One time maintenance charges collected from Buyers not liable for Service tax

By | November 8, 2015

 Summary of Decision :-

It has been held that the appellant are not in the business of maintenance and repair or management of immovable property. They are collecting one time maintenance charges from their buyers to whom they have sold the flats. They are only paying on behalf of various buyers (as trustees) of flats to various authorities like, Municipal Corporation, Revenue authorities, etc. and also various services providers such as cleaning and other service providers, etc. and they are not charging anything on their own. The payments are made on cost basis and the same is debited from the deposit accounts held. The builders/developer act only as a trustee. When the co-operative society of flat owners is formed, even the deposit account is shifted to flat owners co-operative housing society , which is a statutory obligation on the appellant in terms of Sections 5 & 6 of the Maharashtra Ownership Flats Act, 1963. Accordingly, it cannot be held that the repair and maintenance services were rendered

CESTAT, MUMBAI BENCH

Goel Nitron Constructions

v.

Commissioner of Central Excise, Pune-III

ANIL CHOUDHARY, JUDICIAL MEMBER
AND RAJU, TECHNICAL MEMBER

ORDER NOS. A/2262-2264/2015/STB
APPEAL NOS. ST/185/2009-MUM. & ST/307-308/2010-MUM

JULY  7, 2015

Kumar Beheray Rathi v. CCE [Appeal Nos. ST/137, 138, 139 & 140/2008-Mum, dated 18-11-2013] (para 3).

Sagar Shah, CA for the Appellant. A.B. Kulgod, Asstt. Comm. (AR) for the Respondent.

ORDER

Anil Choudhary, Judicial Member – The appellants herein are builders/promoters of housing society, constructing residential flats and are in appeal against the levy of service tax on ‘one time maintenance/contribution’ collected from the purchasers of the flats/units. They had collected maintenance charges for the interim period till the society is formed, as per the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963, and thereafter once the building is occupied by the flat owners, they would form a Housing Society as per Co-Operative Housing Society Rules. They were collecting corpus for maintenance, etc., and the said balance of funds along with account of utilisation, are transferred to the newly formed society, in terms of Sections 5 & 6 of the said Maharashtra Ownership Flat Act, 1963 (for short).

2. For the sake of convenience, we take up the appeals together for disposal as common points of law and facts are involved. We prefer to take facts from Appeal No.ST/307/10. The appellants had collected certain amounts from their customers under the heading ‘common area maintenance deposit’, which was required to be utilised for maintenance of common area of the society, such as stairs, terrace, parking, water charges, municipal taxes, etc. This is towards maintaining common area and common facilities on behalf of the flat owners. The common area belongs to the Society as a whole, each individual flat owners have proportional undivided interest. Till the society is formed of the flat owners, the appellant would maintain a separate account of such collection and outgoings and transfer whatever balance amounts (with interest) available to the society. A show-cause notice was served on the appellant some time in June/July 2007. It appears to Revenue from the records, balance sheets, etc., they had collected from the buyers of the flat for maintenance and repairs of immovable property. Subsequently, services which are rightly classifiable under the category of management, maintenance or repair services and chargeable to service tax, with effect from 16/06/2005 under section 65(105)(zzg) of the Act. The accounting treatment of the amount charged and collected as shown in the balance sheet has no bearing with taxability and the value of taxable service rendered by the noticee. The amount charged by the appellants in advance for the provision of taxable service and lying in balance as on 16/06/2005 with them appeared to be the gross amount collected for providing the taxable service of management, maintenance and repairs, for the purpose of valuation of taxable service in terms of Section 67 of the Act. Accordingly, the appellant was required to show-cause as to why the service tax and education cess for the period 16/06/2005 to 31/12/2006 amounting to Rs.26,59,654/- along with interest not be assessed and further penalty levied under Sections 76, 77 & 78 of the Act. The appellant contested the show-cause notice by filing reply wherein it was stated that the amount is collected from the flat owners under the provisions of Maharashtra Ownership Flats (Regulation of the Promotion of Construction, sale, management and transfer) Act, 1963. The appellant is acting merely as trustees, maintaining common expenditure and outgoing till date the co-operative society of owners is formed, and when fund is required to be transferred to said society. It was also stated that the services have been provided by different agencies and they have been making the payment for the same, out of the amounts so collected and are maintaining separate accounts. It is also in the nature of pure agent. The show-cause notice was adjudicated by order-in-original dated 03/07/2009 wherein the proposed demand was confirmed along with interest and equal amount of penalty imposed under Section 78, and no penalty was imposed under Sections 76 & 77. Aggrieved by the order, the appellant filed appeal before the learned Commissioner (Appeals) who vide impugned order dismissed the appeal on both the ground of limitation as well as on merits. While rejecting the ground of limitation, for delay of forty days, it was noted that due to outbreak of swine flue during the period, and also noted the fact that income tax department had extended the date of filing of return from 30/09/2009 to 30/10/2009. The learned Commissioner did not consider it reasonable cause. Aggrieved by the order, the appellants are before this Tribunal.

3. The learned Counsel for the appellants state that the issue is no more res integra, the same may be decided in favour of the appellant. In support of their contention, he relied upon the judgment in the case of Kumar Beheray Rathi v. CCE[Appeal Nos. ST/137, 138, 139 & 140/2008 Mum, dated 18-11-2013] wherein this Tribunal under similar facts and circumstances have held the builders who are developers of the flats had collected similar amounts towards deposit and had incurred common expenditure on behalf of the society till the time the society is formed. It has been held that the appellant are not in the business of maintenance and repair or management of immovable property. They are collecting one time maintenance charges from their buyers to whom they have sold the flats. They are only paying on behalf of various buyers (as trustees) of flats to various authorities like, Municipal Corporation, Revenue authorities, etc. and also various services providers such as cleaning and other service providers, etc. and they are not charging anything on their own. The payments are made on cost basis and the same is debited from the deposit accounts held. The builders/developer act only as a trustee. When the co-operative society of flat owners is formed, even the deposit account is shifted to flat owners co-operative housing society , which is a statutory obligation on the appellant in terms of Sections 5 & 6 of the Maharashtra Ownership Flats Act, 1963. Accordingly, it cannot be held that the repair and maintenance services were rendered. Accordingly the Counsel for the appellants urges that the appeal may be allowed on merits. On issue of limitation, before the Commissioner (Appeals), there was reasonable cause for delay and the delay was recognized by the Govt. of India in its various circulars and other statutes, as such the learned Commissioner erred in not condoning the delay in filing the appeal before them. Considering the ground for delay before the Commissioner (Appeals) we hold that there is a reasonable cause for delay. The learned Commissioner has erred in not condoning the delay in spite of there being sufficient grounds.

3.1 That during the hearing the learned Counsel also showed the letter of the housing co-operative society, wherein they have acknowledged the receipt of the funds from the builder/appellant.

4. The learned DR relies upon the impugned order.

5. We allow the appeals holding that the appellants are not liable to pay service tax under the category of ‘maintenance and repair services’ on ‘one time maintenance charges’ collected from buyers of the flat, relying on the earlier ruling of this Tribunal in the case of Kumar Beheray Rathi (supra). Thus the appeals are allowed with consequential benefits, if any.

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