QUESTION

ABC is a builder and developer. 1. They have entered into development agreement with landlord. 2. Sharing is 50% 50%. 3. Development agreement was entered into on 22.10.2012. 4. Project consist of 5 buildings. 5. Building completion certificate for building no 1, 2 and 3 was received in January 2017 and for building no 4 and 5 was received in 2018. 6. No service tax was paid on flats allotted to land owners 7. Now received a letter from anti evasion department that you have not paid service tax on land owners share. 1. Whether show cause notice can be issued in such cases and for which year. 2. Whether the builder will be liable to pay service tax for building no 1,2,3 and whether the tax is levied on flats or development agreement and the basis of valuation of flat and when the tax is required to be paid 3. Whether the builder will be liable to pay gst for building no 4 & 5 and whether the tax is levied on flats or development agreement and the basis of valuation of flat and when the tax is required to be paid 4. If yes whether the amount will be required to be paid with interest and penalty.

ANSWER

Facts of the case:

ABC is a builder and developer entered into development agreement with landlord with sharing 50% 50%, Development agreement was entered into on 22.10.2012. Project consist of 5 buildings. Building completion certificate for building 1, 2 and 3 was received in January 2017 and for building no 4 and 5 was received in 2018. No service tax was paid on flats allotted to land owners. Now I received a letter from the anti evasion department that you have not paid service tax on land owners share

Law applicable:
Section 11A - Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.

(1) Where any duty of excise has not been levied or paid or has been short-levied or short paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty,'

(a) the Central Excise Officer shall, within Two year from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;
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(4) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by the reason of'

(a) fraud; or

(b) collusion; or

(c) any willfull miss-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty

by any person chargeable with the duty, the Central Excise Officer shall, within five years from the relevant date, serve notice on such person requiring him to show cause why he should not pay the amount specified in the notice along with interest payable thereon under section 11AA and a penalty equivalent to the duty specified in the notice.

Section 76- Penalty for failure to collect or pay service tax

(1) Where service tax has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded, for any reason, other than the reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made there under with the intent to evade payment of service tax, the person who has been served notice under sub-section (1) of section 73 shall, in addition to the service tax and interest specified in the notice, be also liable to pay a penalty not exceeding ten per cent. of the amount of such service tax:

Section 75- Interest on delayed payment of Service Tax

Every person, liable to pay the tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at such rate not below ten percent and not exceeding thirty six percent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette, for the period by which such crediting of the tax or any part thereof is delayed.

Interpretation:
If it is a Joint Venture Agreement between the Builder and the Land owner then the question of Service Tax will not arise because the flats are distributed after the completion of Project between these two partners. There is no sale of flat. the output of the Project (Joint Venture) is divided between two partners. So it will not attract Service Tax.

Please go through the agreement carefully and check whether it fulfills above conditions.

No comment regarding whether SCN can be issued or not can be given without going through grounds of SCN.

SCN under Service tax can be issued within Two years or five years (in case of fraud and suppression of facts) from the relevant date on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

Liability of tax can be calculated and determined only after going through all the documents (agreement, Completion certificate, sale agreement etc).

Conclusion:
1. SCN under Service tax can be issued within Two/five year from the relevant date.
2. If the case is of Joint Venture, then liability of Service Tax will not arise. Liability of tax can be calculated and determined only after going through all the documents.
3. The answer will remain same in GST also
4. In case of tax liability the liability to pay interest and penalty will also arise. (Reply dt. 08/10/2021)