In the case of Commissioner of Service Tax between M/s Krishna Chaitanya Enterprises, High Court of Bombay recently held that the builder or developer are not liable to pay service tax for collecting amount for upkeep of the apartment or premises when the same are provided under statutory service.
Assessee-Company in the instant case, is engaged in the business of construction of buildings. The department noticed that the assessee was engaged in providing works contract service and was not discharging the tax liability regarding the amount collected by the Assessee from its clients towards booking of flats and on collecting amount as maintenance charges for upkeep of the apartment or premises.
On appeal, the Customs, Excise and Service Tax Appellate Tribunal set aside the issue. However the Revenue was on appeal before the Court by holding that the Tribunal erred in holding that the Assessee providing statutory services and the definition provided by Section 65(105)(zzg) of the Finance Act.
After considering the facts and circumstances the High Court Judge Bharathi H. Dangre and Judge S.C. Dharamadhikari observed that “It is a statutory obligation superimposed on a contract to sell a Flat/unit in a building to be constructed on a piece or parcel of land. That cannot be confused with a taxable service as defined under the Finance Act, 1994”.
The bench observed that “the provisions of Sections 5 and 6 and eventually the further provisions right upto Section 13 of the MOFA would make it clear that builder and developer maintains and repairs the property till it is conveyed or the title in the same is conveyed to the Flat purchasers or the legal entity which would ultimately be formed by him. Thus, a cooperative housing society or a company would have to be formed of all those Flat purchasers who have purchased the Flats prior to or under construction, namely, subsequently purchased Flats. The completion of the building or it being rendered fit for occupation is one of the duties and obligation of the builder and promoter under this law. For them to be conveyed he has to maintain the property. His liability is in terms of the statute itself. It is towards that end that money is collected and paid over to the statutory authorities in the form of charges and taxes as it is the builder’s obligation to collect these amounts from individual Flat takers and make it over to these authorities.”
“After formation of the legal entity, the obligation ceases and it is taken over by the cooperative housing society or the company. Until that takes place, the promoter continues to be liable. If this aspect is ignored, then, the narrow or restricted construction placed on the provision by the Revenue can be accepted. The tax then can be justified on the ground that it is a taxable service provided by the builder. However, if all this has been seen not de hors the MOFA by the Tribunal, then, it has not committed any error of law apparent on the face of the record, or perversity,” the bench said.