GOVERNMENT OF INDIA

MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
OFFICE OF THE COMMISSIONER OF SERVICE TAX AUDIT
6th Floor, MHU Complex, No.692, Anna Salai, Nandanam, Chennai-600035

C.No.IV/ Date: /06/2016

SHOW CAUSE NOTICE No. /2016

ub: Service tax –M/s. …………..Short payment of service tax for the
period from April 2014 to Sep 2015 - Issue of show cause notice –
reg.
……

…………………………..called “the assessee”, holders of Service Tax

Registration Certificate No. ………….., are registered for rendering taxable

services under the head of “Works Contract Service”, “Renting of Immovable

Property Service”, “Maintenance and Repair Service” and “Construction of

Residential Complex Servicer”. The assessee has been discharging service tax,

for providing output service under works contract, among other services in cash

and as well as by availing the facility of Cenvat credit of service tax paid on

various input services under the provisions of Cenvat Credit Rules, 2004.

2. Balance sheet, Ledgers and agreements entered into with the parties and
ST-3 returns of the assessee were taken for verification by the Audit group of
Service Tax Audit Commissionerate. On scrutiny of one of the agreements
entered into by the Builder it was noticed that in an agreement dated 03.05.2012
with flat buyers ……………………….in a ………………………..project, there
appeared to be some short payment/ non-payment of Service Tax and
consequently contravention of the Service tax rules 1994 on the issues listed
below:

i) Short payment of service tax on the amount received under club

membership charges;
 ii) Short payment of service tax on the amount received under Legal
and documentation charges

3(i) Short payment of service tax on the amount received under Club
membership charges:-

(a) During the course of scrutiny of the above said agreement, it was noticed

that the assessee had collected an amount of Rs. ……..from each flat buyer

towards “Lifetime Club Membership(Lumpsum)”. In this regard, para 47 of the

said agreement is reproduced below:

The BUILDER/PROMOTER shall construct and retain the Block called “SUNDAY” for a club
house along with Swimming pool, Spa, Jacuzzi, Recreation Centre, Home Theatre, Service
Apartments and the attached facilities which shall exclusively belong to the
BUILDER/PROMOTER and the ALLOTTEE/PURCHASER herein would have to pay a one
time non-refundable fee of Rs.1,50,000/-(Rupees One Lakh Fifty Thousand Only) per
Apartment for the above mentioned Club house Membership which shall be co-terminus
with the ALLOTTEE’S interest in the Schedule C property. The ALLOTTE/PURCHASER
specifically agrees that he cannot assign or sell their membership to the club separately.
The ALLOTTEE/PURCHASER also agrees to pay the applicable usage charges as would be
determined by the BUILDER/PROMOTER for using the facilities which would be provided
by the BUILDER/PROMOTER in the said Club House. The ALLOTTEE/PURCHASER shall
not have any right, title or interest in the club house/convenio store except the above
mentioned usage rights in the club house however subject to the above mentioned
payments being made by the ALLOTTEE/PURCHASER for the said usage.

(b) From the above, it is clear that the flat buyers should pay (mandatory) a

non-refundable amount of Rs.1,50,000/- as club house membership fee and also

monthly subscription charges and usage charges fixed from time to time for

allowing them to use the Club House. Further, the flat buyers have no right to

assign or sell their membership to the club separately. Thus the ownership of

the Club House rests with the assessee. Clearly, the club house membership

charges collected from the flat buyers has no relationship with construction of

flat allotted to the buyers. Infact, it is an amount that is collected for the usage

of facility of Club House being provided by the assessee. Thus, the assessee has

been providing the facilities and other services of the clubhouse to the buyers of

the flat for which he is collecting a mandatory non-refundable amount of

Rs.1,50,000/- as club house membership fee as also monthly subscription fees

paid by the flat buyers.

(c) The assessee has provided the facilities of a club house for a consideration

to the flat buyers. As per clause-44 of Section 65B of the Finance Act, introduced

with effect from 1-7-2012, ‘Service’ refers to any activity carried out by a person

for another for consideration and includes a declared service. The above service

does not fall under negative list u/s 66 D of the Finance Act, 1994 or exempted

under the mega exemption Notification No. 25/2012 dated 20.06.2012 as

amended. Hence the activity discussed in sub para (b) is a taxable service

(d) Prior to 1-7-2012, in terms of clause (25aa) of Section 65 of the Finance

Act, 1994, “Club or association” means “any person providing services, facilities

or advantages, for a subscription or any other amount, to its members” and any

service provided or to be provided to its members by such person in relation to

provision of services, facilities, or advantages for a subscription or any other

amount is taxable under sub-clause (zzze) of section 65(105) of the Finance Act,

1994. Further, as per Board’s clarification vide F.No.B1/6/2005-TRU dated 27-

7-2005, Life membership fees must be treated in the same way as subscription.

(e) Thus the services being provided by the assessee falls under the

category Club or Association service and the consideration received, including

the Lifetime Club Membership charges, for providing such services of Club or

Association was liable for payment of service tax.

3(ii) Short payment of service tax on the amount received under Legal and
Documentation charges:-

(a) Further a perusal of the agreements made with the buyers reveals that the

assessee had collected Rs. ……as legal and documentation charges from the

buyers separately. The consideration received for legal and documentation

charges are nothing but a value added service provided over and above the works

contract service. Infact these charges are nothing but Builder’s Special Services
and which were covered under erstwhile Section 65(105)(zzzzu) of the Finance

Act, 1994.

(b) The assessee has provided some legal and documentation services. In terms

of clause-44 of Section 65B of the Finance Act, introduced with effect from 1-7-

2012, ‘Service’ refers to any activity carried out by a person for another for

consideration and includes a declared service. The above service does not fall

under negative list u/s 66 D of the Finance Act, 1994 or exempted under the

mega exemption Notification No. 25/2012 dated 20.06.2012 as amended. Thus

this value added service as mention in sub-para(a) provided by the assessee to

his clients is a taxable service and hence the consideration received for providing

such service was liable for payment of service tax.

(c) The services rendered by the assessee and consideration received for legal

and documentation charges are nothing but a value added service provided over

and above the works contract service. Infact these charges are nothing but

Builder’s Special Services and which were covered under erstwhile Section

65(105)(zzzzu) of the Finance Act, 1994. Thus the services are taxable services

and hence the consideration received for providing such service was liable for

payment of service tax.

6. As per Section 68 of Finance Act 1994 (hereinafter referred to as ‘the Act’)

“every person providing taxable service to any person shall pay service tax at the
rate specified in Section 66/66B in such manner as may be prescribed.” The
assessee is liable to pay service tax as per Rule 6(1) of Service Tax Rules, 1994.
Rule 6(1) of Service Tax Rules, 1994 provides that “Service tax shall be paid to
the credit of the Central Government, -
(i) by the 6th day of the month, if the duty is deposited electronically through
internet banking; and
(ii) by the 5th day of the month, in any other case, Immediately following the
calendar month in which the service is deemed to be provided as per the rules
framed in this regard”.
As per section 70(1) of the Finance Act 1994, every person liable to pay the
service tax shall himself assess the tax due on the services provided by him and
shall furnish to the Superintendent of Central Excise, a return in such form and
in such manner and at such frequency.
The assessee has received a consideration of Rs. _________________as club service
charges and _______________________as Legal and document charges. From the
above the assessee is liable to pay a service tax of Rs. __________ for the period
April 2014 to Sep 2015 as detailed in Annexure I & II
4.

5. However the assessee had included the amount of Club House

Membership charges and also the legal and documentation charges collected

separately from the flat buyers in the value of the Works Contract service and

paid service tax after availing abatement of 60% of such value as provided under

Rule 2A of Service Tax Valuation Rules, 2006. The assessee has paid service tax

on only 40% of Club House Membership charges and legal and documentation

charges only. Thus there has been a short payment of service tax on the

consideration received in respect club service charges and on the legal and

documentation service charges collected from the flat buyers. The short

payment of service tax payable under Club or Association service for the period

from April 2014 to Sep 2015 works out to Rs. ……………/- (worksheet vide

Annexure-I enclosed) and in respect of legal and document charges for the

period from April 2014 to Sep 2015 worked out to Rs. ……./- (worksheet vide

Annexure-II) as detailed below:

5. The total amount of short paid service tax (including Education cess and

S&H cess) payable by the assessee is Rs. ……./- as shown below:

Amount of Service
Description of Service
tax payable (in Rs.)
Service tax payable under Club or
Rs. /-
Association service
Service tax payable under Legal and
Rs. /-
documentation charges
TOTAL Rs. /-
7. From the above discussion it is seen that the assessee is liable to pay the
short paid Service tax amount of Rs. ……../- but the assessee has failed to pay
the above Service Tax amount in contravention of the provisions of Sec 68 of
Finance Act 1994 read with Rule 6(1) of Service Tax Rules 1944.

8. Thus it appears that assessee, has contravened the provisions of erstwhile

Section 66/66B of the Finance Act1994 and Section 68 read with rule 6(1) of
Service Tax Rules and 70(1) of Finance Act 1994, in as much as they have not
discharged Service Tax on the services provided to their flat buyers and
consideration received as club membership charges and legal documentation
charges have not declared the provision of such services to the Department.
Therefore, it appears that service tax totally amounting to the tune of
Rs. ………../- should be demanded from the assessee under Section 73(1) of the
Finance Act, 1994. as detailed in ANNEXURE –I & II, is liable to be recovered
from them.

9. On scrutiny of the ST-3 returns filed by the assessee during the said period,
it was noticed that they have paid service tax on works contract service but failed
to pay the Service Tax in respect of services of the club services and legal and
documentation services provided to their flat buyers. They have deliberately
short paid Service Tax by including the value of club services and legal and
documentation services provided by them in the works contract service for which
they have claimed abatement in terms of Rule 2A of Service Tax Valuation Rules,
2006 . In other words they have suppressed the value of services they provided
and contravened the provisions of the Service Tax Law with an intention to evade
payment of appropriate Service Tax. But for the detection by the Audit officers,
the fact of short payment of Service Tax by the assessee would not have come
to the notice of the department. Hence it appears that this amount is recoverable
along with interest in terms of proviso to section 73(1) of the Finance Act, 1994 .
They are also liable for penal action under the provisions of Section 78 of the
Finance Act, 1994.

10. Further it appears that the assessee is liable to pay interest at prescribed
rates under Section 75 of the Finance Act 1994 on the amount of Service Tax
payable by them.

11. Therefore, M/s……………………, are hereby required to show cause to the

Commissioner of Service Tax, Service Tax III Commissionerate, Newry Towers, II
Avenue, 12th Main road, Anna Nagar, Chennai-600040, within 30 days of the
receipt of this notice, as to why:

i) the amount of Rs. …../- (Rupees ………….only) should not be

demanded from them for the period from April 2014 to Sep 2015
under Section 73(1) of the Finance Act 1994;

ii) interest at the appropriate rate should not be recovered from them
under Section 75 of the Finance Act 1994 and

iii) penalty should not be imposed upon them under Section 76 and 77
of the Finance Act, 1994.

12. The assessee is further directed to produce at the time of showing cause,

all the evidences upon which they intend to rely upon in support of their defence.

They are also required to inform whether they are desirous of being heard in

person before the case is adjudicated.

13. If no cause is shown against the action proposed to be taken as mentioned

above within 30 days from the date of this notice, or having shown cause, if they

do not appear when the case is posted for personal hearing, before the

adjudicating authority, the case will be decided ex-parte on the basis of the

evidences available on record.

14 This show cause notice is issued without prejudice to any other action that

may be taken against them under the provisions of the Finance Act, 1994 and

the Rules made there under or under any other law for the time being in force.

Encl: Annexures I and II

ADDITIONAL COMMISSIONER

To
M/s. ………..