Microsoft PowerPoint - Real Estate and Construction Indutry
18.12.11 Kolkata (2)
Constructions and Real Estate Sector Services Practical Problems
and Vexed
IIssues
Kolkatta Chartered AccountantsKolkatta - Chartered
Accountants
Presented ByJ.K. MITTAL (Advocate)
Ch i I di t T C ittChairman, Indirect Taxes Committee,PHDCCI
LL B FC A FC S LL.B.,F.C.A., F.C.S. NEW DELHI
Ph: 011- 22056635
1
Fax: 011- 22447420Email: [email protected]
Levy of Service Tax on Construction & Real Estate
Activities& Real Estate Activities
Commercial or Industrial Construction Services-w.e.f.
10.09.2004
Residential Complex Services- w.e.f. 16.06.2005p
Works Contract Services w e f 01 06 2007Works Contract Services
w.e.f. 01.06.2007
22
sale of flats/ Buildings to prospective buyers-w.e.f.
01.07.2010
Construction & Real Estate Services full of doubtsServices
full of doubts
Whether levy prior to 1.06.2007 wasconstitutionally valid?
Whether service tax is applicable on supply ofReady Mix Concrete
(RMC)?
Wh th S i T i li bl ll dWhether Service Tax is applicable on so
calledFree Supply of materials?
Whether service tax can be levied on the entireWhether service
tax can be levied on the entirevalue of contract including the
material involved inthe execution of such construction
contract?
33
Whether Service Tax levy on sale of flats toprospective buyers
is constitutionally valid?
Construction & Real Estate Services full of doubtsServices
full of doubts
What is a Works Contract?Whether Benefit of Composition Scheme
is
available to ongoing project (started prior to1.6.07)?
Wh th i d t f t (4%) h ll bWhether increased rate of tax (4%)
shall beapplicable to payment received on or after 1-3-2008for the
works executed prior to said date?
What is non a commercial project?What is the meaning of
Road?
44
What is the meaning of Road?
Construction & Real Estate Services full of doubtsServices
full of doubts
Whether service tax is applicable on theWhether service tax is
applicable on thebasic sale price/consideration of the flat?
Whether service tax is required to be paidWhether service tax is
required to be paidfor the contracts entered into prior to 1stJuly
2010 for which payments is received
f 1 t J l 2010?after 1st July 2010?
Whether service tax is required to be paidfor the payments
received prior to 1st Julyfor the payments received prior to 1st
July2010 (as per Down linking payment Plan)for which services will
be rendered after 1st
55
July 2010?
Construction & Real Estate Services full of doubtsServices
full of doubts
Wh th i t i li bl d t fWhether service tax is applicable as per
date ofagreement to sale or on date of construction?
Whether service tax shall be applicable for theWhether service
tax shall be applicable for theconstruction already completed but
payment forsale of flats received on or after 01-07-2010?
Whether service tax shall be applicable on theagreement entered
into prior to 01-07-2010 andconstructions also completed prior to
said date butconstructions also completed prior to said date
butpayments received on or after 01-07-2010?
66
Construction & Real Estate Services full of doubtsServices
full of doubts
Whether service tax shall be applicable on theWhether service
tax shall be applicable on thesecurity deposits both interest
bearing and non-interest bearing?
Whether service tax is applicable on themobilization
advances?
Whether Service Tax is applicable on constructionfor personal
use?
Why the construction of building for sale is nottreated as works
contract?
77
Construction & Real Estate Services full of doubtsServices
full of doubts
Whethe se ice ta shall be applicable on theWhether service tax
shall be applicable on theadditional activities like preferred
locationcharges, lease rent, electrical sub-stationcharges, fire
fighting, power back up, interestfree maintenance security charges,
clubmembership, car parking etc. what are themembership, car
parking etc. what are thecategories of taxable services and what is
theapplicable rate of tax whether abatement of75% available?75%
available?
Under GST - immovable property transactions arenot to be
covered- then how and what shall be the
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not to be covered- then how and what shall be thetax treatment
of sale transactions?
Works Contract Service Works Contract Service introduced w e f
Works Contract Service introduced w.e.f.
01.06.2007
taxable service means any service provided or taxable service
means any service provided orto be provided, to any person, by any
otherperson in relation to the execution of a workscontract,
excluding works contract in respect ofcontract, excluding works
contract in respect ofroads, airports, railways, transport
terminals,bridges, tunnels and dams.
Explanation.For the purposes of this sub-p p pclause, works
contract means a contractwherein,
(i) transfer of property in goods involved in the( ) p p y
gexecution of such contract is leviable to tax assale of goods,
and
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Works Contract Service
(ii) such contract is for the purposes of carryingout,
(a) erection, commissioning or installation of plant,(a)
erection, commissioning or installation of plant,machinery,
equipment or structures, whetherpre-fabricated or otherwise,
installation ofelectrical and electronic devices,
plumbing,electrical and electronic devices, plumbing,drain laying
or other installations for transportof fluids, heating, ventilation
or air-conditioningincluding related pipe work, duct work
andincluding related pipe work, duct work andsheet metal work,
thermal insulation, soundinsulation, fire proofing or water
proofing, liftand escalator, fire escape staircases orand
escalator, fire escape staircases orelevators; or
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Works Contract Service (b) i f b ildi i il(b) construction of a
new building or a civil
structure or a part thereof, or of a pipeline orconduit,
primarily for the purposes ofcommerce or industry; orcommerce or
industry; or
(c) construction of a new residential complex or apart thereof;
or
(d) completion and finishing services repair(d) completion and
finishing services, repair,alteration, renovation or restoration
of, orsimilar services, in relation to (b) and (c); or
(e) turnkey projects including engineering(e) turnkey projects
including engineering,procurement and construction orcommissioning
(EPC) projects; [section
65(105)(zzzza)]65(105)(zzzza)]
What is Works Contract?h f S f dh d h In the case of State of
Andhra Pradesh v
Larsen & Tourbo Ltd. 2008-TIOL-158-SC-VAT, the Supreme Court
held as under:
12 A t t f k i " k t t"12. A contract of work, i.e., "works
contract"involves transfer of property and also elementof service
or work rendered. That is why it iscalled composite contract Works
contractscalled composite contract. Works contractscan be of two
types only:
(a) Works contracts for constructions; and(b) Works contract in
relation to any movable(b) Works contract in relation to any
movable
property like repairs to vehicles, printingcontracts etc.
What is Works Contract? h f i d Shi d d In the case of Hindustan
Shipyard Ltd. v
State of A.P. (2000) 6 SCC 579; (2000) 119STC 533 : AIR 2000 SC
2411, the question
which arose for consideration was whether awhich arose for
consideration was whether acontract constituted a sale or works
contract.Laying down the tests therefore, having regardto the terms
and conditions contained therein, itto the terms and conditions
contained therein, itwas opined that a contract of the sale of
goodswas separate from a contract for works andlabour. In regard to
the categories of the
t t it t t dcontract, it was stated: (i) the contract may be for
work to be done for
remuneration and for supply of materials used inth ti f th k f
ithe execution of the work for a price;
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What is Works Contract? What is Works Contract?
(ii) i b f k i hi h h(ii) it may be a contract for work in which
theuse of the materials is accessory or incidental tothe execution
of the work; and
(iii) it b t t f l f(iii) it may be a contract for supply
ofgoods where some work is required to be done asincidental to the
sale.
Whereas the first contract was held to be acomposite contract,
the second was held to be acontract for work and labour not
involving the salecontract for work and labour not involving the
saleof goods and the third was held to be a contract ofsale where
the goods were sold as chattels and thework done was merely
incidental thereto.work done was merely incidental thereto.
Construction Services Whether levy prior to 1.06.2007 was
constitutionally valid?
Circular No. 98/1/2008-ST, dated04.01.2008 - The Government
clarifiedthat the service providers who havethat the service
providers who havepaid service tax prior to 01.06.2007under
commercial construction orunder commercial construction
orresidential complex service is notentitled to pay the tax under
thecomposition scheme under WorksContract services for the
contract
t d i t i t 01 06 2007
1515
entered into prior to 01.06.2007.
High Courts Decision on on-going Projects and Validity of
Circular
d d 04 01 08dtd.04.01.08
h f j C i In the case of Nagarjuna ConstructionCompany Ltd. v
GOI 2010-TIOL-403-HC-AP-ST, 2010 (019) STR 0321 (A.P.) thechallenge
was made to the Circular Nochallenge was made to the Circular
No.98/1/2008-ST, dated 04.01.2008.
The Court reiterated that the said Circular is in The Court
reiterated that the said Circular is inconformity with the
provision of the Rule 3(3) ofthe composition rules. The Court held
that theCircular dated 04 01 2008 is wholly inCircular dated
04.01.2008 is wholly inconformity with the provisions of Rule
3(3)(supra).
Continue
High Courts Decision on on-going Projects and Validity of
Circular dtd.04.01.08
The Court held that the fact that the nature of theworks
executed by the petitioner which hitherto
fell within the ambit of the taxable servicesfell within the
ambit of the taxable servicesenumerated in Clauses (zzd), (zzq) and
(zzzh),now fall within services classified as a workscontract in
Clause (zzzza) does not have anycontract in Clause (zzzza), does
not have anybearing on the entitlement of the petitioner to
thebenefits of the composition scheme under the2007 Rules as such
scheme is available only inrelation to works contract services.
SC case in Kerala State Electricity Board v yCCE,
2007-TIOL-226-SC-ST : 2008 (9) STR 3
in para 27 held as under :27. There is a distinction betweenthe
object of tax the incidence of taxthe object of tax, the incidence
of taxand the machinery for the collectionof the tax. The
distinction isof the tax. The distinction isimportant but is apt to
be confused.Legislative competence is to bedetermined with
reference to theobject of the levy and not with
f t it i id
1818
reference to its incidence ormachinery
Complexity Levy of Excise Duty and
The CBEC Government of India
p y y yService Tax both on same transactions
The CBEC, Government of IndiaMinistry of Finance, in its
Instruction Dy. No.
167/11/08-CX.4, dated 05.03.2008 has indicatedthat they are
examining the issues: Quote
1) Whether both the Service Tax and1) Whether both the Service
Tax andExcise duty are payable; on sameactivity or not?activity or
not?2) Whether for both taxes, the samevalue is considered or
different value is
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considered.
Whether same transactions/activities can besubjected to excise
duty as well as service
No As per Entry 84 of the Union List of Schedule
subjected to excise duty as well as servicetax?
No. As per Entry 84 of the Union List of ScheduleVII of the
Constitution of India, duty of excise canlevied on goods
manufactured or produced inIndia, whereas as per Entry 92C of the
Union List ofSchedule VII of the Constitution of India, Union
ofIndia is competent to levy Taxes on Services.India is competent
to levy Taxes on Services .
Reference: The Supreme Court in the case of CalcuttaGas Co. v
State of West Bengal 1962 Supp (3) SCR 1 :g pp ( )
AIR 1962 SC 1044 had occasion to deal with the conflictbetween
two Entries and held that if the industry inEntry 24 is interpreted
to include gas and gas work,
20
Entry 25 may become redundant.
Whether service tax is applicable on supply of pp pp yReady Mix
Concrete (RMC)?
The production of RMC is an activityamounting to manufacture
within themeaning of section 2(f) of the Central Exciseg ( )
Act, 1944 and an item covered under Tariff itemNo. 3824 50 10 by
specifying Nil rate of duty ofexcise under the Central Excise
Tariff Act, 1985,excise under the Central Excise Tariff Act,
1985,which is also specifically clarified by the Boardthrough
various circulars. As per Central Boardof Excise & Customs, New
Delhi (CBEC) Circularof Excise & Customs, New Delhi (CBEC)
CircularNo. 368/1/98-CX, dated 6-1-1998 : Ready MixConcrete is thus
an excisable product which hasa separate tariff entry under
sub-heading
2121
a separate tariff entry under sub heading3824.20 of the Central
Excise Tariff Act, 1985.
Construction Services- Whether Service Tax is applicable on so
called Free pp
Supply of materials?
The Delhi High Court in Writ Petition No. 3048/2008by Order
dated 22.05.2008 held that we are of theopinion that while the
adjudication proceedingsopinion that while the adjudication
proceedingsmay go on and be concluded by theRespondents, they will
not include for the
f d t i i th t bl i thpurposes of determining the taxable
service thesupply of free material to the Petitioner and tothis
extents the Explanation appearing against
Serial No.7 in the table given in the Notificationdated 1st
March, 2006 will not be applied to thedetriment of the
Petitioner
2222
detriment of the Petitioner
Whether service tax can be levied on the entire value of
contract including the material involved
MOF Instructions F No 233/2/2003 CX 4
value of contract including the material involved in the
execution of construction contract?
MOF Instructions F. No. 233/2/2003-CX.4,dated 3-3-2006:
3. The matter has been examined by the Board. Thef h f 2/2003 S
d d 20 6intention of the Notification No. 12/2003-ST, dated
20-6-
2003 is to provide exemption only to the value of goodsand
material sold subject to documentary evidence of
such sale being available. Therefore, in case, the goodsare
consumed during the provision of service and arenot available for
sale, the provision of the said
notification would not be applicable. Therefore, insupersession
of clarification to contrary, it is clarifiedthat goods consumed
during the provision of service,
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g g p ,that are not available for sale, by the service
providerwould not be entitled to benefit under Notification
No.12/2003-ST, dated 20-6-2003.
Works Contract and FOC Material
h h h ll i l d h fWhether gross amount shall include the freeof
cost materials supplied by contractee?
The Government has amended, w.e.f 7-7-2009,th W k C t t (C iti S
h fthe Works Contract (Composition Scheme for
Payment of Service Tax) Rules, 2007 byNotification No.
23/2009-ST, dated 7-7-2009. As
per the amended Rule gross amount charged forper the amended
Rule, gross amount charged forWorks Contract for payment of service
tax underthe Composition scheme, shall include:(a) the value of all
goods used in or in relation to(a) the value of all goods used in
or in relation tothe execution of Works Contract- whether
suppliedunder other contract for a consideration, orotherwise.
Works Contract and FOC Material Contd.
(b) the value of all the services that are required to be
provided for the execution of Works Contract.
(c) the charges for obtaining machinery and tools used in the
execution of the said Works Contract on hire.Contract on hire.
But, it shall not include:(a) VAT/sales tax paid on transfer of
property in
d i l d goods involved. (b) the cost of machinery and tools used
in the
execution of the said Works Contract.
FOC Material Board Circular dated 13.11.2007
The Board has issued InstructionF.No.137/118/2007-CX.4
dtd.13.11.07 aftertaking note of the interim relief granted by
thetaking note of the interim relief granted by theHigh Courts that
.Therefore, it may be moreappropriate to deny abatement claimed
underthe said notification instead of asking thethe said
notification instead of asking theassessee to include cost of
material and thenavail abatement.
Tribunals Decision on FOC Material
ihi d j The Tribunal in the case of Jaihind ProjectsLtd. v CST,
Ahmedabad2010(018)STR 0650 Tri-Ahm.2010-( )
TIOL-124-CESTAT-AHM, came to theconclusion that the
material-supplied by thecustomer/ service receiver to the
contractor is to
b d i d i d bbe treated as construction and required to beadded
in the value of taxable services. However,in the opinion of the
author, the decision of the
Tribunal does not appear to be in consonanceTribunal does not
appear to be in consonancewith the law and requires to be taken up
in thehigher courts to settle long pending disputes.
Whether Service Tax is leviable on sale of flats to prospective
buyers?
Harekrishna Developers 2008-TIOL-03-ARA-ST (Ruling
No.AAR/03(ST)/2008) th AdAAR/03(ST)/2008), the Advance
Ruling Authority held that the sale ofhouse is taxable service
underhouse is taxable service underconstruction of complex
service.
2828
Whether Service Tax is leviable on sale of flats to prospective
buyers?
Magus Construction Pvt Ltd vUOI reported in
2008-TIOL-321-pHC-GUW-ST, the High Court heldthe sale of flat/
house to theprospective buyer is not aservice at all, hence not
taxable.,
2929
Whether Service Tax is leviable on sale of flats to prospective
buyers?
The Supreme Court in the case of Larsen& Toubro Ltd v State
of Karnataka
t d i 2008 (12) STR 257 (SC)reported in 2008 (12) STR 257
(SC)has disagreed the decision in the K.Raheja Development
Corporation v StateRaheja Development Corporation v Stateof
Karnataka 2005-TIOL-77-SC-CT : 2006(3) STR 337 (SC) : AIR 2005 SC
2350 :( ) ( )(2005) 5 SCC 162 case and has referred
the matter to the Larger Bench of the
3030
Supreme Court.
Whether Service Tax is leviable on sale of flats to prospective
buyers?
Circular No. 108/02/2009 ST , dated 29thJanuary 2009
any service provided by such seller in connectionwith the
construction of residential complex tillthe execution of such sale
deed would be in thet e e ecut o o suc sa e deed ou d be t enature
of self-service and consequently wouldnot attract service tax
3131
Construction Services-C ll b ti A tCollaboration Agreement
Faqir Chand Gulati v Uppal AgenciesPvt. Ltd. and Anr. in Civil
Appeal No.3302 f 2005 t l l3302 of 2005, agreements are
popularly
known as joint venture agreements ordevelopment agreements or
collaborationdevelopment agreements or collaborationagreements are
treated as provision ofservice to the owner of land unless thereis
real joint venture that is community ofinterest or common/joint
control in the
3232
management, nor sharing of profits andlosses
Deemed Service Concept
The Finance Act, 2010 hasintroduced the Deemedintroduced the
DeemedService Concept both inC i l d R id i lCommercial and
ResidentialConstruction ServicesCo st uct o Se ces
Continue
Commercial Construction Service Inserted by the Finance Act 2010
Inserted by the Finance Act, 2010 w.e.f. 01.07.2010.
Explanation.For the purposes of this sub-clause,the construction
of a new building which isintended for sale, wholly or partly, by a
builder or
any person authorised by the builder before,during or after
construction (except in cases forwhich no sum is received from or
on behalf of the
prospective buyer by the builder or the personauthorised by the
builder before grant ofcompletion certificate by the authority
competentp y y pto issue such certificate under any law for the
time being in force) shall be deemed to be serviceprovided by
the builder to the buyer; [sectionp y y ; [65(105)(zzq)].
Residential Construction Services inserted by the Finance Act,
2010 w.e.f. inserted by the Finance Act, 2010 w.e.f.
01.07.2010.
Explanation.For the purposes of this sub-clause,construction of
a complex which is intended for
l h ll tl b b ildsale, wholly or partly, by a builder or any
personauthorised by the builder before, during or afterconstruction
(except in cases for which no sum is
received from or on behalf of the prospectivereceived from or on
behalf of the prospectivebuyer by the builder or a person
authorised by thebuilder before the grant of completion
certificateby the authority competent to issue suchy y pcertificate
under any law for the time being in
force) shall be deemed to be service provided bythe builder to
the buyer; [section 65(105)(zzzh)].
Board Circular dtd 26 02 10Board Circular dtd. 26.02.10
d h l ifi d h f h l i Board has clarified the scope of the
explanationintroduced by the Finance Act, 2010, both
underCommercial and Residential Construction
ServicesServices.
8.6 In order to achieve the legislativeintent and bring in
parity in tax treatment anintent and bring in parity in tax
treatment, anExplanation is being inserted to provide thatunless
the entire payment for the property ispaid by the prospective buyer
or on his behalfpaid by the prospective buyer or on his behalfafter
the completion of construction (includingits certification by the
local authorities), theactivity of construction would be deemed to
be aytaxable service provided by the
Continue .
Board Circular dated 26.02.2010
builder/promoter/developer to the prospectivebuyer and the
service tax would be chargedaccordingly This would only expand the
scope ofaccordingly. This would only expand the scope ofthe
existing service, which otherwise remainunchanged.
Board Circular F. No.334/ 03/ 2010 -TRU dtd. 01.07.10
The Board has clarified that If agreement isentered into or any
payment is made for sale of
complex or apartment in residential complexcomplex or apartment
in residential complex,service tax will be leviable on such
transactionsince the builder provides the construction
service service.
Applicability of Service Tax w.e.f. 01.07.10
h d h b d b i i The amendment has been made by inserting
anexplanation which gave a doubt whether it is aprospective or
retrospective, but the Board
clarified in Circular dated 01 07 2010 that it isclarified in
Circular dated 01.07.2010 that it isprospective in nature.
2 1 Vide Finance Act 2010 eight new 2.1 Vide Finance Act, 2010,
eight newservices were added to the list of taxableservices while
the scopes of nine existingservices were modified As these
changesservices were modified. As these changesbecome effective
from 01.07.2010, activitiesthat are covered under taxable
servicecategories due to above additions orgmodifications, would
start attract service taxfrom this date.
Exemption for the payment received prior to 01.07.10
hil l ll i bl h While legally tax is payable on such
amountsreceived, it has been decided to specificallyexempt service
tax on that partial or full amount
which is received by the service provider/ personwhich is
received by the service provider/ personliable to pay the tax (and
not by an agent, whoin turn transfers such amount to such
personafter this date) before 01.07.2010, pertain to aafter this
date) before 01.07.2010, pertain to aservice which has become
taxable on account ofthe provisions of the Finance Act, 2010 and
isprovided on or after 01.07.2010. Any amount
i d ft 01 07 2010 b th ireceived after 01.07.2010 by the
serviceprovider/ person liable to pay the tax would besubjected to
tax. (Refer Notification No.36/2010-
Service Tax dated the 28th June 2010 asService Tax dated the
28th June 2010 ascorrected vide corrigendum dated 29th
July,2010).
Authority Allowed to Grant Completion Certificate
Th G b O d N 1/2010 d d 22 06 2010 The Government by Order
No.1/2010 dated 22.06.2010declared that following are covered under
the authoritycompetent to grant completion certificate:
(i) architect registered with the Council of Architecture (i)
architect registered with the Council of Architectureconstituted
under the Architects Act, 1972( 20 of 1972);or
(ii) chartered engineer registered with the Institution of( ) g
gEngineers (India); or
(iii) licensed surveyor of the respective local bodyof the city
or town or village or development or
planningauthority;authority;who is authorised under any law for the
time being inforce, to issue a completion certificate in respect
ofresidential or commercial or industrial complex as aresidential
or commercial or industrial complex, as aprecondition for its
occupation.
Abatement of 75%
Notification No.29/2000-ST dtd.22.06.10 hasgranted abatement of
75% for providing deemedservices related to construction if cost of
land isservices related to construction, if cost of land isincluded
in the amend charged.
PLC Services provided by Builders . w.e.f. 01.07.2010 Builders .
w.e.f. 01.07.2010
bl i i id dTaxable service means any services provided or tobe
provided, to a buyer, by a builder of aresidential complex, or a
commercial complex, or
any other person authorised by such builder forany other person
authorised by such builder, forproviding preferential location or
development ofsuch complex but does not include servicescovered
under sub-clauses(zzg), (zzq), (zzzh) andcovered under sub
clauses(zzg), (zzq), (zzzh) andin relation to parking place.
Explanation For the purposes of this sub-clauseExplanation. For
the purposes of this sub clause,preferential location means any
location havingextra advantage which attracts extra payment overand
above the basic sale price [sectionp [
65(105)(zzzzu)].
Clarification Related to PLC Services Dtd.26.02.2010
8 1 C i f i l i d i l8.1 Construction of commercial or
industrialstructures was brought under service tax net in2004 while
construction of residential complexesbecame a taxable service in
2005 The scope ofbecame a taxable service in 2005. The scope ofthe
existing services includes construction,completion and finishing,
repairs, alterations,renovation or restoration of complexes. It
hasrenovation or restoration of complexes. It hasbeen reported that
in addition to these activities,the builders of residential or
commercialcomplexes provide other facilities and charge
t l f th d th h d t fseparately for them and these charges do
not formpart of the taxable value for charging tax onconstruction.
These facilities include,-
ticontinue..
Clarification Related to PLC Services Dtd.26.02.10
i / f i l l i h f ll i(a) prime/preferential location charges
for allottinga flat/commercial space according to the choiceof the
buyer (i.e. Direction- sea facing, park
facing corner flat; Floor first floor top floorfacing, corner
flat; Floor- first floor, top floor,Vastu- having the bed room in a
particulardirection; Number- lucky numbers);
(b) internal or external development charges which(b) internal
or external development charges whichare collected for
developing/maintaining parks,laying of sewerage and water
pipelines,providing access roads and common lightingp g g getc;
(c) fire-fighting installation charges; and(d) power back up
charges etc.(d) power back up charges etc.
continue..
Clarification Related to PLC Services Dtd.26.02.10
8 2 Si h h i h f 8.2 Since these charges are in the nature
ofservice provided by the builder to the buyer ofthe property over
and above the constructionservice such charges are being brought
underservice, such charges are being brought underthe new service.
Charges for providing parkingspace have been specifically excluded
from thescope of this service. Development charges, toscope of this
service. Development charges, tothe extent they are paid to State
Government orlocal bodies, will be would be excluded from
thetaxable value levy. Further, any service providedb R id t W lf A
i ti C tiby Resident Welfare Associations or Cooperative
Group Housing Societies consisting ofresidents/owners as their
members would not be
taxable under this servicetaxable under this service.
Applicability of the Rate of Tax for the Works Contract
Rate of tax of works contract was increased from2% to 4% w.e.f.
01.03.2008. The Disputearises whether service tax rate shall apply
asarises whether service tax rate shall apply asapplicable on the
receipt of the payment or therendering of service or the date of
entering intocontractcontract.
Board Clarification Dtd. 28.4.08 - Applicability of Tax
h d h h i /6/200 The Board through Instruction F.No.
545/6/2007-TRU dated 28.04.2008 has clarified that service taxshall
become chargeable on receipt of payment, on
the amount received for the service provided or tothe amount
received for the service provided or tobe provided, whether or not
services areperformed, and rate of service tax shall beapplicable
at the rate in force at the time serviceapplicable at the rate in
force at the time servicetax becomes chargeable. In other words,
throughInstruction dated 28.04.2008, the Board hasclarified that
the rate of service tax shall be
li bl th d t f i t f tapplicable on the date of receipt of
paymentirrespective of date of performance of service. Inour
opinion, the aforesaid Instruction is not inconsonance with law as
service tax rate cannot beconsonance with law, as service tax rate
cannot beapplied when even taxable event does not occur.
Taxability on Construction of Government Houses
Instruction No.332/16/2010-TRUdated 24.05.2010 has clarified
that GOI
is the service receiver and NBCC is providingservices directly
to the GOI for its personal use.Therefore as for the instant
arrangementTherefore, as for the instant arrangementbetween
Ministry of Urban Development andNBCC is concerned, the service tax
is notleviableleviable.
Applicability of Tax on Construction of Houses for Construction
of Houses for Army Personnel
Instruction F.No.137/26/2006-CX 4 dtd 05 07 06CX.4 dtd. 05.07.06
has clarified
that service tax would not be leviable onconstruction of
complexes under question ifconstruction of complexes under question
iftheir layout does not require approval by anauthority under any
law for the time being inforceforce.
Applicability of Tax on Construction ofHouses for Army
PersonnelHouses for Army Personnel
The Government through Instruction F.No.137/26/2006-CX.4
dtd.07.06.06 has clarified that married accommodation constructed
for Army Personnel - Exclusion for personnel use as residence, for
such personnel would not be applicable in this case.
What is commercial construction?
h G h h Ci l 80/10/200 S The Govt. through Circular
No.80/10/2004-ST,dtd.17.09.2004 clarified that
13.2 The leviability of service tax would dependprimarily upon
whether the building or civilstructure is 'used, or to be used' for
commerce
or industry The information about this has to beor industry. The
information about this has to begathered from the approved plan of
the buildingor civil construction. Such constructions whichare for
the use of organizations or institutionsare for the use of
organizations or institutionsbeing established solely for
educational,religious, charitable, health, sanitation
orphilanthropic purposes and not for the purposesp p p p p pof
profit are not taxable, being non-commercial
in nature.
What is commercial construction?
G ll b ildi i ilGenerally, government buildings or
civilconstructions are used for residential, officepurposes or for
providing civic amenities.p p p gThus, normally government
constructionswould not be taxable. However, if suchconstructions
are for commercial purposesconstructions are for commercial
purposeslike local government bodies getting shopsconstructed for
letting them out, suchactivity would be commercial and
buildersactivity would be commercial and builderswould be subjected
to service tax.
Exemption to Services provided wholly within Port
ifi i 38/20 0 S d d Notification No. 38/2010-ST, dated28-6-2010
exemption from thewhole of the service tax leviable onwhole of the
service tax leviable oncommercial or industrial
constructionservices when provided wholly
ithi th t th t fwithin the port or other port, forconstruction,
repair, alteration andrenovation of wharves, quays,renovation of
wharves, quays,docks, stages, jetties, piers andrailways.
Exemption to Services when provided wholly within Airport
Notification No. 42/2010-ST,dated 28-6-2010 exemption fromthe
whole of the service tax leviable
on the commercial or industrialconstruction service provided
whollywithin the airport.
Exemption to Services provided wholly within Port
ifi i /20 S d d Notification No. 11/2011-ST, dated1-3-2011 has
granted exemption from
the whole of the service tax leviable onthe works contract
services whenprovided wholly within the port or otherport, for
construction, repair, alterationport, for construction, repair,
alterationand renovation of wharves, quays, docks,
stages, jetties, piers and railways, fromthe whole of service
tax leviable thereonthe whole of service tax leviable thereonunder
section 66 of the Finance Act
Any service within Port is a port service only
t bl i i id d t b id d t taxable service means any service
provided or to be provided, to any person, by any other person, in
relation to port services in a port, in any manner:
Provided that the provisions of section 65A shall not apply to
any Provided that the provisions of section 65A shall not apply to
any service when the same is rendered wholly within the port.
[Section
65(105)(zn)]
Mi i t th h I t ti M F (D R ) L tt D O F N Ministry through
Instruction M.F. (D.R.) Letter D.O.F. No.334/3/2010-TRU, dated
1-7-2010 has also clarified thatcommercial or industrial
construction service in relation to portwould now be classified as
port service when provided wholly
within the portwithin the port.
If that be the case, the said exemption Notifications haveno
relevance and if exemption is to be granted, then it is tob t d f
th t i i t d f i lbe granted for the port services instead of
commercialconstruction services
Exemption to Services when provided wholly within Airport
Notification No. 10/2011-ST, dated1-3-2011 has granted
exemptionfrom the whole of the service tax
leviable on the works contractservices provided wholly within
theairport.
Any service within Airport is only a Airport service
taxable service means any service provided or to be provided, to
any person, by airports authority or by any other person, in any
airport or a civil enclave:Provided that the provisions of section
65A shall not apply to any Provided that the provisions of section
65A shall not apply to any service when the same is rendered wholly
within the airport or civil enclave. [Section 65(105)(zzm)]
Ministry through Instruction M.F. (D.R.) Letter D.O.F.
No.334/3/2010-TRU, dated 1-7-2010 has also clarified thatcommercial
or industrial construction service in relation to airportwould now
be classified as airport service when provided wholly
ithi th i twithin the airport.
If that be the case, the said exemption Notifications haveno
relevance and if exemption is to be granted, then it isno relevance
and if exemption is to be granted, then it isto be granted for the
Airport services instead ofcommercial construction services
Validity of the Composition Scheme
Rule 3. (1) Notwithstanding anythingcontained in section 67 of
the Act and rule 2Aof the Service (Determination of Value)
Rules,
2006, the person liable to pay service tax inrelation to works
contract service shall have theoption to discharge his service tax
liability on thep g yworks contract service provided or to
beprovided, instead of paying service tax at therate specified in
section 66 of the Act, by payingp , y p y gan amount equivalent to
four per cent. of the
gross amount charged for the works contract.
Whether Benefit of Composition Scheme is available to ongoing
project (started prior to
01.06.2007)?
Circular No. 128/10/2010-ST, dated24.08.2010 clarified that
those contracts startedprior to 01 06 2007 but the nature is of
worksprior to 01.06.2007 but the nature is of workscontract, even
though prior to 01.06.2007instead of such contract tax was paid in
any
th t f t bl i h t tother category of taxable service, such
contractshall be categorized under works contractservice on or
after 01.06.2007 even though partof such service were categorized
in any other
category of taxable service and paid service taxon the same
under the said category of taxable
6161
on the same under the said category of taxableservice.
Continue
Whether Benefit of Composition Scheme is available to ongoing
project (started prior to
01.06.2007)?
However, despite the above-mentionedclarification in the same
Circular, the Board hasclarified that if the service tax in respect
of suchclarified that if the service tax in respect of suchcontract
(which commenced prior to 01.06.2007)has been made in other
category of taxable
i th ill t b bl t t thservice, they will not be able to opt
thecomposition scheme because such scheme hasnot been opted prior
to commencement of the
contract and such option is available for theentire contract and
cannot be altered.
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[Notification No. 1/2011-ST, dated 1-3-2011 [40% credit]Is it
against the provisions of section 65(105)(zzzza)?Is it against the
provisions of section 65(105)(zzzza)?
(2A) The CENVAT credit of tax paid ontaxable services as
referred to under sub-
l ( d) ( ) d ( h) f lclauses (zzd), (zzq) and (zzzh) of
clause(105) of section 65 of the Finance Act,
1994 shall be available only to the extent1994, shall be
available only to the extentof 40% of the service tax paid when
suchtax has been paid on the full value of thepservice after
availing CENVAT credit on
inputs..
Exemption for execution of works contract in respect of building
canalsin respect of building canals
Notification No. 41/2009-ST, dated 23-10-2009has granted
exemption from the whole of servicetax leviable on the taxable
services in relation totax leviable on the taxable services in
relation toexecution of a works contract in respect ofbuilding
canals used other than for the purposeof commerce and industryof
commerce and industry.
Exemption has been granted for canal systemsbuilt other than for
the purpose of commercep pand industry. whereas, the canal system
which isused for other than commerce and industry isnot taxablenot
taxable
Whether repair, renovation or restoration of road is a taxable
service?road is a taxable service?
Notification No. 24/2009-ST, dated 27-7-2009whereby taxable
service in relation tomanagement maintenance or repair of road
hasmanagement, maintenance or repair of road hasbeen fully exempted
from the levy of servicetax.
The Government has further amended the saidNotification by
Notification No. 54/2010-ST,dated 21-12-2010 with a view to extend
theexemption of management, maintenance orrepair of roads, bridges,
tunnels, dams, airports,railways and transport terminalsrailways
and transport terminals
In the words of Mahatma Gandhit e o ds o a at a Ga d
You must not worry whether theydesired result follows from your
actionor not, so long as your motive is pure,, g y p ,your means
correct
Thank you..
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