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K.VAITHEESWARANADVOCATE & TAX CONSULTANT
Flat No.3, First Floor,No.9, Thanikachalam Road,
T. Nagar, Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing, House of Lords,
15/16, St. Marks Road,Bangalore 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876 E-mails : [email protected]
[email protected]
www.vaithilegal.com
ISSUES IN CONSTRUCTION AND WORKS CONTRACT
UNDER SERVICE TAX
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Section 65B(44) defines service to mean any activity carried out
by a person for another for consideration and includes a declared
service, but shall not include
(a) an activity which constitutes merely, - (i) a transfer of
title in goods or immovable property by
way of sale, gift or in any other manner;(ii)such transfer,
delivery or supply of any goods which is deemed to be a sale within
the meaning of clause (29A) of article 366 of the Constitution;
or
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Service includes a declared service but does not include an
activity of transfer of title in immovable property by way of sale,
gift or in any other manner.
Section 66E(b) while setting out declared services covers
construction of a complex, building, civil structure or part
thereof including a complex or building intended for sale to a
buyer wholly or partly, except where the entire consideration is
received after issuance of completion certificate by the competent
authority.
Sale of an immovable property is excluded Construction of a
complex where monies are received before
issue of completion certificate is a declared service.
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No more complex definition of construction of complex Whether
Macro Marvel decision is still relevant? Notification No. 25/2012
dated 20.06.2012 w.e.f. 01.07.2012
exempts services by way of construction, erection, commissioning
or installation of original works pertaining to a single
residential unit other than as a part of a residential complex
(Entry 14 (b)).
Residential complex is defined to mean any complex comprising of
a building or buildings having more than one single residential
unit.
Single residential unit means a self contained residential unit
which is designed for use wholly or principally for residential
purposes for one family.
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Original works means: (i) all new constructions; (ii) All types
of additions and alterations to abandoned or
damaged structures on land that are required to make them
workable.
(iii) Erection, commissioning or installation of plant,
machinery or equipment or structures whether pre-fabricated or
otherwise.
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Activity Taxability
Construction of a complex comprising of more than one
residential unit
Taxable
Construction of a single bungalow of a size of 5000 sq. ft.
meant for a family
Not taxable
Construction of a two unit building with separate floor plans
and paid for separately by two brothers
Taxable?
Construction of 50 villas in a gated community
Taxable?
Alteration and re-modeling of an existing single residential
unit
Taxable if not in the nature of original works
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Earlier provision required a complex to have more than 12
residential units.
New provision creates a liability for any construction of
complex unless it is a single residential unit.
Construction of a complex comprising of 6 apartments has started
on 01.01.2012 and 30% of the monies have been received under
agreements.
Martin Lottery decision. No tax position Proportionate tax
position Can monies received earlier now be subjected to tax
based
on Point of Taxation Rules ?
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DESCRIPTION OF TAXABLE SERVICE
PERCENTAGE CONDITIONS
Construction of a complex, building, civil structure or a part
thereof, intended for a sale to a buyer, wholly or partly except
where entire consideration is received after issuance of completion
certificate by the competent authority.(a)For a residential unit
satisfying both conditions namely carpet area being less than 2000
sft. and amount charged being less than Rs.1 crore.(b) Other than
(a)
25
30
(i) CENVAT credit on inputs used for providing the taxable
service has not been taken under the provisions of the CENVAT
Credit Rules, 2004.
(ii) The value of land is included in the amount charged from
the service receiver.
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Joint Venture Different models Monetary share / share of
constructed area Is the contractor liable to pay service tax on
construction done for the land owner?
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An agreement between the owner of a land and a builder for
construction of apartments and sale of those apartments so as to
share the profits may be a joint venture, if the agreement
discloses an intent that both parties shall exercise joint control
over the construction/development and be accountable to each other
for their respective acts with reference to the project.
On facts there is a contract for construction of an apartment
and there is consideration for such construction flowing from the
land owner to the builder (in the form of sale of undivided share
in the land and permission to construct and own the upper
floors).
The land owner is the consumer, builder is the service
provider.
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Tax on same rate as charged on other buyers Tax on average rate
Tax on construction cost Tax payable by adopting value of UDS
transferred Decision of the Supreme Court (Faqir Chand Gulati
Vs.
Uppal Agencies Pvt. Ltd.) Consumer case.
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Chennai Tribunal in the case LCS City Makers Vs. CST (2012) TIOL
618 has held that:
(a ) there is no infirmity in adopting value of the flats sold
for value of flats allotted to land owners.
(b) guideline value of land cannot be adopted. (c) Contention
that consideration received other than in the
form of money prior to 19.04.2006 not acceptable as substantial
part of service was provided after valuation rules were
notified.
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The Chennai Tribunal in the case of Aswini Apartments
(unreported) vide order dated 15.07.2013 on a similar issue
remanded the matter back to the adjudicating authority to give a
ruling on the legal issues raised. One of the legal issues raised
was that in respect of land owner share the consideration would be
the notional value received for the value of undivided share of
land obtained from the land owner. This decision was rendered after
the decision of LCS.
The Commissioner (Appeals), Chennai in the case of Navin Housing
and Promoters Pvt. Ltd. in O-i-A No.209/2010 dated 10.12.2010 has
held that where the land owner is given any constructed area as
part of the joint venture, service tax is not applicable on
landowner share.
Board Circular dated 151/2/2012 dated 10.02.2012 - the value of
similar flats as are sold nearer to the date on which land is being
made available
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Developer is likely to recover the service tax in respect of the
apartments allocated to the landowner.
If landowner markets these apartments prior to issue of
completion certificate and receives money in advance, service tax
exposure.
If landowner executes a single sale deed for the apartment and
the land?
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Where the document that is executed is in the nature of an
agreement for transfer and possession is handed over as part
performance as contemplated in Section 53A of the Transfer of
Property Act, 1882 then there is a transfer and capital gains would
arise immediately. This would be evident in a situation where the
developer settles the consideration in the form of money or monies
worth on an outright basis and the land owner has no relevance or
say in the development work.
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Bombay High Court in Chaturbhuj Dwarkadas Kapadia Vs. CIT (2003)
260 ITR 491, has in the context of development agreements held that
the year of taxability is the year in which the contract is
executed. The Court held that in the case of development agreement
one cannot go by substantial performance of the contract and the
year of chargeability would the year of execution.
The decision of the Bombay High Court in the case of Chaturbhuj
Dwarkadas Kapadia was distinguished by the Bombay Tribunal in the
case of ACIT Vs. Mrs. Geetha Devi Pasari (104 TTJ 375)
The Pune Bench of the Tribunal in the case of Mahesh Nemichandra
Vs. ITO (2012) TIOL 408 has held that where the assessee forms a JV
with a builder for development of property and enters into an
irrevocable agreement the date of the Agreement would be the date
of transfer .
The Mumbai Tribunal in the case of Hillside Construction Co. Vs.
DCIT (2012) TIOL 516 has held that where developments rights were
parted the entire amount became due on signing of the development
agreement and handing over of possession of the land. Postponement
of payment does not stop accrual of income.
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Chennai Tribunal in Mount Mettur Pharmaceutical (2008 TIOL 657)
has held that when vacant possession of undivided share of land Is
handed over on 16.04.1996, the transfer took place on
16.04.1996.
AAR in Jasbir Singh Sarkaria (294 ITR 196) has ruled that for
Section 2(47)(v) to apply there must be a transaction under which
the possession of immovable property is allowed to be taken or
allowed to be retained. What is contemplated is a transaction which
has a direct and immediate bearing on allowing possession to be
taken in part performance of the contract of transfer. It is at
that point of time the deemed transfer takes place.
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Hyderabad Bench of the Tribunal in the case of Akkineni
Nagarjuna Rao (2012) 52 SOT 23 has held that where a plot of land
was given for development to the developer under an agreement with
a promise by the developer to handover 35% of the built up area, it
is a case of transfer since possession of the land had been handed
over.
Chennai Bench of the Tribunal in the case of Vijaya Productions
(2012) 134 ITD 19 has held that when possession is not taken and
the power is only to enable contractual obligations in planning and
development there is no transfer.
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(i) If possession is handed over to the developer on the date of
signing the development agreement then in the light of the various
decisions referred to above and in the absence of an alternative
view emerging in a higher forum, transfer would take place on the
date of execution of the development agreement.
(ii) If possession of property as well as the right to deal with
the property in any manner is granted through a power of attorney
at a later point of time and the agreement refers to this aspect as
a specific future transaction to be consummated on the happening of
an event, then the year of taxability would be the year in which
the said transaction takes place.
(iii)Where transfer takes place by virtue of any of the trigger
points, the land owner can take recourse to Section 50D and adopt
the fair market value as the consideration for the purpose of
calculating capital gains.
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Date of possession Conflict between developer and landowner
Postponement of date of possession from a
capital gain perspective may result in higher service tax
liability.
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Section 65B(54) of the Finance Act, 1994 defines works contract
as under:- Works contract means a contract wherein transfer of
property in goods involved in the execution of such contract is
leviable to tax as sale of goods and such contract is for the
purpose of carrying out construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance,
renovation, alteration of any moveable or immovable property or for
carrying out any other similar activity or a part thereof in
relation to such property.
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In the earlier regime only select works contracts were covered
under the service tax levy.
In the new regime all works contracts are taxable.
Repair and maintenance is also considered as a works
contract.
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Value of service portion = Gross amount charged for the works
contract Less the value of property in goods transferred in the
execution of the said works contract.
Gross amount shall not include VAT. Value shall include labour,
amount paid to sub-contractor for
labour and services, charges for planning, design, architect,
hire, cost of consumables, cost of establishment, similar expenses
and profit relatable to supply of labour and service.
Where VAT has been paid on the actual value of the property in
goods transferred in the course of execution of WCT then such value
adopted for VAT shall be taken as value of property in goods for
determination of value of services.
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CATEGORY VALUE
WCT for execution of original works 40% of the total amount
charged
WCT for maintenance or repair or reconditioning or restoration
or servicing of any goods or maintenance, repair, completion and
finishing services such as glazing, plastering, floor and wall
tile, installation of electrical fittings of an immovable
property.
70% of the total amount charged
Cenvat credit is not available on inputs.
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When Section 65B(44) excludes specifically transfers referred to
in Article 366(29A), can Rule 2A create a higher liability
including the goods portion.
For certain contracts under the VAT Law, 85% is accepted as
goods portion and 15% is accepted as labour portion. For the same
contract, under the Service Tax Law, labour portion is 40%.
For maintenance contracts, 70% is adopted as service value under
service tax law and VAT law adopts 70% as material value.
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The Supreme Court in the case of Raheja Development Corporation
had observed that an agreement entered into by a developer before
the construction is complete is a works contract.
This decision was doubted by the Supreme Court and the matter
was referred to the Larger Bench in the case of Larsen & Toubro
Ltd. Vs. State of Karnataka.
The Larger Bench vide decision dated 26.09.2013 has rendered a
landmark decision which will have far reaching implications for the
real estate industry.
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Raheja Development entered into development agreements with
landowners.
Raheja Development entered into agreements of sale with intended
purchasers.
The agreements provided that on completion of construction the
residential apartments or commercial complexes would be handed over
to the purchasers who would get an undivided interest in the land
also.
The owners of the land would then transfer the ownership
directly to the society formed under the Karnataka Ownership Flat
(Regulation of the Promotion of Construction, Sale, Management and
Transfer) Act, 1972
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The definition of works contract included any agreement for
carrying out for cash, deferred payment or other valuable
consideration, the building, construction, manufacture, processing,
fabrication, erection, installation, fitting out, improvement,
modification, repair or commissioning of any movable or immovable
property.
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Three conditions must be satisfied for the levy namely
(a) There must be a works contract(b) The goods should have been
involved in the
execution of the works contract(c) The property in those goods
must be transferred
to a third party either as goods or in some other form.
If the developer has received or entitled to consideration all
the three conditions are fully met.
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In the performance of the contract for construction, the goods
are intended to be incorporated in the structure even though they
lost their identity as goods.
Where a contract comprises of both works contract and transfer
of immovable property such contract does not alter the status of
being a works contract.
A contract may involve both a contract of work and labour and a
contract for sale.
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Even if the dominant intention is not to transfer the property
in goods and rather it is rendering of service or the ultimate
transaction is transfer of immovable property, it is open to the
States to levy sales tax on the materials used in such contract if
such contract otherwise has elements of works contracts.
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Taxing the sale of goods element in WCT is permissible even
after incorporation of goods provided the tax is directed on the
value of goods and does not purport to tax the transfer of
immovable property. The value of goods which can constitute the
measure for levy of tax has to be the value of goods at the time of
incorporation of the goods in the works even though the property
passes as between the developer and the flat purchaser after
incorporation of goods.
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It is not correct to say that the work is undertaken by the
developer for himself and for the owner and the construction is not
carried on for and on behalf of the purchaser.
If at the time of construction and until construction is
completed there is no contract for construction of the building
with the flat purchaser, the goods used in construction cannot be
deemed to have been sold by the builder since at that time there is
no purchaser.
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The expression in any other form is of utmost significance.
Goods which have by incorporation become part of immovable property
are deemed as goods.
The ultimate transaction between the parties may be sale of flat
but it cannot be said that the characteristics of WCT are not
involved in that transaction. When the transaction involves the
activity of construction factors such as, the flat purchaser has no
control over the materials to be used or he does not get a right to
monitor construction or has a say in design or layout are not of
significance.
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It cannot be said to be an absolute proposition in law that
ownership of the goods must pass by way of accretion or exertion to
the owner of the immovable property to which they are affixed or on
which the building is built.
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In the light of this decision, the argument that the developer
is providing only a self service becomes questionable.
If the construction agreement between the developer and the
purchaser is a works contract, what will happen to the disputes for
the period prior to 01.07.2010.
Prior to 01.07.2010, Department has issued show cause notices
under construction of complex and not under works contract.
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If agreement between developer and purchaser is a WCT for VAT
purposes based on decision of L&T then it is also WCT for
service tax purposes.
Service tax at the rate of 12.36% on 40% of the construction
agreement?
Is there any difference between construction of complex as a
category and works contract service since both categories are
considered as declared services in terms of Section 66E?
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Assuming land value is Rs.50 lakhs and construction
consideration is Rs.1 crore, under construction of complex service,
service tax is payable at rate of 12.36% on 30% of Rs.1.5 crores
that is Rs.5,56,200/-.
Under works contract service, service tax is payable at the rate
of 12.36% on 40% of Rs.1 crore that is Rs.4,94,400/-.
Cenvat credit effect is neutral in both systems since credit is
available on capital goods and input services and not available on
inputs.
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Composite contract for manufacture, supply and installation of
lifts in a building whether it is a contract for sale of goods or a
works contract.
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A Five Member Bench of the Supreme Court in the case of Kone
Elevator India Pvt. Ltd. Vs. State of Tamil Nadu (2014) 34 STR 641
has held as under:-
Works contract is an indivisible contract but by legal fiction
it is divided into two parts, one for sale of goods and the other
for supply of labour and services.
The concept of dominant nature test for treating a contract as a
works contract is not applicable.
Works contract under Article 366(29A) takes within its sweep all
genre of works contract.
Once the characteristics of works contract are met in a
contract, any additional obligation in the contract would not
change the nature of the contract.
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A lift is not a plant which is erected at site. Without
installation the lift cannot be mechanically functional.
Installation of lift in a building is a composite contract.
In L&T the Bench has held that the ultimate transaction
between the parties may be the sale of a flat but it cannot be said
that the characteristics of WCT are not involved in that
transaction.
If the contract is a composite contract falling within the
definition of WCT under Article 366(29A), the incidental part as
regards labour and service pales into total insignificance for the
purpose of determining the nature of the contract.
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It is necessary to state that if there are two contracts namely
purchase of the components of the lift from the dealer, it would be
a contract for sale and similarly if separate contract is entered
into for installation that would be a contract for labour and
service. But a pregnant one, once there is a composite contract for
supply and installation it has to be treated as a works contract
for it is not a sale of goods / chattel simpliciter.
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Rationale of Kerala High Court decision in the case of Kerala
Classified Hotels
The Uttarakhand High Court in the case of Valley Hotel &
Resorts Vs. Commissioner (2014-TIOL-600) has held that since a
restaurant pays service tax on 40% of the value VAT cannot be
imposed on such value. The Court held that VAT can be imposed only
on sale of goods and not service. Since the authority competent to
impose service tax has also assumed competent to declare what is a
service and the State has not challenged the same, no VAT can be
imposed on that amount.
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The Mumbai Bench of the Tribunal in the case of ITO Vs. Mrs.
Chetana H. Trivedi (2012) TIOL526 has held that the right to
construct building on the said plot of land by consuming FSI and
the right as a receiving plot owner to load TDR over and above the
normal FSI, are rights which accrue to the assessee by virtue of
the development control regulation for Greater Bombay. These are
rights over property, which are capital assets within the meaning
of the definition of capital assets under section 2(14). The
consideration received by the assessee was for transfer of rights
over such asset and same would fall under Section 45.
The Mumbai Bench of the Tribunal in the case of ACIT vs.
Ishverlal Manmohandas Kanakia ITA No. 3053 & 2650/Mum/2010 has
held that the receipts on assignment of FSI including originating
from theplot of landand/ormarried toit and right to load consume
and use FSI credit by way of TDR which was the subject matter of
transfer by the Assessee was a capital asset in respect of which
the cost of improvement could not be ascertained and therefore the
receipts of consideration for transfer of the said rights cannot be
brought to tax as the said receipts will be capital receipts and
not capital gain.
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The Bombay High Court in the case of Chheda Housing Development
Corpn., a Partnership firm Vs. Bibijan Shaikh Farid & Ors.
(2007) (3) MHLJ 402 (Bom.) dealing with specific performance of
Agreement for use of TDR held that FSI/TDR are benefits arising
from the land consequently must be held as immovable property. The
Court observed that an immovable property under the General Clauses
Act, 1897 under section 3(26) has been defined as to include
benefits arising out of land. Therefore, if there is any benefit
which arises out of the land, then it is immovable property.
The Mumbai Bench of the Tribunal in the case of Jethalal D.
Mehta Vs. DCIT (2005) 2 SOT 422 (Mum.), following the judgment of
Apex court in CIT vs. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC)
held that TDR granted by DCR, 1991 qualifying for equivalent F.S.I.
having no cost of acquisition, sale thereof gives no rise to
capital gains.
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The Mumbai Bench of the Tribunal in the case of ITO Vs. Lotia
Court Co-operative Housing Society Ltd. (2008) TIOL 404, held that
the assignment of the TDRs to the developer and in turn the
additional floors to be constructed and also repairs/renovation of
the building to be carried out, does not result in to accrual of
any income in the hands of the assessee society, who is not the
owner of the plot. Even in the case of flat owners who owned the
individual flats in the respective names, there is no question of
taxability of receipt on account of sale of additional floor space
index received by the assessee by virtue of transfer of TDRs under
the Development Control Regulation for Greater Mumbai, 1991.
Receipt on sale or assignment of rights to receive TDRs is held not
liable to tax.
The Mumbai Bench of the Tribunal in the case of New Shailaja CHS
vs. ITO (ITA NO 512/M/2007.BENCH B dated 2nd Dec., 2008 (Mumbai)
wherein the assessee, a Co-op. Housing Society became entitled, by
virtue of the Development Control Regulations, to Transferable
Development Rights (TDR) and the same were sold by it for a price
to a builder, it was held that though the TDR was a capital asset,
as there was no cost of acquisition for the same, the consideration
could not be taxed as capital gains.
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Can TDR be considered as goods? The Supreme Court in the case of
Yasha Overseas Vs. Commissioner of
Sales Tax (2008) TIOL 97 SC-CT has held that DEPB like REP
license clearly goods within the meaning of sales tax laws and it
sale exigible to tax.
The Commissioner under Section 85 of the Delhi VAT Act has
issued a Ruling to the effect that Certified Emission Reductions
(CER) commonly known as Carbon Credit are goods.
If TDR is considered as immovable property, there is no service
tax. If TDR is considered as goods there is no service tax but VAT
/ CST
applicability has to be addressed.
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Stamp duty and registration Service tax VAT VAT - TDS TDS under
Section 194-IA
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Services provided to the Government, a local authority or a
governmental authority by way ofconstruction,erection,
commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of -
(a) a civil structure orany other original works meant
predominantly foruse other than for commerce, industry, or any
other business or profession;
(b) a historical monument, archaeological site or remains of
national importance, archaeological excavation, or antiquity
specified under the Ancient Monuments and Archaeological Sites and
Remains Act, 1958;
(c) a structure meant predominantly for useas (i) an
educational, (ii) a clinical, or(iii) an art or cultural
establishment;
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(d) canal, dam or other irrigation works;(e) pipeline, conduit
or plant for
(i) water supply (ii) water treatment, or (iii) sewerage
treatment or disposal; or
(f)a residential complex predominantly meant for self-use or the
use of their employees or other persons specified in
theExplanation1 to clause 44 of section 65 B of the said Act.
Originalworks means(i) all new constructions; (ii) all types of
additions and alterations to abandoned or damaged structures on
land that are required to make them workable; (iii) erection,
commissioning or installation of plant, machinery or equipment or
structures, whether pre-fabricated or otherwise;
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Residentialcomplex means any complex comprising of a building or
buildings, having more than one single residential unit.
Governmental Authority means an authority or a board or any
other body:(a) set up by an Act of Parliament or a State
Legislature; or(b) established by Government;with 90% or more
participation by way of equity or control to carry out any
function entrusted to a municipality under Article 243W of the
Constitution
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Services provided by way ofconstruction,erection, commissioning,
installation, completion, fitting out, repair, maintenance,
renovation, or alteration of,-
(a)a road, bridge, tunnel, or terminal for road transportation
for use by general public (general public is defined to mean body
of public at large sufficiently defined by some quality of public
or impersonal nature);
(b) a civil structure orany other original works pertaining to a
scheme under Jawaharlal Nehru National Urban Renewal Mission or
RajivAwaasYojana;
(c) a building owned by an entity registered under section 12 AA
of the Income tax Act, 1961 and meant predominantly for religious
use by general public;
(d) a pollution control or effluent treatment plant, except
located as a part of a factory; or
(e) astructure meant for funeral, burial or cremation of
deceased;
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Services by way of construction, erection, commissioning, or
installation of original works pertaining to,-
(a) an airport, port or railways, including monorail or
metro;(b) a single residential unit otherwise than as a part of a
residential complex;(c) low- cost houses up to a carpet area of 60
squaremetresper house in a
housing project approved by competent authority empowered under
the Scheme of Affordable Housing in Partnership framed by the
Ministry of Housing and Urban Poverty Alleviation, Government of
India;
(d) post- harvest storage infrastructure for agricultural
produce including a cold storages for such purposes; or
(e) mechanisedfood grain handling system, machinery or equipment
for unitsprocessingagricultural produce as food stuff excluding
alcoholic beverages;Single residential unit means a self-contained
residential unit which is designed for use, wholly or principally,
for residential purposes for one family.Residentialcomplex means
any complex comprising of a building or buildings, having more than
one single residential unit.
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Section 68(2) provides that in respect of such taxable services
as may be notified the Government may specify that the tax shall be
paid by such person in such manner at the rate specified in Section
66B and all the provisions of this Chapter shall apply to such
person as if he is a person liable for paying service tax.
The proviso provides that the Government may notify the service
and the extent of service tax payable by such person and the
remaining part shall be paid by the service provider.
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Nature of Service
Status of Service Provider
Status of Service Receiver
Percentage of Service Tax Payable by
Service Provider
Service Receiver
Service portion in execution of works contract.
Individual / HUF /
Partnership Firm whether registered or not, including AOP
located in the taxable territory to a business entity registered as
a corporate located in the taxable territory.
Business entity registered as a body corporate.
50% 50%*
*The service recipient has the option of choosing the valuation
method as per choice independent of the valuation method adopted by
the provider.
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Works contract means a contract wherein transfer of property in
goods involved in the execution of such contract is leviable to tax
as sale of goods and such contract is for the purpose of carrying
out construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation,
alteration of any moveable or immovable property or for carrying
out any other similar activity or a part thereof in relation to
such property.
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Activity Material + Labour Position in VAT Section 194C Past
period VAT TDS
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It is to be noted that the tax liability for the service
provider and the service receiver respectively are independent.
This is not like a TDS mechanism and would require discharging of
the identified percentage of service tax.
Assuming, the reverse charge mechanism is applicable in respect
of works contract service provided by a non-corporate body
(individual or AOP or HUF or Partnership firm) and the bill is for
Rs.1 lakh, the Company can calculate value as 40% and the service
tax liability of the Company under reverse charge mechanism would
be 50% of 12.36% calculated on 40% of the WCT value.
Assuming, reverse charge mechanism is applicable in respect of
manpower services or security services provided by a non-corporate
body and the bill is for Rs.1 lakh the service tax liability of the
Company under reverse charge mechanism would be 75% of 12.36% on
Rs.1 lakh.
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10 Lakh exemption not available Payment should be made only by
cash and not through
cenvat Amount paid can be taken as credit if otherwise eligible
and
the challan is the cenvatable document Payment by the provider
in full may not insulate the receiver
from liability to the extent of the receivers portion of tax
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If service tax due on transportation of a consignment has been
paid or is payable by a person liable to pay service tax, service
tax should not be charged for the same amount from any other
person, to avoid double taxation.
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There is no dispute that service in question has suffered tax.
The only dispute is the person who shall pay the service tax. When
the treasury has not been affected by virtue of collection of
service tax from the service provider as is the case of the Revenue
and there is no legal infirmity in the decision of the learned
Commissioner (Appeals) there cannot be double taxation of same
service. But it is fact that realization of the service tax has
been made from the service provider while the recipient of service
of GTA has liability under the law. Finding no loss of revenue, as
has been held by the learned Commissioner (Appeals), Revenues
appeal is dismissed.
-
The Mumbai Bench of the Tribunal has held that once the amount
of service tax is accepted by the revenue from the provider of GTA
service it cannot be demanded again from the recipient of the GTA
service.
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Free supply of materials to contractor. The Larger Bench of the
Tribunal in the case of Bhayana Builders Pvt.
Ltd. Vs. CST (2013) 32 STR 499 in the context of whether
materials supplied free of cost by the client should be included in
the value for the purpose of service tax has held as under:-(i) In
the context of Section 67, non-monetary consideration must still be
a consideration accruing to the benefit of the service provider
from the service recipient and for the services provided.(ii) The
value of goods and materials supplied free of cost by a service
recipient to the provider of the taxable construction service being
neither monetary or non-monetary consideration paid by or flowing
from the service recipient, accruing to the benefit of the service
provider would be outside the taxable value or the gross amount
charged within the meaning of the expression in Section 67.
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Even under the new dispensation, the material supplied free by
the contractee cannot constitute consideration.
The Madras High Court in the context of income tax in the case
of CIT Vs. Guruswami Gounder (K.S) and Krishna Raju (KS) (1973) 92
ITR 90 has held that the cost of the materials supplied to the
contractor by the contractee cannot be included in the total
receipts for computing income of the contractor.
The Supreme Court in the case of Brij Bhushan Lal Parduman Kumar
Vs. CIT (1978) 115 ITR 524 has held that in substance and reality
the material supplied by the contractee always remains with him and
the contractor merely had custody and fixed or incorporated them
into the works. The Supreme Court approved the decision of the
Madras High Court in the case of Guruswami Gounder cited supra.
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The definition of service excludes transfer of title in
immovable property by way of sale, gift or in any other manner.
Immovable property not defined. Immovable property in terms of
General Clauses Act
includes land, benefits to arise out of land, things attached to
the earth or permanently fastened to anything attached to the
earth.
Joint Development Landowner / Developer perspective Can the
transaction be seen as barter of land for constructed
apartments? Can the transaction be seen as a transfer of title
in
immovable property from both sides?
-
Section 118 of the Transfer of Property Act provides that when
two persons mutually transfers the ownership of one thing for the
ownership of the other, neither thing or both things being money
only, the transaction is called an exchange.
The Supreme Court in the case of CIT Vs. Motor & General
Stores Pvt. Ltd. has held that a transaction in which the
consideration for the transfer of certain properties are shares in
a limited company is an exchange.
The Supreme Court in the case of CIT Vs. Rasiklal Maneklal
(1989) 177 ITR 198 has held that an exchange involves the transfer
of property by one person to another and reciprocally the transfer
of property by that other to the first person. There must be a
mutual transfer of ownership of one thing for the ownership of
another.
Whether the flats to be exchanged exist at the time of the land
being handed over?
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Relinquishment of rights in immovable property. Whether it can
be considered as merely transfer of title in
immovable property by way of sale, gift or in any other
manner.
Scope of Section 66E(e) dealing with agreeing to the obligation
to refrain from an act, or to tolerate an act or a situation or to
do an act.
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K.VAITHEESWARANADVOCATE & TAX CONSULTANT
Flat No.3, First Floor,No.9, Thanikachalam Road,
T. Nagar, Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing, House of Lords,
15/16, St. Marks Road,Bangalore 560 001, India
Tel : 080 + 2224 4854/ 4112 0804
Mobile: 98400-96876 E-mails : [email protected]
[email protected]
www.vaithilegal.com
PowerPoint PresentationDEFINITION OF SERVICESCOPESCOPESlide
5Slide 6ISSUESNEW LAW - ABATEMENTLANDOWNER SHAREFAQIR CHAND
GULATISlide 11Slide 12Slide 13TAX IMPLICATIONS FOR
LANDOWNERPOSITION IN INCOME TAXINCOME TAX(contd)Slide 17INCOME TAX
(Cont.)POSSIBLE CONCLUSIONSPOSSESSIONTAXATION OF WORKS CONTRACT
UNDER THE NEW LAWWORKS CONTRACTSVALUATIONVALUATION Other
ScenariosVALUATION - IssuesTHE RAHEJA STORYFACTS IN RAHEJAs
CASESlide 28LARGER BENCH DECISION IN THE CASE OF L&TSlide
30Slide 31Slide 32Slide 33Slide 34Slide 35SERVICE TAX
IMPLICATIONSSlide 37Slide 38THE KONE ELEVATOR STORYSlide 40Slide
41Slide 42WCT SOME THOUGHTSTRANSFERABLE DEVELOPMENT RIGHTS
(TDR)Slide 45Slide 46TDR SERVICE TAX APPLICABILITYTAX
IMPLICATIONSEXEMPTIONSSlide 50Slide 51Slide 52Slide 53Slide
54REVERSE AND JOINT CHARGE MECHANISMSECTION 68WORKS CONTRACTSlide
58Slide 59REVERSE CHARGE MECHANISM -GENERALRCM - GENERALBOARD
CIRCULAR DATED 17-12-2004CST Vs. Geeta Industries P. Ltd. (2011) 22
STR 293UMASONS AUTO COMPO PVT. LTD. (2014) TIOL 126SOME RANDOM
THOUGHTSSlide 66Slide 67Slide 68Slide 69Slide 70