No Service Tax on Builder’s Share of Flats Before 1 July 2010: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench has set aside a substantial portion of the Service Tax demand raised against a construction firm, holding that Service Tax cannot be levied on builder’s share or landowner’s share of flats for the period prior to 1 July 2010. The bench of Angad Prasad (Judicial Member) and A.K. Jyotishi, (Technical Member) remanded the matter to the adjudicating authority for limited re-quantification of tax liability for the post-July 2010 period after granting statutory abatements and benefits. The appellant/assessee, Varshini Builders is engaged in the construction of residential complexes and had obtained Service Tax registration in November 2006. The Department issued two show cause notices alleging non-payment of Service Tax on construction activities, particularly relating to flats allotted to the landowner as well as the builder’s share of flats. The adjudicating authority confirmed demands relating to the construction projects “Varshini Enclave” and “Varshini Homes”, covering the period from 2007-08 to June 2012, under the taxable categories of Construction of Residential Complex Service and Works Contract Service. The total demand involved multiple components including tax on landowner share of flats and builder share. The appellant argued that no Service Tax was payable on builder’s share of flats prior to 1 July 2010, as the law at that time did not treat such transactions as taxable services. For the period after July 2010, the builder submitted that it had already discharged Service Tax on 25% of the gross value in terms of the applicable abatement under the Service Tax provisions and notifications. The counsel further contended that reclassification under Works Contract Service would not create any additional tax liability because retrospective amendments to valuation rules ensured similar tax treatment. With respect to flats given to landowners in exchange for development rights, the appellant argued that taxing such construction would amount to double taxation, since Service Tax had already been paid on the value of construction related to the builder’s share of flats. The builder also challenged the invocation of the extended limitation period, stating that the issue involved interpretation of law and conflicting judicial views during the relevant period. During the proceedings, the Department itself conceded that Service Tax would not be payable on certain portions of the demand relating to the pre-1 July 2010 period. However, it maintained that Service Tax on construction of residential complexes became clearly applicable after the amendment to Section 65(105)(zzzh) of the Finance Act, 1994, which linked taxability to the issuance of the occupancy certificate. The Department suggested that the matter could be remanded for recalculation of tax liability after allowing 75% abatement, in line with retrospective amendments to valuation rules under the Finance Act, 2017. After examining the records and hearing both sides, the Tribunal observed that the legal position regarding taxation of construction services prior to 1 July 2010 had already been settled by multiple judicial decisions. Therefore, the Service Tax demand for that period could not be sustained. Accordingly, the Bench ruled that service Tax demand for the period prior to 1 July 2010 is unsustainable and must be set aside. Demand relating to landowner’s share of flats is also not sustainable. For the period after 1 July 2010, the tax liability requires recalculation in light of retrospective amendments to valuation rules. The Tribunal also held that the extended period of limitation could not be invoked, noting that the issue involved interpretational disputes and even the Government later introduced retrospective amendments to address the legal ambiguity. CESTAT partially allowed the appeal and issued the various directions. The entire demand for the period prior to 1 July 2010 was set aside. The Service Tax demand relating to landowner share of flats was also quashed. The case was remanded to the adjudicating authority only for re-quantification of tax liability for the post-July 2010 period, after granting eligible abatements and statutory benefits. Case Details Case Title: Sri Varshini Builders Versus Commissioner of Central Excise And Service Tax Citation: JURISHOUR-265-CES-2026(HYD) Case No.: Service Tax Appeal No. 28167 of 2013 Date: 09.03.2026 Counsel For Appellant: R. Raghavendra Rao, Advocate Counsel For Respondent: K. Raji Reddy, Authorized Representative Click Here To Read Order Read More: No Service Tax On Expatriate Employees Working Under Employer–Employee Relationship: CESTAT

No Service Tax on Builder’s Share of Flats Before 1 July 2010: CESTAT

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