The Commissioner of Central Tax & GST, Thane, Mumbai, ruled that the activity of giving flats in new/ re-constructed building to the existing members of the said society, who were flat owners in the said society is not a sale and hence is out of ambit and purview of levy of Service Tax.
The ruling was made while disposing of a show-cause notice issued by M/s Ethics Infra Development Pvt. Ltd. The notice entered into an agreement with 3 housing societies for re-development of the residential premises and built new flats in their residential area. In consideration, the existing members of the society were provided with free flats, as per agreed terms and conditions, to the existing members of the hosing societies. The remaining units were sold to independent buyers.
On the basis of the audit report, the current notice was issued. The question that was before the commissioner was whether the notice was providing taxable service by redeveloping residential premises. The question of whether handing over flats to existing members of the society would constitute sale was also discussed here.
The notice argued that the sole basis for the issue of demand notice cannot be audit report, and hence for this reason alone the demand notice is not maintainable. Further, the notice argued that the relevant activity was basically the exchange of immovable properties and hence it cannot be termed as ‘service’ as per its definition under Section 65 B (44) of the Finance Act, 1994.
The Commission by holding the notice was not maintainable, held that, “in the instant case, the land was owned by the housing society which entered into a development agreement with the builder/ developer who is the noticee in the instant case. As per the development agreement, the noticee was required to give a fixed percentage as additional carpet area to the existing society members free of cost. Hence the basic requirement of ‘sale’ is not met in as much as giving flats to the existing society members in the developed/ re-constructed building is concerned.”
The Commission further clarified that under section 66 E (b), “Construction of a complex for residence for sale, was & is, a service, liable for levy of service tax if the consideration is received before obtaining the completion certificate from the competent authority.”
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