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