Constructions and Real Estate SectorServices –Practical Problems and Vexed                 Issues   Kolkatta - Chartered A...
Levy of Service Tax on Construction      & Real Estate Activities  Commercial or Industrial Construction Services-     w.e...
Construction & Real Estate     Services – full of doubts  Whether     levy     prior   to   1.06.2007   wasconstitutionall...
Construction & Real Estate    Services – full of doubts  What is a Works Contract?  Whether Benefit of Composition Scheme ...
Construction & Real Estate    Services – full of doubts  Whether service tax is applicable on thebasic sale price/consider...
Construction & Real Estate    Services – full of doubts  Whether  Wh th service t               i   tax i applicable as pe...
Construction & Real Estate    Services – full of doubts   Whether service tax shall be applicable on thesecurity deposits ...
Construction & Real Estate    Services – full of doubts  Whether service tax  Whethe se ice ta shall be applicable on thea...
Works Contract Service  Works Contract       Service   introduced    w.e.f.                                               ...
Works Contract Service(ii)      such contract is for the purposes of carrying          out,—(a)    erection, commissioning...
Works Contract Service(b) construction of a new b ildi              i     f            building or a civil                ...
What is Works Contract? In the case of S      h          f State of Andhra Pradesh v                            f     dh  ...
What is Works Contract?  In the case of Hindustan Shi        h         f    i d       Shipyard Ltd. v                     ...
What is Works Contract? (ii)  it       i may b a contract f                be           for work i which the              ...
Construction Services –        Whether levyprior to 1.06.2007 was constitutionally valid? Circular   No.  98/1/2008-ST, da...
High Court’s Decision on on-goingProjects and Validity of Circulardtd.04.01.08d d 04 01 08   In the case of Nagarjuna C   ...
High Court’s Decision on on-goingProjects and Validity of Circulardtd.04.01.08 The Court held that the fact that the natur...
SC case in Kerala State Electricity Board v                                   yCCE, 2007-TIOL-226-SC-ST : 2008 (9) STR 3in...
Complexity – Levy of Excise Duty and     p     y      y             y Service Tax both on same transactionsThe      CBEC, ...
Whether same transactions/activities can be  subjected to excise duty as well as service  tax?No.No As per Entry 84 of the...
Whether service tax is applicable on supply of                        pp             pp y        Ready Mix Concrete (RMC)?...
Construction Services-         Whether Service Tax is applicable on so called “Free                 pp           Supply” o...
Whether service tax can be levied on the entire   value of contract including the material involved      in the execution ...
Works Contract and FOCMaterialWhether gross amount shall i l d the f   h h                      h ll include h freeof cost...
Works Contract and FOCMaterial … Contd.(b) the value of all the services that are required    to be provided for the execu...
FOC Material – BoardCircular dated 13.11.2007 The      Board    has     issued      Instruction F.No.137/118/2007-CX.4    ...
Tribunal’s Decision on FOCMaterial The Tribunal in the case of Jaihind Projects                               ihi d    j L...
Whether Service Tax is leviable on sale of      flats to prospective buyers?Harekrishna Developers 2008-TIOL-03-ARA-ST    ...
Whether Service Tax is leviable on sale of      flats to prospective buyers?Magus Construction Pvt Ltd vUOI reported in 20...
Whether Service Tax is leviable on sale of      flats to prospective buyers?The Supreme Court in the case of Larsen& Toubr...
Whether Service Tax is leviable on sale of      flats to prospective buyers?Circular No. 108/02/2009 – ST , dated 29thJanu...
Construction Services-    Collaboration Agreement    C ll b   ti A           tFaqir Chand Gulati v Uppal AgenciesPvt. Ltd....
Deemed Service Concept The Finance Act, 2010 has introduced    the    Deemed Service Concept – both in Commercial and R id...
Commercial Construction Service –Inserted by the Finance Act 2010                        Act,w.e.f. 01.07.2010.Explanation...
Residential Construction Services –inserted by the Finance Act, 2010 w.e.f.01.07.2010.Explanation.—For the purposes of thi...
Board Circular dtd. 26.02.10               dtd 26 02 10  Board h       d has clarified the scope of the explanation       ...
Board Circular dated26.02.2010 builder/promoter/developer to the prospective buyer and the service tax would be charged ac...
Board Circular F. No.334/03/ 2010 -TRU dtd. 01.07.10  The Board has clarified that “If agreement is  entered into or any p...
Applicability of Service Taxw.e.f. 01.07.10 The amendment h  h         d       has b                        been made b i ...
Exemption for the paymentreceived prior to 01.07.10 “While legally tax i payable on such amounts “ hil l     ll      is   ...
Authority Allowed to Grant Completion CertificateThe Government b O dTh G                by Order N 1/2010 d              ...
Abatement of 75% Notification No.29/2000-ST dtd.22.06.10 has granted abatement of 75% for providing deemed services relate...
PLC Services provided byBuilders . w.e.f. 01.07.2010“Taxable service means any services provided or to“      bl      i    ...
Clarification Related to PLCServices Dtd.26.02.20108.1 Construction of commercial or i d81 C            i     f           ...
Clarification Related to PLCServices Dtd.26.02.10(a) prime/preferential l       i   /    f     i l location charges f allo...
Clarification Related to PLCServices Dtd.26.02.10 8.2 Since these charges are i the nature of 8 2 Si      h       h       ...
Applicability of the Rate ofTax for the Works Contract Rate of tax of works contract was increased from 2% to 4% w.e.f. 01...
Board Clarification Dtd.28.4.08 - Applicability of Tax The Board through Instruction F.No. 545/6/2007-   h       d h      ...
Taxability on Constructionof Government Houses           No.332/16/2010-TRU Instruction dated 24.05.2010 has clarified tha...
Applicability of Tax onConstruction of Houses forArmy Personnel          F.No.137/26/2006-  Instruction  CX.4 dtd. 05.07.0...
Applicability of Tax on Construction ofHouses for Army Personnel  The Government through Instruction  F.No.137/26/2006-CX....
What is commercial construction? The G  h Govt. through Ci             h    h Circular No.80/10/2004-ST,                  ...
What is commercial construction?Generally, government b ildiG       ll               buildings or civili ilconstructions a...
Exemption to Servicesprovided wholly within Port Notification No. 38/20 0 S    ifi   i       38/2010-ST, d                ...
Exemption to Services whenprovided wholly within Airport Notification    No.   42/2010-ST, dated 28-6-2010 exemption from ...
Exemption to Servicesprovided wholly within Port Notification No. 11/2011-ST, d     ifi  i             /20     S    datedd...
Any service within Port is aport service only“taxable service” means any service provided or to be provided, to“t    bl   ...
Exemption to Services whenprovided wholly within Airport Notification No. 10/2011-ST, dated 1-3-2011 has granted exemption...
Any service within Airport isonly a Airport service “taxable service” means any service provided or to be provided, to any...
Validity of the CompositionScheme Rule 3. (1) Notwithstanding anything contained in section 67 of the Act and rule 2A of t...
Whether Benefit of Composition Scheme isavailable to ongoing project (started prior to                01.06.2007)?   Circu...
Whether Benefit of Composition Scheme isavailable to ongoing project (started prior to                01.06.2007)?  Howeve...
[Notification No. 1/2011-ST, dated 1-3-2011 [40%credit]Is it against the provisions of section 65(105)(zzzza)?     “(2A) T...
Exemption for execution of works contractin respect of building canals  Notification No. 41/2009-ST, dated 23-10-2009  has...
Whether repair, renovation or restoration ofroad is a taxable service?  Notification No. 24/2009-ST, dated 27-7-2009  wher...
In the words o Mahatma Ga d   t e o ds of a at a Gandhi“You must not worry whether the                        ydesired res...
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Real estate and construction indutry 18.12

  1. 1. Constructions and Real Estate SectorServices –Practical Problems and Vexed Issues Kolkatta - Chartered Accountants Presented By J.K. MITTAL (Advocate) Chairman, Indirect Taxes C Ch i I di tT Committee, itt PHDCCI LL.B.,F.C.A., F.C.S. LL B F C A F C S NEW DELHI Ph: 011- 22056635 Fax: 011- 22447420 Email: jkmittal@vsnl.net 1
  2. 2. Levy of Service Tax on Construction & Real Estate Activities Commercial or Industrial Construction Services- w.e.f. 10.09.2004 Residential Complex Services- w.e.f. 16.06.2005 p Works Contract Services –w.e.f. 01 06 2007 w e f 01.06.2007 sale of flats/ Buildings to prospective buyers-w.e.f. 01.07.2010 2
  3. 3. Construction & Real Estate Services – full of doubts Whether levy prior to 1.06.2007 wasconstitutionally valid? Whether service tax is applicable on supply ofReady Mix Concrete (RMC)? Whether Service T Wh th S i Tax i applicable on so called is li bl ll d“Free Supply” of materials? Whether service tax can be levied on the entirevalue of contract including the material involved inthe execution of such construction contract? Whether Service Tax levy on sale of flats toprospective buyers is constitutionally valid? 3
  4. 4. Construction & Real Estate Services – full of doubts What is a Works Contract? Whether Benefit of Composition Scheme isavailable to ongoing project (started prior to1.6.07)? Whether i Wh th increased rate of t d t f tax (4%) shall b h ll 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? 4
  5. 5. Construction & Real Estate Services – full of doubts Whether service tax is applicable on thebasic sale price/consideration of the flat? Whether service tax is required to be paidfor the contracts entered into prior to 1stJuly 2010 for which payments is receivedafter 1st J l 2010? f t July Whether service tax is required to be paidfor the payments received prior to 1st July2010 (as per Down linking payment Plan)for which services will be rendered after 1stJuly 2010? 5
  6. 6. Construction & Real Estate Services – full of doubts Whether Wh th service t i tax i applicable as per d t of is li bl date fagreement to sale or on date of construction? Whether 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 butpayments received on or after 01-07-2010? 6
  7. 7. Construction & Real Estate Services – full of doubts Whether 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’? 7
  8. 8. Construction & Real Estate Services – full of doubts Whether service tax Whethe se ice ta 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 thecategories of taxable services and what is theapplicable rate of tax – whether abatement of75% available? Under GST - immovable property transactions arenot to be covered- then how and what shall be thetax treatment of sale transactions? 8
  9. 9. Works Contract Service Works Contract Service introduced w.e.f. wef 01.06.2007 “taxable service” means any service provided or taxable service to be provided, to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Explanation.—For the purposes of this sub- p p p clause, “works contract” means a contract wherein,—( ) transfer of property in goods involved in the(i) p p y g execution of such contract is leviable to tax as sale of goods, and Continue…..
  10. 10. Works Contract Service(ii) such contract is for the purposes of carrying out,—(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or Continue…..
  11. 11. Works Contract Service(b) construction of a new b ildi i f building or a civil i il structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or(c) construction of a new residential complex or a part thereof; or(d) completion and finishing services repair services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or(e) turnkey projects including engineering, engineering procurement and construction or commissioning (EPC) projects; [section 65(105)(zzzza)]
  12. 12. What is Works Contract? In the case of S h f State of Andhra Pradesh v f dh d h Larsen & Tourbo Ltd. 2008-TIOL-158-SC- VAT, the Supreme Court held as under: “12. “12 A contract of work, i t t f k i.e., ""works contract" k t t" involves transfer of property and also element of service or work rendered. That is why it is called composite contract Works contracts contract. can be of two types only: (a) Works contracts for constructions; and (b) Works contract in relation to any movable property like repairs to vehicles, printing contracts etc.”
  13. 13. What is Works Contract? In the case of Hindustan Shi h f i d Shipyard Ltd. v d d State of A.P. (2000) 6 SCC 579; (2000) 119 STC 533 : AIR 2000 SC 2411, the question which arose for consideration was whether a contract constituted a sale or works contract. Laying down the tests therefore, having regard to the terms and conditions contained therein, it was opined that a contract of the sale of goods was separate from a contract for works and labour. In regard to the categories of the contract, it was stated: t t t t d “(i) the contract may be for work to be done for remuneration and for supply of materials used in the th execution of th work f a price; ti f the k for i Continue…..
  14. 14. What is Works Contract? (ii) it i may b a contract f be for work i which the k in hi h h use of the materials is accessory or incidental to the execution of the work; and (iii) it may b a contract f be t t for supply of l f goods where some work is required to be done as incidental to the sale.” Whereas the first contract was held to be a composite contract, the second was held to be a contract for work and labour not involving the sale of goods and the third was held to be a contract of sale where the goods were sold as chattels and the work done was merely incidental thereto.
  15. 15. Construction Services – Whether levyprior to 1.06.2007 was constitutionally valid? Circular No. 98/1/2008-ST, dated04.01.2008 - The Government clarifiedthat the service providers who havepaid service tax prior to 01.06.2007under commercial construction orresidential complex service is notentitled to pay the tax under thecomposition scheme under WorksContract services for the contractentered i t prior t 01 06 2007 t d into i to 01.06.2007. 15
  16. 16. High Court’s Decision on on-goingProjects and Validity of Circulardtd.04.01.08d d 04 01 08 In the case of Nagarjuna C h f j Construction i Company Ltd. v GOI 2010-TIOL-403-HC-AP- ST, 2010 (019) STR 0321 (A.P.) the challenge was made to the Circular No No. 98/1/2008-ST, dated 04.01.2008. The Court reiterated that the said Circular is in conformity with the provision of the Rule 3(3) of the composition rules. The Court held that the Circular dated 04 01 2008 is wholly in 04.01.2008 conformity with the provisions of Rule 3(3) (supra). Continue…
  17. 17. High Court’s Decision on on-goingProjects and Validity of Circulardtd.04.01.08 The Court held that the fact that the nature of the works executed by the petitioner which hitherto fell within the ambit of the taxable services enumerated in Clauses (zzd), (zzq) and (zzzh), now fall within services classified as a works contract in Clause (zzzza) does not have any (zzzza), bearing on the entitlement of the petitioner to the benefits of the composition scheme under the 2007 Rules as such scheme is available only in relation to works contract services.
  18. 18. SC case in Kerala State Electricity Board v yCCE, 2007-TIOL-226-SC-ST : 2008 (9) STR 3in para 27 held as under :“27. There is a distinction betweenthe object of tax the incidence of tax tax,and the machinery for the collectionof 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 withreference f to t its it incidence i id ormachinery” 18
  19. 19. Complexity – Levy of Excise Duty and p y y y Service Tax both on same transactionsThe CBEC, 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 andExcise duty are payable; on sameactivity or not?2) Whether for both taxes, the samevalue is considered or different value isconsidered. “ 19
  20. 20. Whether same transactions/activities can be subjected to excise duty as well as service tax?No.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”. Taxes 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,Entry 25 may become redundant. 20
  21. 21. Whether service tax is applicable on supply of pp pp y Ready Mix Concrete (RMC)? The production of RMC is an activityamounting to “manufacture” within themeaning of section 2(f) of the Central Excise g ( )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,which is also specifically clarified by the Boardthrough various circulars. As per Central Boardof 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 sub heading3824.20 of the Central Excise Tariff Act, 1985”. 21
  22. 22. 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 proceedingsmay go on and be concluded by theRespondents, they will not include for thepurposes of d t f determining th t i i the taxable service th bl i thesupply of free material to the Petitioner and tothis extents the Explanation appearing againstSerial No.7 in the table given in the Notificationdated 1st March, 2006 will not be applied to thedetriment of the Petitioner” Petitioner 22
  23. 23. Whether service tax can be levied on the entire value of contract including the material involved in the execution of construction contract?MOF Instructions F No 233/2/2003 CX 4 F. No. 233/2/2003-CX.4,dated 3-3-2006:“3. The matter has been examined by the Board. Theintention of the Notification No. 12/2003-ST, d f h f 2/2003 S dated 20 6 d 20-6-2003 is to provide exemption only to the value of goodsand material sold subject to documentary evidence ofsuch sale being available. Therefore, in case, the goodsare consumed during the provision of service and arenot available for sale, the provision of the saidnotification would not be applicable. Therefore, insupersession of clarification to contrary, it is clarifiedthat goods consumed during the provision of service, g g p ,that are not available for sale, by the service providerwould not be entitled to benefit under Notification No. 2312/2003-ST, dated 20-6-2003.”
  24. 24. Works Contract and FOCMaterialWhether gross amount shall i l d the f h h h ll include h freeof cost materials supplied by contractee? The Government has amended, w.e.f 7-7-2009,the W k C tth Works Contract (C t (Composition S h iti Scheme f forPayment of Service Tax) Rules, 2007 byNotification No. 23/2009-ST, dated 7-7-2009. Asper the amended Rule gross amount charged for Rule,Works Contract for payment of service tax underthe Composition scheme, shall include:(a) the value of all goods used in or in relation tothe execution of Works Contract- whether suppliedunder other contract for a consideration, orotherwise.
  25. 25. Works Contract and FOCMaterial … 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.But, it shall not include:(a) VAT/sales tax paid on transfer of property in goods i d involved. l d(b) the cost of machinery and tools used in the execution of the said Works Contract.
  26. 26. FOC Material – BoardCircular dated 13.11.2007 The Board has issued Instruction F.No.137/118/2007-CX.4 dtd.13.11.07 after taking note of the interim relief granted by the High Courts that “….Therefore, it may be more appropriate to deny abatement claimed under the said notification instead of asking the assessee to include cost of material and then avail abatement.”
  27. 27. Tribunal’s Decision on FOCMaterial The Tribunal in the case of Jaihind Projects ihi d j Ltd. v CST, Ahmedabad 2010(018)STR 0650 Tri-Ahm.2010- ( ) TIOL-124-CESTAT-AHM, came to the conclusion that the material-supplied by the customer/ service receiver to the contractor is to be b treated as ‘ d ‘construction’ and required to b i ’ d i d be added in the value of taxable services. However, in the opinion of the author, the decision of the Tribunal does not appear to be in consonance with the law and requires to be taken up in the higher courts to settle long pending disputes.
  28. 28. 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),AAR/03(ST)/2008) the th Advance AdRuling Authority held that the sale ofhouse is taxable service underconstruction of complex service. 28
  29. 29. 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. , 29
  30. 30. 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 Karnatakareported i 2008 (12) STR 257 (SC) t d inhas disagreed the decision in the K.Raheja 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 referredthe matter to the Larger Bench of theSupreme Court. 30
  31. 31. Whether Service Tax is leviable on sale of flats to prospective buyers?Circular No. 108/02/2009 – ST , dated 29thJanuary 2009any service provided by such seller in connectionwith the construction of residential complex tillt e e ecut o o suc sa ethe execution of such sale deed would be in the ou d t enature of ‘self-service’ and consequently wouldnot attract service tax 31
  32. 32. Construction Services- Collaboration Agreement C ll b ti A tFaqir Chand Gulati v Uppal AgenciesPvt. Ltd. and Anr. in Civil Appeal No.3302 of 2005 agreements are popularly f 2005, t l lknown as joint venture agreements ordevelopment 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 themanagement, nor sharing of profits andlosses 32
  33. 33. Deemed Service Concept The Finance Act, 2010 has introduced the Deemed Service Concept – both in Commercial and R id C i l d Residential i l Co st uct o Se ces Construction Services Continue …
  34. 34. Commercial Construction Service –Inserted by the Finance Act 2010 Act,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 orany person authorised by the builder before,during or after construction (except in cases forwhich no sum is received from or on behalf of theprospective buyer by the builder or the personauthorised by the builder before grant ofcompletion certificate by the authority competent p y y pto issue such certificate under any law for thetime being in force) shall be deemed to be servicepprovided by the builder to the buyer; [section y y ; [65(105)(zzq)].
  35. 35. Residential Construction Services –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 forsale, wholly or partly, b a b ild l h ll tl by builder or any personauthorised by the builder before, during or afterconstruction (except in cases for which no sum isreceived 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 such y y pcertificate under any law for the time being inforce) shall be deemed to be service provided bythe builder to the buyer; [section 65(105)(zzzh)].
  36. 36. Board Circular dtd. 26.02.10 dtd 26 02 10 Board h d has clarified the scope of the explanation l ifi d h f h l i introduced by the Finance Act, 2010, both under Commercial and Residential Construction Services. Services “8.6 In order to achieve the legislative intent and bring in parity in tax treatment an treatment, Explanation is being inserted to provide that unless the entire payment for the property is paid by the prospective buyer or on his behalf after the completion of construction (including its certification by the local authorities), the activity of construction would be deemed to be a y taxable service provided by the Continue ….
  37. 37. Board Circular dated26.02.2010 builder/promoter/developer to the prospective buyer and the service tax would be charged accordingly. accordingly This would only expand the scope of the existing service, which otherwise remain unchanged.”
  38. 38. Board Circular F. No.334/03/ 2010 -TRU dtd. 01.07.10 The Board has clarified that “If agreement is entered into or any payment is made for sale of complex or apartment in residential complex complex, service tax will be leviable on such transaction since the builder provides the construction service.” service ”
  39. 39. Applicability of Service Taxw.e.f. 01.07.10 The amendment h h d has b been made b i d by inserting an i explanation which gave a doubt whether it is a prospective or retrospective, but the Board clarified in Circular dated 01 07 2010 that it is 01.07.2010 prospective in nature. “2.1 “2 1 Vide Finance Act 2010 eight new Act, 2010, services were added to the list of taxable services while the scopes of nine existing services were modified As these changes modified. become effective from 01.07.2010, activities that are covered under taxable service g categories due to above additions or modifications, would start attract service tax from this date.”
  40. 40. Exemption for the paymentreceived prior to 01.07.10 “While legally tax i payable on such amounts “ hil l ll is bl h received, it has been decided to specifically exempt service tax on that partial or full amount which is received by the service provider/ person liable to pay the tax (and not by an agent, who in turn transfers such amount to such person after this date) before 01.07.2010, pertain to a service which has become taxable on account of the provisions of the Finance Act, 2010 and is provided on or after 01.07.2010. Any amount received after 01 07 2010 b i d ft 01.07.2010 by th the service i provider/ person liable to pay the tax would be subjected to tax. (Refer Notification No.36/2010- Service Tax dated the 28th June 2010 as corrected vide corrigendum dated 29th July, 2010).”
  41. 41. Authority Allowed to Grant Completion CertificateThe Government b O dTh G by Order N 1/2010 d No.1/2010 dated 22 06 2010 d 22.06.2010declared that following are covered under the authoritycompetent to grant completion certificate:(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;who is authorised under any law for the time being inforce, to issue a completion certificate in respect ofresidential or commercial or industrial complex complex, as aprecondition for its occupation.
  42. 42. Abatement of 75% Notification No.29/2000-ST dtd.22.06.10 has granted abatement of 75% for providing deemed services related to construction if cost of land is construction, included in the amend charged.
  43. 43. PLC Services provided byBuilders . w.e.f. 01.07.2010“Taxable service means any services provided or to“ bl i i id dbe provided, to a buyer, by a builder of aresidential complex, or a commercial complex, orany other person authorised by such builder for builder,providing preferential location or development ofsuch complex but does not include servicescovered under sub-clauses(zzg), (zzq), (zzzh) and sub clauses(zzg),in relation to parking place.Explanation. ForExplanation —For the purposes of this sub-clause sub clause,‘‘preferential location’’ means any location havingextra advantage which attracts extra payment overand above the basic sale price” [section p [65(105)(zzzzu)].
  44. 44. Clarification Related to PLCServices Dtd.26.02.20108.1 Construction of commercial or i d81 C i f i l industrial i lstructures was brought under service tax net in2004 while construction of residential complexesbecame a taxable service in 2005 The scope of 2005.the existing services includes construction,completion and finishing, repairs, alterations,renovation or restoration of complexes. It hasbeen reported that in addition to these activities,the builders of residential or commercialcomplexes provide other facilities and chargeseparately f th t l for them and th d these charges d not f h do t formpart of the taxable value for charging tax onconstruction. These facilities include,- continue….. ti
  45. 45. Clarification Related to PLCServices Dtd.26.02.10(a) prime/preferential l i / f i l location charges f allotting i h for ll i a flat/commercial space according to the choice of the buyer (i.e. Direction- sea facing, park facing, facing corner flat; Floor first floor top floor Floor- floor, floor, Vastu- having the bed room in a particular direction; Number- lucky numbers);(b) internal or external development charges which are collected for developing/maintaining parks, laying of sewerage and water pipelines, p providing access roads and common lighting g g g etc;(c) fire-fighting installation charges; and(d) power back up charges etc. continue…..
  46. 46. Clarification Related to PLCServices Dtd.26.02.10 8.2 Since these charges are i the nature of 8 2 Si h h in h f service provided by the builder to the buyer of the property over and above the construction service, service such charges are being brought under the new service. Charges for providing parking space have been specifically excluded from the scope of this service. Development charges, to the extent they are paid to State Government or local bodies, will be would be excluded from the taxable value levy. Further, any service provided by Resident Welfare A b R id t W lf Associations or C i ti Cooperative ti Group Housing Societies consisting of residents/owners as their members would not be taxable under this service service.
  47. 47. Applicability of the Rate ofTax for the Works Contract Rate of tax of works contract was increased from 2% to 4% w.e.f. 01.03.2008. The Dispute arises whether service tax rate shall apply as applicable on the receipt of the payment or the rendering of service or the date of entering into contract. contract
  48. 48. Board Clarification Dtd.28.4.08 - Applicability of Tax The Board through Instruction F.No. 545/6/2007- h d h h i /6/200 TRU dated 28.04.2008 has clarified that service tax shall become chargeable on receipt of payment, on the amount received for the service provided or to be provided, whether or not services are performed, and rate of service tax shall be applicable at the rate in force at the time service tax becomes chargeable. In other words, through Instruction dated 28.04.2008, the Board has clarified that the rate of service tax shall be applicable on th d t of receipt of payment li bl the date f i t f t irrespective of date of performance of service. In our opinion, the aforesaid Instruction is not in consonance with law as service tax rate cannot be law, applied when even taxable event does not occur.
  49. 49. Taxability on Constructionof Government Houses No.332/16/2010-TRU Instruction dated 24.05.2010 has clarified that GOI is the service receiver and NBCC is providing services directly to the GOI for its personal use. Therefore, Therefore as for the instant arrangement between Ministry of Urban Development and NBCC is concerned, the service tax is not leviable. leviable
  50. 50. Applicability of Tax onConstruction of Houses forArmy Personnel F.No.137/26/2006- Instruction CX.4 dtd. 05.07.06 CX 4 dtd 05 07 06 has clarified that service tax would not be leviable on construction of complexes under question if their layout does not require approval by an authority under any law for the time being in force. force
  51. 51. Applicability of Tax on Construction ofHouses 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.
  52. 52. What is commercial construction? The G h Govt. through Ci h h Circular No.80/10/2004-ST, l 80/10/200 S dtd.17.09.2004 clarified that “13.2 The leviability of service tax would depend primarily upon whether the building or civil structure is used, or to be used for commerce or industry The information about this has to be industry. gathered from the approved plan of the building or civil construction. Such constructions which are for the use of organizations or institutions being established solely for educational, religious, charitable, health, sanitation or p philanthropic purposes and not for the purposes p p p p p of profit are not taxable, being non-commercial in nature.
  53. 53. What is commercial construction?Generally, government b ildiG ll buildings or civili ilconstructions are used for residential, officep ppurposes or for providing civic amenities. p gThus, normally government constructionswould not be taxable. However, if suchconstructions are for commercial purposeslike local government bodies getting shopsconstructed for letting them out, suchactivity would be commercial and builderswould be subjected to service tax.”
  54. 54. Exemption to Servicesprovided wholly within Port Notification No. 38/20 0 S ifi i 38/2010-ST, d dated d 28-6-2010 exemption from the whole of the service tax leviable on commercial or industrial construction services when provided wholly within th port or other port, f ithi the t th t for construction, repair, alteration and renovation of wharves, quays, docks, stages, jetties, piers and railways.
  55. 55. Exemption to Services whenprovided wholly within Airport Notification No. 42/2010-ST, dated 28-6-2010 exemption from the whole of the service tax leviable on the commercial or industrial construction service provided wholly within the airport.
  56. 56. Exemption to Servicesprovided wholly within Port Notification No. 11/2011-ST, d ifi i /20 S datedd 1-3-2011 has granted exemption from the whole of the service tax leviable on the works contract services when provided wholly within the port or other port, for construction, repair, alteration and renovation of wharves, quays, docks, stages, jetties, piers and railways, from the whole of service tax leviable thereon under section 66 of the Finance Act
  57. 57. Any service within Port is aport service only“taxable service” means any service provided or to be provided, to“t bl i ” i id d t b id d tany person, by any other person, in relation to port services in aport, in any manner:Provided that the provisions of section 65A shall not apply to anyservice when the same is rendered wholly within the port. [Section65(105)(zn)]Ministry thMi i t through I t h Instruction M F (D R ) L tt ti M.F. (D.R.) Letter D O F N 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 whollywithin the port port.If that be the case, the said exemption Notifications haveno relevance and if exemption is to be granted, then it is tobeb granted f t d for th port services i t d of commercial the t i instead f i lconstruction services
  58. 58. Exemption to Services whenprovided wholly within Airport Notification No. 10/2011-ST, dated 1-3-2011 has granted exemption from the whole of the service tax leviable on the works contract services provided wholly within the airport.
  59. 59. Any service within Airport isonly 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 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 that commercial or industrial construction service in relation to airport would now be classified as airport service when provided wholly within th airport. ithi the i t If that be the case, the said exemption Notifications have no relevance and if exemption is to be granted, then it is to be granted for the Airport services instead of commercial construction services
  60. 60. Validity of the CompositionScheme Rule 3. (1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service• (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the p g y works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying p , y p y g an amount equivalent to four per cent. of the gross amount charged for the works contract.
  61. 61. Whether Benefit of Composition Scheme isavailable 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 works 01.06.2007contract, even though prior to 01.06.2007instead of such contract tax was paid in anyother category of t th t f taxable service, such contract bl i h t tshall be categorized under works contractservice on or after 01.06.2007 even though partof such service were categorized in any othercategory of taxable service and paid service taxon the same under the said category of taxableservice. Continue… 61
  62. 62. Whether Benefit of Composition Scheme isavailable 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 suchcontract (which commenced prior to 01.06.2007)has been made in other category of taxableservice, th i they will not b ill t be able t bl to opt th t thecomposition scheme because such scheme hasnot been opted prior to commencement of thecontract and such option is available for theentire contract and cannot be altered. 62
  63. 63. [Notification No. 1/2011-ST, dated 1-3-2011 [40%credit]Is it against the provisions of section 65(105)(zzzza)? “(2A) The CENVAT credit of tax paid on taxable services as referred to under sub- clauses ( d) ( l (zzd), (zzq) and ( ) d (zzzh) of clause h) f l (105) of section 65 of the Finance Act, 1994, 1994 shall be available only to the extent of 40% of the service tax paid when such tax has been paid on the full value of the p service after availing CENVAT credit on inputs.”.
  64. 64. Exemption for execution of works contractin respect of building canals Notification No. 41/2009-ST, dated 23-10-2009 has granted exemption from the whole of service tax leviable on the taxable services in relation to execution of a works contract in respect of building canals used other than for the purpose of commerce and industry industry. Exemption has been granted for canal systems built other than for the purpose of commerce p p and industry. whereas, the canal system which is used for other than commerce and industry is not taxable
  65. 65. Whether repair, renovation or restoration ofroad is a taxable service? Notification No. 24/2009-ST, dated 27-7-2009 whereby taxable service in relation to management, management maintenance or repair of road has been fully exempted from the levy of service tax. The Government has further amended the said Notification by Notification No. 54/2010-ST, dated 21-12-2010 with a view to extend the exemption of management, maintenance or repair of roads, bridges, tunnels, dams, airports, railways and transport terminals
  66. 66. In the words o Mahatma Ga d t e o ds of a at a Gandhi“You must not worry whether the ydesired result follows from your actionor not, so long as your motive is pure, , g y p ,your means correct” ………Thank you……….. 66
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