CESTAT Hyderabad Clarifies Service Tax Liability on Residential Construction Before and After 01.07.2010
The CESTAT Hyderabad, in Commissioner of Central Tax Vs Abhilash Synergetic Constructions & Exports Pvt Ltd, examined service tax liability on construction of residential flats executed under development agreements with landowners and separate construction agreements with individual flat purchasers. The Tribunal adjudicated cross-appeals by the assessee and the Revenue against a common Order-in-Original dated 23.05.2014 passed by the Commissioner of Central Excise, Customs and Service Tax, Visakhapatnam – I.
A Show Cause Notice dated 20.06.2013 had proposed a total service tax demand of Rs. 2,20,23,119/- for the period 01.10.2007 to 31.03.2013, along with interest and penalties. The adjudicating authority:
- Confirmed service tax of Rs. 80,27,853/- under “Works Contract Service” with interest and penalty, and
- Dropped the balance demand of Rs. 1,39,95,266/-.
The assessee contested the portion confirmed against it, while the Department appealed against the dropped component. The Tribunal ultimately allowed the assessee’s appeal and dismissed the Revenue’s appeal, giving detailed findings on classification, taxability, valuation, limitation, and penalties.
Background and Nature of Transactions
Development Agreements and Flat Purchases
The assessee, M/s Abhilash Synergetic Constructions & Exports Pvt Ltd, carried out construction of residential flats:
- Under development agreements entered into with landowners, where the landowner typically received a specified number/portion of the constructed flats as consideration in kind (development rights), and
- Under separate agreements with individual purchasers for construction and completion of specific flats.
The assessee was registered under the taxable category of “Construction of Residential Complex Service”. However, in the impugned order, the Commissioner reclassified the activity and confirmed tax as “Works Contract Service”.
Assessee’s Broad Contention: Period-Wise Segregation
The assessee divided the disputed period into three distinct phases, based on statutory changes and legal developments:
01.10.2007 to 30.06.2010 (Pre-Explanation period)
- Position taken: Construction by a builder for prospective purchasers was not taxable in the absence of the Explanation to Section 65(105)(zzzh), which was only inserted with effect from 01.07.2010.
01.07.2010 to 30.06.2012 (Post-Explanation but pre-negative list)
- Position taken: Where construction was undertaken under individual agreements with purchasers for personal residential use, such activity fell within the exclusion in
Section 65(91a)defining “Residential Complex”.
- Position taken: Where construction was undertaken under individual agreements with purchasers for personal residential use, such activity fell within the exclusion in
01.07.2012 to 31.03.2013
- Position taken:
- The share of flats allotted to landowners under joint development should be excluded on principles against double taxation, and
- In the alternative, the assessee claimed entitlement to notified abatement and cum-tax benefit under
Section 67(2)of the Finance Act, 1994.
- Position taken:
To support these propositions, the assessee relied on Tribunal decisions in:
- Aruna Constructions Vs Commissioner of Central Excise and Service Tax, Visakhapatnam – I, Final Order Nos. A/30164-30166/2026 dated 13.03.2026
- MVV Builders Vs Commissioner of Central Excise and Service Tax, Visakhapatnam – I, Final Order Nos. A/30517-30518/2025 dated 25.11.2025
- R.V. Nirman Pvt Ltd. Vs Commissioner of Customs, Central Excise and Service Tax, Hyderabad – II, Final Order No. A/30270/2026 dated 28.04.2026
On limitation and penalties, it was argued that the matter was interpretational, with divergent judicial views, and that there was no fraud, wilful misstatement, or suppression to justify the extended period.
Revenue’s Stand in Appeal
The Department, supporting the confirmed demand and challenging the relief granted, took the following positions:
- The construction contracts clearly involved transfer of property in goods along with provision of services, thereby fitting the description of Works Contract Service after 01.06.2007.
- Construction services rendered to landowners in lieu of development rights constituted a taxable service with non-monetary consideration, and therefore the dropped demand of Rs. 1,39,95,266/- on that component ought to have been confirmed.
Tribunal’s Analysis: Classification and Scope of Taxability
Composite Contracts and Works Contract Service
The Tribunal first addressed the nature of the contracts: