offices and Premises Co-operative Housing Society Limited granted development rights to M/s. Goyal & Company and M/s. Deep Infrastructure Pvt. Ltd. The society agreed to pay to the developers a lumpsum amount of Rs.16,95,50,000/- as compensation for surrender of their development rights. The erstwhile developers agreed for the appointment of any other person as the developer by the society. The society has informed the erstwhile developers that it has decided to appoint M/s. SIL and M/s. SRIPL as its developers for development of its land.

3.3 AGREEMENT DATED 10-08-2007 BETWEEN M/S. SIL AND M/S. SRIPL:

As per agreement dated 10th August, 2007 made between M/s. SRIPL and M/s. SIL, both have given their consent and agreed with the Society on 29-11-2006 to enter into development agreement on some future date. The Development agreement between both the parties and the Society was pending as on the date of this agreement i.e., 10-08-2007. This agreement is entered between M/s. SIL & M/s.

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SRIPL to further decide the modus operandi as to how to operate and carry out the work on the said land. Keeping in mind the prevailing real estate scenario particularly in commercial complex, it was decided to try to explore sale of entire land at a price which may be near to or more than cost price; or part of the land may be sold and for the remaining part, commercial project may be carried out; or to explore the possibility of selling construction properties outright to some specific industry like for the purpose of hotel, mall or industrial house, etc.; that it is also further agreed that M/s. SRIPL can take active role to take suitable decision and M/s. SIL has agreed to be bound by the decision taken by M/s. SRIPL.

3.4 AGREEMENT DATED 31-10-2007 ENTERED AMONG THE SOCIETY, M/S. SIL AND M/S. SRIPL:

3.4(i) As per the agreement dated 31-10-2007, M/s. Empire State Shops, Offices and Premises Co-operative Housing Society Ltd having its office at Empire State, Opp. Karnavati Club, S. G. Road, Ahmedabad holds immovable property at Vejalpur, Ahmedabad as under:

Sr. No. Survey No. Final Plot No. Area in Sq. Mt. Area in Sq. Yd.1 860/2/1 to 860/2/15 9 8275 98972 839/1 19 484 N.A.3 837 16 1327 N.A.4 841/1 18 100 N.A.5 840/2 8 214 N.A.6 873/1 17 1099 N.A.

11499 14196 (approx)

3.4(ii) The Society to achieve its objects and purposes, and in furtherance thereof has resolved to develop the said property, as commercial scheme, by demolishing the existing development and construction, and to put up construction of commercial complex, consisting of various commercial premises, to make available the same to its members and share holder.

3.4(iii) Further the society was approached by the Developers i.e., M/s. SIL & M/s. SRIPL with the proposal to develop the said land as commercial project at their risk, cost and expenses. The developers has been absolutely empowered and authorized to develop and build commercial project on the said land of commercial premises in the name and style of “SHAPATH-V” for the members of the society present and future.

A) SCOPE OF THE AGREEMENT :-i. The developers to demolish the existing developments and construction if any,

of the said lands and to put up construction of commercial complex, consisting of various commercial premises, and to dispose of the same to the prospective acquirers in such manner and in payment of such amount and on such other terms and conditions as the developers may deem fit and proper. The prospective acquirer may be made available the premises as Society’s allottee member, or in any other manner whatsoever as the developers may deem fit;

ii. All prospective acquirers shall be required to be eligible to acquire and hold the premises in the proposed commercial project in conformity with the bye laws and rules and regulation of the society;

iii. This agreement between the society and the developer is and shall be on principle to principle basis;B) OBLIGATION OF THE DEVELOPERS:

i. To implement develop and build, the commercial project on the said lands to consist of various commercial premises being shops, offices, show rooms, etc., at their risk, cost and expenses.

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ii. To obtain permission for change in use of the said lands from residential to commercial. To obtain sanction of plans, specifications and details of the proposed project, scheme of development of the said lands, whole, or in part or parts from the concerned authority, being Ahmedabad Municipal Corporation/Ahmedabad Urban Development Authority or any other; to obtain building materials, articles and things as may be required for the purpose of putting up the project and construction; to obtain all and every permissions, certificates, consents, confirmations, etc from the concerned authority or authorities under the applicable provisions of laws and for all and every matters relating to the implementation of the project with all amenities, facilities, utilities and services, and other infrastructure, and shall be responsible for the same till full and final implementation thereof. The society will give its full co-operation to the developers to carry out its aforesaid obligation. If required by the developers, the society will give power of attorney for the same;

iii. To provide finance that may be required for the purposes of project and all other purposes relating to the same, and to claim reimbursements thereof from the moneys that may be received from the prospective acquirers of the premises in the project and in the meantime may arrange from other sources;

iv. To attend prospective acquirers for making available to them the premises in the project, and to finalize the terms and conditions for the same with them and to enter into sale or booking agreement as the developers may deem fit.C. OBLIGATION OF THE SOCIETY:-

i. The society declares that it has clear and marketable title to the said lands. The society has simultaneously with the execution hereof, handed over the possession of the said lands to the developers for the purpose of putting up project thereon as agreed upon herein. Such possession shall be held by the developers as licensees.

ii. To give all co-operations for the sanction of plans, specifications and details of the project from the concerned authority, being Ahmedabad Municipal Corporation or any other, and for the purpose to sign layout plans, construction plants, other drawings, applications, affidavits, consents, confirmations, etc as may be required;

iii. To co-operate, if required by the developers, in obtaining building materials, articles and things as may be necessary for the purpose of putting up the project;

iv. To co-operate in obtaining all and every permissions, certificates, consents, confirmations, no objections, etc from the concerned authority or authorities under the applicable laws;

v. To admit and enroll as its members and shareholders all those who may acquire commercial units in the project, as may be recommended by the developers and/or to enter into or join in such vesting documentation work as may be required depending upon the nature of transaction;D. COVENANTS ON THE PART OF THE SOCIETY:

The society hereby gives all authority and powers and absolute rights to the developers for building the commercial projects on the said lands in terms of the scope of agreement and to the terms and conditions, covenants, stipulations and provisions contained herein. The society hereby gives possession of the said land to the developers for the purpose of and under this agreement.

E. COVENANTS ON THE PART OF THE DEVELOPERS: i. The developers are engaged in the business of building and developing

commercial projects and real estate schemes and it has means, ability, competency, capacity and capability for the same;

ii. The developers hereby accept and confirm that they jointly will build and develop commercial projects for the members of the society present and future as per scope of agreement and on other terms and conditions, covenants,

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stipulations and provisions contained herein. All liabilities and responsibilities under this agreement shall be joint and several of both of the developers. The developers confirm having received the possession of the said lands from the society in conformity with this agreement.

iii. The entire development work shall be carried out by the developers at their own costs and expenses. They shall bear and pay the bills of the suppliers of building materials, wages and salaries payable to the workmen and other persons employed for the purpose of carrying out the construction work as also all other costs, charges and expenses that may be incurred in regard to the development work. This may be done as may be advised by the Charted Accountant of the Society and the developers as per his decision and advice.

iv. The developers shall be entitled on their own account to allow and make available the premises to the prospective acquirers. The developers may enter into agreement or give letter of allotment or such other papers and writings as the developers may deem fit. It shall be the obligation of the developers to honour these agreements, letters of allotment, papers and writings. The developers shall be entitled to receive money from the prospective acquirers and to appropriate the same to the project and to themselves or for any other purposes as the developers may deem fit. All the moneys which shall be received by the developers from such person shall belong to the developers and will be received by them on their own account. The society shall not be liable or responsible to any such person so far as the said money is concerned either for refund thereof or for any misapplication or non-application thereof or part thereof. The society shall only be entitled to get fix amount from the developers for grant of development rights to them.

3.4(iv) THE AMOUNT PAYABLE TO THE SOCIETY:The developers, from the gross receipt from the proposed project shall pay to

the society for grant of this development rights the fix amount of Rs.7,44,14,674/-. All profit or loss that may be gained, received or incurred from the project shall absolutely belong to the developers and the society shall not be liable for the same. The market value of the said land as appearing from Jantri is about of Rs.3,50,00,000/-. Hence stamp duty of 1% as prescribed under Article 5(ga) of schedule-1 of Bombay Stamp Act, 1958 as applicable to the State of Gujarat is paid on this agreement. This agreement has come into force from 29 th November, 2006. This agreement is signed by the Society and M/s. SIL & M/s. SRIPL.

3.4(v) All the cost and expenses that have already been incurred and/ or expended by the developers on their account or by or on account of the society for making of clear and marketable title of the said land, for clearing of all liabilities including previous development rights, development agreements or any other right or liability on any account whatsoever concerning the said lands shall be treated and considered as the cost of the project and the developers shall be entitled to recover the same from the project. The society shall not be liable for any such expenditure and/or reimbursement thereof, to the developers.

3.5 COMPOSITE AGREEMENT DATED 31-10-2007 FOR HOTEL PROJECT:

An agreement dated 31-10-2007 entered between M/s. SRIPL and M/s. Shiva Satya Hotels Pvt. Ltd. for construction of “CROWN PLAZA HOTEL”. The content of the agreement are:

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a) The society is seized and possessed of land Sr. No.

Survey No. Final Plot No.

Total Area in Sq. Mtr.

Area for hotel project in Sq. Yd.

1 860/2/1 to 860/2/15

9 (Part) 8320 7000 (5852 Sq. Mtr)

b) The affairs and administration of the said society is completely and totally controlled by M/s. SRIPL; All members of the said society are nominees of M/s. SRIPL; M/s. SRIPL is also holding power of attorney of the said society to deal with and dispose of the land of the society.

c) M/s. SRIPL sold plot admeasuring 7000 sq yards carved out of final plot No. 9 to M/s. Shiva Satya Hotels;

d) It is agreed between them that exclusive construction contract of the proposed Five Star Hotel building with 220 rooms (approximately) shall be given by M/s. Shiva Satya Hotels to M/s. SRIPL on “Turn Key basis”.

e) Apart from construction, M/s. SRIPL will provide furnitures, fixtures, amenities, luxury items, carpets, residential and bedroom furnitures, solar system, lifts, escalators, safety system, etc of international high-class standard .

f) M/s. Shiva Satya Hotels agrees to purchase the property admeasuring 7000 sq. yards plus the hotel building with full, free, complete and absolutely clear and marketable ownership basis and on FFE(Fixure, furniture & equipments) and turnkey basis with banquet hall in adjoining building at a total price of Rs.160,00,00,000/- (Rupees one hundred and sixty crores only). The price of land is fixed at Rs.2,50,00,000/- + for the release of development rights Rs. 9,50,00,000/- i.e., Rs.12,00,00,000/-;

g) Both parties agreed that the total price of Rs.160 crores will be paid by M/s. Shiva Satya Hotels in the following installments: (i) Rs.5 crores paid on day of agreement (Rs.2.5 crores as earnest money &

Rs.2.5 crores for release of development rights on execution of this agreement;

(ii) Rs.45 crores after issuance of title clearance certificate by M/s. Jani & Company, but not later than 30-11-2007;

(iii) Rs.50 crores on completion of RCC frame structure but not later than 18 months from 1-11-2007;

(iv) Rs.25 crores after the completion of the construction of the building and when the interior decoration work (fit out) begins approximately two years from then.

(v) Rs.35 crores when the entire hotel project is completed as per satisfaction of M/s. Shiva Satya Hotels in about 27 months time and against conveyance of the ownership rights of land, building, furniture, fixtures, banquet hall etc.

3.6 SALE OF LAND TO M/S. SHIVA SATYA HOTELS UNDER SALE DEED DATED 03-12-2007:

Content of the sale deed are: a) Land was bought by the society on 05-02-2003;b) Composite N.A. use permission for commercial purpose was granted for

final plot No. 16 & Final Plot No. 9/1-3 admeasuring 9329 sq. m. by Collector, Ahmedabad on 30-5-2007;

c) AUDA issued permission letter dated 5-10-2007 to construct Star Hotel Building of the height of 40 mtrs.

d) District Registrar of Cooperative Societies of Ahmedabad on 30-11-2007 granted permission for sale of the land;

e) The society in its extraordinary general meeting held on 16-11-2007 passed unanimous resolution to sell the land;

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f) Land value was determined as Rs. 2.50 crores on 23-11-2007;g) The society has decided to construct a commercial building in the

neighboring land bearing final plot No. 9(part) + 16. That as per the proposed plan, both the buildings are to be constructed in such a way that they become joint and connected building at the ground floor level.

3.7 AGREEMENT BETWEEN THE SOCIETY, M/S. SIL AND M/S. SRIPL DATED 07-08-2008:

3.7(i) M/s. Empire State Shops Offices and Premises Co-operative Housing Society Ltd having its office at Empire State, Opp. Karnavati Club, S. G. Road, Ahmedabad holds immovable property at Vejalpur, Ahmedabad as under: Sr. No.

Survey No. Final Plot No.

Area in Sq. Mt.

Area in Sq. Yd.

1 860/2/1 to 860/2/15(part-excluding hotel project)

9-Part 2423 2897

2 839/1 19 484 N.A.3 837 16 1327 N.A.4 841/1 18 100 N.A.5 840/2 8 214 N.A.6 873/1 17 1099 N.A.

5647 6971(approx)

3.7(ii) This agreement is entered among the society, M/s. SIL and M/s. SRIPL to develop the land excluding the land earmarked for hotel project . As per this agreement, the society (owner of the immovable property) was approached by the Developers i.e., M/s. SIL & M/s. SRIPL with the proposal to develop the said land as commercial project at their risk, cost and expenses. The developers has been absolutely empowered and authorized to develop and build commercial project on the said land of commercial premises in the name and style of SHAPATH-V for the members of the society present and future. The developers from the gross receipt from the proposed project shall pay to the society for grant of this development rights the fix amount of Rs.5,56,43,096/-. All profit or loss that may be gained, received or incurred from the project shall absolutely belong to the developers and the society shall not be liable for the same. The market value of the said land as appearing from Jantri is about of Rs. 5,08,50,000/- Hence stamp duty of 1% as prescribed under Article 5(ga) of schedule-1 of Bombay Stamp Act, 1958 as applicable to the State of Gujarat is paid on this agreement. This agreement has come into force from 29 th

November, 2006. This agreement is signed by the Society and M/s. SIL & M/s. SRIPL.

3.8 AGREEMENT DATED 11-11-2008 BETWEEN M/S. SIL AND M/S. SRIPL:

An agreement was entered between M/s. SIL & M/s. SRIPL on 11-11-2008. The content of the agreement is summarized as under:

1) M/s. SIL shall be responsible to put up and complete the construction of the commercial complex Shapath-V and responsible to deal and obtain/procure necessary approvals, materials etc. for completion of the project; all financial matters and things relating to the scheme shall be looked after, managed and handled by M/s. SIL only; authorized to arrange for funds either from the prospective acquirers or from any financial institute for completion of the project.

2) M/s. SRIPL shall be responsible to attend all and every inquiries from prospective acquirers for acquiring the premises in the scheme; to finalise terms and conditions of booking for the premises; to fix sale consideration; to

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advertise the scheme by pamphlets, brochures, etc. and to invite prospective acquirers to the scheme; profit or loss of the scheme shall be shared in the ration of 75% of M/s. SIL and 25% of M/s. SRIPL.

4. INFORMATION RECEIVED FROM THE SOCIETY: The society vide letter dated 12-07-2010 confirmed that the society has entered

into a development agreement with M/s. SIL and M/s. SRIPL on 31-10-2007. The society has handed over all development rights for the development of the said land on payment of consideration of Rs. 20,35,39,130/-. The society has already received 100% consideration for development agreement.

5. FURTHER INFORMATION RECEIVED FROM M/S. SIL:

5.1 M/s. SIL vide letter dated 27-07-2010 informed that they have initiated and started actual construction work for the hotel project from the very date of agreement on 30-10-2007. Month wise details of taxable payment received are as under:Sr. No. Month Amount in Rs.

1 December 2007 38,00,00,0002 July 2008 10,00,00,000

3 December 2008 7,00,00,000

4 November 2009 20,00,00,000

5 February 2010 20,00,00,000

TOTAL 95,00,00,000 5.2 In their further letter dated 02-08-2010, M/s. SIL have stated that Shapath-V is a commercial scheme carried out by the company on their own risk as real estate developer. The company has entered into joint development agreement with Shree Empire State Shops Offices and Premises Co-operative Housing Society Ltd on 31-10-2007. These development rights are received by the company on payment of handsome amount of Rs.20.35 crores. Under this agreement, the company has become developer and in fact has taken all the activity on its own. These activities include passing of plan, carrying out actual construction work, purchase of materials, hiring the services of contractors and labourers, hiring the service of architects, marketing the project, determining the price of the units, collection of funds and ultimately borne 100% outcome of the project that might be profit or loss. As per their understanding, position is crystal clear with service tax as regards to developers. Under the various circulars and notifications, it is clear that developers are not merely contractors and hence provisions of service tax with regards to residential complex and commercials construction services are not applicable to the developers. With this fundamental belief, they have also not collected any service tax from any of the buyer.

6. STATEMENT DATED 15-09-2010 OF SHRI JIGISH SHAH, DIRECTOR OF M/S. SIL:

6.1 Statement of Shri Jigish M. Shah, Director of M/s. SIL was recorded on 15-09-2010 wherein he, inter-alia stated that the land for their project “Shapath-V” was acquired from the society through development agreement and paid a price for it; that the earlier developers had not carried out any construction work and accordingly, they entered into development agreement with Society, whereby as explained earlier, they became the beneficial owner having all rights on the Society including right to develop and retain 100% profit or loss of the project; that as per this development agreement,

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the society (owner of the immovable property) was approached by them i.e., M/s. SIL & M/s. SRIPL with the proposal to get development of the said land as commercial project at their risk, cost and expenses; that they have been absolutely empowered and authorized to develop and build commercial project on the said land of commercial premises in the name and style of SHAPATH-V for the members of the society present and future; that they from the gross receipt from the proposed project shall pay to the society for grant of this development rights the fix amount; that all profit or loss that may be gained, received or incurred from the project shall absolutely belong to them and the society shall not be liable for the same; that land was not purchased out rightly in their firms name but they acquired development rights for which agreed amount is paid and possession of land was taken for the development of the said land into commercial complex in the name and style of SHAPATH-V; that they have paid to the society Rs.16,95,50,000/- for acquiring development right from the society; that they use the word purchased because they have acquired development rights from the society after making full payment and practically, the land belonged to them after execution of development agreement as they become beneficial owner; that they have not executed any sale deed for the purchase of the land from the Society; that the original plan of Shapath – V was to develop commercial complex as per construction plan passed for that; that SHAPATH-V was to have two towers meant for commercial purpose to be sold to the prospective clients; that Shapath – V is under development at present is bisected into Commercial complex in one tower and another tower is sold to M/s. Shiva Satya Hotels Pvt. Ltd; that at present, commercial complex is being constructed by them and being sold to the prospective buyers; that Crown plaza hotel land is sold and they then entered into construction contract with M/s. Shiva Satya Hotels Pvt. Ltd. on work contracts basis where from the material purchase, obtaining necessary permission from different authorities, interior decoration, furnishing would be theirs; that total work contract for hotel project was Rs.160 crores and out of which Rs.2.50 crores was price of land and Rs.9.50 crores was towards release of development right; that they have received payment of Rs.107 crores as detailed below: Month Amount in Rs. Payment of service taxNovember, 2007 5,00,00,000 No service tax paid being cost of land.

Dec-07 45,00,00,000

Service tax paid on advance amount of `38 Crores in June, 2010 of Rs.76,69,998/- and interest of Rs.25 lakhs paid. We did not pay service tax earlier because this was an advance amount received from M/s. Shiva Satya Hotels Pvt. Ltd and we were of the view that service tax is payable only after providing service.

Jul-08 10,00,00,000 Paid service tax of Rs.88,00,306/- ( Rs.31,30,456/- through cash & Rs. 56,69,850/- through input service CENVAT credit paid in the year 2008-09.Dec-08 7,00,00,000

Nov-09 20,00,00,000 Paid service tax of Rs.1,32,69,344/- through cash and Rs. 4,89,900/- through input service CENVAT credit in the year 2009-10. Payment made in the month of August, 2010 along with Interest.

Feb-10 20,00,00,000

TOTAL 107,00,00,000

6.2 He further stated that they have paid service tax for Hotel Project “CROWN PLAZA” under work contract service and further they have opted for composition scheme under work contract service for the purpose of payment of service tax; that they have availed CENVAT credit for their Hotel Project “CROWN PLAZA” as per rule 6(3) of CENVAT Credit Rules, 2004 on the proportionate basis; that after agreement entered with M/s. Shiva Satya Hotels Pvt. Ltd., Office Building/Commercial complex is known as SHAPATH-V; that M/s. SIL / M/s. SRIPL is developer &

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responsible for the entire project. M/s. SIL has to see every aspect including payment of Auda, NA fees, construct its own & construct through contract whenever necessary in a situation where various service RMC, plumbing, painting etc. shall be taken by the developer; that there are/will be a lot of contractors involved to complete the project; that the difference between SHAPATH-V and CROWN PLAZA HOTEL is that Shapath – V is project conceived build & developed by M/s. SIL, entire risk of this project is on M/s. SIL and profit of M/s. SIL will depend on sale of unit, while in case of hotel crown plaza M/s. SIL is a contractor, M/s. SIL has entered in to fix price contract with the hotel, M/s. SIL will get its income as the work progresses as per the agreed terms. Thus for Shapath-V, M/s. SIL is the builder / developer. While in case of hotel project viz., CROWN PLAZA, M/s. SIL is a work contractor. M/s. SIL has become developer and looks after every necessary work for development and completion of SHAPATH-V commercial complex.

6.3 On the question of payment of service tax, he stated that they have not paid service tax on SHAPATH-V commercial complex. The reason for not paying service tax was due to the master circular dated 23-09-2007, wherein builder / promoters / developers are exempt from payment of service tax because they are carrying out construction for their own. They have paid tax under work contract service as applicable from time to time on hotel projects.

7. FURTHER SUBMISSION MADE ON 20-09-2010 BY M/S. SIL:

M/s. SIL vide their letter dated 20-09-2010 informed that they, being a developer for Shapath-V commercial scheme, are of the opinion that service tax was not applicable to their company prior to 01-07-2010. Service tax is now applicable to their company from 01-07-2010 under commercial complex scheme and accordingly company has already made an application for service tax registration under the new category. A copy of application for service tax registration is furnished. It is further disclosed that they shall be liable to pay service tax as developer under this new category and as on 01-07-2010 approximately 80% collection for Shapath-V Scheme was pending. In this situation, as a developer, their company is already liable to pay service tax on 80% of collection to be followed now onwards. Their company has given contract to various contractors and they are already subject to service tax as per the law of the service tax. They enclosed a list of contractors working under the company.

8. FURTHER STATEMENT DATED 18-12-2010 OF SHRI JIGISH SHAH, DIRECTOR OF M/S. SIL:

8.1 Further statement of Shri Jigish Shah, Director of M/s. SIL was recorded on 18-12-2010 wherein he has deposed as under: -

Question - 1: Please peruse your earlier statement dated 15-09-2010. Do you agree with the content therein?

Answer - 1: Yes, I have perused my earlier statement dated 15-09-2010 and agreed with the contents therein. In token of agreement, I put my dated signature thereon.

Question - 2: Give the names of other subsidiary companies of M/S. SIL? What is the stake of M/s. SIL in these companies?

Answer - 2: M/s. SIL have M/s. SRIPL as its subsidiary company. There is no other subsidiary company of M/s. SIL. M/s. SIL holds 75% in M/s. SRIPL.

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Question - 3: Do your company own “SAVVY” brand? Whether is it registered under Trade Mark registration?

Answer - 3: “SAVVY” is registered trade mark. However, same is not acquired through purchase but built over a period of time.

Question - 4: Has M/s. SIL entered into any agreement with any person proposing to execute any project and market by using “SAVVY” brand name? Give the details of such contracts entered with? Do you charge any royalty from such companies?

Answer - 4: No such agreement and no royalty income.

Question - 5: What is the relationship between M/s. SIL and M/s. SRIPL?

Answer - 5: As explained above, M/s. SRIPL is a subsidiary company of M/s. SIL.

Question - 6: Is there any stake held by M/s. SIL in M/s. SRIPL? If yes, how much? Similarly, whether any stake is held by M/s. SRIPL in M/s. SIL? If yes, how much?

Answer - 6: Yes, M/s. SIL holds 75% stake in M/s. SRIPL. However there is no reverse holding.

Question - 7: Who are the directors of M/s. SRIPL?

Answer - 7: M/s. SRIPL has five Directors viz., 1) Shri Himanshu Shah, 2) Shri Jigish Shah, 3) Shri Jaxay Shah, 4) Shri Samir Sinha and 5) Shri Bankim Shah.

Question – 8: What is the activities carried out by M/s. SRIPL?Answer - 8: M/s. SRIPL is formed with the object to carry out real estate projects.

Question - 9: Is there any difference in business activities carried out by M/s. SIL and M/s. SRIPL?

Answer - 9: There is no difference in business activities. Both are formed with the object to carryout real estate business.

Question - 10: In the agreement dated 31-10-2007 entered among the Society, M/s. SIL and M/s. SRIPL, it is stated that the developers from the gross receipt from the proposed project shall pay to the society for the grant of development rights the fix amount of Rs. 7,44,14,674/-. Whereas in your earlier statement dated 15-09-2010, you have stated that you have paid to the society Rs.16,95,50,000/-. Please clarify the reason for the difference?

Answer - 10: I state that total of Rs.16,95,50,000/- paid to the Society by M/s. SIL and M/s. SRIPL which includes the amount of Rs.7,44,14,674/- paid for acquisition of development rights. The remaining amount also paid by us but the same is not mentioned in the agreement dated 31-10-2007.

Question - 11: Who has paid the amount to the Society? When was paid? What was the source of fund to pay to the society?

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Answer - 11:The Society is paid jointly by Developers. This funds paid are paid by the developers through their internal accruals and collection made from prospective buyers. This payment was made as soon as verbally decided to execute and take the development from the society.

Question - 12: In the agreement dated 31-10-2007 entered among the Society, M/s. SIL and M/s. SRIPL, it is stated that the market value of the land as per Jantri was ` 3,50,00,000/-. Whether this amount was paid to the Society? If yes, when was it paid? Who has paid?

Answer - 12: I state that value of land is shown in the agreement for the purpose of paying stamp duty as per jantri. This amount is included in the payment made for acquisition of development rights. No separate payment for value of land was paid by us.

Question - 13: M/s. SIL & M/s. SRIPL as a developer first entered into agreement with the society on 31-10-2007. But it was given effect from 26-11-2006. Why was it given retrospective effect when there was no formal agreement existed between your companies as the developers and the society?

Answer - 13:Agreement was entered on 31-10-2007 but actual transaction was entered and finalized much prior to this date. This can be emphasized from the fact that payment of money has been made prior to this date of agreement.

Question - 14: Please clarify whether agreement dated 31-10-2007 entered with the society for the whole of the society’s land or for the part of the land? This agreement was signed for development of the below mentioned land belonging to the society:

Sr. No. Survey No. Final Plot No. Area in Sq. Mt. Area in Sq. Yd.1 860/2/1 to

860/2/159 8275 9897

2 839/1 19 484 N.A.3 837 16 1327 N.A.4 841/1 18 100 N.A.5 840/2 8 214 N.A.6 873/1 17 1099 N.A.

11499 14196 (approx)

Answer - 14:Agreement dated 31-10-2007 was related to the entire land of the society.

Question - 15: Agreement dated 31-10-2007 was to develop and build commercial project on the said land of commercial premises in the name and style of “SHAPATH – V”. Wasn’t it for the whole of the society’s land as mentioned above?

Answer - 15:On 31-10-2007 developer intended to develop the entire land of the society.

Question - 16: Development agreement dated 07-08-2008 was signed for the following land of the Society.

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Sr. No.

Survey No. Final Plot No

Area in Sq. Mt.

Area in Sq. Yd.

1 860/2/1 to 860/2/15 (part-excluding hotel project)

9-Part 2423 2897

2 839/1 19 484 N.A.3 837 16 1327 N.A.4 841/1 18 100 N.A.5 840/2 8 214 N.A.6 873/1 17 1099 N.A.  TOTAL   5647 6971 (approx)

What was the reason to sign a development agreement dated 07-08-2008? Can it be said that you got right to develop the part of land mentioned therein after this date or you had started construction work after this date? What does it signify?

Answer - 16: Due to recession in the market, it was not possible for the developers to develop the entire land. Hence, developers released the development right in favour of society for part of the land which is sold to M/s. Shiva Satya Hotels Pvt. Ltd. This agreement dated 07-08-2008 is on the remaining land which is in possession of developers from November, 2006. Please further note that the profit arising out of sale of land to the Hotel is 100% retained by the developers and accordingly accounting is done in the books of the developers.

Question - 17: Whether any agreement for relinquishment of development right for part of land sold for hotel project entered with the Society and whether proportionate amount of development right received from the Society?

Answer - 17:The society can sell the land only after relinquishment of development right handed over to the developer, otherwise it becomes illegal transfer. In this case, society has acted in legal manner and entire amount paid by hotel company is ultimately received by the developers and same is accounted for in the books of the developers.

Question - 18: Whether development rights of Rs.5,56,43,096/- and market value of land of Rs.5,08,50,000/- as mentioned in Agreement dated 07-08-2008 paid to the Society? If yes, when was it paid? Who has paid?

Answer - 18:Market value of the land written in the agreement only to decide payment of stamp duty on this agreement. Amount of development right is paid much earlier as explained. No additional development right was paid during signing of this agreement as this agreement is on the balance land which was already included in the original agreement dated 31-10-2007.

Question - 19: When was the ground plan of commercial project on the society’s land submitted to AUDA for approval? Please elaborate the details of the plan prepared and approved?

Answer - 19: I state that plan of construction was submitted in September, 2007 and the said plan was approved in the month of February, 2008. As per the approved construction plan, the construction plan consists of two wings – Wing-A (Hotel Wing) and Wing-B (Commercial Wing).

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Wing-A (Hotel Wing) – This wing will have a restaurant, reception, lobby lounge, backup house area, banquet, rooms, etc. This wing will have Ground floor + 10 floors.

Wing-B (Commercial Center) – This wing will have a retail shops and offices. This wing will have Ground floor + 9 floors.

Question - 20: Whether the ground plan was modified / altered / revised subsequently? When was it done? Why was it done? Please elaborate the details of the revised plan prepared and approved? Answer - 20: I state that construction plan of Wing-B relating to Commercial centre was modified. Application for modification / revision was made in the month of July, 2009 and the same was approved in June, 2010. After modification / revision of construction plan of Wing-B, this wing will have Ground Floor + 18 Floors (19 Floors). I state that there is no modification / revision done in construction plan of Wing-A (Hotel Wing).

Question - 21: When was the construction plan approved and construction work started?

Answer - 21: As stated above, construction plan was approved in February, 2008 by AUDA. However, construction work such as excavation, site related developments, compound wall, and barrication were started immediately after signing Development agreement with the Society in the month of October, 2007.

Question - 22: Whether VAT is payable for SHAPATH – V PROJECT, please give information regarding HOTEL CROWN PLAZA and Commercial project, as claimed separate?

Answer - 22: I state that VAT is not applicable for Shapath-V commercial project. However, VAT is payable for Hotel Crown Plaza’s contract work. Question - 23: From the information received on 03-12-2010, it can be seen that you had started receiving advance booking amount from the prospective customers for “SHAPATH-V” project from April, 2006 onwards. Please explain how was it done so? Whether written agreements entered with the buyers at the time of receipt of advance? If yes, what were the features of agreements? Whether shop / unit No./floor No. proposed to be allotted earmarked or otherwise?

Answer - 23:Actual verbal commitment was taken in the month of April, 2006 and payment for the development right also started from this month. Accordingly, due to good will of our group, we could collect money in advance without giving any assurance or information about shop / unit No. / floor No. No written agreement was entered but assurance was given to allot on first come first service basis.

Question - 24: The society only granted development right to develop and build the commercial center and sell it to the prospective members. Please clarify whether development right given by the Society confer M/s. SRIPL to sell the land?

Answer - 24:As per agreed terms, the society will not be given any amount at the time of sale deed entered and the society will have to be one of the party to

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sign necessary agreement. Whatever paid towards development right was full and final payment and any profit arising due to the sale of the land or unit retained by the developers.

Question - 25: You have no right to sell the society’s land. This is vindicated from the fact that the land was sold to M/s. Shiva Satya Hotels Pvt. Ltd vide sale deed dated 03-12-2007. Please offer your comment.

Answer - 25:The society is the legal owner. However, the development right vests with the developers. It was necessary for the developer to release the development rights and only then the society can sell the land. Accordingly, the society has sold the land to M/s. Shiva Satya Hotels Pvt. Ltd. for which entire receipt of this transactions retained by the developers and the society is not given any amount out of this transaction.

Question - 26: Which Wing was allotted to “CROWN PLAZA” hotel project?

Answer - 26: I state that there is no question of allotting any wing. Once the land is being sold, owner of the land i.e., M/s. Shiva Satya Hotels Pvt. Ltd. has natural right on the entire construction of that land. By virtue of selling a land of a particular wing or side, owner of the land becomes the owner of construction of that site. We have not to allot as the same is constructed on the land owned by them.

Question - 27: Please peruse the copies of bills / invoices on which CENVAT credit of input services were taken. To whom these bills are issued?

Answer - 27: I have perused some of the bills / invoices issued in the name of M/s. Savvy Infrastructure Ltd who is working as contractor for hotel project and developer for commercial project. As we are naming our schemes under the head “SHAPATH” since long, our brand name of created in the market with the name SHAPATH. As Hotel project as well as our commercial project are side by side, supplier also mentioning the name SHAPATH-V on the bills irrespective of it is hotel project or commercial projects.

Question - 28: Whether construction work of SHAPATH-V is awarded to any one contractor?

Answer - 28: Hotel project as well as commercial project is under taken with the help of many contractors. However, please note, that contractors for hotel projects and contractors for commercial projects are different.

Question - 29: Can you give the names of contractors who provided services to your hotel project and commercial project?

Answer - 29:Name of contractors who have provided construction services (Labour contractors) to our Hotel Project (CROWN PLAZA) are: -

a) M/s. Sarthi Enterprise.b) M/s. Unique Application Engineers.

Name of contractors who have provided construction services (Labour contractors) to our Commercial Centre are:

1. M/s. Manila Devanjibhai Katara. 2. M/s. B. K. Construction.

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3. M/s. Chinar Construction.4. M/s. Manojbhai Premjibhai Parmar.

Question - 30: Who purchased materials such as cement, steels, sand, etc for use in the construction of SHAPATH-V?

Answer - 30:M/s. SIL is purchasing entire material necessary for SHAPATH-V. We mean SHAPATH-V stands for commercial project under taken as developer. It does not include hotel project under taken as contractors.

Question - 31: Why have you not paid service tax on your commercial project, Shapath-V, either under Commercial or Industrial Construction Service or under Work Contract Service?

Answer - 31:We are under bonafine belief that as a developer who has paid for the entire value of land, carryout risk of the entire project, get the building constructed, collected the money and hence, not liable to service tax.

Question - 32: In your earlier statement dated 15-09-2010, you had stated that you are not paying service tax because as per Master Circular dated 23-08-2007 your company is not liable to pay service tax. Please peruse Circular No. 96/7/2007-ST dated 23-08-2007 and specify reference Code No. in which Commercial construction service is exempt from payment of service tax?

Answer - 32:We are still of the view that though the circular mentioned above talks about construction of residential complex service, it is squarely applicable in case of commercial construction services and hence not liable to service tax. Please further note that our stand is consistent and we have registered ourselves from 01-07-2010 with the introduction of deeming fiction in the above services and have been paying service tax at the appropriate rate.

Question - 33: Please clarify “Commercial or Industrial Construction Service notified under sub-clause of (zzq) of Section 65(105)” and “Construction of Residential Service notified under sub-clause of (zzzh) of Section 65(105)” are the same service or different one?

Answer - 33:Though both the services are different, as explained above, we are of the view that the circular mentioned above is applicable to both the services.

Question - 34: Is there any Circular / Instruction / Notification providing exemption to “Commercial or Industrial Construction Service”? If yes, please quote the authority.

Answer - 34: As explained above, we hold that circular No. 96/7/2007-ST dated 23-08-2007 is squarely applicable to commercial construction service also.

Question - 35: Is there any ground plan filed and approved for “HOTEL CROWN PLAZA”? If yes, please furnish a copy?

Answer - 35:No, no separate ground plan filed for Hotel Crown Plaza.

Question - 36: As per the development agreement entered with the Society, your company would pay development charges to the Society from the gross

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receipt from the prospective buyers. How could you claim deduction of development charges and land value from the taxable value of service tax?

Answer - 36: In fact the development charges paid to the society is out of internal accruals of the developers and also from collection made from the prospective buyers collected on the basis of our goodwill. Please note these collected money from the prospective money is the liability of the developer and eventually developer is either repay the money or enter into sale deed for sale of units. Payment made to the society is clearly as mentioned in the agreement provides certain rights to the developers and society subsequently cannot transfer the land without the consent of the developer. In fact the society is bound to enter into sale agreement along with developer with the buyer without asking for any separate money for sale deed that might be entered later on.In fact the value of development right paid is equalent to the value of land and if one looks substance over form or beneficial ownership developer is the real owner and hence payment should be allowed as payment for land.

Question - 37: Can it be said that out of two Wings, Wing-A is being constructed for Hotel Crown Plaza and Wing-B is being constructed for other buyers?

Answer - 37: I state that Wing – A i.e., construction on the land of M/s. Shiva Satya Hotels Pvt. Ltd., is known as hotel CROWN PLAZA and the other wing – B on which construction is carried as developer is commercial project.

Question - 38: What would you have done if you did not get your customer viz., M/s. Shiva Satya Hotels Pvt. Ltd.?

Answer - 38: If we had not sold the land to M/s. Shiva Satya Hotels Pvt. Ltd., it would have been difficult to survive the crisis faced in the year 2007 and 2008.

Question - 39: Have you handed over possession of the units to the prospective buyers of SHAPATH-V? If not, when it is expected to do so?

Answer - 39: I state that SHAPATH – V is under construction and hardly 30% work is completed. Possession may be handed over to prospective buyers in the year 2012-13.

Question - 40: It is seen from your ST-3 returns that you are also paying service tax under Supply of Tangible Goods Service as service provider. Can you please elaborate what is this service relates to?

Answer - 40: I state that my company has JCB, tractor and other construction machinery which is given on rent to our group companies. On this income we paid service tax under supply of tangible goods service.

Question - 41: Do you want to say anything more?

Answer - 41: I state that we are of the bonafide view that service tax is applicable on hotel project under Work Contract Service which we have already complied. And commercial project being developer not subject to service tax prior to 01-07-2010. Subsequent to this date, we are liable to pay service tax which we are paying in line with applicable law.

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8.2 STATEMENT DATED 08-09-2011 OF CHAIRMAN OF THE SOCIETY:

Statement of Shri Pinal Ashokbhai Shah, Chairman of the Society is recorded on 08-09-2011 wherein he interalia stated that that the objective of the society was to create and promote the activities which is beneficial to the members. He further stated that in Gujarat, under the stamp act, allotment of shares to the members of the cooperative society were exempted from stamp duty. To save stamp duty on allotment, normally the builders used to form a Special Purpose Vehicle (SPV) in the form of cooperative housing society. Accordingly, their cooperative society is formed as SPV with the intention to save the stamp duty eligible under the relevant clause. The society is nothing but extended arm of the builder (i.e., Savvy Infrastructure Ltd) and act as a SPV. In the given situation, normally friends and relatives of the builder become the initial members of the society. These members hardly contribute anything for the purpose of the land. As on date, the Society has 10 members. He has also produced datewise amount received from Savvy Group and the society’s resolution dated 26-10-2007 relating to giving of development right to the society.

9. CESTAT’S JUDGEMENT CITED BY M/S. SIL IN THEIR FAVOUR: 2009-TIOL-1431-CESTAT-AHM dated 3.7.2009 in case of M/s. Shrinandnagar

Co-op. Housing Society Ltd, M/s. Shantanu Co-op. Housing Society Ltd and M/s. Sujal Developers V/s. CST, Ahmedabad wherein it is held that Service Tax – Construction of residential complex by cooperative housing societies for its members not liable to service tax – Tax paid initially available as refund – Matter remanded to original authority to determine unjust enrichment and correctness of claims.

10. Apart from the above, M/s. SIL has sent letters dated 30-12-2010 & 25-06-2011 giving information of receipt of payments from members for various projects, and details of payments received from M/s. Shiva Satya Hotels Pvt. Ltd for Crown Plaza Hotel Project during the period from April, 2010 to March, 2011 and copy of ST-3 filed for year 2010-11.11. EXAMINATION OF INFORMATION / RECORDS:

11.1 From the information received from M/s. SIL, it appears that they are developing / constructing commercial projects in the name of SHAPATH-V, SHAPATH HEZA and SHAPATH-VII. Project SHAPATH HEZA is started in the month of April, 2010 & SHAPATH-VII is started in August, 2010. Shapath V is started in 2006 and is still in progress. Period of investigation covers from 2006-07 to 2010-11.

11.2(i)From the details given supra, it can be seen that Shri Empire State Shops, Offices & Premises Co-op. Housing Society Ltd is the owner of the land. M/s. SIL & M/s. SRIPL have entered into a development agreement with the Society to develop the land into a commercial complex in the name of SHAPATH-V on 31-10-2007. In consideration of entrusting development rights to the builders, the society was given Rs.3.50 crores towards value of land and additional amount of Rs.7,44,14,674/- paid to the Society for obtaining development rights, as shown in their development agreement dated 31-10-2007. But Shri Jigish Shah in his statements said that they paid Rs.16,95,50,000/-. However, they did not produce documents evidencing the actual amount paid to the Society.

11.2(ii) From the statement of Shri Pinal A. Shah, Chairman of Shree Empire State Shops, Offices & Premises Co-op. Housing Society Ltd as elaborated supra, it can be adduced that for avoiding stamp duty, the society and the builder are claimed as two independent entities. In the same stretch, for avoiding payment of service tax, it is claimed that the society is the extended arm of the builder. The statement of the

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Chairman of the society does not bring in any new fact. Rather it cast shadow on the veracity of amount of development right paid to the society by M/s. Savvy Group because the society was paid Rs.5 crores and Rs. 2.19 crores by Shri Kirtikumar K. Shah and Shri Bankim J. Shah respectively to the society. These two persons are members of the society. How could the amount paid by the members to the society be claimed as amount paid by M/s. Savvy Group? Further M/s. Savvy Group attempts to create an impression as if they formed the society to purchase land. This has no basis in as much as the society was in existence much before M/s. Savvy Group entered into formal agreement with the Society in October, 2007. The fact that the Society entered into development agreement with M/s. Goyal Construction Co. in 27-04-2005 nullify this claim.

11.2(iii) Moreover, the actual amount paid to the Society by M/s. SIL or M/s. SRIPL will have no bearing on the service tax liability because service tax is to be paid on the gross amount charged for the services. Further, it is amply made clear in the agreement dated 31-10-2007 that all the cost and expenses that have already been incurred and/or expended by the developers on their account or by or on account of the society for making of clear and marketable title of the said land, for clearing of all liabilities including previous development rights, development agreements or any other right or liability on any account whatsoever concerning the said lands shall be treated and considered as the cost of the project and the developers shall be entitled to recover the same from the project. That is these expenses should form part of the cost of the project. Therefore the value of these expenses should form part of taxable value for charging service tax.

11.3 COMMERCIAL COMPLEX VIZ., SHAPATH-V:

11.3(i)It is seen from the information received from M/s. SIL that they have conceived and developed their project SHAPATH – V in the year 2006 itself as can be seen that they started collecting booking advance from their prospective buyers from April, 2006 onwards in the name of ‘SHAPATH – V”. It appears that as soon as they started informal talk with the society, they had also started collecting booking advance amount from the prospective buyers. This leads to conclusion that their commercial project is given shape after formal agreement entered with the Society. But in fact, it was in offing much before that. M/s. SIL has denied having signed any agreement with the prospective buyers. They also denied having allotted any unit number/shop number/floor numbers to the prospective buyers who have paid advance booking amount. This claim of M/s. SIL looks to be unacceptable as no client would pay advance without knowing the location, size, value, etc. of their unit to be purchased.

11.3(ii) Nevertheless, it was determined to develop and construct a commercial centre on the land belonging to the Society in the name of SHAPATH – V. Service tax on commercial or industrial construction service is payable w.e.f. 10-09-2004. From 16-06-2005, the scope for levy of service tax was extended to the value of services received for the services “to be provided” in future date. As per this provision, they should have paid service tax from April, 2006 onwards i.e., as soon as they received advance from their customers.

11.3(iii) From the above information, it can be easily concluded that SHAPATH-V project was launched in April, 2006. The initial plan of construction approved by AUDA on the basis of draft plan submitted by M/s. SIL in the year 2006 depict that they had planned to construct commercial complex consisting of two wings viz., WING – A and WING – B in their SHAPATH –V commercial centre. At that point of time, there was no Work Contract service notified separately. Therefore there was no option available to M/s. SIL to classify their activities except under

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Commercial or Industrial Construction Service. They should have paid service tax under this head accordingly.

11.3(iv) Subsequently, they got in contact with M/s. Shiva Satya Hotels Pvt. Ltd who were scouting for a suitable location in Ahmedabad for a hotel project. M/s. SIL has offered to sell one of their wing of SHAPATH – V i.e., WING – A to the hotel project. As the entire wing –A was allotted to M/s. Shiva Satya Hotels Pvt. Ltd., it was quite obvious that they would get the portion of the land on which hotel building stands should be registered in their name. It may be seen that there would not be any other prospective customer having right to share this part of land. Therefore, M/s. Shiva Satya Hotels Pvt. Ltd has purchased part of land attributable to hotel project from the Society (land owner) under a separate sale deed. It is evident that at the time of execution of sale deed for part of land of hotel project, construction plan for SHAPATH – V was in place. Thus, at the basement level, both wings of SHAPATH – V continued to have a common platform.

11.3(v) From the above information, it can be inferred that SHAPATH-V is their commercial project. This project consists of two wings. Their intention was to develop the project into commercial centre in the name and style of SHAPATH – V. However, during the course of construction, they got a client with lucrative propositions. Therefore they sold one wing to one customer and other wing is being sold to many prospective customers. As for as contract for construction of the commercial center, construction work is being carried out by M/s. SIL. They received booking advances from prospective customers and undertake construction activities. M/s. SIL admitted that they have bought all materials such as cement, steel, sand, etc. required for construction activities. Further they own construction equipments for their use in the construction activities. They are also hiring these construction equipments to other companies and paying service tax under supply of tangible goods service. This proves that they are constructor. They themselves admitted that they are contractor for CROWN PLAZA hotel. But at the same stretch, they claim that they are developer in the case of commercial centre despite the fact that there is no change in the nature of services provided by them.

11.3(vi) On the commercial project viz., SHAPATH-V, M/s. SIL has not paid any service tax. They in fact contended that their activity is not covered under service tax. It may be pertinent to refer to the definitions given in the statute to understand the leviability to tax under Commercial or Industrial Construction Service.

11.3(vii) As per section 65(25b) of the Finance Act, 1994,“Commercial or industrial construction service means, -

(a) Construction of new building or civil structure or a part thereof; or (b) Construction of pipeline or conduit; or(c) Completion and finishing services such as glazing, plastering, painting,

floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

(d) repair, alteration or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit,which is –

(i) Used, or to be used, primarily for; or(ii) Occupied, or to be occupied, primarily with; or (iii) Engaged, or to be engaged, primarily in

Commerce or industry or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dam.

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As per Section 65(105)(zzq) of the Finance Act, 1994 taxable service means any service provided or to be provided to any person, by any other person, in relation to commercial or industrial construction service. W.e.f. 1-7-2010, the service has been rechristened as “commercial or industrial construction” by dropping the word ‘service’ from its name.

11.3(viii) In the instant case, M/s. SIL and M/s. SRIPL have entered into development agreement with the society (land owner) to develop the land into a commercial complex. The society accepted the proposal and allowed the builders to develop the said property for the members of the society, existing as well as prospective members in future. The developers have obtained development right from the society after paying development rights to develop the said land into commercial centre as they thought the project would be viable and has potential to earn profit. It was a calculated move on the part of builders because they knew that after paying development rights to the society their project cost would shoot up to that extent. So in this case the builders have constructed a new commercial building in the name and style of SHAPATH-V for the members of the society which includes its present and prospective members. Therefore, it is a service provided by M/s. SIL to the society and to its members. Therefore, the service provided attracts service tax under commercial or industrial construction service.

11.3(ix) M/s. SIL cited the reason for not paying service tax on SHAPATH-V commercial center was due to the master circular dated 23-09-2007, wherein builder / promoters / developers are exempt from payment of service tax because they are carrying out construction for their own. The applicability / relevancy of this circular to the present case is analysed in the succeeding paras.

11.3(x) CBEC vide Circular No.96/7/2007-ST dated 23rd August, 2007 issued from F. No. 354/28/2007-TRU has clarified as under: -

Reference Code Issue Clarification

(1) (2) (3) 079.01 / 23.08.07

Whether service tax is liable under construction of complex service [section 65(105)(zzzh)] on builder, promoter, developer or any such person,-  (a) who gets the complex built by engaging the services of a separate contractor, and  (b) who builds the residential complex on his own by employing direct labour?

(a) In a case where the builder, promoter, developer or any such person builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of the said residential complex, the contractor in his capacity as a taxable service provider (to the builder / promoter / developer / any such person) shall be liable to pay service tax on the gross amount charged for the construction services under ‘construction of complex’ service [section 65(105)(zzzh)].(b) If no other person is engaged for construction work and the builder / promoter / developer / any such person undertakes construction work on his own without engaging the services of any other person, then in such cases,-(i) service provider and service recipient relationship does not exist,(ii) services provided are in the nature of

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Reference Code Issue Clarification

(1) (2) (3) self-supply of services.Hence, in the absence of service provider and service recipient relationship and the services provided are in the nature of self-supply of services, the question of providing taxable service to any person by any other person does not arise.

11.3(xi) The above said circular was issued in the context of construction of complex service. Commercial or industrial construction service is separately notified service chargeable to service tax from 10-09-2004. Therefore the clarification given in the above said circular do not hold good for commercial construction service. Similarly the judgments of CESTAT reported at 2009-TIOL-1431-CESTAT-AHM dated 3.7.2009 in case of M/s Shrinandnagar Co-op. Housing Society Ltd, M/s. Shantanu Co-op. Housing Society Ltd and M/s. Sujal Developers V/s. CST, Ahmedabad wherein it is held that Service Tax – Construction of residential complex by cooperative housing societies for its members not liable to service tax. The CESTAT order is not applicable to the present case because they are relating to construction of residential complex service.

11.3(xii) Moreover, M/s. SIL is constructing commercial center on the Society’s land for the present and prospective members of the Society. It is explicitly mentioned that all the prospective buyers would become members of the Society. M/s. SIL solicited membership from the prospective buyers and collected advances and constructing the commercial centers in the name of “SHAPATH-V” on behalf of the Society to its present and future prospective members. It is not disputed by M/s. SIL that SHAPATH-V is a commercial project, therefore it attracts service tax.

11.3(xiii) As stated earlier, SHAPATH-V is a single project consisting of two wings. It is unacceptable that for one wing, M/s. SIL considers itself as a builder / contractors for WING-A of HOTEL CROWN PLAZA and pays service tax and at the same time, for another WING B, they consider themselves as a developer/ builder and not liable for service tax despite the fact that their activity remains the same. The only difference is that WING-A is being constructed for a single customer / client viz., M/s. Shiva Satya Hotel Pvt. Ltd. and WING-B is being constructed for many customers / client.

11.3(xiv) It is found that M/s. SIL had started receiving advance from their customers from April, 2006 onwards. As per the existing provisions of the Finance Act, 1994, M/s. SIL should have paid service tax on the value of advance received from the date of receipt of such advance. From the information received from M/s. SIL it is derived that they have received advance as given below: -

Sr. No. Year Amount of advance received in `1 2006-07 16,85,08,5832 2007-08 10,53,80,9393 2008-09 2,98,98,5644 2009-10 1,35,03,7005 2010-11 10,22,37,176

12. DETERMINATION OF TAXABLE VALUE:-

12.1 In the instant case M/s. SIL has to pay service tax either on 33% of the taxable value under Notification No. 1/2006-Service Tax dated 01-03-2006 or on the 22 | P a g e

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value of gross amount charged from their customers for the services provided by them. But exemption provided in Notification No. 1/2006-ST dated 01-03-2006 shall not apply in cases where CENVAT credit of duty on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable services, has been taken under the provisions of the CENVAT Credit Rules, 2004 or the service provider has availed the benefit under Notification No. 12/2003-Service Tax dated 20-06-2003.

12.2 It is found that M/s. SIL has been availing CENVAT credit on input service invoices for their commercial construction of SHAPATH-V. Copies of invoices submitted by M/s. SIL vide their letter dated 20-08-2010 clearly proves that they have taken CENVAT credit on the services used for Shapath-V commercial center. Therefore the option of payment of service tax on abated value under Notification No. 1/2006-Service Tax dated 01-03-2006 cannot be extended to them.

12.3 Scrutiny of input service invoices reveal that they are issued in the name of “M/s. Savvy Infrastructure Ltd, Shapath-V”. M/s. SIL have contended that invoices bear reference of “Shapath-V” because they launched their advertising campaign for their project “Shapath-V” as they wanted to develop the entire land acquired under development agreement as commercial center in this name. However, due to change in the construction market scenario, they decided to sell part of the land to M/s. Shiva Satya Hotels Pvt. Ltd. Subsequently, M/s. Shiva Satya Hotels Pvt. Ltd. has given them work contract for construction of Hotel Crown Plaza. Remaining part is continued to be developed in the name of Shapath-V. Therefore, their customers know this project in the name of Shapath-V and mentions the same in their invoices. At the same stretch, for claiming exemption from payment of service tax on SHAPATH-V, M/s. SIL claim that service providers for SHAPATH-V commercial center and “Crown Plaza – Hotel Projects” are different. If this being so, contractors of Crown Plaza – Hotel Porjects raising invoices in the name of ‘SHAPATH-V” is improbable. Therefore it leads to a conclusion that M/s. SIL have availed CENVAT credit on input services received for use in SHAPTH-V commercial center. Therefore, they are deprived of abatement/exemption provided in Notification No. 1/2006-ST. Thus, they should pay service tax on the value of gross amount charged from their customers.

12.4 Further it is found that they have also launched other commercial construction schemes in the name of “SHAPATH HEZA and SHAPATH-VII” in the year 2010-11. They have received payments from their customers in the name of advance. M/s. SIL should pay service tax on these advance amount received from their customers at the appropriate rate.

12.5 Accordingly, service tax payable on their commercial projects of Shapath-V, Shapath Heza and Shapath – VII is worked out as per the details given in ANNEXURE – B enclosed to this notice.

12.6 M/s. SIL has received payment of Rs. 57,29,59,612/- from 2006-07 to 2010-11. In the agreement dated 31-07-2007 entered among the Society, M/s. SIL and M/s. SRIPL, the value of entire land is shown as Rs.3,50,00,000/-. On the same day another composite agreement is signed between M/s. Shiva Satya Hotel Pvt. Ltd. and M/s. SRIPL for construction of hotel on part of the land wherein the value of land apportioned for hotel project is shown as Rs.2,50,00,000/-. Therefore the value of remaining part of the land on which Shapath-V commercial building is being constructed is Rs.1,00,00,000/-. Service tax is to be charged on the value of services provided. Value of land does not form part of service provided. Thus, value of land of Rs.1,00,00,000/- is to be excluded from the taxable value. Accordingly, value of land is excluded from the taxable value i.e., the taxable value is reduced to that extent from the earliest receipt. After exclusion of land value as discussed above, amount of service tax payable work out

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to Rs. 5,75,79,538/- (which includes service tax of Rs. 5,60,66,986/-, education cess of Rs. 11,21,340/- and secondary & higher education cess of Rs. 3,91,212/-). However, they have paid service tax of Rs. 60,42,051/- (which includes service tax of Rs.58,66,069/-, education cess of Rs.1,17,321/- and secondary & higher education cess of Rs. 58,661/-). The remaining service tax of Rs. 5,15,37,487/- (which includes service tax of Rs. 5,02,00,917/-, education cess of Rs. 10,04,018/- and secondary & higher education cess of Rs. 3,32,551/-) is required to be recovered from M/s. SIL along with interest.

13. HOTEL PROJECT VIZ., HOTEL CROWN PLAZA: -

13.1 In the agreement dated 31-10-2007, it is mentioned that as the real estate scenario was not quite encouraging, they decided to bifurcate the land and sold a part of the land to M/s. Shiva Satya Hotels Pvt. Ltd. along with a contract for construction of hotel with international standard and also includes furniture and banquet hall for Rs/ 160 crores which includes value of land. The remaining part of the land was developed as commercial complex.

13.2 It appears that initially they planned to develop the Society’s land into commercial project in the name of “Shapath-V. But later on they modified the project. One portion was sold to M/s. Shiva Satya Hotels Pvt. Ltd. For hotel project, they have entered into a separate agreement on 31-10-2007 with M/s. Shiva Satya Hotel Pvt. Ltd. As per this agreement, M/s. SIL & M/s. SRIPL are given contract on turnkey basis to construct hotel Crown plaza, banquet hall, fixture, furniture and equipments at a total price of Rs. 160 crores. This includes value of land. Further they stated that for Hotel project, they are liable to pay VAT. Since their agreement with M/s. Shiva Satya Hotel Pvt. Ltd., is on turnkey basis and VAT is payable on transfer of value of goods, therefore, M/s. SIL claim of classification under work contract service appears to be correct.

13.3 Provisions of Work contract service as defined in Section 65(105)(zzzza) of the Finance Act, 1994 is reproduced below: -

“Any service provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways,   transport terminals, bridges, tunnels and dams.Explanation.—For the purposes of this sub-clause, “works contract” means a contract wherein,—(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and(ii) such contract is for the purposes of carrying out,—(a)    erection, commissioning or installation of plant, machinery, equipment or  structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or(c) construction of a new residential complex or a part thereof; or(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;”

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13.4 Further M/s. SIL has also opted for composition scheme as prescribed under Work Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. It is specifically mentioned that option to pay service tax under composition scheme shall be permissible only where the declared value of the works contract is not less than the gross amount charged for such work contract. Thus, the value for charging service tax under composition scheme would be the gross amount charged for such work contract. The effective rate of service tax under composition scheme from 01-06-2007 to 29-02-2008 was at 2.06% and w.e.f. 01-03-2008 the same is enhanced to 4.12%.

13.5 Application for approval of construction plan was made to AUDA in September, 2007 and the same was approved in February, 2008. The approved construction plan show that Wing-A of the construction plan is for Hotel project. This hotel project will have a restaurant, reception, lobby lounge, backup house area, banquet, rooms etc. This wing will have Ground + 10 Floors.

13.6 It appears that M/s. SIL has started paying service tax on hotel project in the year 2008-09 under work contract service and opted for composition scheme and paid service tax at 4.12%. That is service tax under composition scheme of work contract service was paid on value of Rs. 21,35,99,693/- @ 4.12% which work out to Rs. 88,00,306/- (Rs. 31,30,456/- in cash and Rs. 56,69,850/- through CENVAT credit account). At the same time they have also availed and utilized CENVAT credit of inputs services.

13.7 During the course of investigation of the case, it was found that they had obtained amount of Rs. 5 crores in the month of November, 2007 and Rs.45 crores in the month of December, 2007 from M/s. Shiva Satya Hotels Pvt. Ltd. but no service tax was paid on these amount. On being pointed out by DGCEI, they admitted the lapse and paid service tax of Rs. 76,69,998/- along with interest of Rs. 24,64,066/- vide e-receipt dated 18-06-2010 on the advance amount of Rs. 38 crores received from M/s. Shiva Satya Hotels. Service tax was paid @ 2.06% as this was the rate of service tax prevalent at the time of receipt of advance in the months of November, 2007 and December, 2007 under Composition Scheme of Work Contract Service. They claimed that the amount was received for the services to be provided and as per the provisions of service tax law, rate of service tax applicable is the rate prevalent as on the date of receipt of payment.

13.8 However, M/s. SIL has not paid service tax on the amount of Rs. 12 crores received in the months of November, 2007 and December, 2007 contending that these amount is attributable to price of land of Rs. 2.50 crores and for release of development right of Rs. 9.50 crores. M/s. SIL’s claim is that they entered into development agreement and obtained such rights after paying hefty sum to the Society. This amount should form part of value of land.

13.9 As per Section 67 of the Finance Act, 1994 read with Rule-4 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, gross amount charged should include the value of all goods used in or in relation to the execution of the work contract, whether supplied under any other contract for a consideration or otherwise and the value of all the services that are required to be provided for the execution of the work contract. Since the value of land does not form part of value of services provided in execution of work contract, the same may be excluded for the purpose of charging service tax. Further in the agreement entered with the society on 31-10-2007, it was clearly laid down that development right paid to the society is to be paid from the gross receipt from the proposed project. Thus, the same should be treated as cost of the project. No such exclusion of value of development right, as claimed by them, would be admissible. Value of land is shown separately in the agreement as Rs. 2.50 crores. Therefore this value of land can only be excluded from the taxable value.

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13.10 Further during the course of investigation, M/s. SIL has paid service tax of Rs.1,37,58,543/- (Rs. 1,32,69,344/- in cash paid vide e-receipt dated 27-08-2010 and Rs. 4,89,200/- through CENVAT credit account) and interest of Rs. 8,62,507/- being the service tax payable on value of services provided in the year 2009-10.

13.11 Hotel Project (Crown Plaza) being the on-going project in progress since 2007-08, M/s. SIL has been receiving payments from time to time. This payment is considered as part payment / advance. M/s. SIL is liable to pay service tax as and when they received payment from their client. On the basis of information received from M/s. SIL through various submissions, the details of payments received, service tax payable, service tax paid within due date, service tax paid during the course of investigation and differential service tax to be recovered under work contract service is furnished in enclosed ANNEXURE - B. It can be seen from the above that M/s. SIL should have paid Service Tax amounting to Rs. 2,49,10,783/- (Rupees two crore forty nine lakh ten thousand seven hundred eighty three only), (includes Service Tax of Rs.2,41,85,227/-, Education Cess of Rs. 4,83,704/- and Secondary and Higher Education Cess of Rs. 2,41,852/-) during the years 2007-08 to 2009-10 under Work Contract Service (with composition scheme). However, during the course of investigation, M/s. SIL has paid service tax of Rs. 2,14,28,541/- (Rupees two crore fourteen lakh twenty eight thousand five hundred forty one only), (includes Service Tax of Rs. 2,08,04,409/-, Education Cess of Rs. 4,16,088/- and Secondary and Higher Education Cess of Rs. 2,08,044/-). The remaining amount of service tax of Rs.39,86,847/- (includes Service Tax of Rs. 38,70,725/-, Education Cess of Rs. 77,415/- and Secondary and Higher Education Cess of Rs.38,707/-) is required to be recovered from M/s. SIL. It is found that in the year 2010-11, M/s. SIL has paid service tax appropriately. The amount paid during the course of investigation is required to be appropriated against their service tax liability.

14. CONTRAVENTION OF PROVISIONS OF THE FINANCE ACT, 1994:

14.1 The value of taxable Service for the purpose of service tax is defined under Section 67 of the Act. As per said Section, the value of the taxable Service shall be the gross amount charged by the service provider for such service rendered by them. Thus, the entire amount charged by them for providing taxable services would be liable to be charged for service tax. In the instant case, the said assessee has excluded certain value under garb of value of development right. No such provision exists in this section to exclude such value.

14.2 Section 68 of the Finance Act, 1994 provides that every person providing taxable service to any person shall pay service tax at the specified rates and in such manner and within such period as may be prescribed. Further, Rule 6 of the Service Tax Rules, 1994 stipulates that service tax shall be paid to the credit of the Central Government, by the 5th of the month immediately following the calendar month, in which the payments are received, towards the value of taxable services.

14.3 Section 69 of the Finance Act, 1994, provides that every person liable to pay the service tax, shall within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise. Rule 4 of the Service Tax Rules, 1994, prescribes that every person liable for paying the service tax shall make an application to the concerned Superintendent of Central Excise in Form ST-1 for registration within a period of thirty days from the date on which the service tax under Section 66 of the Finance Act, 1994 is levied.

14.4 Section 70 of the Finance Act, 1994, provides that every person liable to pay the service tax shall himself assess the tax due on the services provided by him and 26 | P a g e

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shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed. Rule 7 of the Service Tax Rules, 1994, prescribes that every assessee shall submit a half-yearly return in Form ST-3 or ST-3A as the case may be, alongwith a copy of the Form TR-6, in triplicate for the months covered in the half-yearly returns. Further sub-rule [2] thereto also provides that every assessee shall submit the half yearly return by the 25th of the month following the particular half-year.

15.1 In view of the above, it appears that M/s. SIL has contravened the provisions of:

Section 67 of the Finance Act, 1994 read with Service Tax (Determination of Value) Rules, 2006 in as much as they failed to pay appropriate service tax on the gross value charged by them for the taxable services provided;

Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, in-as-much as they have not paid service tax as detailed supra to the credit of the Government of India;

Section 69 of the Finance Act, 1994, read with Rule 4 of the Service Tax Rules, 1994 in-as-much as they have failed to make an application for registration in the manner and within the stipulated time for services provided under Commercial or industrial construction services and work contract services;

Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994, in as much as they had not declared the correct value of taxable service to the department in the prescribed return in form ST-3.

15.2 M/s. SIL is providing taxable services of commercial or industrial construction service and work contract services. Though they are registered with the jurisdictional service tax office, service tax was not paid appropriately for the years 2007-08 to 2010-11 as discussed above. Further in respect of commercial or industrial construction service, M/s. SIL is not registered with the jurisdictional service tax office and not paid any service tax payable thereon during the years 2006-07 to 2010-11 (upto June, 2010). These facts clearly indicate that they have deliberately and willfully suppressed the facts from the department with intent to evade payment of service tax. M/s. SIL intentionally did not include the gross value of receipt in their ST-3 returns. Therefore, it appears that the proviso to sub-section [1] of Section 73 of the Finance Act, 1994 is applicable to invoke the extended period of five years for the recovery of service tax not paid by them.

15.3 It appears that M/s. SIL was liable to pay due service tax but did not pay the same on the commercial or industrial construction services and work contract services provided by them and thereby contravened the provisions of Section 68 of the Finance Act, 1994 and hence rendered themselves liable to penal action under Section 76 ibid.

15.4 The service tax was not paid by them by way of suppression of facts / taxable value of services provided by them and contravention of the provisions of Finance Act, 1994 relating to service tax and rules made thereunder with intent to evade payment of service tax. It therefore, appears that M/s. SIL is liable to penal action under Section 78 of ibid.

16. Accordingly, M/s. Savvy Infrastructure Ltd., having registered office at B-900, Shapath-IV, Opp. Karnavati Club, S. G. Highway, Ahmedabad – 380 051 was called upon to show cause to the Commissioner of Service Tax, Ahmedabad, having his office at 1st Floor, Central Excise Bhavan, Nr. Panjra Pole, Ambavadi, Ahmedabad – 380 015 as to why:-

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i. Service tax amounting to Rs. 5,15,37,487/- (which includes service tax of Rs.5,02,00,917/-, education cess of Rs. 10,04,018/- and secondary & higher education cess of Rs. 3,32,551/-) (Rupees five crore fifteen lakh thirty seven thousand four hundred eighty seven only) which was not paid by them under “Commercial or Industrial Construction Services” during the period from 2006-07 to 2010-11, as detailed in ANNEXURE – A, should not be demanded and recovered from them under Section 73 of the Finance Act, 1994 by invoking extended period of five years as per proviso to sub-section (1) of said Section;

ii. Interest at appropriate rate should not be demanded and recovered from them on the amount of service tax not paid as mentioned at (i) above, under the provisions of Section 75 of the Finance Act, 1994;

iii. Service Tax amounting to Rs.2,49,10,783/- (Rupees two crore forty nine lakh ten thousand seven hundred eighty three only), (includes Service Tax of Rs. 2,41,85,227/-, Education Cess of Rs. 4,83,704/- and Secondary and Higher Education Cess of Rs. 2,41,852/-) which was not paid by them during the years 2007-08 to 2009-10 under Work Contract Service (with composition scheme), as per ANNEXURE – B, should not be demanded and recovered from them under Section 73 of the Finance Act, 1994 by invoking extended period of five years as per proviso to sub-section (1) of said Section;

iv. Service tax of Rs. 2,14,28,541/- (Rupees two crore fourteen lakh twenty eight thousand five hundred forty one only), (includes Service Tax of Rs. 2,08,04,409/-, Education Cess of Rs. 4,16,088/- and Secondary and Higher Education Cess of Rs. 2,08,044/-) paid during the course of investigation should not appropriated against their service tax liability as mentioned at (iii) above.

v. Interest at appropriate rate should not be demanded and recovered from them on service tax not paid as mentioned at (iii) above, under the provisions of Section 75 of the Finance Act, 1994;

vi. Interest of Rs. 33,26,573/- paid during the course of investigation should not appropriated against their service tax liability as mentioned at (v) above.

vii. Penalty under the provisions of Section 76 of the Finance Act, 1994, as amended, should not be imposed on them for failure to pay Service Tax, as mentioned hereinabove;

viii. Penalty under the provisions of Section 77 of the Finance Act, 1994, as amended, should not be imposed on them for contravention of provisions of the Finance Act, 1994, as explained hereinabove;

ix. Penalty under Section 78 of the Finance Act, 1994, as amended, should not be imposed on them for suppressing the full value of taxable services and material facts from the department resulting into non-payment/late payment of Service Tax as explained herein above.

17. Defence Reply:-

M/s. Savvy Infrastructure Ltd.,B-900, Shapath-IV, Opp. Karnavati Club, S.G. Highway, Ahmedabad-380051 have submitted their written submission in respect to SCN F. No. DGCEI/AZU/36-94/2010-11/2877 DT 20.10.2011. on 13.11.2011 which was as under.

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17.1. M/s. Savvy Infrastructure Ltd (hereinafter referred to as ‘SIL’), have received your above referred Show Cause Notice (hereinafter referred to as “SCN”) on 20.10.2011 asking us to show cause as to why:

(i) Service Tax amounting to Rs.5,15,37,487/- (which includes service tax of Rs.5,02,00,917/-, education Cess of Rs.10,04,018/- and secondary & higher education cess of Rs.3,32,551/-) (Rupees Five Crore fifteen lakh thirty seven thousand four hundred eighty seven only) which was not paid by them under “Commercial or Industrial Construction Services” during the period from 2006-07 to 2010-11, as detailed in ANNEXURE – A, should not be demanded and recovered from them under section 73 of the Finance Act, 1994 by invoking extended period of five years as per proviso to sub-section (1)of said Section;

(ii) Interest at the appropriate rate should not be demanded & recovered from them for the amount of service tax paid as mentioned at (i) above, under the provisions of Section 75 of the Finance Act, 1994;

(iii) Service Tax amounting to Rs.2,49,10,783/- (Rupees Two Crore Fourty Nine Lacs Ten Thousand seven hundred eighty three only) (includes service tax of Rs.2,41,85,227/-, education Cess of Rs.4,83,704/- and secondary & higher education cess of Rs.2,41,852/-)which was not paid by them during the years 2007-08 to 2009-10 under “Work Contract Services” (which composition scheme), as Per ANNEXURE – B, should not be demanded and recovered from them under section 73 of the Finance Act, 1994 by invoking extended period of five years as per proviso to sub-section (1)of said Section;(iv) Service Tax of Rs.2,14,28,541/- (Rupees Two Crore Fourteen Lacs Twenty Eight Thousand Five hundred Forty One only) (includes service tax of Rs.2,08,04,409/-, education Cess of Rs.4,16,088/- and secondary & higher education cess of Rs.2,08,044/-) paid during the course of investigation should not appropriated against their service tax liability as mentioned at (iii) above:

(v) Interest at the appropriate rate should not be demanded & recovered from them on service tax not paid as mentioned at (iii) above, under the provisions of Section 75 of the Finance Act, 1994

(vi) Interest of Rs.33,26,573/- paid during the course of investigation should not appropriated against their service tax liability as mentioned at (v) above.

(vii) Penalty under the provisions Section 76 of the Finance Act, 1994 as amended, should not be imposed on them for failure to pay Service Tax, above.

(viii) Penalty under the provisions Section 77 of the Finance Act, 1994 as amended, should not be imposed on them contravention of provisions of the Finance Act, 1994, as explained hereinabove;

(ix) Penalty under Section 78 of the Finance Act, 1994 as amended, should not be imposed on them for suppressing the full value of taxable Services and material facts from the department resulting into non-payment/late payment of Service tax as explained herein above.

17.2. At the outset, they vehemently objected to the proposal of demand of service tax and interest as stated in the Show Cause Notice and stated that no such service tax or interest is payable by them and the penalty cannot be imposed on them as they had not violated any of the provisions of the Act or the rules made there under. The SCN is based

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on presumptions and assumptions and is issued in sheer disregard of facts on record, legal provisions, decided case laws and departmental instructions.

17.3. They submitted that the SCN is issued in sheer disregard of facts on record which clearly show that Demand of service tax on builder & developer without going to the basic definition, circular & clarification of the board only by any stretch of imagination and accordingly the demand under the SCN is not sustainable on merit. Further, there is no fraud, or collusion or willful misstatement or suppression of facts or contravention of any of the provisions of the Act, or the rules made there under with intent to evade payment of service tax on their part and hence the demand is not sustainable on the ground of limitation also as the SCN is issued after a limitation period of one year from the relevant date. SCN is issued to them on 20.10.2011 covering period from 1.4.2006 to 31-03-2011 which clearly shows that the same is issued beyond a period of one year from the relevant date.

17.4 The SCN is vague in its contents as it straight away alleges and states on its para 15.2, that “…A .” without in any manner stating or substantiating any positive act of fraud, collusion, willful misstatement, suppression or intent to evade payment of service tax on their part.

But, they were registered with dept. under “‘Commercial & industrial construction service”, “Works contract service” & “ goods transport service’. They had also filed ST-3 return regularly with the dept. Despite these facts being clearly had in knowledge of dept since 2007 & onwards, saddling with the SCN issued in the year 2011 alleging suppression of the fact is itself a ground on which the SCN is illegal, unfair and uncalled for. Confirmation of having knowledge about the practice of the assesses since 2007 & onwards and issuing SCN on the same issue in 2011 alleging suppression proves clear contradiction of the stand taken in the SCN and thus the SCN is capricious. In the light of above we have therefore to request you to drop the proceedings under SCN on the ground of being vague and capricious.

Before going to the issue raised in the SCN they wanted to draw attention towards the fact of the case as under. Now the salient issue to be addressed here are as under :-

(i) Whether assesses can perform dual service as a builder & contractor simultaneously or not.(ii) Whether cost of expenses were incurred for the development right for land & land cost amt to Rs, 9.5 crore to be includible in the gross value of service tax under the works contact service or not.(iii) Service tax paid as an associated concern in the year 2008-09 on booking amount Rs.5.24 crore, whether we were liable to pay service tax on such amount on realization in the year 2009-10.(iv) Whether we were liable for the service tax under the act w.e.f from the 01.07.2011 or w.e.f. 10.09.2004 onwards.(v) Whether Shapath-V, Shapath Hexa & Shapath -7 all to gather separate scheme as a builder, on which we have discharged service tax on normal course under the construction service, whether it amount to suppression & not eligible for the abatement benefit. (vi) Not contrary to the supra submission, if we were liable, we were eligible for the abatement benefit or not under not. No. 1/2006.(vii) When undisputed duty demanded has been discharged in the normal course , whether penalty may be imposable under the section 76 & 78 of the finance act,1994.(viii) Whether extended period can be invokable or not.

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17.6 Whether assesses can perform dual service as a builder & contractor simultaneously or not. In this regard it is submitted by them that there were no bar in performing dual role as a builder & contractor for the separate activities; They were working for the hotel project as a contractor where they have only responsibilities to construct the building as per their requirement. On which they were discharging service tax under the “works contract service”. While in case of commercial projects, they were working in as a self developer of the properties, which they were selling to the prospective buyers via sale agreement. On which they are discharging service tax w.e.f.01.07.2010 & onwards under the deeming fiction as applicable to the builder. It was further submitted that, they had sold land to the M/s. Satya Sankalp Hotel P Ltd. Then after, they have been entered in the contract with the M/s. Satya Sankalp Hotel P Ltd for construction of their hotel building as per their requirement & design. In that case they had worked as a construction agency.Whereas, the balance land have been developed by them as a commercial projects. For which design, construction & sale of space were carried out by them.

From the above it is clear that they were working separately as a builder & contractor. So department contention was not acceptable & tenable.

17.7.1 Regarding the ownership of the land, they drawn attention to the development agreement which give exclusive & non revocable right to sale f the properties as per discretion of M/s. SIL. BY which they became the owner of the land. They further drawn attention to the fact that they were worked as a builder, after acquiring the land they had constructed commercial properties, so they were not constructed on behalf of the land owner. So consideration given for the land right were a par with the purchase of land.

17.7.2 Payment for development rights Company had entered into a composite agreement with Shiva Satya Hotel Pvt. Ltd. and accordingly it was decided that Shiva Satya Hotel Pvt. Ltd. will pay Rs.12 crores, towards the land and land development rights and balance Rs. 148 crores will be paid towards construction of the hotel. As per this Agreement, Sale Deed was entered with Shiva Satya Hotels Pvt. Ltd. for which though document value is Rs.2.5 crores (which has to go to the Society), Rs.9.5 crores are paid towards land development right payable to the Company.

17.7.3 In this regard they drawn attention towards the clarification issued by the board as under; Letter F.No. B1/6/2005-TRU, dated 27-7-2005.

13.6. “The taxable service is the service provided in relation to construction of a residential complex. Service tax would be payable only on the gross amount charged by the service provider for the construction service provided and it would not include the cost of land and stamp duty paid for registration of land. However, notification No. 18/2005-S.T., dated 7-6-2005 provides option to avail abatement and pay service tax only on 33% of the gross amount charged, subject to fulfillment of conditions specified in the notification”.

17.7.4 From the above it is clear that whatever may payment made to the Land owner has to be excluded for the calculating the gross value under the service tax Act, 1994.

17.7.5 They also relied in support of their case on the following citation:2010 (19) S.T.R. 546 (Tri. - Bang.) IN THE CESTAT, SOUTH ZONAL BENCH, BANGALORE S/Shri T.K. Jayaraman, Member (T) and M.V. Ravindran, Member (J) OCEAN BUILDERS Versus COMMISSIONER OF C. EX., MANGALORE Stay Order

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No. 925/2009, dated 29-5-2009 in Application No. ST/Stay/96/2009 in Appeal No. ST/164/2009

Stay/Dispensation of pre-deposit - Construction of Residential Complex service - C.B.E. & C. Circular dated 29-1-2009 relied on by appellant to contend that Service tax not liable to be paid as they were builders - Inclusion of value of land for tax purpose also assailed - Appellant having strong case on merits - Pre-deposit waived - Section 35F of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. [paras 3, 4]Pre-deposit waived

17.7.6 So from the above basis they requested to drop the proceeding of the demand of service tax on development charges excluded while calculating tax under the category of “Works Contract Service’. So reduce the demand of service on WCT on gross value amt to Rs. 7.5 crore service tax demand Rs. 19,17,500/-.

17.8 With regard to the Service tax paid as an associated concern in the year 2008-09 on booking amount Rs.5.24 crore, whether they were liable to pay service tax on such amount on realization in the year 2009-10, they submitted that, they had paid service tax on booking amount in the year 2008-09. During the impugned period they have booked income from contract income amount to Rs.22,24,00,000/- against which they were in receipt of actual amount Rs.17,00,00,000/-. They had discharged service tax on the amount to Rs. 22,24,00,000/-, so excess service tax has been discharged by them on the amount Rs.5,24,00,000/- amounting to Rs.20,69,347/-, while actual realization of the amount in November-2009. So while calculating the service tax liabilities that much excess paid on the booking basis has to be allowed as deduction. Therefore the demand of service tax paid in the year 2008-09 amt to Rs. 20,69,347/- has to be reduced from the liability calculation for the year 2009-10.

17.9.1 It is the submission of the assessee that the moot question here is that whether they were liable for the service tax under the act w.e.f from the 01.07.2011 or w.e.f. 10.09.2004 onwards, in this regard it was submitted by them that it is Undisputed fact that,

(i) They were owner of the land.(ii) They were hiring the contractor for carrying out the construction hiring the

contractor.(iii) They were selling the commercial space to the buyer on sale agreement.

17.9.2 They were builder & developer of the scheme developer of the “Shapath-V”. They were paying service tax to the contractor, who provides service to them. They herewith disowned the tax liability, when inasmuch as the contractors paid appropriate service tax and there was no liability on them to pay service tax on the same subject-matter prior to 1-7-2010. This plea is based on an Explanation added to sub-clause (zzq) and a similar Explanation added to sub-clause (zzzh) of clause (105) of Section 65 of the Finance Act, 1994. One of these explanations is reproduced below:-

“Explanation. - For the purposes of this sub-clause, the construction of a building which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorized by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer;]”

17.9.3 The above Explanation was added to sub-clause (zzq). The said sub-clause laid down that any service provided or to be provided to any person by any other person in relation to “commercial or industrial construction” would be a taxable

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service. As per sub-clause (zzzh), any service provided or to be provided by any person to any other person in relation to “construction of residential complex” would also be a taxable service. An explanation similar to the above was added to this sub-clause also. Both the Explanations came to be inserted with effect from 1-7-2010 by Section 76 of the Finance Act, 2010.

17.9.4 Prior to the enactment of the above Explanations, a builder was not a service provider and that a builder could be deemed to be service provider only with effect from 1-7-2010 and, therefore, the demand of service tax on the appellant for the periods of dispute, which are admittedly prior to 1-7-2010 cannot be sustained in law. 17.9.5 They also relied in support of contention on the Board’s Circular No. 108/2/2009-S.T, dated 29-1-2009.

“The matter has been examined by the Board. Generally, the initial agreement between the promoters/builders/developers and the ultimate owner is in the nature of ‘agreement to sell’. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a residential complex with a promoter/builder/developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of ‘residential complex’. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax”.

17.9.6 Now another moot question is that whether Explanations should be given retrospective effect inasmuch as, they also claim in support of their contention that explanation is prospective only,

They further relied in support of contention on the decisions cited as under.2009 (13) S.T.R. 56 (Tri. - Bang.) IN THE CESTAT, SOUTH ZONAL BENCH, BANGALORE Dr. S.L. Peeran, Member (J) and Shri T.K. Jayaraman, Member (T) ROHAN BUILDERS LTD. Versus COMMR. OF SERVICE TAX, BANGALORE Final Order No. 891/2008, dated 28-7-2008 in Appeal No. ST/439/2007

Construction of Residential Complex service - Flat construction - Tripartite agreement indicating appellant as first party acting as actual developer of residential complex and second party being flat purchaser - Development includes construction of residential complex - Contention of appellant that only sale of property undertaken, not acceptable - Appellants themselves undertaking development of property through contractors - Construction of Residential Complex service rendered - Sections 65(30a), 65(105)(zzzh) and 73 of Finance Act, 1994. [para 7]

Penalty (Service tax) - Payment of Service tax before SCN - Service tax paid with interest before issue of show cause notice - Doubts on liability and interpretation of provisions involved - Penalties set aside - Sections 76

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and 78 of Finance Act, 1994. [para 7]

Appeal partly allowed

17.9.7 So from the above it is clear that we as a builder were liable for the service tax w.e.f. 01.07.2011 & onwards, which we were discharging accordingly. Therefore the demand of service amt to Rs.4,54,95,436/-prior to 30.06.2010 was not sustainable, and requested to drop the proceeding in the interest of justice.

17.10.1 They were of the view that builders and developers are placed under the same category different from contractor and hence Service Tax is not applicable to the developers. Developers are not contractors and not providing any service to Society.

17.10.2 To support their above view, they brought forth findings from the development agreement and the position of developers under various laws :

“[1] Findings from the Development AgreementThe points as regards the Development Agreement arrived at in respect of scheme "SHAPATH-V" between the Empire State Shops, Offices and Premises Co- Operative Housing Society Ltd., (hereinafter be referred to as the "Society") of the One Part and Savvy Infrastructure Ltd., and Savvy Realty and Infrastructure Pvt. Ltd., (hereinafter be referred to as the "Developers") of the Other Part.

17.10.3 Before considering the conditions and nature of the Development Agreement, in question (hereinafter referred to as the "Said Development Agreement"), the term Contractor, as per the Construction Agreement is to be understood:-

17.10.4 Consideration is given to the Society at the initial stage itself, which is nothing but akin to transfer under the Transfer of Properties Act.

17.10.5 Under this development agreement, the company had become developer and in fact had taken all the activity on its own. These activities include passing of plan, carrying out actual construction work, purchase of materials, hiring the services of contractors and laborers, hiring the services of architects, marketing the project, determined the price of the units, collection of funds and ultimately bare 100% outcome of the project that might be profit or loss. Further, Society is obliged to enter into Sale Agreement/Allotment Agreement unit-wise with the buyer of the commercial unit on the instruction of &-developer without getting any further amount towards land.

17.10.6 They further drawn attention to the various positions under the law including position in service tax whereby it is clear that developers are not merely contractors and hence provisions of service tax with regard to residents of complex and commercial construction service are not applicable to the developers.

17.10.7 Further, Institute of Chartered Accountants of India has also considered builders and developers under the same category and hence issued same guidelines/rules for both builders and developers for their revenue recognition.

17.10.8 Further, on the above bonafide belief, Company had not

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collected any service tax from the proposed buyer of the commercial units.

17.10.9 On the ground mentioned above, they were of the view that Company being builder as well as developer is not liable to service tax till 1.7.2010.

17.10.10 It was further submitted that due to amendments w.e.f. 1.7.2010, service tax is applicable on builders and developers, as per the amended definition, and accordingly Company had already started paying service tax in that category.

17.10.11 Society in the revenue records with limited rights AND also for the common maintenance, management and administration, it will be easier for all the members that the same shall be looked after through the Society. Even otherwise also under the Gujarat Ownership of Flats Act a body is required to be formed which represents all the premises holder and look after all affairs, common maintenance, management and administration of the entire building in the instant case such body will be the Society.

17.11.1 The said Development Agreement can not be said to be a Construction Agreement between Owner and Contractor. No service is agreed to be provided by the Developers to the Society. On the contrary the situation herein is totally reverse. The Developers have acquired-purchased rights of development on the lands against payment of fixed amount. (Reference: Para 1.6 on page 4 and 5).

17.11.2 As stated above, the development rights (as per the said Development FSI rights – right to put up construction) of the said land are transferred to and acquired by the Developer. Hence, the right to put up the construction and the rights over and in respect of construction put-up – to be put up are absolutely belongs to the Developer only. The Developer by virtue of such has become absolutely entitled to rights evolves scheme by putting up construction of a building consisting of various premises. The Developer gets ownership rights in respect of construction and right to sale such construction/s by entering into separate Agreements with Prospective Purchasers in such manner as the Developers may deem fit. (Reference: Para 1.1 on page 4, Para 5.4 on page 8 and 9 and Para 6.3 on page 9).

17.11.3 The Society has not been left with any rights of gaining profit in respect of the Said Land or development thereon nor it is liable for any loss in the project and it has only right to get fixed price as per the agreement. The Developers will be entitled to the profit or liable to suffer the loss by act of construction. (Reference: Para 2.6 on page 6, Para 4.3 on page 7, Para 5.4 on page 8 and 9, Para 6.4 on page 9, Para 10.1 on page 4).

17.11.4 The Development Agreement between the Society and the Developers are on principal to principal basis that is the Developers are not agent or working for or under the Society. (Reference: Para 1.5 on page 4).

17.11.5 The development rights under the said Agreements are treated and understood as such rights transferred to the Developers from the Society with the spirit and intention that the entire scheme – project to be carried out and completed by the Developers at their r isk, cost and consequences. (Reference: Para 1.5 on page 4 and 5). According to this Para, the development rights are purchased by the Developers. In other words the rights

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to put up construction (FSI rights) and to develop the said lands absolutely belongs to the Developer only and upon execution of the said Development Agreement the Society has not been left with any rights to put up construction and develop the said land, save and except rights to receive sale consideration which has already been paid to the Society.

(a) The Contractor means a person who agrees to put up construction at the cost and risk of the Owner, under Owner's instruction and as per the Owner will and desire.

(b) The Contractor is agreed to be paid certain amount by the Owner as remuneration for and towards the services provided by the Contractor.

(c) The Contractor is merely an Employee or Agent appointed by of the Owner and the Contractor has nothing to neither do with nor acquires any rights over the construction or development to be carried out.

(d) After completion of the work of construction, the Owner becomes owner of and holds Ownership over the construction being put by the Contractor with full rights and absolute authority to deal with and/or dispose of the same in the manner the Owner may deem fit and proper, as absolute Owner. No legal possession is being passed to the Contractor. The possession holds by the Contractor during work of contract as the agent and under authority of the Owner.

(e) The only right of the Contractor under the Construction Agreement is to get remuneration and/or charges fixed there under, from the Owner. The Contractor has nothing do with any profit or loss if any, incurred or suffered by the Owner. More over the Contractor does not acquire any right or interest in the property of the Owner.

17.12 As regards the Development Agreement in question (hereinafter referred to as the "Said Development Agreement"), the same is an agreement or arrangement which transfers and assigns all development rights –FSI rights in respect of the said land and all rights, powers and authorities in respect of the Said Land to carry out to complete the scheme thereon and also to dispose of all the premises in the scheme, in favour of the Developers for the price already paid by the Developers to the Society. Such price paid by the Developers to the Society is equivalent or more than the then prevailing land cost. On going through the terms of the Development Agreement, considering true spirit and intention thereof, it can be understood that:-

Such Agreement is purely a Development Agreement whereby the Developers have acquired all developments – FSI rights in respect of all the land and exclusive right to develop the Said Land at their (Developers') risk and expenses. (Reference: Para 3 on page 3, recital part). Accordingly the Developers alone have become Owners of the project – developments and all the development and construction to be put up are at the deposal of Developers only in such manner and at such price as the Developer may deem fit and proper.

It is hereby necessary to clarify that the Society merely left with limited rights in respect of the land and all the rights of construction – FSI rights and right to transfer the developed property absolutely belongs to the Developer. The premises as stated in the said Development Agreement are to be held by the Prospective Purchaser/s as the allottee member of the Society is because the part of the property stands in the name of the

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The Developers shall be entitled to make available the premises in scheme to such person/s as they may deem fit and proper and to receive all the moneys to the Prospective Purchaser and also be appropriate the same to the project or to themselves or for any other purposes as the Developers may deem fit. All the moneys which shall be received by the Developers from the Prospective Purchaser shall belong to the Developers and will be received by them on their own account. The Society shall not be liable or responsible to any person so far as the said moneys are concerned either for refund thereof or for any misapplication or non-application thereof or part thereof. (Reference: Para 5.4, on page 8 and 9).

The development of the Commercial Project on the said lands shall be under the total control and management of the Developers and that all decisions that may be taken in the matters relating to the same by the Developers shall be final. (Reference: Para 6.4, page 9).

The Developers will continue to hold the said lands and developments thereon and remain in possession thereof till the scope and purpose of this agreement of building and developing of Commercial Projects are duly achieved and all the amounts to be recovered from the project are received. (Reference: Para 6.8, on Page 10).

The right or interest of the Developers under this agreement whole or in part or parts shall be transferable, assignable or heritable, and the Developer may generally deal with or dispose of the same as the Developers may deem fit. However, the same shall be at the cost and expenses of the Developers. (Reference: Para 6.9, on page 10).

(k) Even the Developers are given rights and are entitled to raise loan either on the said land or the project (Reference: Para 8.3, on page 12).

(l) The rights of the Society to enroll the members are restricted by said Development Agreement. (Reference: Para 11. 1, on page 15). Various rights of the Society are also restricted under Para 11).

(m) The said Development Agreement is irrevocable until the commercial project is fully and finally implemented, all the premises have been disposed of and the amounts to be received or recoverable by the Developers under the project are duly received or recovered from every person whomsoever and till then, the Developers shall be entitled, also, to retain the possession of the said lands and the commercial project that may be put up thereon. (Reference: Para 11.4, on page 15). The above clause is subject to observance and performance of the provisions of the Development Agreement on the part of the Developer. The only obligation of the Developers is to pay agreed amount which has already been paid by the Developers. Till date the Developers have paid the sum of Rs. 203539130/-”.

17.12.2 From the aforesaid facts it would be apparently clear that the transaction between the Society and the Developers could not be said to be any service rendered by the Developers but it is acquisition of certain rights in respect of the said land by the Developer for its business purpose, as the Builder against price paid. All the expenditure to clear the said land and make the same and the construction thereon as salable, marketable are borne and paid by the Developer.

17.13. Position under Income Tax Act.Under the Income Tax Act, any transaction involving allowing of

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possession of any immovable property to be taken or retained in part performance of the contract of the nature as referred to Section 53A of the Transfer of Properties Act, 1882, same shall be considered as transfer as per Section 2(4)7 (v) of the IT Act.

In the given case, possession of the immovable property is handed over to SIL by the Society that is undisputed. Further, developer i.e. SIL is willing to carry out his part of the contract including already paid 100% money towards the development right and Nave domain and control over the asset, and hence same should be considered as transfer under the Transfer of Properties Act.

Decision of Arif Akhatar Hussain Vs. Income Tax Officer before Income Tax Appellate Tribunal, Mumbai.

• In the above case, it was held that development right entered with the developer is transfer of land.(copy of judgment attached).

In case of Chaturbhuj Dwarkadas 260 ITR 491 Bom. High Court, it was held that development agreement is nothing but the t ransfer . When the Agreement of Development enable to passing of domain and control by grant of irrevocable authority, this date of agreement will constitute the date of transfer.

17.14 View of the Institute of Chartered Accountants of India

Developer is not working for remuneration from landlord but is working for himself in order to exploit the potential of his business in his own interest. It opted for all business risks associated with the business of the real estate.

In the above situation, Institute of Chartered Accountants of India (ICAI) has come out with the Guidance Note for recognition of revenue by real estate developers. In this guidance note, in its introductory remarks, they have clearly mentioned that this recommended principle for recognition of revenue is applicable to enterprises engaged in real estate activity and such entities are commonly referred to as [a] Real Estate Developers [b] Builders [c] Property developers.

Thus, even ICAI Premium Accounting Body of the Nation has treated builders and developers under the same category and hence are under equal revenue recognition norms. Accordingly, Service Tax law should also be applicable equally.

17.15 Position under the Service Tax

The Circular issued by Department in the year 2007 also clearly mentions that promoters/ builders / developers are under the same category as per that Circular.

In the above circumstances, Company is of bona fide view that service tax is not applicable as developer on development of commercial building.

17.15.1 Whether Shapath-V, Shapath Hexa & Shapath -7 all to gather separate scheme as a builder, on which we have discharged service tax on normal course under the construction service, whether it amount to suppression & not eligible for the abatement benefit.

17.16 They further submitted that they had discharge service tax liabilities on the Shapath-V, Shapath Hexa & Shapath -7 under the deeming clause of service tax

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applicable to builder & developer w.e.f.01.07.2010 after claiming of abatement specified in Not.No.1/2006 amount to Rs. 60,42,051/- in due course, which has been discharged in the normal course. So it can not be treated as suppression & eligible for the abatement.

17.17 They further reiterated the text of notification no.36/2010 as under: “Exemption to advances received prior to 1-7-2010 towards 8 new services introduced and specified existing services expanded by Finance Act, 2010

In exercise of the powers conferred by sub-section (1) of Section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services specified in clause (A) of section 76 of the Finance Act, 2010 (14 of 2010) other than services referred to in clause (zzc) and (zzzz) of sub-section (105) of section 65 of the Finance Act from so much of the service tax leviable thereon under section 66 of the Finance Act as is in excess of the service tax calculated on a value which is equivalent to the amount of advance payment received before the said appointed date.Explanation. - For the purpose of this notification,(i) “Appointed date” means the 1st day of July, 2010;(ii) “Advance payment” means consideration received for the said taxable services to be provided.2. This notification shall come into force on the date of its publication in the Official Gazette.[Notification No. 36/2010-S.T., dated 28-6-2010]”.From the above it is clear that they as service provider were not liable for the

receipt of amount prior to 30.06.2010, as a builder & developer.

17.18 Not contrary to the supra submission, they further drawn attention to the fact that if dept’s treat out activities fall under the “commercial & Industrial construction”, then they were eligible for the abatement of service value vide not No. 1/2006, so to that extent demand for the service tax may be reduce.

17.19 They further submitted that the fact as discussed in SCN that, they had availed cenvat credit so they were not eligible for the benefit of abatement, but they had followed the procedure mention in the rule 6.(1) of cenvat credit rule for the maintenance of separate records for the service provided & availed. Further, it is provided in the said notification that the abatement is available to the service provider only if following conditions are satisfied.

(i) the CENVAT Credit of duty on inputs or capital goods or the CENVAT Credit of service tax on input services, used for providing such taxable services, has not been taken under the provisions of the CENVAT Credit Rules, 2004; or

(ii) the service provider has not availed the benefit under the notification No. 12/2003-Service Tax, dated the 20th June, 2003 of the Government of India in the Ministry of Finance (Department of Revenue),

17.19.1 As they have fulfilled the aforesaid conditions, they were eligible for the abatement in service tax value not contrary to the submission made in the above referred para.So duty demand may reducible from the amt to Rs. 5,15,37,487/- to the amt to Rs. 1,70,07,370/-.

17.20 Regarding service tax paid under the category of WCT service in normal course & Commercial and industrial construction service they have agreed & paid service tax with interest prior to issuance of SCN.

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17.21 In spite of anything contained above they drawn attention to the fact that, if assesses had paid service tax with interest suomotu , then no SCN has been issued , if SCN has not been issued, then penalty proceeding may be void ambition. In support of their claim they relied on the following notification as under.

17.22 “Show cause notice—Waiver of, on payment of Service tax with interest Commissioner of Central Excise, Madurai, Trade Notice No. 48/2008, dated 3-10-2008.

There are instances where the assesses are reluctant to pay the duty involved in the case of short/non payment etc. of duties in contravention of the Act/Rules, due to apprehensions about the follow-up penal proceedings by the Department.

In this regard it is hereby brought to the notice of the assesses that they can make immediate payments of the Central Excise duty/Service Tax involved as soon as they receive the intimation from the Central Excise Officers determining the amount of duty/service tax involved, under the provisions of Section 11A(2B) of Central Excise Act, 1944 and under the provisions of Section 73(3) of Finance Act, 1994. For the convenience of the trade the provisions of the Section 11A(2B) (not reproduced)/Section 73(3) & (4) ibid are furnished below :

  Section 73(3) & (4) of Finance Act, 1994;

(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid :

Provided that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of “one year” referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.Explanation. — For the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer, but for this sub-section.

(4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of —(a) Fraud; orb) Collusion; or(c) willful mis-statement; or(d) Suppression of facts; ore) Contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax.

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In view of the above provisions it is brought to the notice of the trade and industry that show cause notice under Section 11A(1) of Central Excise Act, 1944 and under Section 73(1) of Finance Act, 1994 will not be served to the defaulters provided they made immediate payment of the duty involved along with interest as discussed above except under the situations mentioned in Explanation 1 provided under Section 11A(2B) and Sub-section (4) of Section 73 mentioned above.4 This issues with the approval of the Commissioner”. .

17.22.1 They also reled on the following clarification in support of their claim.

“Frequently Asked Questions (FAQ) on Service Tax FAQ, 4th Edition, December 2008 issued by .G.S.T. Government of India Ministry of Finance (Department of Revenue) Central Board of Excise & Customs, New Delhi

17.23 Can show cause notice be waived?Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise/Service Tax Officer before service of notice on him and inform the Central Excise/Service Tax Officer of such payment in writing, in such a case show cause notice will not be issued. [Refer Section 73(3) of Finance Act, 1994]. However, sub-section (3) of Section 73 of Finance Act, 1994, is not applicable to the cases involving fraud or collusion or willful mis-statement or suppression of facts or contraventions of any of the provisions of Chapter V of the Finance Act, 1994 and the rules made there under with intent to evade payment of Service Tax [Refer sub-section (4) of Section 73 of Finance Act, 1994]”.

Please drop the proceeding in the interest of justice.

In this regard they also reled on the following case laws in support of their contention.

(i) 2009 (14) S.T.R. 803 (Tri. - Bang.), IN THE CESTAT, SOUTH ZONAL BENCH, BANGALORE Shri T.K. Jayaraman, Member (T) C AHEAD INFO TECHNOLOGIES INDIA P. LTD. Versus C.C.E. (A), BANGALORE-II Final Order Nos. 1437-1438/2008, dated 2-1-2009 in Appeal Nos. ST/299 and 275/2008 Interest and penalty (Service tax) - Bona fide belief - Service tax with interest paid during investigation - Levi ability not disputed by appellant - Issue covered under Section 73(3) of Finance Act, 1994 and appellant entitled to waiver of show cause notice - Records indicating absence of intent to evade - Bona fide belief on non-liability for software training - Penalties not imposable - Interest chargeable - Sections 73, 75, 76, 77 and 78 ibid. [paras 3, 4, 4.1]

Assessee’s appeal allowed/Revenue’s appeal dismissed.

(ii) 2009 (15) S.T.R. 219 (Tri. - Chennai) IN THE CESTAT, SOUTH ZONAL BENCH, CHENNAI Shri P. Karthikeyan, Member (T) SANTHI CASTING WORKS versus COMMISSIONER OF C. EX., COIMBATORE Final Order No. 1348/2008 and stay Order No. 1008/2008, dated 27-11-2008 in Application No. S/PD/167/2008 in Appeal No S/203/2008

Penalty (Service tax) - Delay on payment of Service tax - Service tax on Technical Testing and Inspection service not paid initially but paid later with interest - Section 73(3) of Finance Act, 1994 providing for non-issue of show

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cause notice when Service tax paid with interest voluntarily - C.B.E. & C. vide circular dated 3-10-2007 clarified conclusion of proceedings in such a situation - Penalty not imposable - Sections 73 and 76 ibid. [paras 1, 3]

Appeal allowed (iii) 2008 (11) S.T.R. 475 (Tri. - Bang.) IN THE CESTAT, SOUTH ONAL BENCH, BANGALORE Dr. S.L. Peeran, Member (J) and Shri T.K. Jayaraman, Member (T) TIDEWATER SHIPPING PRIVATE LTD. Versus COMMR. OF SERVICE TAX, BANGALORE Final Order Nos. 458-461/2008, dated 13-3-2008 in Appeal Nos. ST/279, 249, 290 and 397/2007

Penalty (Service tax) - Imposition of - Due to bona fide belief Service tax liability not discharged in time, but as soon as lapse pointed out by Department Service tax along with interest paid, much before issuance of SCN - Section 73(3) of Finance Act, 1994. and C.B.E. & C. Circular providing no penalty imposable if assessee cleared tax due along with interest on his own and even on insistence of Department - Impugned reversionary order enhancing penalty not sustainable - Sections 76, 77 and 78 ibid. [paras 1, 4], Appeals allowed

Therefore they requested to drop the penalty proceedings.

17.24 Regarding contention of your honor in SCN that the assessee has “Suppressed the material facts of realization of value service and also discharging the service liability in respect to the service provider” are untenable. Suppression of facts as per supreme court, in the case of Pushpam Pharmaceutical Company v/s Collector of Central Excise Bombay [1995 Supp (3)SCC 462], While dealing with the meaning of the expression “suppression of facts” in proviso to section 11A of the Act held that the term must be construed strictly, it does not mean any omission and the act must be deliberate and wilful to evade payment of duty. The Court further held that:-

“In taxation (‘Suppression of facts) can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty where facts are known to both the parties, the omission by one to do what he might have done and not that he must have done, does not render it suppression”.

Relying on the aforesaid observations of this court in the case of Pushpam Pharmaceutical Co. v. Collector of Central Excise, Bombay [1995 Suppl*3) SCC 462] further stated that, “we find that suppression of facts can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty when fact were known to both the parties, by one to do what he is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression”.

In view of above and the fact that there was no deliberate intention on the part of the assesses, not to disclose the correct information or to evade payment of duty, we have filed service tax return regularly.

17.25 They reproduced the provision of section 73 & 78 of the said Act:

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“Section 73:-Recovery of service tax not levied or paid or short levied or short paid or erroneously refunded:

1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the [Central Excise officer] may within one year from the relevant date, serve noticed on the person chargeable with service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show case why he should not pay the amount specified in the notice.

Provided that where any service tax has been levied or paid or has been short levied or short-paid – levied or short paid or erroneously refunded by reason of –(a) Fraud or (b) Collusion; or(c) Willful misstatement; or(d) Suppression of fact: or(e) Contravention of any the provisions of this chapter or of the rule made

there under with intent to evade payment intent to evade payment of service tax.

Section 78:Penalty for suppressing value of taxable service:Where any service tax has not been levied or paid or has been short-levied or short paid or erroneously refunded by reason of –

(a) Fraud; or(b) Collusion; or(c) Willful mis statement; or(d) Contravention of any of the provisions of this chapter or of the rules made there

under with under intent to evade payment of service taxthe person liable to pay such service tax erroneous refund as determined under

person , liable under sub-section (2) of section 73 shall also be liable to pay a penalty in addition to such service tax and interest thereon. if any, payable by him which shall not be less than, but which shall not exceed twice the amount of service tax so not levied or paid or short-levied or short paid or erroneously refundable”.

In their case there is no requirement to invoke sec.73 (1) (a) of the finance Act, consequently there are no applicability of penalty under sec. 78 of the Finance Act.

From above it is clear that they had not paid service tax claimed in SCN on the basis of our above submission, it is a reasonable cause of not discharging their statutory liability as mentioned above due to interpretation of law and general trade practice.

Therefore, there is no requirement to invoke sec.73 (1) (a) of the Finance Act, for the period from 01.04.2006 to 31.03.2011 and consequently there are no applicability of penalty provision under sec. 78 of the Finance Act for that period. The demand is therefore barred by limitation.

Thus it would be seen that there was no deliberate defiance on their part. In view of the above, a lenient view may please be taken and the proceeding may be dropped in the interest of Justice.

We have deposited the amount of service tax with interest even though they were not liable for service tax. In view of the above, a lenient view may please be taken and the proceeding may be dropped in the interest of justice.

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(4) While deciding the similar type of cases of service tax and central excise law have mentioned below the honorable CEGAT as well as commissioner (appeal) has taken lenient view and has not impose any penalty under section 76, 77 & 78 of finance Act, 1994 and has given relief of section 80 ibid of finance Act, 1994 of Service Tax Act. We also rely on such Judgment in support of our case:

In this regard they also relied on following case law in support of their contention.

1.CCE, Bhopal V. Thyrocare Services [2006(4) STR 200 (Tri.-Del.)]; Genuine interpretational dilemma as to correct classification of service and possibility existing of assessee being misguided – Assessee having justifiable reasons to believe that they were not covered under service tax – Setting aside of penalty upheld.

2.CCE, Jaipur V. Sikar Ex-Serviceman Welfare Co-Op. Soc Ltd. [2006(4) STR 213 (Tri.-Del.)]; As interpretation of law involved, setting aside of penalty upheld.

a. Suri Colour Labs (P) Ltd. CCE, Meerut-II [2006(4) STR 96 (Tri.-Del.)]; Since appellants under confusion in respect of eligibility to benefit of notification 12/2003-ST, imposition of penalty not warranted.

b. Surat Municipal Corpn. V. CCE, Surat [2006(4) STR 44 (Tri.-Del.)] Appellant were under bonafide belief that they are not liable to pay service tax penalty not imoposable in view of section 80.

c. BST Ltd. V. CCE, Cochin [2006(4) STR 40 (Tri.-Bang.)] Penalty not justified when activity not taxable

d. Cosmic Dye Chemical V. CCE, Bombay [1995(75) ELT 721(SC)] When bonafide impression is gained from 2 CBEC Circulars, no penalty can be imposed. In our case also, based on bonafide dependence on circular issued by CBEC, we had determined the classification and hence cannot be imposed.

They further drawn attention to the judgment in the case of CCE, Ludhiana V. Silver Oak Gardens Resort [2008(9) STR 481 (Tri.-Del.)] wherein it is held that penalty under section 76 is not warranted where penalty is imposed under section 78 of the Finance Act, 1994. The proposal in the present SCN to impose penalty under section 76 and 78 is also against the settled legal position and any proposition to impose penalty in this manner is against the judicial discipline. We also draw your attention to provisions of section 80 of the Finance Act, 1994. wherein it is provided that, notwithstanding anything contained in the provisions of section 76, 77 & 78, no penalty shall be imposed on the assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for such failure.

I. In the case of Arvind Motors V. CCE, Raipur [2008(9) STR 464 (Tri.-Del.), Hon. Tribunal allowed the appeal holding that the Commissioner (Appeals) resorted to stringency of Section 11AC of the Central Excise Act instead of considering the issue, whether reasonable cause for failure was made out. It is clearly proved by us that there was a reasonable cause for not including transactions charges and NSDL/CDSL charges in value of taxable services in our case.

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II. It was held in the case of ETA Engineering Ltd. V. Chennai [2003(3) STR 429 (Tri.-LB)] that appellants being under bonafide doubt regarding their activity as to whether covered by service tax or not, their exits reasonable cause on their part in not depositing service tax in time and hence penalty was not imposable in terms of section 80 of the Finance Act, 1194 notwithstanding sections 76 and 77 ibid

III. In the case of Smitha Shetty V, CCE, Bangalore [2003(156) ELT 84 (Tri.-Bang.)] It is held that where there is technical or judicial breach of the provisions of Act or where the breach follows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute then in such circumstances, in the light of Apex court judgment, penalty was not imposable, The Tribunal noted that the discretion of impose penalty is to be exercised judicially after considering the relevant circumstances. The ruling of Apex court rendered in the case of Hindustan Steel V. State of Orissa [1978(2) ELT j159 (S.C)] was considered wherein it was held that an order imposing penalty for failure to carry out statutory obligation is the result of quasi-criminal proceedings and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law was guilty of conduct contentions or dishonest or acted in conscious disregard of its obligations. It also held that penalty will not also be imposed for failure to perform the statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of the relevant circumstances. The above cited case laws are also relied on in the case of CCE, Bangalore-II V. Impress Ad-Aids & Displays [2006(3) STR 385 (Tri.-Bang.)]

IV. Cement Marketing Co. – 1980 (6) ELT 295 (SC): Where assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a false return inviting imposition of penalty, In this case, Hon. Supreme Court held that penalty cannot be imposed when assessee raises a bona fide contention.

V. In the case of CCE, Mumbai-IV V. Damnet Chemicals P. Ltd. [2007 (216) ELT 3 (SC)], Hon. Supreme Court has held that when there has been no suppression whatsoever, the question of imposition of penalty does not arise.

VI. Imposition of penalty is quasi-criminal proceeding and hence penalty cannot be imposed in the absence of means rea. CC V. Seth Enterprises [1990(49) ELT 619 (Tri.-Del.)] In absence of any means rea. i.e. mental state of criminal intention and the requirement and the requirement of action done willfully, maliciously, fraudulently, recklessly, negligently, corruptly, wantonly on the part of appellant, imposition of penalty is unfair, illegal and unwarranted.

VII. The delay if at all was due to we were not liable for service tax, that it was a new provision, interpretation of statue to which the office at the assesses was not fully acquainted and here the delay was bona fide where no penalty could be levied due to technical breach of provision of law.

VIII. In the above context, it is submitted that penalty may not be imposed in all cases only because lawful to do so. The adjudicating authority should take in to consideration all the factors before proceeding to impose penalty. As such it is requested that a lenient view may be taken and proceeding may be dropped.

(5) Without prejudice to the aforesaid contention, it was further submitted that proceeding for imposing penalty is a proceeding which is quasi - criminal in nature. The

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question of imposition of penalty in ordinary course came for scrutiny before Hon'ble Supreme Court in the case of Hindustan Steel Vs State of Orissa reported in AIR 1970 SC 253. The Hon’ble Supreme Court observed that penalty should not be imposed in ordinary course unless the party acted in deliberately in defiance of law. Penalty will not also be imposed merely because it is lawful to do so. Applying the ratio, of the above decision in the present case, it would be seen there is no allegation of deliberate defiance on us as such, no penalty may be imposed and the proceeding initiated vide the subject notice may be dropped.In light of the aforesaid submission it was prayed by the assessee that:

(i) Drop the demand of service on WCT on gross value of land development charges amt to Rs. 7.5 crore service tax demand Rs. 1917500/-.

ii) Drop the demand of service tax paid in the year 2008-09 amt to Rs. 2069347/- has to be reduced from the liability calculation for the year 2009-10.(iii) Drop the demand of service amt to Rs.45495436/-prior to 30.06.2010 was not sustainable, request to drop the proceeding in the interest of justice.

(iv) Demand of service tax w.e.f. 01.07.2010 To 31.03.2011 on the Shapath-V, Shapath Hexa & Shapath -7 under the deeming clause of service tax applicable to builder & developer w.e.f.01.07.2010 after claiming of abatement specified in not.No.1/2006 amount to Rs. 6042051/- in due course, which has been discharged in the normal course. So it can not be treated as suppression & eligible for the abatement.

(v) Not contrary to the above prayer, Duty demand may reducible from the amt to Rs. 51537487/- to the amt to Rs. 17007370/- after allowing the benefit of notification 1/2006.

(vi) Drop the penalty proceeding in the interest of justice.

(vii) SCN itself barred by the limitation, so demand of duty & penalty may be dropped.

(viii) They may prayed to give benefit of section 80 ibid to them and condoned from imposition of penalties.

They also requested to be heard in person before taking any adverse decision in the matter.

The assessee had submitted their additional submission as allowed at the time of personal hearing held on _____ which was submitted by them on 27.11.2012 as under.

The salient issue to be addressed here are as under :-(i) Whether assesses can perform dual service as a builder & contractor

simultaneously or not.(ii) Whether cost of expenses were incurred for the development right for land &

land cost amt to Rs.9.5 crore to be includible in the gross value of service tax under the works contact service or not.

(iii) Service tax paid as an associated concern in the year 2008-09 on booking amount Rs.5.24 crore, whether they were liable to pay service tax on such amount on realization in the year 2009-10.

(iv) Whether they were liable for the service tax under the act w.e.f from the 01.07.2011 or w.e.f. 10.09.2004 onwards.

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(v) Whether Shapath-V, Shapath Hexa & Shapath -7 all to gather separate scheme as a builder, on which they have discharged service tax on normal course under the construction service, whether it amount to suppression & not eligible for the abatement benefit.

(vi) Not contrary to the supra submission, if they were liable, they were eligible for the abatement benefit or not under not. No. 1/2006.

(vii) When disputed duty demanded has been discharged in the normal course, whether penalty can be imposable under the section 76 & 78 of the finance act,1994.

(viii) Whether extended period can be invokable or not.

1.1 It is not in dispute that service provider can work as a as a builder & contractor simultaneously.

As a Builder:While in case of commercial projects, they were working in the as a self developer of the properties, which they were selling to the prospective buyers via sale agreement. For which design, construction & sale of space were carried out by they. On which they are discharging service tax w.e.f.01.07.2010 & onwards under the deeming fiction as applicable to the builder. As a Construction agency:In the case of working as a construction agency, they had sold land to the M/s. Shiva Satya

Hotels p ltd Then after, they had been entered in the contract with the M/s. Shiva Satya Hotel P Ltd for construction of their hotel building as per their requirement & design. They have worked as a construction agency.

1.2 Demand of service tax on purchase price of land development charges: they drawn attention towards the board circular as under:

“Construction Services/Commercial or Industrial Construction Services — InstructionsLetter F.No. V/DGST/22/Audit/Misc/1/2004, dated 16-2-20066. Divergent practices are being reported by field formations and in most of the

cases, builders are avoiding registration in view of CBEC Circular No. 80/10/2004-S.T., dated 17-9-2004. Further, there is wide gap between the amount charged by builders from their customers for such work contract (sale) and the amount on which contractors are discharging their Service tax liability. The various miscellaneous charges like cost of the land, development charges, maintenance charges, etc. are not included in the taxable value of services provided by the assessee”.

Detail circular has been enclosed herewith. Annex:A, Demand of service tax may set a side.

1.3 Regarding service tax applicability to the builder, we want to draw attention towards the board circular as under:

“Construction services — Clarifications Circular No. 151/2/2012-S.T., dated 10-2-2012F.No. 332/13/2011-TRU(i) landowner; (ii) builder or developer; and (iii) contractor who undertakes construction) : Issue involved is regarding the liability to pay service tax on flats/houses agreed to be given by builder/developer to the land owner towards the land /development rights and to other buyers.Clarification :  Here two important transactions are identifiable : (a) sale of land by the landowner which is not a taxable service; and (b) construction service provided by the builder/developer. The builder/developer receives consideration for the construction service provided by him, from two categories of service

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receivers: (a) from landowner: in the form of land/development rights; and (b) from other buyers: normally in cash. (A) Taxability of the construction service :(i) For the period prior to 1-7-2010 : construction service provided by the builder/developer will not be taxable, in terms of Board’s Circular No. 108/2/2009-S.T., dated 29-1-2009 [2009 (13) S.T.R. C33].(ii) For the period after 1-7-2010, construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land was received by the builder/ developer before the issuance of completion certificate and the service tax would be required to be paid by builder/developers even for the flats given to the land owner.(B) Valuation :(i) Value, in the case of  flats given to first category of service receiver, is  determinable in terms of section 67(1)(iii) read with rule 3(a) of Service Tax (Determination of Value) Rules, 2006, as the consideration for these flats i.e., value of land/development rights in the land may not be ascertainable ordinarily. Accordingly, the value of these flats would be equal to the value of similar flats charged by the builder/developer from the second category of service receivers. In case the prices of flats/houses undergo a change over the period of sale (from the first sale of flat/house in the residential complex to the last sale of the flat/house), the value of similar flats as are sold nearer to the date on which land is being made available for construction should be used for arriving at the value for the purpose of tax. Service tax is liable to  be paid by the builder/developer  on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (eg. allotment letter). (ii) Value, in the case of flats given to the second category of service receivers, shall be determined in terms of section 67 of the Finance Act, 1994”.

From the above it is clear that builder is liable for the service tax w.e.f. 01.07.2010 & onwards. They were depositing service tax w.e.f. 01.07.2010 & onwards.

In this regard they also relied in support of contention from Board’s Circular No. 108/2/2009-S.T, dated 29-1-2009.

“The matter has been examined by the Board. Generally, the initial agreement between the promoters/builders/developers and the ultimate owner is in the nature of ‘agreement to sell’. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a residential complex with a promoter/builder/developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of ‘residential complex’. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax”.

Now another moot question is that whether Explanations should be given retrospective

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effect inasmuch as, we also claim in support of our contention that explanation is prospective only, So from the above it is clear that we as a builder were liable for the service tax w.e.f. 01.07.2011 & onwards, which we were discharging accordingly.

Demand for the period prior to 01.07.2012 under the commercial & industrial construction service has to be dropped.

1.3.1 Not contrary to the above submission, further they drawn attention towards the fact that, while calculating service tax dept’s has not taken in to account the value of service has been returned back by the noticee on the cancellation of booking, which amount to non provision of service, to that extent liabilities of service tax to be reduced.

1.4 Service tax paid as an associated concern in the year 2008-09 on booking amount Rs.5.24 crore, whether they were liable to pay service tax on such amount on realization in the year 2009-10.

They had paid service tax on booking amount in the year 2008-09. During the impugned period they had booked income from contract income amount to Rs. 22,24,00,000/- against which they were in receipt of actual amount Rs. 17,00,00,000/-. They had discharged service tax on the amount to Rs. 22,24,00,000/-, so excess service tax has been discharged by they on the amount Rs. 5,24,00,000/- amounting to Rs. 20,69,347/-, while actual realization of the amount in November-2009. So while calculating the service tax liabilities that much excess paid on the booking basis has to be allowed as deduction.

So on the above basis demand of service tax paid in the year 2008-09 amt to Rs. 20,69,347/- has to be reduced from the liability calculation for the year 2009-10.

Subsequent submission are repetation of the submission as made earlier the same in not now mentioned herein.

In light of above submission the assessee had requested to drop the proceeding in the interest of justice and prayed that;

(i)Drop the demand of service on WCT on gross value of land development charges amt to Rs. 7.5 crore service tax demand Rs. 1917500/-.

(ii) Drop the demand of service tax paid in the year 2008-09 amt to Rs. 20,69,347/- has to be reduced from the liability calculation for the year 2009-10.

(iii) Drop the demand of service amt to Rs.4,54,95,436/-prior to 30.06.2010 was not sustainable, request to drop the proceeding in the interest of justice.

(iv) Demand of service tax w.e.f. 01.07.2010 To 31.03.2011 on the Shapath-V, Shapath Hexa & Shapath -7 under the deeming clause of service tax applicable to builder & developer w.e.f.01.07.2010 after claiming of abatement specified in not.No.1/2006 amount to Rs. 60,42,051/- in due course, which has been discharged in the normal course. So it can not be treated as suppression & eligible for the abatement.

(v) Not contrary to the above prayer, Duty demand may reducible from the amt to Rs. 5,15,37,487/- to the amt to Rs. 1,70,07,370/- after allowing the benefit of notification 1/2006.

(vi) Drop the penalty proceeding in the interest of justice.(ix) SCN itself barred by the limitation, so demand of duty & penalty

may be dropped.(x) They prayed to extend benefit of section 80 ibid to them and

penalties may be condoned.

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19 Personal hearing:-

Personal hearing in the matter was held on 20.12.2012 wherein Shri Tushar Shah, Chartered Accountant, Shri Vipul Khandhar, Chartered Accountant and Shri Tejas Shah, Chartered Accountant appeared before me on behalf of the assessee and and gave written submission dated 20.12.2012 in addition to their reply dated 24.11.2011 to the SCN. Based on the above, they requested to drop the demand. They promised to produce C.A. certified records to support their contention in respect of separate contracts. Accordingly, the said assessee submitted copies of ST-3 returns from 1.4.2007 onwards with Cenvat details and a certificate dated 28.12.2012 issued by Shri Tushar J. Shah Chartered Accountant of M/s B.J.Shah & Bros. certifying that the said assessee had not availed Cenvat credit for payment of service tax under the category of ‘ Construction of Commercial & Industrial Service’

20 Discussion and findings:

20.1 I have carefully gone through the contents of show cause notice, its relied upon documents, written submissions and additional submission filed by the assessee and record of personal hearing.

I find that facts on record are:a) Investigation was initiated by DGCEI on 28.5.2010 for non payment of service tax

by the assessee under the category of ‘Commercial or Industrial Construction Service’ and demand for payment of service tax on the advance amounts received by the assessee prior to 1.7.2010 is made in the show cause notice;

b) The said assessee was already registered under the category of ‘Construction of Complex Service’ and ‘Works Contract Service’; The said assessee paid service tax on the services provided to M/s. Shiva Satya Hotels Pvt. Ltd under Works Contract Service; that initially they had received payment of Rs.38,00,00,000/ in the month of December, 2007 and later on the payments were received as per the conditions of completion of the contract and due service tax was discharged on the same; that they had not paid service tax on the initial amount of Rs.38 crores, however after initiation of investigation by DGCEI, the service tax of Rs.76,69,998/- along with interest of Rs.24 lakhs had been paid on 18-06-2010, and accordingly they were also going to file a revised ST-3 return; that they have paid service tax of Rs.88,00,306/- (through cash payment of Rs.31,30,456/- and through CENVAT credit account of Rs.56,69,850/-).

c) The said assessee had filed the ST-3 Returns only after the investigation was initiated by DGCEI on 28.5.2010;

20.2 The issues to be decided in this case are:

i)whether the advances received by the assessee prior to 1.7.2010 are taxable under the category of “Commercial or Industrial Construction Service’?

ii) whether service tax of Rs.5,15,37,487/- as worked out in Annexure-A to the Show Cause Notice on advances received prior to 1.7.2010, under the category of “Commercial or Industrial Construction Service’ is sustainable and liable to be recovered from the said assessee?

iii) If answer to i) & ii) above is yes, then whether the said assessee is entitled to abatement as provided under Notification No. 1/2006-ST dated 1.3.2006?

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iv) whether the demand of service tax of Rs. 2,49,10,783/- as worked out in Annexure-B to the Show Cause Notice under the category of “Works Contract Service’ is sustainable and liable to be recovered from the said assessee?

v) whether, consequential interest and penalties as proposed in the show cause notice is recoverable/imposable on the said assessee?

21. I find that the demand of service tax in Annexure-A pertains to the period 2006-07 to 2010-11. The said demand is for the various scheme viz. Shapath-V, Shapath-Heza and Shapath-VII constructed by the assessee. The said demand of service tax is worked out by considering amounts recovered as advance by the assessee from the prospective customers of shops/offices in the said schemes. It is alleged in the show cause notice that as the assessee had availed Cenvat Credit on input services, benefit of Notification No.1/2006-ST is denied while working the demand of service tax. Further, after allowing deduction of land cost and cum tax benefit, taxable value of Rs.50,79,06,600/- is arrived at. From Annexure A to the Show cause notice, I have also noticed that service tax of Rs.60,42,051/- which is shown to have been paid by the assessee is deducted from the total service tax liability of Rs.5,75,79,538/- and balance of service tax of Rs.5,15,37,487/- is demanded under the said Annexure A under the category of ‘Commercial or Industrial Construction service’.

21.1 In this regard it is the assessee’s submission that they had carried out the construction of the said three complexes in the capacity of Developer/Builder; that there was land development agreement by the assessee with the society viz. Shri Empire State Shops, Offices & Premises Co-op. Housing Society Ltd who is the owner of the land; that they had not actually constructed the said complexes; that the said construction was carried out by the contractor hired by them. It is their contention that only with effect from 1.07.2010, after insertion of Explanation below the definition of ‘taxable service’ of Commercial or Industrial Construction service, Builders/Developers are liable to pay service tax. Prior to the said date of 1.7.2010 Builders/Developers were not liable to pay service tax. In this regard they invited attention to Notification No. 36/2010-ST dated 22.6.2010, effective from 1.7.2010. They further submitted that their contention was supported by CBEC Circular No. 151/2/2012-ST dated 10.02.2012. In view of this it was submitted that prior to 01.07.2010 their activities were not liable to service tax and from 01.07.2010 onwards, they were liable to pay service tax under the category of ‘Commercial or Industrial Construction service’. Following, the above they had discharged service tax on the advances received on and after 01.07.2010. Therefore, the amount of service tax paid by them during the year 2010-11 comes to Rs. 60,42,051/- which they had paid in normal course. Therefore, they contended that out of the demand of service tax of Rs.5,75,79,538/-, the demand of Rs.5,15,37,487/- is not legal and proper and requires to be set aside.

21.2 I observe that in para 11.1 of show cause notice, it was recorded that “from the information received from M/s. SIL, it appears that they are developing/ constructing commercial projects in the name of SHAPATH-V, SHAPATH HEZA and SHAPATH-VII. Project SHAPATH HEZA started in the month of April, 2010 & SHAPATH-VII started in the month of August, 2010. Shapath V started in 2006 and is still in progress. Period of investigation covers from 2006-07 to 2010-11”. In para 11.2(i) it is mentioned that “from the details given supra, it can be seen that Shri Empire State Shops, Offices & Premises Co-op. Housing Society Ltd is the owner of the land. M/s. SIL & M/s. SRIPL have entered into a development agreement with the Society to develop the land into a commercial complex in the name of SHAPATH-V on 31-10-2007. In consideration of entrusting development rights to the builders, the society was given Rs.3.50 crores towards value of land and additional amount of Rs.7,44,14,674/- was paid to the Society for obtaining development rights, as shown in their development agreement dated 31-10-

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2007. But Shri Jigish Shah in his statements said that they paid Rs.16,95,50,000/-. However, they did not produce documents evidencing the actual amount paid to the Society”. In para 11.2(ii) it has been mentioned that “from the statement of Shri Pinal A. Shah, Chairman of Shree Empire State Shops, Offices & Premises Co-op. Housing Society Ltd as elaborated supra, it can be adduced that for avoiding stamp duty, the society and the builder are claimed as two independent entities”. Based on this it is alleged by the DGCEI that “in the same stretch, for avoiding payment of service tax, it is claimed that the society is the extended arm of the builder” . Further it is mentioned in the said para that “the statement of the Chairman of the society does not bring in any new fact. Rather it cast shadow on the veracity of amount of development right paid to the society by M/s. Savvy Group because the society was paid Rs.5 crores and Rs. 2.19 crores by Shri Kirtikumar K. Shah and Shri Bankim J. Shah respectively to the society. These two persons are members of the society. How could the amount paid by the members to the society be claimed as amount paid by M/s. Savvy Group? Further, M/s. Savvy Group attempts to create an impression as if they formed the society to purchase land. This has no basis in as much as the society was in existence much before M/s. Savvy Group entered into formal agreement with the Society in October, 2007. The fact that the Society entered into development agreement with M/s. Goyal Construction Co. in 27-04-2005 nullifies this claim”. In para 11.2(iii) it has been mentioned that, “the actual amount paid to the Society by M/s. SIL or M/s. SRIPL will have no bearing on the service tax liability because service tax is to be paid on the gross amount charged for the services. Further, it is amply made clear in the agreement dated 31-10-2007 that all the cost and expenses that have already been incurred and/or expended by the developers on their account or by or on account of the society for making of clear and marketable title of the said land, for clearing of all liabilities including previous development rights, development agreements or any other right or liability on any account whatsoever concerning the said lands shall be treated and considered as the cost of the project and the developers shall be entitled to recover the same from the project. That is these expenses should form part of the cost of the project. Therefore, the value of these expenses should form part of taxable value for charging service tax”.

21.3 I find that there is an allegation at para 11.2(ii) of the show cause notice that for avoiding stamp duty, the society and the builder are claimed as two independent entities and for avoiding payment of service tax, it is claimed that the society is the extended arm of the builder. These allegations are misplaced as the same has no bearing on the taxability of service tax. I observe that it is a well known fact that eventhough Housing Co-op. societies are controlled by the developers/builders by inducting their own members in such societies, in the eyes of law the two are separate entities. I observe that Housing Co-op. societies are having their own by-laws and constitution and are registered with Registrars of Cooperatives, where as Limited Companies / Private limited companies are having their Article of Association – constitution, and are registered with Registrar of Companies. Both are different entities in the eyes of law and are answerable to the respective Government authorities. In the instant case M/s Shri Empire State Shops, Offices & Premises Co-op. Housing Society Ltd is a Housing Cooperative Society, registered with the District Registrar, of co-operatives under the Gujarat Co-op. Societies Act, 1961. Whereas, M/s Savvy Infrastructure Ltd [Developer/Builder in the present case] is a limited company, registered with the Registrar of Companies. Thus, both are separate entities.

21.4 All actions taken by the developer/builder must have the authorization of the Housing Co-op. society and therefore such development agreements are executed between the two. In the instant case also, the very act of execution of agreement between M/s Shri Empire State Shops, Offices & Premises Co-op. Housing Society Ltd , the said Housing Cooperative Society, and the said developer i.e. M/s Savvy Infrastructure Ltd

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clearly indicates that the two were separate entities. M/s Savvy Infrastructure Ltd had undertaken the work of development of land into a commercial complex in the name of SHAPATH-V on behalf of the said Housing Co-op society under a development agreement dated 31.10.2007. Accordingly, M/s Savvy Infrastructure Ltd had carried out the activity of development of the said land and the said commercial construction project and booked the prospective members on behalf of the said Housing Co-op. society. It is a fact on record that the said commercial complex consists of two wings viz, Wing-A and Wing-B. Wing-A was allotted to M/s Shiva Satya Hotels Pvt. Ltd who had purchased part of the land attributable to the Wing-A for the hotel project from the society (land owner) under a separate sale deed. Wing-B was sold to various customers. It is alleged in the show cause notice that since, M/s Savvy Infrastructure Ltd has paid service tax on the construction service provided by them to M/s Shiva Satya Hotels Pvt Ltd for Wing-A, they should have also paid service tax on the construction activity of Wing-B as they cannot be a builder/developer for Wing-B and contractor for Wing-A as their activity in both the cases is same.

21.5 I find that the inferences drawn in the show cause notice are based on wrong premise that the activity in both the cases is same. I observe that it is a fact on record that land related to Wing A was surrendered by the assessee for its subsequent sale by the Society to the owner of Hotel Crown Plaza i.e. M/s Shiva Satya Hotels Pvt. Ltd. The reasons given by the assessee for the same were also recorded in the show cause notice. Thereafter, the assessee entered in to a contract to construct Crown Plaza Hotel on the land purchased and owned by the owner of the Hotel from the society. Further, in the case of Wing-A, the assessee has purchased cement, steel etc. and has engaged himself in the activity of brick-by-brick construction of the Hotel Crown Plaza for M/s Shiva Satya Hotels Pvt. Ltd under a separate ‘construction agreement’. Thus, the said assessee has constructed a commercial complex i.e. Hotel on behalf of the said Hotel owner. The service provider and service recipient relationship is clearly established, the assessee being the service provider and M/s Shiva Satya Hotels Pvt. Ltd being the service recipient. Therefore, the service of construction carried out by the assessee definitely gets categorized under the category of ‘Commercial or Industrial Construction Service’ as in this case the assessee is a pure Contractor who has executed the construction of the said hotel. The contract of construction was with material and being a composite contract, the said contract is liable to VAT. Accordingly, the service provided by the Service provider i.e. the assessee get appropriately categorized as ‘Work Contract service’ and the service tax has been discharged accordingly.

21.6 Whereas, in the case of Wing-B, there are three parties the first one being the society, the second being the assessee and the third being the contractors who have actually constructed the complex. The society had entered in to an agreement with the assessee whereby all the right on land were vested into the assessee in the capacity of Builder/Developer. The assessee is the defacto owner of the land by virtue of development agreement between them and the society and therefore he is in the activity of developing and construction of the building irresepective of the availability of the customer, with the help of hired contractors who actually constructs the complex on their own, who are infact liable to pay service tax. There does not exist any service recipient in the case as far as Wing-B is concerned.

21.7 Therefore, I find that the conclusion drawn by the DGCEI in the show cause notice that there is no change in the nature of services provided by them for Wing A and Wing B is not correct.

21.8 I observe that Commercial or Industrial Construction Service was brought in to Service tax net with effect from 10.09.2004. Since then. the levy of Service tax on Builders/Developers was in dispute. As discussed above, prior to the levy of service

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tax i.e. 10.09.2004 also it was a normal practice of the housing societies in the country to give development rights to the reputed builders for development and construction of complexes as the societies neither have any fund, nor have any expertise of land development and construction as well. When society gives such rights, to carry out entrusted tasks to the Builder/Developer, the said Builder/Developer brings finances, hires services of Architects, Engineers, contractors for constructing the complex, purchases material for construction, possesses right to sale the units and is authorized to collect advance, etc., with their own fund. This is nothing but service to self. Since no recipient of service is available, service tax can not be levied on builder/developer. The said issue was clarified by CBEC in it’s Circular No.108/02/2009-ST dated 29.01.2009, wherein it was clarified that such transaction will get covered as self service and no service tax is leviable on Builder/developer. The issue was also litigated at various forums and the judgments were not in the favour of revenue. Ultimately, Explanation under the definition of taxable service of ‘Commercial or Industrial Construction service’ was introduced with effect from 01.07.2010 which removed all the ambiguities and made it clear that Builders/Developers were brought in to the service tax net from 01.07.2010. This fact was also considered by the Hon’ble Gujarat High Court in the case of Shrinandnagar Co-op Housing Society, wherein it was decided by the court that if at all service tax is leviable on Builders/Developers it will have effect from 01.07.2010. In this regard Government of India has also come up with Notification No. 36/2010-ST dated 28.06.2010 wherein it was clarified that no service tax is leviable on the advances received prior to 01.07.2010. This notification is discussed in detail in the later part of this order. The purpose of this discussion is to have clarity on the issue that prior to 01.07.2010 no service tax was leviable on Builder/Developer. Therefore, whether the society is an extended arm of Builder or otherwise has no relevance in view of above ‘Explanation’ and ‘Clarification’.

21.9 As regard the Commercial complex viz. Shapth-V it has been mentioned in para 11.3(i) of show cause notice that it is seen from the information received from M/s. SIL that they have conceived and developed their project SHAPATH – V in the year 2006 itself as can be seen that they started collecting booking advance from their prospective buyers from April, 2006 onwards in the name of ‘SHAPATH – V”. It appears that as soon as they started informal talks with the society, they had also started collecting booking advance amount from the prospective buyers. This leads to conclusion that their commercial project is given shape after formal agreement entered with the Society. But in fact, it was in offing much before that.

21.10 In this regard, I find that aforesaid conclusion is based on presumption. Even if assuming the above drawn conclusion to be true, no evidence has been brought forth to establish the service provider and service recipient relationship. Before entering in to any agreement, many negotiations can take place which is normal business practice. The fact in the case before me is that the society has entered in to agreement with the assessee for the purpose as discussed above.

21.11 Further it is alleged in the said para that M/s. SIL has denied having signed any agreement with the prospective buyers. They also denied having allotted any unit number/shop number/floor numbers to the prospective buyers who have paid advance booking amount. This claim of M/s. SIL looks to be unacceptable as no client would pay advance without knowing the location, size, value, etc. of their unit to be purchased.

21.12 In this regard I also observe that advance payment from the prospective buyer are received and is on record, however it is not otherwise proved. Even assuming it to be correct, there is no point in demanding service tax on such advances received since the taxability on the advance received prior to 1.7.2010 stands clarified in view of Notification No. 36/2010-ST.

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22. Findings after evaluation:- Now keeping in view of the aforesaid factual evaluation, I proceed to decide the demand of service tax as worked out in Annexure A and Annexure B as under. Annexure A:-

22.1 It is a fact on record and not disputed in the show cause notice that in the case on hand there was an agreement between the society [ land owner] and the assessee [the service provider] whereunder development rights were vested in the assessee; that the assessee have received advance from the buyer; that construction of various commercial complexes were carried by various contractors who were hired by the Developer/Builder i.e. assessee. As far as demand of service tax worked in Annexure A is concerned, I now discuss whether the assessee being Builder/Developer is liable to service tax on not.

22.2 From the facts of the case, I find that in the case on hand it is nothing but a Tripartite Business Model wherein parties to the model are (i) landowner; (ii) builder or developer; and (iii) contractor who undertakes construction:As discussed above, the issue of taxability for the service rendered by Builder/Developer was in dispute since the year 2005 and the issue has a vast history of litigation. However department had not succeeded and the dispute was finally laid to rest by the Government, in the Budget, 2010, Notification No. 36/2010-ST and followed by Circular No. 151/2/2012-ST dated 10.02.2012 which are now discussed chronologically hereunder.

22.3 The present show cause notice was issued on 20.10.2011 i.e. prior to issue of the aforesaid circular No. 151/2/2012-ST dated 10.02.2012. The said Circular is applicable to both the services i.e. Commercial or Industrial Construction service (zzq) and Construction of Complex service (zzzh) as is evident in the opening para of the circular.

22.4 Explanation added w.e.f. 1-7-2010, to the taxable definition (zzq) of ‘commercial or industrial construction’ and (zzzh) of ‘ Commercial or Industrial construction service’, is reproduced as follows -

[Explanation.—For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorised by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer;]

The Text of the notification No.36/2010 – ST, dated 28.06.2010 is as under.

Government of IndiaMinistry of Finance

(Department of Revenue)

New Delhi, the 28th June, 2010

Notification No. 36/2010 - Service Tax 

G.S.R.    (E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services specified in

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clause (A) of section 76 of the Finance Act, 2010 (14 of 2010) other than services referred to in clause (zzc) and (zzzz) of sub-section (105) of section 65 of the Finance Act from so much of the service tax leviable thereon under section 66 of the Finance Act as is in excess of the service tax calculated on a value which is equivalent to the amount of advance payment received before the said appointed date. Explanation.-  For the purpose of this notification,

            (i)        “appointed date” means the 1st day of July, 2010; (ii)         “advance payment” means consideration received for the said taxable services to be provided.

  2.         This notification shall come into force on the date of its publication in the Official Gazette.

22.5 Further, the said notification was amended by substituting the words “equal to” in place of “in excess of” vide corrigendum dated 29.06.2010 which is reproduced as under;

CORRIGENDUM                              

G.S.R.   (E).- In the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 36/2010- Service Tax, dated the 28th June, 2010 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 557 (E), dated the 28th June, 2010,

for  the words “in excess of ”,  read “equal to”.

23. Analysis of the aforesaid notification and its corrigendum:-

23.1 It will be pertinent to note here that in the Finance Act,2010, various amendments had taken place including insertion of the Explanation under the taxable definition of Commercial or Industrial Service i.e. under the definition 65(105)(zzq) of the Finance act,1994. However, in two services i.e. services referred to in clause (zzc) and (zzzz) of sub-section (105) of section 65 of the Finance Act retrospective effect was given. The aforesaid notification was issued by the Government of India wherein appointed date is notified as 1st day of July, 2010 i.e. 01.07.2010. From the aforesaid notification it clearly transpires that no service tax is leviable on the amount equal to advance amount received prior to 01.07.2010 towards Commercial or Industrial Construction service carried out By Builder/developer as the explanation below the taxable definition of Commercial or Industrial Construction service was introduced from 01.07.2010. Accordingly, the same Builder/developers were liable to pay service tax from 01.07.2010 onwards and as the change was not retrospective they were not liable to pay service tax prior to 01.07.2010.

23.2 Further with regard to the taxability, and valuation in terms of aforesaid insertion of explanation, below the definition of “Commercial or Industrial Construction service (65)(105)(zzq) in the situation prevalent in the case on hand I would like to have look at the circular No. 151/2/2012-ST dated 10.02.2012 issued from F.No.332/13/2011-TRU by GOI,CBEC, New Delhi. I reproduce the relevant text of the said circular which is as under;

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Subject :Service tax on construction services - Regarding.

Many issues have been referred by the field formations, in the recent past, seeking clarification regarding the levy and collection of service tax on construction services [clauses (zzq),( zzzh) of section 65(105) of the Finance Act, 1994], in the light of varying business models. Across the country, divergent business models and practices are being followed in the construction sector. Some of these business models and practices could be region specific.

2. From the issues referred by the field formations, important ones have been identified model wise, examined and clarified as follows :

2.1 Tripartite Business Model (Parties in the model : (i) landowner; (ii) builder or developer; and (iii) contractor who undertakes construction) : Issue involved is regarding the liability to pay service tax on flats/houses agreed to be given by builder/developer to the land owner towards the land/development rights and to other buyers.

Clarification : Here two important transactions are identifiable : (a) sale of land by the landowner which is not a taxable service; and (b) construction service provided by the builder/developer. The builder/developer receives consideration for the construction service provided by him, from two categories of service receivers: (a) from landowner: in the form of land/development rights; and (b) from other buyers: normally in cash.

(A) Taxability of the construction service :

(i) For the period prior to 1-7-2010 : construction service provided by the builder/developer will not be taxable, in terms of Board’s Circular No. 108/2/2009-S.T., dated 29-1-2009.

(ii) For the period after 1-7-2010, construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land was received by the builder/ developer before the issuance of completion certificate and the service tax would be required to be paid by builder/developers even for the flats given to the land owner.

(B) Valuation :(i) Value, in the case of  flats given to first category of service receiver, is 

determinable in terms of section 67(1)(iii) read with rule 3(a) of Service Tax (Determination of Value) Rules, 2006, as the consideration for these flats i.e., value of land/development rights in the land may not be ascertainable ordinarily. Accordingly, the value of these flats would be equal to the value of similar flats charged by the builder/developer from the second category of service receivers. In case the prices of flats/houses undergo a change over the period of sale (from the first sale of flat/house in the residential complex to the last sale of the flat/house), the value of similar flats as are sold nearer to the date on which land is being made available for construction should be used for arriving at the value for the purpose of tax. Service tax is liable to  be paid by the builder/developer  on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (eg. allotment letter).

(ii) Value, in the case of flats given to the second category of service receivers,

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shall be determined in terms of section 67 of the Finance Act, 1994.

[emphasis provided]

23.3 The text of the circular No.108/2/2009-ST dated 29.01.2009 issued fromF.No.137/12/2006-Cx.4 as referred in the aforesaid circular in para 2.1(A)(i) is also reproduced herewith for ready reference;

Subject: Imposition of Service tax on Builders - Regarding.

Construction of residential complex was brought under service tax w.e.f. 1-6-2005. Doubts have arisen regarding the applicability of service tax in a case where developer/builder/promoter enters into an agreement, with the ultimate owner for selling a dwelling unit in a residential complex at any stage of construction (or even prior to that) and who makes construction linked payment. The ‘Construction of Complex’ service has been defined under Section 65 (105)(zzzh) of the Finance Act as “any service provided or to be provided to any person, by any other person, in relation to construction of a complex”. The ‘Construction of Complex’ includes construction of a ‘new residential complex’. For this purpose, ‘residential complex’ means any complex of a building or buildings, having more than twelve residential units. A complex constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex intended for personal use as residence by such person has been excluded from the ambit of service tax.

2. A view has been expressed that once an agreement of sale is entered into with the buyer for a unit in a residential complex, he becomes the owner of the residential unit and subsequent activity of a builder for construction of residential unit is a service of ‘construction of residential complex’ to the customer and hence service tax would be applicable to it. A contrary view has been expressed arguing that where a buyer makes construction linked payment after entering into agreement to sell, the nature of transaction is not a service but that of a sale. Where a buyer enters into an agreement to get a fully constructed residential unit, the transaction of sale is completed only after complete construction of the residential unit. Till the completion of the construction activity, the property belongs to the builder or promoter and any service provided by him towards construction is in the nature of self service. It has also been argued that even if it is taken that service is provided to the customer, a single residential unit bought by the individual customer would not fall in the definition of ‘residential complex’ as defined for the purposes of levy of service tax and hence construction of it would not attract service tax.

3. The matter has been examined by the Board. Generally, the initial agreement between the promoters/builders/developers and the ultimate owner is in the nature of ‘agreement to sell’. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a residential complex with a promoter/builder/developer, who himself provides service of design, planning and

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construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of ‘residential complex’. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax.

4. All pending cases may be disposed of accordingly. Any decision by the Advance Ruling Authority in a specific case, which is contrary to the foregoing views, would have limited application to that case only. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned.

24.1 Thus, what transpires from the aforesaid clarifications is that no service tax is liable to be paid on the activities carried out by Builder/Developers prior to 01.07.2010 in the case of Tripartite agreement. Further, in terms of Notification No.36/2010 ST dated 28.06.2010, no service tax will be payable on the advances collected prior to 1.07.2010.

24.2 I observe that allegations made in para 11.3(i) of the show cause notice with regard to the advances received from the prospective customers are based on presumption that there has to be some unit allotted to such prospective customers. If there existed any doubt in the minds of the investigating officers then inquiry with some of the prospective customers should have been made and based on the admissions made, the advances should have been linked to the units booked in the name of such customers. I cannot accept the plain statements in the show cause notice which are based on presumptions. Notwithstanding, the above discussion, even if such inquiry had been conducted and the advances received from the prospective customers would have been linked to the units booked then also there is no service tax liability on such advances in view of Notification No. 36/2010-ST. I observe that the show cause notice has been issued without discussing the applicability of the impugned notification which specifically states that no service tax on the advances collected in respect of both the construction services prior to 1.7.2010 is leviable.

25.1 I also observe that while issuing the show cause notice, the chronology of various CBEC Circulars issued in view of the ongoing litigation and the consequential effects in the case of construction service has been overlooked which is discussed as under:

i) Construction services (commercial and industrial buildings or civil structures): Introduced in the Budget 2004-05 and made effective from 10.09.2004. In view of clarification in para 13.1 of Circular No.80/10/2004-ST dated 17.09.2004 issued in connection with Service Tax — Budget changes for 2004-05 effective from 10th Sept., 2004 building or civil contractors were covered in the said service and the Estate Builders who construct buildings/civil structures for themselves (for their own use, renting it out or for selling it subsequently) were not treated as taxable service providers. However, if such real estate owners hired contractor/contractors, the payment made to such contractor were subjected to service tax under this head.

ii) In the Finance Bills, 2005-06 the aforesaid construction service was bifurcated into two services viz Commercial or Industrial Construction service and Construction of Complex Service with effect from 16.06.2005.

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iii) Thereafter, CBEC vide their letter NO.V/DGST/22/Audit/Misc/1/2004, dated 16-2-2006 clarified as under in connection with Construction Services/Commercial or Industrial Construction Services — Instructions

Subject: Collection of Service Tax under construction of Complex services/Commercial or Industrial Construction service.

Service Tax was levied on “Commercial or Industrial Construction Services” and “Construction of Complex Services” w.e.f. 10-9-2004 and 16-6-2005 respectively. Further the scope of “Commercial or Industrial Construction Service” was expanded w.e.f. 16-6-2005 so as to include completion and finishing services.

2.The Board vide Circular No. 80/10/2004-S.T., dated 17-9-2004 [2004 (172) E.L.T. T3] has clarified that “Estate Builders” (i.e. who gets such construction done) are not covered under the ambit of these services. It is only the hired contractors engaged by these builders who are to be taxed. In other words Service Tax is leviable only on those contractors who are engaged in construction of new residential complexes, or completion and finishing services in relation to such complexes or repair, alteration/renovation or restoration of similar services in relation to residential complexes.

3.The specific exclusion of Estate Builders in the case of “Commercial or Industrial Construction Service”, through a circular dated 17-9-2004, appears to have been considered on account of sale of commercial complex by estate builders as a final outcome; although the definition under Section 65(30a) read with Section 65(zzzh) of the Finance Act, 1994 does not provide for such exclusion. The definitions as provided under the Act, as referred supra, are wide enough to include all such activities of a builder.

4. In a recent decision of Supreme Court in case of M/s. Raheja Development Corporation v. State of Karnataka [2005 NTC (Vol. 27)-243 (copy enclosed) [Not printed] the Hon’ble Court has clarified “that the activities undertaken by builders for construction of flat/building for or on behalf of the prospective customers for consideration in cash or deferred payment is covered under the works contract and not under sale”.

5. Considering the above decision, if the construction is undertaken by the builder for prospective customer under an agreement for sale and after construction, the rights in property have been transferred to the said prospective purchasers, the activity will amount to “work contract” or taxable service is covered under the Service Tax and not sale.

6. Divergent practices are being reported by field formations and in most of the cases, builders are avoiding registration in view of CBEC Circular No. 80/10/2004-S.T., dated 17-9-2004. Further, there is wide gap between the amount charged by builders from their customers for such work contract (sale) and the amount on which contractors are discharging their Service tax liability. The various miscellaneous charges like cost of the land, development charges, maintenance charges, etc. are not included in the taxable value of services provided by the assessee.

7. It is viewed that Circular No. 80/10/2004-S.T., dated 17-9-2004, has no applicability with reference to “Construction of Complex Services” which was brought under service tax net only w.e.f. 16-6-2005, as an independent service. The definition of taxable service under section 62(zzh) includes “Any service provided

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or to be provided to any person by any person in relation to construction of complex, and is wide enough to include estate builders. In such cases, the tax liability is posed on both builders and hired contractors being independent service providers.

8. It is noticed that in the construction business, different practices and financial arrangements concerning (a) promoters, developers & builders, (b) land owners (c) contractors and (d) buyers exist. These practices influence the ‘taxable value’ under the construction of complex services. In all such situations, the taxable value under section 67 shall be the gross amount charged by the service provider (builder in this case) for such services provided or to be provided by him. This read with Notification No. 18/2005-S.T., dated 7-6-2005 entitles a builder/contractor an abetment of 67% on the gross amount charged, which shall include the value of goods and material supplied. Further, there is no deductions/exemptions provided for computation of such taxable value in the composite contract.

9. The aforesaid view flows from the definition of the taxable service of construction of complex besides the judicial pronouncement listed above.

10. The all India tax collection under the service head of ‘Construction of complex service’, is reportedly too low. Please initiate pro-active measures to realize service tax on this service especially when only 43 days are now left in the current fiscal.

11. Action taken on the above may be communicated to us with a copy to the Member (Service Tax) on weekly basis.

Thus aforesaid circular stipulated that if the construction is undertaken by the builder for prospective customer under an agreement for sale and after construction, the rights in property have been transferred to the said prospective purchasers, the activity is covered under the Service Tax and not sale.

iv) Thereafter, CBEC in their circular No. 332/35/2006-TRU, dated 1-8-2006 issued following clarification.

2. I have been directed to state the following. relating to levy of service tax on “construction of complex” service falling under Section 65(105)(zzzh) and “commercial or industrial construction” service falling under Section 65(105) (zzq) of the Finance Act, 1994 :

Sr. No.

Issue Legal Position

2. Again will service tax be applicable on the same, in case he constructs commercial complex for himself for putting it on rent or sale?

Commercial complex does not fall within the scope of “residential complex intended for personal use”. Hence, service provided for construction of commercial complex is leviable to service tax.

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In light of aforesaid two circulars it appeared that the assessee was liable to service tax under the category of “Commercial or Industrial construction” which is the contention in the show cause notice.

v) However, the assessee during the course of investigation stated that they relied on the Circular No.96/7/2007-ST dated 23.08.2007 issued from file No.354/28/2007-TRU-ST. wherein at the clarification portion at (b) it was clarified that “if no other person is engaged for construction work and the builder/promoter/developer/ any such person undertakes construction work on his own without engaging the services of any other person then in such cases:-i. Service provider and service recipient relationship does not exists,ii. Services provided are in the nature of self-supply of service,

Hence , in the absence of service provider and service recipient relation ship and the service provided are in the nature of self supply of service, the question of providing taxable service to any person by any other person does not arises.”

However, reliance of the assessee on the said circular was negated in the show cause notice by an observation that the said circular was issued in the context of Construction of Complex service and not applicable to Commercial or Industrial Construction Service.

vi) Further, it was the assessee’s contention that in view of CBEC’s circular No.108/2/2009-ST dated 29.01.2009 issued in relation to Construction of Residential Complex service — Service tax liability of builders, promoters, developers and contractors they are not liable to service tax.

vii) Till the date of issuance of the aforesaid circular, in cases where there was non existence of service recipient, the activities carried out were ‘self service’ and hence not liable to service tax. The issue in such cases, irrespective of category was that the builder was undertaking construction activity on his own account with risk and reward with intention to sell the property in future to the prospective buyers is ‘self service’.

viii) The issue was litigated extensively in various courts which was put to an end by the Government of India by an explanation w.e.f 1.7.2010 inserted in the definition of taxable service in both the categories of construction service.

ix) Constitutional validity of the aforesaid explanation was challenged by The Maharashtra Chamber of Housing Industry in the Hon’ble High Court of Bombay, wherein at para 19, the Hon’ble court has observed as under. The said judgment in the case of MAHARASHTRA CHAMBER OF HOUSING INDUSTRY Versus UNION OF INDIA is reported at 2012 (25) S.T.R. 305 (Bom.)

“19. The notes on clauses annexed to the Finance Bill of 2010 would indicate that Section 65 was sought to be amended to modify the scope inter alia of certain taxable services by amending, among others, clauses (zzq) and (zzzh). From the circular issued by the Central Board of Excise and Customs it is evident that in different parts of the country agreements involving the transfer of residential and commercial properties followed various patterns. In certain cases, agreements to sell were entered into, at which stage the full consideration is not paid. The transfer of title to the property would take place on the conclusion of the contract and the completion of payments when a sale deed would be executed with appropriate stamp duty. The sale deed would transfer title from the builder to the

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buyer. In other parts of the country initially an instrument for the sale of an undivided portion of the land would be executed by which an un-demarcated interest in a portion of the land would be transferred to the buyer. This was a device adopted to reduce the incidence of stamp duty since the vacant land in which an undivided interest was created would have a lower value. Simultaneously a construction agreement would be executed incorporating the obligation of the builder to build and of the buyer to pay the consideration. The legislative intent underlying the explanation was to bring about a parity in tax treatment by stipulating that unless the entire consideration for the property is paid by the prospective buyer after the completion of construction as certified by the local authority, the activity of construction would be deemed to be a taxable service provided by the builder to the prospective buyer. The scope of the existing service was consequently sought to be expanded. The ambit of the expression ‘taxable service’ in relation to construction service or, as the case may be, the construction of a complex has thus undergone a material change by bringing within the fold of service tax construction services provided by builders to buyers.”

x) Thus from the above, it can be conclusively established that scope of the existing construction service was expanded to include such construction activity carried out by a builder which was intended for sale to prospective buyer till the sale is effected and is leviable to service tax only w.e.f 1.7.2010 and prior to 1.7.2010 such services were not covered under the construction services. Therefore, any advances collected prior to 1.7.2010 against such services were not liable to service tax vide Notification No. 36/2010-ST dated 28.06.2010.

xi) However, the said issue was ultimately exhaustively settled vide Circular No. 151/2/2012 dated 10.2.2012 which was made applicable to Commercial or Industrial Construction Service and Construction of Complex Service under Section 65(105)(zzq) and (zzzh) respectively. Thus the said circular upheld the validity of Circular No. 108/2/2009-ST dated 29.01.2009 for Commercial or Industrial Construction service.

xii) In the case on hand what I find is DGCEI had initiated investigation on 28.5.2010. At that time the matter was under litigation. However, the situation changed and got settled (as discussed above) by the time the instant show cause notice was issued on 20.10.2011 which appears not be have been considered by DGCEI.

25.2 In the case on hand the situation that specifically emerges is covered under the above referred Circular No. 151/2/2012 dated 10.2.2012. I cannot ignore the CBEC’s circular nor can I ignore the provisions made in the Finance Act,1994 vide Budget, 2010. Accordingly, in view of, the insertion of Explanation below the taxable service i.e. 65(105(zzq) of the Finance Act,1994 vide Finance Act,2010 [with effect from 01.07.2010] read with Notification No. 36/2010-ST dated 28.06.2010 amended by corrigendum dated 29.06.2010 and subsequent clarification vide Circular No.151/2/2012-ST as discussed above, I find that no service tax is leviable on the activities carried out by the Builder/developer prior to 01.07.2010.26 Accordingly, out of the total demand under Annexure A, I hold that demand of service tax of Rs.5,15,37,487/- is liable to be dropped.

Annexure-B:-27.1 Now coming to the demand of Rs. 2,49,10,783/- as worked out in Annexure B of the show cause notice, I find that the DGCEI have worked out demand of service tax of Rs.2,49,10,783/-as against which the said assessee have discharged Rs. 2,14,28,541/-

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during the course of investigation. The said amount paid by the assessee is proposed to be appropriated against the Demand of Rs. 2,49,10,783/-and balance of Rs. 39,86,847/- is still not paid by the assessee.

27.2 In this regard, I find that as admitted by the assessee they had constructed Hotel complex viz._Crown Plaza in the capacity of “contractor” on Wing A of the said land which was sold by the society to the Owner of the Hotel. After selling the said land to the owner of the hotel by the society, the said construction was carried out by the assessee under an agreement appointing them as “Constructor “ for the construction of said Hotel complex. Therefore I find that DGCEI had correctly held them liable to pay service tax under “Work Contract”Service and have correctly demanded Rs.2,49,10,783/-. These facts have not been disputed by the said assessee.

27.3 However, with regard to the said demand it is the submission of the assessee that they had paid service tax on booking amount in the year 2008-09. During the impugned period they have booked income from contract income amount of Rs.22,24,00,000/- against which they were in receipt of actual amount Rs.17,00,00,000/-. They had discharged service tax on the amount to Rs. 22,24,00,000/-, which has resulted in to excess payment of service tax on the amount Rs.5,24,00,000/- involving service tax amounting to Rs.20,69,347/-, while actual realization of the amount in November-2009. So while calculating the service tax liabilities that much excess paid on the booking basis has to be allowed as deduction. In this regard I find that the assessee have not substantiated this fact along with details of booking amount, payment received etc. and therefore, I find that the said deduction is not allowable to them.

27.4 Accordingly, I find that the entire demand of Rs. 2,49,10,783/- is liable to be confirmed and Rs. 2,14,28,541/- which they had discharged during the course of Investigation by the DGCEI, is liable to be appropriated, and assessee is liable to pay the balance amount of Rs.39,86,847/- along with Interest.

28. Extended period:-

28.1 With regard to the extended period invoked the assessee have cited various decisions which I have gone through, however I find that the said decisions are not relevant in the present case. In the case on hand I find that though they were well aware of the fact that earlier the land was entrusted to them for development by the society, however, due to the reason recorded in this order, a piece of land was released by them to the society which was subsequently sold to the Hotel owner. Thereafter, they entered in to agreement in the capacity of “contractor” with the owner of the Hotel for carrying out construction activities which were liable to VAT, that the said activities attracts service tax, however, till the investigation initiated by the DGCEI, the assessee have not obtained registration required under section 69 of the Finance Act,1994. Since their activities were liable to service tax under work contract service introduced w.e.f. 1.6.2007, they are liable to pay service tax on the advance amount received by them from the Hotel owner,they failed to file ST-3 returns, failed to assess Service tax and failed to pay the same by the due date prescribed under the Finance Act,1994 and rules made there under. All these acts were committed by them with intention to evade payment of service tax. Therefore I find that there exists sufficient ground for invoking extended period in the case on hand.

28.2 Further, the assessee claimed the benefit of section 73(3) of the Finance Act,1994 for waiver of show cause notice, however I find that the present show cause notice is issued under the proviso to section 73(1) of the Finance Act, their case is governed under section 73(4) of the Finance Act, 1994, accordingly they are not entitled to have benefit under section 73(3) of the Finance Act,1994.

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29. Penalties under Section 76,77 and 78 :-

Penalty under section 76:-As discussed in the foregoing paras, the said assessee has not paid service tax under “Works Contract Service” during the period from Nov’2007 to Feb’2010 within the stipulated time period as prescribed under Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994. However, with regard to the issue of imposition of penalty under Section 76 of the Finance Act, 1994, I observe that penalty under Section 76 and 78 of the Finance Act, 1994 are mutually exclusive w.e.f 10.5.2008 and once penalty under Section 78 is imposed, no penalty under Section 76 can be imposed in terms of the proviso inserted in Section 78 w.e.f 10.5.2008 in this regard. Therefore, no penalty under Section 76 is imposable for the period from 10.5.2008 onwards. In the case before me, the demand of service tax is for the period from Nov’2007 to Feb’2010. Therefore, I hold that the said assessee is liable to penalty under Section 76 of the Finance Act, 1994 for the period from 6.12.2007 to 9.5.2008 as the due date of payment of tax is 5.12.2007 for Nov’2007.

Penalty under section 78:-I further find that this is a clear case of suppression as the said assessee had not filed the statutory ST-3 returns until pointed out by the department. Short payment of service tax came to light as the said assessee had suppressed the taxable value in the ST-3 Returns filed by them. Therefore, bonafide of the said assessee doesnot get established. This is a case of deliberate suppression of facts with a willful intention to evade payment of service tax. I find that the said assessee has suppressed the facts from the service tax authorities with intention to evade payment of service tax, penalty under Section 78 of the Finance Act, 1994 is mandatorily imposable as has been held by the Apex court in the case of Dharmendra Textile Mills Ltd-2008 (231) ELT 3 (SC) and Rajasthan Spinning & Weaving Mills Ltd-2009 (238) ELT 3 (SC). Therefore, I deem it a fit case to impose penalty on the said assessee under Section 78 of the Finance Act, 1994.

Simultaneous Penalties under section 76 & 78:-As regards imposition of simultaneous penalty under section 76 and 78 of the Finance Act, 1994, I place my reliance on the judgment of Hon’ble High Court of Kerala in the case of Assistant Commissioner of Central Excise v. Krishna Poduval as reported at [2006] 3 STT 96 (KER) which is aptly applicable to the present case. I find that the imposition of penalty under sections 76 and 78 of the Act is for non payment of service tax and suppression of value of taxable service respectively which are two distinct and separate offences attracting separate penalties. I find that the said assessee has committed both the offences and therefore penalties under section 76 and 78 of the Finance Act, 1994 are imposable on the said assessee upto the period of 9.5.2008.

Penalty under section 77:-As regards imposition of penalty under section 77 of the Finance Act, 1994, I observe that as discussed above the said assessee was liable to pay service tax under the category of “Works Contract Services” as provider of service from 6.12.2007 onwards as held above, but they failed to obtain/amend registration certificate under the said category as required under section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 and started paying service tax in the year 2008-09 under ‘Works Contract Service’. The said contraventions have made the said assessee liable to penalty under section 77 of the Finance Act, 1994 as it existed at material time i.e. prior to amendment in Section 77 w.e.f 10.5.2008.

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Benefit under Section 80:-As regards invoking Section 80 of the Finance Act, 1994 for waiver of penalty,

the said assessee has not produced any reasonable cause for the failure to pay service tax except that it was their bonafide belief that service tax was not payable by them. As observed in earlier part of this order, I find that the short payment of the service tax is found to be with intention and their claim for bonafide belief can not be accepted. Accordingly, I am unable to consider the benefit of Section 80 for waiver of penalties under section 76,77 and 78 of the Finance Act,1994.

29. The assessee have cited various decisions for non imposition of penalties under section 76,77 and 78 of the Finance act,1994, which I have gone through, however find that the same are not applicable in the case on hand as discussed above.

30 In view of the foregoing discussion, I pass the following order.

ORDER

i). I confirm the demand of Service Tax amounting to Rs. 2,49,10,783/- (Rupees Two crore forty nine lakh ten thousand seven hundred eighty three only) (including education cess and secondary and higher education cess) as detailed in Annexure-B to the show cause notice under the category of ‘Works contract service’ under Section 73(2) of Finance Act, 1994;

ii). I order to appropriate service tax of Rs. 2,14,28,541/- (Rupees Two crore fourteen lakh twenty eight thousand five hundred forty one only) (including education cess and secondary and higher education cess) paid by the said assessee during the course of investigation, against the above confirmed demand;

iii). I order to recover interest on the above confirmed demand of Rs. 2,49,10,783/- (Rupees Two crore forty nine lakh ten thousand seven hundred eighty three only) (including education cess and secondary and higher education cess) at the prescribed rate from the said assessee under Section 75 of the Finance Act, 1994;

iv). I order to appropriate interest of Rs. 33,26,573/- (Rupees Thirty three lakh twenty six thousand five hundred seventy three only) paid by the said assessee during the course of investigation, against the above confirmed demand;

v). I impose penalty of Rs.200/- (Rupees Two hundred only) per day for the period during which failure to pay the tax continued, or at the rate of 2% of such tax, per month, whichever is higher, starting with the first day i.e. 6.12.2007 after the due date till the date of actual payment of the outstanding amount of service tax upon the said assessee under Section 76 of the Finance Act, 1994, for the period from 6.12.2007 to 9.5.2008; provided that the amount of penalty payable in terms of this section shall not exceed the service tax payable by the said assessee for the period from 6.12.2007 to 9.5.2008;

vi). I impose penalty of Rs. 2,49,10,783/- (Rupees Two crore forty nine lakh ten thousand seven hundred eighty three only) on the said assessee under section 78 of the Finance Act, 1994 for suppressing the value of taxable services provided by them before the department with intent to evade payment of service tax.. In the event of the said assessee opting to pay the amount of service tax along with all other dues as confirmed and ordered to be recovered, within thirty days from the date of communication of this order, the amount of penalty liable to be paid by them under Section 78 of the Finance Act, 1994 shall be 25% of the said amount. However, the benefit of reduced penalty shall be available only if the amount of

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penalty is also paid within the period of thirty days from the communication of this order, otherwise full penalty shall be paid as imposed in the above order.

vii). I impose penalty of Rs. 1000/- (Rupees One thousand only) under section 77 of the Finance Act, 1994 as it existed at material time i.e. prior to amendment in Section 77 w.e.f 10.5.2008 on the said assessee, for contravention of section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994;

viii). I drop the demand of service tax of Rs.5,15,37,487/- (Rupees Five crore fifteen lakh thirty seven thousand four hundred eighty seven only) (including education cess and secondary education cess) as detailed in Annexure-A to the show cause notice;

(Tejasvini P.Kumar)Commissioner,

Service TaxAhmedabad

F.No.STC/4-90/O&A/11-12 Date: 16.04.2013BY R.P.A.D.

To M/s. Savvy Infrastructure Ltd., B-900, Shapath-IV, Opp. Karnavati Club, S. G. Highway, Ahmedabad – 380 051Copy to:

1. The Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone, Ahmedabad for information please

2. Deputy/Assistant Commissioner, Service Tax, Division-III, Ahmedabad.

3. Superintendent of Service Tax, Range- XV, Division-III, Ahmedabad.

4. Guard File.

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