Petitioner No. 1 V. Superintendent of Central Excise

WP(C)/2615/2006

AI Insights

The case revolves around a writ petition filed by a private limited company engaged in real estate, challenging a notification from the Superintendent of Central Excise requiring them to register under Section 69 of the Finance Act, 1994. The notification was based on the premise that the company was providing 'Commercial or Industrial Construction Service/Construction of Complex Service'. The petitioner argued that their activities constituted the sale of flats/premises and not the provision of construction services. The respondents contended that the agreements for sale were essentially works contracts, thus taxable under service tax provisions. The court examined the nature of the agreements and the actual activities of the petitioner company, leading to the conclusion that the company was not providing a taxable service.

• Counselvise Citation: [2006] 140 COUNSELVISE.COM (IT) 811666 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 06-03-2006
• Assessment Year: misc
• Other Referred Cases: K. Raheja Development v. State of Karnataka, Assotech Realty Pvt. Ltd. v. State of U.P., Commissioner of Income Tax v. Aspinwall and Company, Keshavji Ravji & Company v. Commissioner of Income Tax, K.P. Varghese v. ITO, Ellerman Lines Ltd. v. CIT, Paper Products Ltd. v. Commissioner of Central Excise, Collector of Central Excise, Vadodara v. Dhiren Chemical Industries, Collector of Central Excise, Merut v. Maruti Foam Pvt. Ltd.
• Laws Referred To: Finance Act, 1994, Service Tax Rules, 1994, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Construction service; Service tax; Taxable service; Works contract
• Section: 68; 69; 66; 65(105)(zzz h)

Judgement Text

"WP(C) 2615/2006 BEFORE THE HON’BLE MR. JUSTICE IA ANSARI JUDGMENT AND ORDER By making this application under Article 226 of the Constitution of India, the p etitioners, who claim that the petitioner No. 1 is a private limited company, en gaged in the business of development and sale of immovable property, i.e., real estate, have impugned a notification, dated 06-03-2006, issued by the respondent No. 3, namely, Superintendent of Central Excise, to the petitioner, whereby the petitioner company has been asked to get itself registered under Section 69 of the Finance Act, 1994 (hereinafter referred to as, ’the Finance Act, 1994’), ina smuch as the petitioner company has been, according to the respondent No. 3, ’pr oviding Commercial or Industrial Construction Service/Construction of Complex Se rvice’. The petitioners challenge the very authority of the respondent No. 3 t o issue the notice, which stands impugned in the present writ petition, the case of the petitioners being, in brief, thus: The petitioner No.1 is a private li mited company engaged in the business of development and sale of immovable prope rties i.e. real estates. The petitioner company constructs buildings and sells p remises/flats in such buildings. During the course of development of such proper ty and construction of buildings thereon and also after completion of such const ruction, the petitioner Company enters into ’flat purchase agreements’ with vari ous premises/flat purchasers, whereunder the petitioner Company allots and sells flat/premises, in such buildings, to the purchasers. The said transaction is a transaction of sale of flats/premises and the consideration is payable to the pe titioner Company in installments as per the terms, which may be mutually agreed upon, through the terms of the agreement are, usually, co-related to the extent and the stage of the development of the constructional work. The agreement for s ale of such flats is stamped as sale of flat/premises for the entire considerati on. Before accepting money as advance payment or deposit out of the sale price, the petitioner Company enters into an agreement for sale, which is registered. T he agreement contains various details and price including area of the flat, the price of the flat (the price of common areas and facilities being shown separate ly) and various other facilities concerning the flat, etc. For the purposes of c arrying out construction work of the buildings, the petitioner company engages v arious contractors for obtaining construction related services to the petitioner company. Thus, in their various projects, the petitioners have engaged repute d contractors. The petitioners, at times, engage contractors, who supply labour. Sometimes, the petitioners carry out part of the constructional activities. However, the petitioners carry out such constructional activities for themselves and for their own purposes and not for any one else. The transaction between t he petitioners and the flat purchasers is purely a transaction for sale of the f lat/premises and cannot be treated as a contract for rendering of service of any nature whatsoever. On certain occasions, instead of purchasing the land from th e owners, the petitioners enter into agreements with the owners of the land, suc h agreements being popularly known as Development Agreement . Under such agree ments, the petitioners become entitled to construct a building on the land and s ell the flats, which may be constructed thereon. The petitioners acquire all th e rights, title, interest and advantages of the owners including the entitlement to sell, transfer, deal with, dispose off all the premises and areas in the bui lding or structures to be constructed by the petitioners. The petitioners are g iven the right to enter upon the land, to raise constructions thereon and sell f lats constructed on such land. Even after execution of such agreements, the con structional activities, carried out by the petitioners, are mostly through other persons working as external contractors. In any case, such constructional/deve lopmental activities are carried out by the petitioners for themselves and for t heir own benefits and not for any other entity or person. 3. The respondents have resisted the writ petition by filing an affidavit, their case being, briefly stated, as under: (i) As per the definition of Constitution of Complex Service , appearing in Section 65 (105)(zzz h) of the Finance Act, 1994 (as amended), since the petiti oner company is providing service to its clients, the service, so provided by th em, is taxable under ’service tax’. Hence, the petitioner company is required to get, as per Section 69 of the Finance Act, 1994, read with Rule 4 of the Servic e Tax Rules, 1994 (in short, ’the said Rule’), as amended, registered so as to p ay the ’service tax’. (ii) The activities undertaken by the builders for construction of flats/buil dings, for and on behalf of prospective buyers, for consideration of cash or def erred payment is covered under works contract and not sale . Although it has been stated by the petitioners that the agreements, signed between the petitione r company and the prospective purchaser of the flat/building, are termed as dee d of agreement for sale of flat and land , the fact remains that such agreements are for of works contract and, hence, the petitioner company is required to g et itself registered and pay ’service tax’. (iii) The petitioner company agrees that it accepts money as advance or deposi t on the basis of agreements for sale. Such an agreement contains various detail s, price, the area of the flat, the common areas and amenities/facilities that w ill be available in the flat. Thus, the agreement, in such a case, is basically an agreement for construction of the flat as per specifications contained in the agreement. (iv) The petitioner company admits that it has to enter into agreement for sa le before accepting money as advance or deposit. If it be so, the agreement is s igned before the buildings are made. At that time, the buildings/flats are to be found only in the specifications of the agreement. Whatever name the agreements may bear, the saleable products/things are not made/produced/constructed at the time of making of the agreement. A non-existent thing cannot be sold against co nsideration. Hence, construction is the essential and immediate obligation of th e petitioner company and that too, according to the specifications/dictation of the second party within the stipulated period of time. Thus, the petitioner comp any has been rendering/providing service of construction of complex to the parti es in compliance with the agreements against the advances received by, or deposi ts made with, the petitioner company. (v) The definition of Constitution of Complex Service , as given in Section 65 (105)(zzz h) of the Finance Act, 1994, is wide enough to include the estate builders, such as, the petitioner company. (vi) The agreement is executed between the petitioner company and the prospec tive buyers before the commencement of the works of the flat/building or prior t o the completion of the work of the relevant flat or building. Thus, the agreeme nt signed between the petitioner company and the prospective buyers is nothing, but works contract and, as such, the petitioners are liable to pay ’service tax’ . The transaction between the petitioner company and the prospective buyers is p urely transaction for construction as per specifications in the agreements for s ale. The very fact that the petitioner company receives advances/deposits and ge ts the agreement registered makes the petitioner company work for and on behalf of the prospective buyers. 4. I have heard Dr. AK Saraf, learned Senior counsel, for the petitioners, and Mr. H Rahman, learned Assistant Solicitor General, appearing on behalf of th e respondents. 5. The moot question, which the present writ petition has raised, is this: Whether the petitioner company has been working, as a ’service provider’, for th ose persons with whom the petitioner company enters into agreements and construc ts flats for the purpose of sale to those with whom such agreements are entered into? 6. In order to ascertain the exact nature of work, which the petitioner com pany has been carrying on, a careful scrutiny of the relevant clauses of the agr eement, which the petitioner company enters into with prospective buyers, is nec essary. One of such agreements for sale of the flats has been annexed to the wri t petition. Some of the relevant clauses of the agreement for sale are extracted below : 1. That the First party agrees to sell and the Second party agrees to purchase the flat described in Schedule B along with the proportionate and undivided shar e of land for total sale of price of Rs.7,86,500/-(Rupees Seven lacs eighty six thousand five hundred only) which shall be paid by the Second party to the First party as per the payment Schedule below : (a) On booking & agreement &. Rs.1,00,000/- (b) On or before 30th June 2005 &..Rs.3,50,000/- (c) On or before 31st December, 2005 &. Rs.2,50,000/-. (d) On or before 30th June 2006 & &Rs 86,500/- 2. That the Second party shall pay Stamp duty and Registration fees as per preva iling immovable property transfer laws, Cost of society formation, Cost of Sale permission from the Deputy Commissioner, Kamrup and Guwahati Metropolitan Develo pment Authority, Lawyer’s fees, Guwahati Municipal Corporation Assessment /Holdi ng fees. etc. 5. That the flat shall be handed over on or before 24 (twenty four)months of thi s Agreement. However in case of unforeseen circumstances, acts of nature, legal impediments, stays, government restrictions, force majuere events, etc. the s aid period of handing over shall be extended. 6. That time being the essence of the Agreement, the Second party specifically a grees to make the payment of the sale price strictly as per the payment schedule described above. 9. The possession of the flat shall be given to the Second party only after the Second party has made payment of the sale price of the flat/apartment to the Fir st party as stated in paragraph 1, 2 and 3 above. 10. That after the payment of all dues by the Second party, Deed of Sale will be registered by the First party in favour of the Second party as per prevailing Stamp Act, Registration Act, Property transfer Acts and Rules framed thereunder . 11. That the Second party shall be entitled to have the flat/apartment assessed by the Guahati Municipal Corporation and obtain individual Holding number in own name. 18. That after receiving possession of the flat, the Second party shall have no claims upon the First party in respect of any matter relating to the flat/apartm ent and/or the building. 7. A combined reading of the various clauses of the agreement for sale make s it abundantly clear that the transaction between the petitioners, on the one h and, and the flat purchaser, on the other, is that of purchase and sale of premi ses and not for carrying out any constructional activities on behalf of the pros pective buyers. What the petitioner company sells is, thus, the flat /premises and the entire transaction is nothing, but sale and purchase of immovable proper ty. The flat purchasers are entitled to seek specific performance of the contrac t and there is an obligation, on the part of the petitioner company, to refund a ny part of money received together with interest if possession is not handed ove r to the prospective buyers in time. There is also an obligation, on the part of the petitioner company, to register sale deeds and agreements. Even the registe ring authorities concerned treat these documents as agreements for sale/purchase of flats/premises inasmuch as the consideration is for sale and not for carryin g out constructional activities. Stamp duty is, therefore, levied on the sale c onsideration. 8. Asserting that the petitioner company does not render any taxable ser vice and is not engaged in any such activities, which can make it liable to pay ’service tax’, under the Finance Act, 1994, the petitioners, in the present Writ application, have challenged, as already indicated above, the legality and val idity of the impugned notice and the very jurisdiction of the authority concerne d to issue such a notice. 9. It may be pointed out, at the very outset, that tax on services is an ’indirect tax’ and is a relatively new concept in India. As a matter of fact , Government of India had introduced the levy of ’service tax’, i.e., tax on the services, for the first time, in the year 1994, borrowing the concept from deve loped countries. The basic purpose of this levy has been to increase revenue, t reating the act(s) of rendering service, as an additional source of revenue. Dep ending upon its own socio-economic compulsions, each country evolves its system of taxation adapting either a ’comprehensive approach’ or ’selective approach’. Under the concept of ’comprehensive approach’, all services are taxable unless a ny of the services is specifically excluded; whereas under the system of ’select ive approach’, only specified services are taxable and it is the system of ’sele ctive approach’, which India has adopted. This distinction needs to be kept in m ind, when we proceed further. 10. On 28-05-1994, in his budget speech for the year 1994-95, the Union Minister of Finance, while proposing to introduce ’service tax’, observed as un der : Over the years, while attempts have been made to widen the base for domestic in direct taxes, the services sector has not been subject to taxation. Yet this sec tor accounts for about 40% of our GDP and is showing strong growth. There is no sound reason for exempting services from taxation, when goods are taxed and man y countries treat goods and services alike for tax purposes. The Tax Reforms Com mittee has also recommended imposition of tax on services as a measure for broad ening the base of indirect taxes, I, therefore, propose to make a modest effort in this direction by imposing a tax on services of telephones, non-life insuranc e and stock brokers. The tax will be charged at 5% on the amount of telephone bi lls, the net premium charged by the insurance companies, and the brokerage or co mmission charged by the stock brokers in relation to their services. These propo sals will come into force from a date to be notified later on . 11. In India, the law of ’service tax’ is regulated by the Finance Act, 1994. Although there was no entry in the Union List or the State List, which had autho rized levy of ’service tax’ till 2003, the Central Govt. had initially imposed s uch taxes by taking resort to powers under the residuary entry in the Union Lis t; but in the year 2003, the Government moved a Bill seeking constitutional amen dments, which provided, formally, for levy on services by the Central Government . This constitutional amendment aimed at enabling the States to collect and appr opriate the proceeds of the levy on ’service tax’. Thus, the Constitution (95th Amendment) Bill, 2003, was introduced, on 07-03-2003, seeking to amend the Const itution, by providing tax on services as a specific entry in the Union list and evolve principles for determining the modalities of levying ’service tax’ by the Union Government and collection of the proceeds thereof by the Central and the State Governments. By the said amendment, a new entry was inserted in List 1 to the Seventh Schedule to Constitution of India, which reads as under : 92 C - Taxes on services . 12. Coupled with the above, a new article, namely, Article 268 A was also inserted. This Article reads as under : Article 268 A (1) taxes on services shall be levied by the Government of India and such tax shall be collected and appropriated by the Government of India and the States in the manner provided in Clause(2). (2) The proceeds in any financial year of any such tax levied in accordance with the provisions of Clause(1) shall be - (a) collected by the Government of India and the State; (b)appropriated by the Government of India and the States, in accordance with such principles of collection and appropriation as may be fo rmulated by the Parliament by law . 13. A consequential amendment to Article 270 of the Constitution was al so made enabling thereby the Parliament to formulate, by law, principles for d etermining the modalities of levying the ’service tax’ by the Central Government and collection of the proceeds thereof by the Central Government as well as the State Governments. 14. The Finance Act, 1994, provides the method of levy of ’service tax’ , defines ’taxable services’, their computation, procedures and rules along with the prescribed forms. Certain provisions of the Central Excise Act, 1944, were also made applicable to the ’service tax’. 15. S.68 of the Finance Act, 1994, which makes provisions for payment o f ’service tax’, reads as under : 68. Payment of ’service tax’ (1) Every person providing taxable service to any person shall pay ’service tax’ at the rate specified in section 66 in the such manner and within such peri od as may be prescribed; (2) Notwithstanding anything contained in Sub-section (1) in respect of any taxa ble service notified by the Central Government in the official Gazette, the ’ser vice tax’ thereon shall be paid by such person and in such manner as may be pres cribed at the rate specified in section 66 and all the provisions of this Chapte r shall apply to such person as if he is the person liable for paying the ’servi ce tax’ in relation to such service. 16. Section 66 of the said Act, being the charging Section, is reproduc ed below: Section 66 : Charge of ’service tax’. There shall be levied a tax (hereinafter referred to as the ’service tax’) at th e rate of twelve percent of the value of the taxable services referred to in su b-clauses (a), (b), (c), (d), (e) (f), (g), (h), (i), (j), (k), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), ( zd), (ze) (zf), (zg), (zh), (zi), (zj), (zk), (zl), (zm), (zn), (zo), (zp), (zq) , (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zz d), (zze) (zzf), (zzg), (zzh), (zzi), (zzj), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), (zzy), (zzz), (zz za), (zzzb), (zzzc), (zzzd), (zzze), (zzzf), (zzzg), (zzzh), (zzzi), (zzzj), (zz zk), (zzzl), (zzzm), (zzzn), (zzzo), (zzzp), (zzzq), (zzzr), (zzzs), (zzzt), (zz zu), (zzzv) and (zzzw) of clause (105) of Section 65 and collected in such manne r as may be prescribed. 17. Section 69 of the said Act makes it mandatory for a person, who is, otherwise, liable to pay ’service tax’, to get himself registered under the sai d Act. Section 69 states as under: 69. Registration (1) Every person liable to pay the ’service tax’ under this Chapter or the rules made thereunder shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise. (2) The Central Government may, by notification in the Official Gazette, spe cify such other person or class of persons, who shall make an application for re gistration within such time and in such manner and in such form as may be prescr ibed. 18. Section 65(105) of the Finance Act, 1994, defines ’taxable service’ . Clause (zzq) of sub-Section (105) of Section 65, prior to its amendment by the Finance Act of 2005, read as under. (zzq) service provided or to be provided to any person, by a commercial conc ern, in relation to construction service 19. Prior to its amendment by the Finance Act, 2005, Clause (30a) of Se ction 65 of the Finance Act, 1994, which contained the definition of ’constructi on service’, read as under : (30a) ’construction service’ means (a) construction of new building or civil structure or a part the reof, or (b) repair, alteration or restoration of, or similar services in relation to, building or civil structure, which is - (i) used, or to be used, primarily for; or (ii) occupied, or to be occupied primarily with, or (iii) engaged, or to be engaged, primarily, in commerce or industry, or work i ntended for commence or industry, but does not include road, airport, railway, t ransport terminal, bridge, tunnel, long distance pipeline and dam. 20. By the Finance Act, 2005, the definition of Construction Service was amended. With the amendment, so introduced, Section 65(30a), now, reads as u nder : (30a) : Construction of complex means- (a) construction of a new residential complex or a part thereof; or (b) completion and finishing services in relation to residential complex s uch as glazing, plastering, painting, floor and wall tilling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, constr uction of swimming pools, acoustic applications or fittings and other similar se rvices; or (c) repair, alteration, renovation or restoration of, or similar services in relation to, residential complex. 21. By the Finance Act, 2005, clause (zzq) of Section 65(105) of the Fi nance Act, 1994, was amended on 16-o6-2005. With the amendment, so made, Clause (zzq) reads as under: (zzq) to any person by any other person in relation to commercial or industria l construction service. 22. A new clause, namely, Clause (zzzh) was also inserted in Section 6 5(105) with effect from 16-06-2005, which the respondents rely upon. This clause reads as under : (zzzh) to any person, by any other person in relation to construction of comple x. 23. A new definition of ’commercial and industrial construction service ’ was also provided by the Finance Act, 2005, by inserting clause (25b) to Secti on 65(105) of the Finance Act, 1994. This Clause [i.e., clause (25b)], reads as under : (25b) commercial or industrial construction service means - (a) construction of a new building or a civil structure or a part thereof; o r (b) construction of pipe lines or conduit; or (c) completion and finishing services such as glazing, plastering, painting , floor and wall tilling, wall covering and wall repairing, wood and metal joine ry and carpentry, painting and railing, construction of swimming pool, acoustic application or fittings and other similar services, in relation to building or c ivil structure; or (d) repair alterations, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is (i) used, or to be used, primarily for; or (ii) occupied, or to be occupied, primarily with; or (iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry but does not inc lude such services provided in respect of roads, airports, railways, transport t erminals, bridges, tunnels and dams. 24. The Finance Act, 2005, also provides a specific definition of ’resi dential complex’ by inclusion of clause (91a) to Section 65(105) of the Finance Act, 1994, which reads as under : (91a) : residential complex means any complex comprising of - (i) a building or buildings, having more than twelve residential units, (ii) a common area; and (iii) any one or more of facilities or services such as park, lift, parking sp ace, community hall, common water supply or effluent treatment system, located within a premises and the lay out of such premises is approved by an aut hority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designi ng or planning of the layout and the construction of such complex is intended fo r personal use as residents by such person. Explanation - for the removal doubts it is hereby declared that for the purpose of this clause, - (a) ’personal use’ includes permitting the complex fo r use as residents by another person on rent or without consideration; (b) ’residential unit’ means a single house or a single apartment intended f or use as a place of residents. 25. Thus, beginning from 16-06-2005, construction of residential comple x was also brought within the purview of ’service tax’ provided that the constru ction, carried out, is one, which satisfies the relevant definitions as mentione d hereinabove. From a conjoint reading of Section 68, Section 65(105)(zzq) and ( zzzh) together with the definitions, contained in clauses, (25b), (30a) and (91a ), what becomes evident is that ’taxable service’ is a service, which is provide d or agrees to be provided to a person in relation to construction of commercial or industrial building or structure or for construction of a complex, which inc ludes a residential complex. 26. The term ’service’ has not been defined in the Finance Act, 1994, b y way of any Explanation or otherwise or by the Rules framed thereunder. Service has been defined differently under various laws. Under the Income Tax Act, 1961 , service means service of any description, which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature, such as, accounting, banking, communication, c onveying of news, information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage , processing, supply of electrical or other energy, boarding and lodging. 27. Under the Monopolies and Restrictive Trade Practices Act, ’service’ has been defined as under- Services means service of any description which is made available to potential users and includes and provisions of facilities in connection with banking, fi nancing, insurance, Chit funds, real estate, transport, processing, supply of el ectrical or other energy, boarding or lodging or both, entertainment, amusement or the conveying of news or other information but does not include the renderin g of any service free of charge or under a contract of personal service. 28. The term ’service’, as defined under the Consumer Protection Act 19 86, reads as under : Service means service of any description which is made available to potential u sers and includes the provisions of facilities in connection with banking, finan cing, insurance, transport, processing, supply of electrical or other energy , b oard or lodging or both, entertainment, amusement or the purveying of news or ot her information but does not include the rendering of any service free of charge or under a contract or personal service. 29. The Foreign Exchange Management Act, 1999, also defines ’service’, which reads as under : Service means service of any description which is made available to potential u sers and includes the provisions of facilities in connection with baning financi ng, insurance, medical assistance, legal assistance, chit fund, real estate, tra nsport, processing, supply of electrical or other energy, boarding or lodging or both , entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a cont ract of personal service. 30. In the light of the various statutory definitions of ’service’, one can safely define ’service’ as an act of helpful activity, an act of dong somet hing useful, rendering assistance or help. Service does not involve supply of go ods; ’service’ rather connotes transformation of use/user of goods as a result o f voluntary intervention of ’service provider’ and is an intangible commodity in the form of human effort. To have ’service’, there must be a ’service provider ’ rendering services to some other person(s), who shall be recipient of such ’se rvice’. 31. Under the Finance Act, 1994, ’service tax’ is levied on ’taxable se rvice’ only and not on ’service provider’. A ’service provider’ is only a means for deposit of the ’service tax’ to the credit of the Central Government. Althou gh the term ’service receiver’ has not been defined in the Finance Act, 1994, th e ’service receiver’ is a person, who receives or avails the services provided b y a ’service provider’. 32. From the provisions of the law extracted hereinabove, it becomes ab undantly clear that the burden of registration and payment of ’service tax’ is on the person, who provides ’taxable service’ to any person. According to the pe titioner company, it does not provide any ’taxable service’ to any person so as to warrant its registration under the Finance Act, 1994, and/or to pay any ’serv ice tax’ thereunder. Any part of constructional activity for construction of bui lding, which is carried out by the petitioner company, is not a ’service’ render ed to any one, but an activity, which is carried out by the petitioner company, for its own self. Since the very concept of rendering of ’service’ implies two e ntities, one, who renders the ’service’, and the other, who is recipient thereof , it becomes transparent that an activity, carried on by a person for himself or on his own benefit, cannot be termed as ’service’ rendered. 33. Prior to the amendment of the Finance Act, 1994, in the year 2005, the Central Board of Excise and Customs, vide Circular No.80/10/2004, dated 17/0 9/2004, clarified that ’estate builders’, who construct buildings/premises for t hemselves (for their own use, renting it out or for sale thereof subsequently) a re not covered within ambit of the ’construction services’. Clause 13.1 of this Circular states as under : 13 Services provided by a commercial concern in relation to construction, r epair, alteration or restoration of such building, civil structure or parts of t hereof which are used, occupied or engaged, for the purpose of commerce and indu stry are covered under this new levy. In this case the service is essentially pr ovided to a person who gets such construction etc. done, by a building civil con tractor. Estate builders who construct building/ civil structure for themselves( for their own use renting it out or for selling it subsequently are not taxable service providers. However, if such real estate owners hire contractor/ contract ors, the payment made to such contractor would be subjected to ’service tax’ un der this head. The tax is limited only in case the service is provided by a comm ercial concern. Thus, service provided by a labourers engaged directly by the pr operty owner, or a contractor who does not have a business establishment would n ot be subject to ’service tax’. 34. The clarification, offered under the abovementioned Circular, shall be applicable even after amendment of Finance Act, 2005, whereby ’construction service’ includes construction of ’residential complex’. Thus, construction of ’ residential complex’ has also been brought within the purview of ’service tax’ a nd what kind of activities for ’residential complex’ would attract ’service tax’ would have to be understood in the light of the clarification, which the Circul ar aforementioned offers. 35. Referring to K. Raheja Development v. State of Karnataka, (2005) 5 SCC 162, learned Assistant Solicitor General has submitted that when the constructi onal activities are carried on by a person by creating its own agency, it would amount to construction service. There can be, no doubt, that when a person creat es an entity and engages such entity for its own constructional activities for t he purpose of construction of residential complex not for itself, but for others , it would amount to construction service. What may, however, be pointed out is that the decision of the Apex Court, in K. Raheja Development (supra), which th e respondents rely upon, is not applicable to the case at hand inasmuch as this decision was rendered on the facts of its own case. In the present case, the pet itioner company is not shown to have undertaken any construction work for and on behalf of proposed customer/allotees and the title, in the flat/apartments so c onstructed, passes to the customer only on execution of sale deeds and registrat ion thereof. Until the time the sale deed is executed, the title and interest, i ncluding the ownership and possession in the constructions made, remain with the petitioner company. The payments made by prospective purchasers, in installment s, are aimed at facilitating purchase of the flat/premises by these probable pur chaser so that they may not be required to pay whole of the price at a time. Fro m the condition so incorporated in the relevant agreement for sale, it cannot be inferred that the petitioner Company is making construction for and on behalf o f the probable allotees or purchasers. 36. Further, in K. Raheja Development Corporation (supra), the Apex Cou rt was considering the issue relating to ’sales tax’ and the issue therein was n ot at all related to ’service tax’. While interpreting the provisions of ’sales tax’ under the Karanaka Sales Tax Act, 1957, the Apex Court held, in K. Raheja D evelopment Corporation (supra), that the definition of ’works contract’, given u nder the Finance Act, 1994, is very wide and is not restricted to the ’works con tract’ as commonly understood, i.e, a contract to do some work on behalf of som eone else. The Apex Court, therefore, held as under : The definition would therefore take within its ambit any type of agreement w herein construction of a building takes place either for cash or deferred payme nt, or valuable consideration. To be also noted that the definition does not la y down that the construction must be on behalf of an owner of the property or th at the construction cannot be by the owner of the property. Thus even if an own er of property enters into an agreement to construct for cash, deferred payment or valuable consideration a building or flats on behalf of anybody else it would be works contract within the meaning of the term as used under the Finance Act, 1994. 37. In K. Raheja Development Corporation (supra), the agreement provided that K. Raheja Development Corporation, as developer, on its own behalf, and als o as developer for those persons, who would, eventually, purchase the flats, do the construction works. Thus, K. Raheja Development Corporation was not only und ertaking construction work on its own behalf, but also on behalf of others, who were prospective buyers. It is, in such circumstances, that K. Raheja Developmen t Corporation was treated to have been doing the ’works contract’. In the presen t case, there is no material to show that the petitioner company constructs the flat/apartments on behalf of the prospective allotees and, hence, it cannot be s aid that the constructions, done by the petitioner Company, are the construction s undertaken by the petitioner Company for and on behalf of their prospective bu yers/allotees. Thus, there is no ’service’ rendered by the petitioner Company to the prospective allotees. Similar view has been taken by the Allahabad High Cou rt in Assotech Realty Pvt. Ltd. v. State of U.P., (2007) 8 VST 738, wherein th e Court has held as under: In the present case, we find that the petitioner is constructing the flats/apar tments not for and on behalf of the prospective allotees but otherwise. The paym ent schedule would not alter the transaction. The right, title and interest in t he construction continue to remain with the petitioner. It cannot be said that the constructions were undertaken for and on behalf of the prospective allottees and, therefore,, the constructions in question undertaken by the petitioner wou ld not fall under clause(m) of section 2 read with section 3F of the Act and are outside the purview of the provisions of the Act. In other words, they cannot b e subjected to tax under the Act and the action in imposing tax on such constru ctions treating them to be works contract, is wholly without jurisdiction. 38. The Central Board of Direct Taxes has also, vide Circular Nos. 332/ 35/2006-TRU, dated 01/08/2006, clarified that if no person is engaged for const ruction work and the builder/promoter/developer undertakes construction work on its own without engaging the services of any other person, then, in such cases , in the absence of relationship of ’service provider’ and ’service recipient’, question of providing taxable service to any person by any other person does not arise. The relevant portion of the Circular, dated 01/08/2006, is reproduced be low. Sl. No. Issue Legal Position 1. Is ’service tax’ applicable on Builder, Promoter or Developer who builds a residential complex with the services of his own staff and employing direct l abour or petty labour contractors whose total bill does not increase 4.0 lacs in one F/Y ? In a case where the builder, promoter or developer builds a resi dential complex, having more than 12 residential units, by engaging a contractor for construction of such residential complex, the contractor shall be liable to pay ’service tax’ on the gross amount charged for the construction services pro vided, to the builder/promoter/developer under ’construction of complex’ service falling under Section 65 (105)(zzzh) of the Finance Act, 1994 If no other pers on is engaged for construction work and the builder/promoter/developer undertake s construction work on his own without engaging the services of any other person , then in such cases in the absence of service provider and service recipient r elationship, the question of providing taxable service to any person by any othe r person does not arise. 39. The quoted partitions of the abovementioned Circular make it very c lear that the activities of petitioner company do not fall within the purview of ’taxable service’ so as to attract levy of ’service tax’. In Commissioner of In come Tax v. Aspinwall and Company (1993) 204 ITR 225, Kerala High Court has he ld that a circular of the Central Board of Direct taxes has the force of law an d can even supplant the law in the cases, where it is beneficial to the assessee and has mitigated or relaxed the rigor of the law. 40. In Keshavji Ravji & Company v. Commissioner of Income Tax, (1990) 183 ITR 1, the Apex Court held as under : This contention and the proposition on which it rests, namely, that all circul ars issued by the Board have a binding legal quality incurs, quite obviously, th e criticism of being too broadly stated. The Board cannot preempt a judicial int erpretation of the scope and ambit of a provision of the Act by issuing circular on the subject. This is too obvious a proposition to require any argument for i t. A circular cannot even impose on the taxpayer a burden higher than what the A ct itself, on a true interpretation, envisages. The task of interpretation of th e laws is the exclusive domain of the courts. However - this is what Sri Ramacha ndan really has in mind -circulars beneficial to the assesses and which tone dow n the rigor of the law issued in exercise of the statutory power under section 119 of the Act or under corresponding provisions of the predecessor Act are bind ing on the authorities in the administration of the Act. The Tribunal, much less the High Court, is an authority under the Act. The circulars do not bind them. But the benefits of such circulars to assessees have been held to be permissible even though the circulars might have departed from the strict tenor of the stat utory provision and mitigated the rigor of the law. But that is not the same thi ng as saying that such circulars would either have a binding effect in the inter pretation of the provision itself or that the Tribunal and the High Court are su pposed to interpret the law in the light of the circular. There is, however, the support of certain judicial observations for the view that such circulars const itute external aids to construction. 41. In K.P. Varghese v. ITO (1981) 131 ITR 597 the Apex Court has held as under : But the construction which is commending itself to us does not rest merely on t he principle of contemporanea expositio. The two circulars of the CBDT to which we have just referred are legally binding on the Revenue and this binding charac ters attached to the two circulars even if they be found not in accordance with the correct interpretation of sub-section (2) and they depart or deviate from su ch construction. It is now well settled as a result of two decisions of this cou rt, one in Navnit Lal C. Javeri v. K.K. Sen, AAC (1965) 56 IR 198 and the other in Ellerman Lines, Ltd. V. CIT (1971) 82 ITR 913 that circulars issued by the CBDT under section 119 of the Act are binding on all officers and persons employ ed in the execution of the Act even if they deviate from the provisions of the A ct. 42. In Ellerman Lines Ltd., v. CIT (1971) 82 ITR 913, the Supreme Cou rt pointed out as follows (at page 921) Now, coming to the question as to the effect of instructions issued under secti on 5(8) of the Act, this court observed in Navnitlal C. Javeri v KK. SE, AAC (1 965) 56 IR 198. : It is clear that a circular of the kind which was issued by the Board would be b inding on all officers and persons employed in the execution of the Act under s ection 5(8) of the Act. This circular pointed out to all the officers that it wa s likely that some of the companies might have advanced loans to their sharehol ders as a result of genuine transactions of loans, and the idea was not to affec t such transaction and not to bring them within the mischief of the new provisi on’ The directions given in that circular clearly deviated from the provisions of th e Act, yet this court held that the circular was binding on the Income-tax offic er 43. The decisions, in Keshavji Ravji & Company (supra), K.P. Varghese (supr a) and Ellerman Lines Ltd. (supra), make it more than abundantly clear that a C ircular, issued by the Central Board of Direct Taxes, is binding on all officers and persons employed in the execution of the Act, whereunder the Circular may h ave been issued, even if the Circular deviate from the provisions of the Act. Ho wever, the ultimate responsibility of interpreting the provisions of a given law is the business of the Courts and though the Courts may not be bound by the Cir culars issued by the Central Board of Direct Taxes, the officers of the Departme nt, to whom the Circular applies, are bound by such Circulars and cannot deviate therefrom. 44. This position of law has been made more explicit and precise in Paper Pr oducts Ltd. v. Commissioner of Central Excise(1999) 7 SCC 84, wherein the Apex Court has held as under : The question for our consideration in this appeal is what is the true nature a nd effect of the circulars issued by the Board in exercise of its powers under s ection 37B of the Central Excise Act, 1944 ? This question is no more res integr a in view of the various judgment of this court. This court in a catena of decis ions has held that the circulars issued under section 37B of the Finance Act, 19 94 are binding on the Department and the Department cannot be permitted to take a stand contrary to the instructions issued by the Board. This judgment also he ld that the provisions may be different with regard to an assessee who can conte st the validity or legality of such instructions but so far as the Department is concerned, such right is not available. 45. In CIT v. T.V. Ramanaiah & Sons (1986) 157 ITR 300, the Andhra Pra desh High Court expressed similar views, when it pointed out as follows (at pag e 306) The law is fairly settled that the instructions and /or directions given by the Central Board of Direct Taxes under section 119 of the Act are binding on all the subordinate officers in the execution of the Act. Reference may be invited to the decisions of the Supreme Court in Navnit Lal C. Javeri v. K.K. Sen , AAC (1965) 56 ITR 198, Ellerman Lines Ltd v. CIT (1971) 82 ITR 913 and K.P. Vargh ese v. ITO (1981) 131 ITR 597. In Navnit Lal C. Javeri’s case (1965) 56 ITR 198 , the instructions given by the Central Board of Direct Taxes ran counter to the provisions of section 2(6A)(e) and section 12(B) of the Indian Income -tax Act, 1922 Even so the Supreme Court held that the instructions given by the Central Board of Direct Taxes were binding on the revenue. Similarly, the instructions contained in the circular, which was considered by the Supreme Court in Ellerma n Lines Ltd., case (1971) 82 ITR 913, were contrary to the provisions of the Act . Even so , the Supreme Court held that the circular was binding on the official s of the Income-tax Department. 46. In Ranadey Micronutrients v. CCE, (1996) 10 SCC 387, the Supreme Court has held that the whole objective of the circulars is to adopt a uniform p ractice and to inform the persons, involved in a trade, as to how a particular p roduct will be treated for the purposes of excise duty. The Apex Court has also held in that it does not lie, in the mouth of the Revenue, to repudiate a circul ar issued by the Board on the basis that it is inconsistent with a statutory pro vision. The Apex Court held, in Ranadey Micronutrients (supra), that consistenc y and discipline are of far better importance than winning or losing court proce eding. In the face of the decision in Paper Products Ltd. (supra), there remain s no room for doubt that the Department cannot be permitted to take a stand cont rary to the instructions issued by the Central Board of Direct Taxes, while inte rpreting the provisions of a given Act; but so far as an assessee is concerned, he can contest the legality and validity of the instructions issued by a Circula r. 47. In Collector of Central Excise, Vadodara v. Dhiren Chemical In dustries, (2002) 2 SCC 127, the Apex Court further held as under : We need to make it clear that, regardless of the interpretation that we have p laced on the said phrase, if there are circulars which have been issued by the C entral Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the revenue. 48. In Collector of Central Excise, Merut v. Maruti Foam Pvt. Ltd., ( 2004) 6 SCC 722, the Apex Court held that the construction of statutory phrase, placed by a circular issued by the Central Board of Excise and Customs, although different from the one placed by Supreme Court, was binding on the revenue till the same was withdrawn. 49. In the light of what has been laid down in the catena of decisions refer red to above, it becomes clear that the Circular, dated 01-08-2006, aforemention ed, is binding on the Department and this Circular makes it more than abundantly clear that when a builder, promoter or developer undertakes construction activi ty for its own self, then, in such cases, in the absence of relationship of ’ser vice provider’ and ’service recipient’, question of providing ’taxable service’ to any person by any other person does not arise at all. In the present case too , the materials placed by the writ petitioners clearly show that the constructio n activities, which the petitioners have been undertaking, are in respect of the petitioners own work and it is only the completed construction work, which is s old by the petitioner company to the buyers, who may have made agreements for sa le before the construction had actually started or during the progress of the co nstruction activity or at the end or completion of the construction activity. An y advance, made by a prospective buyer, or deposit received by the petitioner co mpany, is against consideration of sale of the flat/building to such prospective buyer and not for the purpose of obtaining ’service’ from the petitioner compan y. 50. In the result and for the reasons discussed above, this writ petition su cceeds and the impugned notice is hereby set aside and quashed. 51. With the above observations and directions, this writ petition shall sta nd disposed of. 52. No order as to costs. "