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By Vinay Jain, Chartered Accountant & Sachin Mishra, Advocate

1. Whether the department is correct in including the value of villas given to land owners, free of cost, in the gross value of service provided by the developers to land owners in a joint development agreement?

Facts & Pleadings: M/s. Vasantha Green Projects (hereinafter referred to as ‘The Appellant’ has entered into joint development agreement for construction of houses and residential premises with different land owners. Under the said joint development agreement, villas were constructed on a part of the land and the same were given to land owners free of cost. The appellant duly discharged service tax liability on the villas sold to third parties.

Revenue demanded service tax on the value of the villas given to land owners on the ground that the transactions between builder and land owner and builder and buyers have to be understood as two separate transactions. Thus, to arrive at the gross value of service tax, the value of construction of villas which were given free of cost to the landlords also needs to be considered.

The appellant on the other hand contended that at the time of sale of villas to prospective customers, appellant had included the cost of land in the price of villas and paid service tax on such sale price as provided in the statute. Further, the appellant has constructed such villas for land owner and gave them free of cost in consideration of the land given by the land owners. Thus, merely because service tax has been discharged on the villas sold to third parties does not vitiate the liability of appellant to pay service tax on the villas constructed for land owners free of cost.

Judgment: The CESTAT held that the construction of villas for the land owners is a consideration towards the land on which villas were constructed and offered for sale to prospective customers. The value which has been arrived at for sale of villas to prospective customers, would include the consideration paid or payable for acquisition of land. Further, the appellant has discharged the service tax liability on the value received for the villas from prospective customers. Therefore, if the consideration towards the acquisition of the land has been included in the value of the villas sold to prospective customers and appropriate service tax liability has been discharged the same value, it cannot be again made liable to service tax under the premise that sale value of the villas given to land owners is a consideration on which service tax liability was not discharged.

Vasantha Green Projects vs. CCT, Rangareddy GST, CESTAT, Hyderabad, decided on 11-5-2018 vide Final Order No. A/30559/2018

Vasantha Green Projects

2. Whether an institute providing training to students to become pilots as per the course recognised by Director General of Civil Aviation is liable to pay service tax under the category of “commercial training & coaching services”?

Facts & pleadings: M/s. Pilot Trading College (hereinafter referred to as ‘Respondent’) is an institute providing training to students to become pilots.

The case of department was that the said services rendered by the Respondent to its students fall within the category of “commercial training & coaching services” as neither the institute of the Respondent nor the course offered by the Respondent are recognised by law and hence liable to service tax.

Judgment:  The Hon’ble CESTAT held that though the institute of the Respondent is not recognized by law, but the course offered by the Respondent’s institute is recognised by the Director General of Civil Aviation, (‘DGCA’) which is a Subordinate office of the Ministry of Civil Aviation, Government of India. Thus, the Respondent is fulfilling all the statutory requirements with regards to syllabus, facilities, etc., only then the students will become pilots. The Respondent is working according to the guidelines of DGCA and as per the provisions laid down under the Aircraft Rules. Only after successful training and getting the relevant certificate/diploma from the institute, the students become eligible to apply for pilot licence before the DGCA. Accordingly, the said activity undertaken by the Respondents would not fall within the category of “commercial training & coaching services” and hence the Respondent is not liable to pay service tax.

CCE, Indore vs. M/s. Pilot Trading College, CESTAT, New Delhi, decided on 19-4-2018 in Final Order No. 51734/2018

M/s. Pilot Trading College, CESTAT

3. Whether refund of service tax paid on services provided to developers under SEZ can be denied in view of the Notification No. 9/2009-ST dated 3-3-2009 on the count of discrepancies/irregularities in the refund claim?

Facts & pleadings: M/s. Cummins Technologies India Ltd. (hereinafter referred to as “the appellants”) are a manufacturing unit. The appellant being a unit under Special Economic Zone (‘SEZ’) scheme, was allowed to procure the goods & services without payment of any duty and service tax as per Rule 27 of the SEZ Rules, 2006. However, the appellants filed a refund claim of service tax paid on the input services during the period May 2009 to November 2009 in view of the Notification No. 9/2009-ST dated 3-3-2009.

The department rejected the said refund claim of the appellants on the ground that there are certain discrepancies/irregularities in the refund claim made by the appellants in view of the said Notification dated 3-3-2009.

The appellants submitted that they are ab-initio exempted from payment of service tax on the services received by its SEZ unit in view of exemption provided under Section 27(1)(e) of the SEZ Act, 2005. The appellants further submitted that the said Notification dated 3-3-2009 providing exemption to services provided to units located in SEZ by way of refund claim is ultra vires Section 27 of the SEZ Act, 2005.

Judgment:  The Hon’ble CESTAT agreeing with the submission of appellants held that the SEZ Act and the rules thereunder do not provide any conditions for granting exemption from payment of service tax. Thus, the Central Government cannot issue a notification under a different statute i.e. Finance Act, 1994 providing the conditions for grant of refund of service tax paid on the taxable services used for the authorised operations in the SEZ. The Hon’ble CESTAT further held that the provisions of the SEZ Act and the Rules thereunder have an overriding effect over the provisions contained in any other statute. Therefore, all the activities relating to SEZ shall be guided and governed by the provisions contained in SEZ Act and the SEZ Rules. Since, such statutory provisions governing the SEZ are silent about any condition or restriction for claiming the refund of service tax, the notification issued by the Central Government in terms of Finance Act, 1994 cannot prescribe any conditions, which are contrary to the SEZ provisions. Accordingly, the Hon’ble CESTAT set aside the rejection of refund application.

M/s. Cummins Technologies India Ltd. vs. CCE & ST, Meerut-II, CESTAT New Delhi, decided on 4-5-2018 in Final Order No. 51683/2018

M/s. Cummins Technologies India Ltd.

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

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