The 2010 Explanation to residential-complex service cannot retrospectively tax pre-July 2010 developer construction.

The appellant, a residential developer, was assessed service tax for (i) construction of a residential complex at Kilpauk, Chennai, during June 2005–December 2009; (ii) sub-contract and petty-job receipts during 2005–06 to 2009–10; and (iii) rental income during June 2007–December 2009.

The Department alleged that the complex comprised 14 dwelling units, while the appellant maintained that the sanctioned plan covered 12 and that buyers made later conversions.

The adjudicating authority confirmed the demands, interest and penalties under Sections 77 and 78 of the Finance Act, 1994; the Commissioner (Appeals) rejected the appellant’s appeal.

The appellant then appealed to the Tribunal.

1. Whether the demand for construction of the residential complex was sustainable under the category of Construction of Residential Complex Service.

2. Whether the sub-contract and petty-job receipts were taxable under that category.

3. Whether the demand under Renting of Immovable Property Service was sustainable.

4. Whether the extended period of limitation had been correctly invoked.

Sections 65(91a) and 65(105)(zzzh) of the Finance Act, 1994 govern the definition and taxability of Construction of Residential Complex Service; the Department must establish that the activity falls within the statutory description and that the relevant conditions are met.

The Tribunal relied on Krishna Homes v. CCE for the rule that the Explanation inserted into Section 65(105)(zzzh) from 1 July 2010 could not be applied retrospectively to earlier construction activity.

Under C.C.E. & C., Kerala v. Larsen & Toubro Ltd., composite works contracts were not taxable under construction-service categories before 1 June 2007; Real Value Promoters Pvt. Ltd. and Jain Housing and Construction Ltd. were relied on for the proposition that, after that date, composite works contracts could not be taxed as construction services simpliciter under those categories.

Renting of immovable property was considered under Section 65(105)(zzzz), with the appellant’s claimed small-service-provider exemption and year-wise receipts requiring consideration.

The Tribunal also reiterated that suspicion and doubt cannot substitute for legal proof.

On the residential-complex demand, the Tribunal found that the dispute over whether the project comprised 12 or 14 units required assessment of the sanctioned plan, approved records and agreements; the Department had not established the appellant’s responsibility for the buyers’ alleged conversions.

In any event, the entire construction period preceded 1 July 2010, and the Department could not rely retrospectively on the inserted Explanation.

The contracts’ composite character also prevented the demands from being sustained under the construction-service categories on the reasoning adopted in the order under appeal.

The sub-contract and petty-job demand was likewise unsupported by evidence establishing that the receipts were consideration for independently taxable services simpliciter; the Department’s failure to establish the taxable nature of those receipts could not be cured merely by the absence of supporting documents from the appellant.

For rental income, the authority had not adequately examined the claimed threshold exemption, year-wise receipts or tax allegedly paid from December 2009.

Given the evidentiary deficiency and the age and relatively small amount of the demand, the Tribunal declined to remand the matter.

As the demands failed on merits, it did not separately determine limitation.

It set aside the impugned order, held that the penalties under Sections 77 and 78 could not survive, and allowed consequential relief in accordance with law, if any.