Independent residential houses are not taxable as Construction of Complex Service absent statutory residential-complex ingredients.

M/s VPL Projects Pvt. Ltd. constructed individual residential houses on independent plots for respective purchasers.

The Department treated the activity as construction of residential units forming part of a residential complex and confirmed Service Tax under “Construction of Complex Service”: Rs. 53,21,555 for 2011–12 in Appeal No. ST/20569/2014, and Rs. 8,32,635 for 2010–11 in Appeal No. ST/20189/2015, besides interest and penalties.

The appellant contended that the houses were independent constructions for individual use, that the roads and open spaces had been handed over or gifted to the Greater Visakhapatnam Municipal Corporation, and that the statutory requirements of a “Residential Complex” under Section 65(91a) of the Finance Act, 1994 were not established.

The appellant also relied on an earlier refund of Service Tax relating to the same activity and period from October 2008 to September 2009.

1. Whether construction of individual residential houses on independent plots within a common layout constituted construction of a “Residential Complex” under Section 65(91a) of the Finance Act, 1994, thereby attracting Service Tax under “Construction of Complex Service”?

2. Whether the demands could be sustained where the contracts involved both construction and supply or transfer of materials, without examining their possible classification as Works Contract Service?

3. Whether the extended period of limitation and penalties were invocable in circumstances where the Department was repeatedly aware of the appellant’s activities and the issue was subject to differing interpretations?

Section 65(91a) of the Finance Act, 1994 required a “Residential Complex” to comprise more than 12 residential units, a common area, and one or more specified common facilities, situated within premises approved by the competent authority.

Mere construction of several residential houses in a common layout does not, by itself, establish a taxable residential complex; the Department must prove the statutory ingredients, particularly the existence of the requisite common areas and facilities.

The Tribunal relied on Macro Marvel Project Ltd. v. CST, Chennai , 2018 (12) S.T.R. 2003 (Tri.–Chennai), and subsequent decisions including Commissioner of Central Excise, Bengaluru-I v. Alliance Infrastructure Projects Pvt. Ltd. , 2022 (56) GSTL 3 (Kar), holding that construction of independent houses is not taxable as construction of a residential complex merely because the houses are situated in a common layout.

Composite contracts involving construction and supply or transfer of materials must also be examined under the statutory provisions governing Works Contract Service; a demand simpliciter under Construction of Complex Service cannot be sustained without determining the true nature of the contracts.

Further, extended limitation and penalties require suppression, wilful misstatement, or deliberate evasion, which are not established where the Department had prior knowledge of the activity and the issue was reasonably capable of differing interpretations.

The Tribunal found that the appellant had constructed individual houses on independent plots for separate purchasers, while the roads and open spaces were handed over to the municipal authority.

The Department did not produce sufficient evidence establishing that the development contained the common area and specified common facilities required by Section 65(91a), or that the houses formed a statutory “Residential Complex” rather than a collection of independent residential units.

The Tribunal therefore applied the principle in Macro Marvel and related decisions that construction of multiple independent houses in a common layout does not automatically attract the taxable category.

It also observed that the contracts involved construction along with supply or transfer of materials and that their possible character as composite Works Contracts had not been addressed by the Department.

Finally, repeated show-cause notices concerning the same activity demonstrated departmental knowledge, while the earlier refund granted to the appellant showed that the taxability issue was subject to competing interpretations; consequently, the basis for invoking extended limitation and imposing penalties was absent.

The Service Tax demands for 2010–11 and 2011–12, together with interest and penalties, were set aside.

Both appeals were allowed with consequential relief, if any, in accordance with law.