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Gauhati High Court has held in Magus Construction v. Union of India that when a person is engaged in construction of residential complex for sale to various persons, it does not amount to service and the transaction is not taxable under service tax laws. When the construction company doing construction activity on its own self, and selling the complex to various buyers, it does not fall under the ambit of service tax. Until the time sale deed is executed, the construction company remains the owner and it cannot be said that the construction company is doing construction activity on behalf of any person. Mere agreement to sale at some future date does not transfer the ownership.

The court further held that service is an intangible commodity in the form of human effort and to have service there must be service provider rendering services to some other person, who shall be the recipient of service.

The court further held that departmental circulars are not binding on the courts.

The judgment is a landmark judgment and will be applicable in a variety of other situations, where service tax is demanded by the department without establishing as to who is a service provider and who is a service recipient.

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Category Taxation, Other Articles by - Rajesh Kumar