Services provided by a Developer/Contractors(1) Services by way of Construction and Sale of flats/units ina complex.(2) Services by way of Works Contracts(3) Services by way of Renting of Immovable Property(4) Services by way of maintenance of a Complex/Building
Entries of Declared List governingConstruction/Builders Services (Section 66E)(a) Renting of immovable property;(b) Construction of a complex, building, civil structure or a partthereof, including a complex or building intended for saleto a buyer, wholly or partly, except where the entireconsideration is received after issuance of completion-certificate by the competent authority;(h) service portion in the execution of a works contract;
Charges collected by Builders and rate of Service Taxapplicable on said chargesS.No Charges Rate of Service tax1. Basic Charges 3.09%/3.708%2. Preferential LocationCharges12.36%3. Club ChargesTowards cost ofconstructionFor membership of clubProvision of Food/otherservices3.09%/3.708%12.36%NIL/12.36%4. Car Parking- open &covered3.09%/3.708%
S.No Charges Rate of Service tax5. EDC/IDCOn Actual Payment Basis On Adhoc basis withoutdisclosing actual charges Actual Charges plus ownservice chargeNot TaxableFull amount is TaxableOnly own service charges aretaxable6. External Electrification charges/Electrical Installation Charges3.09%/3.708%/4.944%7. Administrative Charges forregistration12.36%8. Interest Free MaintenanceSecurity (IFMS)RefundableNon RefundableNon TaxableTaxable @12.36%
S.No Charges Rate of Service tax9. Firefighting EquipmentInstallation charges3.09%/3.708%/4.944%10. Power Backup Charges(Towards cost of installationof DG Sets and substations)3.09%/3.708%4.944%11. Administrative/TransferCharges (In case of sale offlat by original buyer, buildercharge said charged formodifying its records i.e.entering the name of newbuyer in its records)12.36%
Maintenance Services provided by aDeveloper/BuilderApart from construction Services developers/Builders also provide theservices of maintenance of buildings/complexes constructed by it. Forproviding such services developer charges maintenance chargesform the occupants of flats/offices. The nature of charges collectedby builders and Rate of Tax applicable on the same has beensummarised as under:Mai Maintenance ChargesCharges Description TaxabilityMaintenanceChargesTowards maintenance ofbuilding/complex12.36%Electricity Charges For supplying electricity inflats/shops (Charged onactual basis)NonTaxableCommon AreaElectricity ChargesTowards cost of electricityconsumed in Common Area12.36%
Case Study-1ABC ltd has entered into a contract for construction of roadmeant for general public. ABC ltd sub contracts the aforesaidwork to three contractors namely: DEF Ltd , the work of site formation for construction of road XYZ Ltd , laying the surface of road GHI Ltd , other physical activities in respect of such roads.What will be the Service tax implication on the aforesaidtransactions?
Services provided by way of construction of road meant for useby general public is Exempted from payment of Service Tax.Thus, any service which is used in the construction of said roadshall be exempted from Service Tax as per Entry 13(a) of N/N25/2012 dated 20.06.2012. Accordingly, all the aforesaid servicesin respect of roads are not exigible to Service Tax. Further, as far as laying of surface is concerned same is alsocovered under definition of Works Contract as engrafted underSection 65B (54) of Finance Act, 1994. Since, main Contractorenjoys exemption, the sub contractor also continue to enjoy theexemption in respect of Works Contract Services - Entry 29(h) ofN/N 25/2012 dated 20.06.2012
Case Study-2M/s ABC Pvt Ltd is engaged in construction of hospitals andeducational institutes. Whether M/s ABC Pvt Ltd. is required to payService Tax on the same?If M/s ABC Ltd is constructing such structures for the government, alocal authority or a governmental authority, in that case M/s ABC isnot required to pay Service Tax on the same as per Entry 12 (a) ofNotification No 25/2012.However, if such structure are built for persons other than government,a local authority, governmental authority, M/s ABC Ltd is required topay Service Tax on the same.
Case Study-3M/s XYZ Pvt Ltd is engaged in maintenance & Repair of Ports.Whether M/s ABC Pvt Ltd. is liable to pay Service Tax on the same?Yes, M/s XYZ Pvt Ltd is required to pay Service Tax on the same as videEntry No 14 of Notification No 25/2012 dated 20.06.2012, exemption hasbeen provided only to services in respect of Construction of Ports.
Case Study-4M/s XYZ Pvt Ltd is Renting out its Immovable Property to an NGO.Whether M/s XYZ Pvt Ltd is required to pay Service Tax on thesame?Yes, M/s XYZ Pvt Ltd is required to pay Service Tax on the same asexemption has not been granted to such activity anywhere underFinance Act, 1994.
Case Study-5Mr. A has rented a house to Mr. B, consisting of two floors. one floorof which is to be used as residence and the other for the purposeof running of a office? What shall be the Service Tax implications onthe same?Such renting for two different purposes is not naturally bundled in theordinary course of business. Therefore if a single rent deed is executed itwill be treated as a service comprising entirely of such service whichattracts highest liability of Service Tax. In this case renting for use asresidence is a Negative List Service while renting for non-residence use ischargeable to tax. Since, the latter category attracts highest liability ofService Tax amongst the two services bundled together, the entirebundle would be treated as renting of commercial property.
Case Study-6This will be a case of Bundled Services where a number of services havebeen provided in lieu of a Single Consideration. Accordingly, taxability ofthe same shall be determined as per Section 66F of Finance Act, 1994. Asper said Section, if services are considered Naturally Bundled in theordinary Course of business, it shall be considered as the provision of saidservice which provide essential character to it. In this case, Renting ofImmovable Property is the essence of aforesaid activity. Further, Rentingof property for residential purposes is not exigible to Service Tax. Thus,said activity of Renting by Mr. A shall not be exigible to Service Tax.Mr. A has let out a house to Mr. B for Residential purposes. Further,along with such house Mr. A has also provided various amenitiessuch as furniture, refrigerator, air conditioners etc. What shall beService tax implications of the same?
VALUATION ASPECTS IN RELATION TOCONSTRUCTION SERVICES
Valuation in respect of Works Contract ServicesSERVICE TAX (DETERMINATION OF VALUE), RULES, 2006:RULE 2A, Determination of value of service portion in theexecution of a works contract :Clause(i): Taxable Value shall be Gross Amount Charged [excludingVAT/Sales Tax paid / payable on transfer of property in goodsinvolved in execution of works contract] for the works contractservice less the value of transfer of property in goods involved in theexecution of the said works contract.As per said Rule labour charges, amount paid to sub-contractors,charges for planning, designing etc, cost of consumables, cost ofestablishment of the contractor, and other similar expenses in relationto supply of labour are required to be included in the Gross AmountCharged.
(ii) In case the value cannot be determined under clause (i) above,then taxable value shall be determined as follows:S.No. PURPOSE OF WORKCONTRACTPROPORTION OF THE TOTALAMOUNT ON WHICH SEVICETAX IS PAYABLE1. For execution of original works 40%2. works contracts, includingmaintenance, repair, completionand finishing services of animmovable property60%3. Maintenance or repair orreconditioning or restoration orservicing of any goods70%
Valuation in respect of Builders’ ServicesLABOUR CONTRACTS for Construction of a complex, building, civilstructure or a part thereofValue of Service = Gross Amount Charged(Rate of Service Tax : 12.36%) Contract for Construction of complex or building intended for sale toa buyer, wherein consideration is received from buyer partly or whollyprior to Issuance of Completion Certificate by a Competent AuthorityValue of Service = Gross Amount Charged * 25%/30%(Rate of Service Tax : 3.09% / 3.708%)(N/N.- 26/2012 dated 20.06.2012 s amended vide N/N-2/2013 dated01.03.2013 and N/N-9/2013 dated 08.05.2013)Continued…….
Valuation in respect of Builders’ ServicesPercentage and Conditions for abatementsConstruction of a complex, building, civil structure or a part thereof,intended for a sale to a buyer, wholly or partly except where entireconsideration is received after issuance of completion certificate by thecompetent authority,W.e.f 01.3.2013Abatement of 75 %(i) For residential unit having carpet area upto 2000 square feet and wherethe amount charged is less than rupees one croreAbatement of 70%(ii) For other than (i) aboveFrom 01.07.2012 to 28.02.2013Abatement of 75 %CONDITIONS: 1. Value of Land included in Gross Amount Charged2. CENVAT Credit in respect of INPUTS NOT AVAILED
Apart from adopting methods prescribed by Rule 2A, the personproviding Works Contac service provider has an option tovalued its service as per the provisions contained in Section 67read with Rule 5 of Service Tax (Determination of Value) Rules,2006Now the moot question arises whether a person providingWorks Contract Services is mandatorily required to dischargeits Service Tax Liability as per aforesaid Rule 2A or can availany other method of valuation?Case Study-7
Case Study- 8A builder engages three sub-contracts in order to execute theconstruction work (including material) of a new building. The saidSub-Contractors have been awarded the work as follows:Civil work has been given to Mr. AElectrification work has been given to Mr. BPlumbing & Fire fighting work has been given to Mr. CWhether all aforesaid contracts fall under the ambit of termoriginal works as defined under Rule 2A of Service Tax(Determination of Value) Rules, 2006?
The scope of term “Construction” can not be restricted to merelyputting up walls, roof and floor etc. In different words, completionand finishing services [such as glazing, plastering, floor and walltiling, installation of electrical fittings, plumbing works etc.] also fallwithin the ambit of term “Construction” which itself gets coveredunder the definition of term “Original Works”.Therefore, all above contracts are eligible to discharge service taxliability on the 40% of the total amount charged for the workscontract.
What are the options available to a Builder for dischargingits Service Tax Liability?In addition to discharging Service Tax liability after availingabatement as per Notification No 26/2012 dated 20.06.2012, thebuilder can also discharge its Service Tax Liability as per Rule 2Aof Service Tax (Determination of Value), Rules, 2006 provided itentered into a separate agreement with the allottee for the saleof land. The same has been explained with the help of followingillustration.Case Study- 9
A builder ABC Ltd. construct and sold the building. Costs incurredby him for constructing the building & other relevant details areas under:S.No Particulars Amount(Rs.)1. Total Gross Amount Charged 1,00,0002. Cost of Land 60,0003. Value of Material used 22,0004. Cost of Labour Services 4,0005. CENVAT Credit on Input 12006. CENVAT Credit on Inputs services 4127. CENVAT Credit on Capital Goods (TotalCENVAT is RS. 400. 50% of the has beenavailed)200
PARTICULARS Valuation MethodsOption A Option B Option C Option DRelevant Notification/provision No. 26/2012Separate Land Agreement is required to be madeRule 2A (i) Rule 2A (ii) Section 67Gross Amount Charged Rs. 1,00,000 Rs. 1,00,000 Rs. 1,00,000Rs. 1,00,000Less : - Exemption of 75% (Rs. 75,000) NIL NIL NILLess :- Cost of Land NIL (Rs. 60,000) (Rs. 60,000) (Rs. 60,000)Less :- Value of Material NIL (Rs. 22,000) NIL NILTaxable Value Rs. 25,000 Rs. 18,000 Rs. 40,000 Rs.40,000Service Tax thereon (12.36%) Rs. 3,090 Rs. 2,225Rs. 1978(@4.944%)Rs. 4,944Less :- CENVAT Credit on Input NIL NIL NIL 1200Less :- CENVAT Credit on InputServices412 412 412 412Less :- CENVAT Credit on CapitalGoods200 200 200 200Service Tax to be paid in cash Rs. 2,478 Rs. 1,613 Rs. 1,366 Rs. 3,132
Value for Reversal under Rule 6 (3) ofCENVAT Credit Rules, 2004
Case Study-10For Instance:Value of flats sold by M/s ABC Ltd = Rs 1,00,00,000/-(Taxable Service)Service Tax discharged = As per Rule 2A(ii) of Service Tax(determination of Value) Rules, 2006, i.e. on 40% of aforesaidvalue.Gross Amount Charged for construction of Road = Rs 1,00,00,000(Exempted Service Entry No 13 of Notification No 25/2012 dated20.06.2012).Further, ABC Ltd has availed CENVAT Credit of Rs 40,00,000 inrespect of aforesaid services.What will be the amount which ABC Pvt Ltd is liable to payas per Rule 6 (3) of CENVAT Credit Rules, 2004?
Amount required to be paid as per Rule 6 (3) (i) of CENVATCredit Rules, 2004 = 6% of Exempted Services= 6% of Rs 1,00,00,000= Rs 6,00,000Amount required to be paid as per Rule 6 (3) (ii) of CENVATCredit Rules, 2004 =40,00,000 * 1,00,00,0002,00,00,000= Rs 20,00,000To Conclude: The value should be taken for the purpose ofaforesaid Rule shall be Gross Amount Charged not theamount on which Service Tax has been paid.
Construction Service: Various ExemptionsServices provided to Government/Local Authority/ GovernmentalAuthority (Entry No 12)Services provided to any Person(Entry No 13)Services by way of Construction,Completion, Fitting out, repair,maintenance, renovation,alteration in respect of:Services by way of Construction,Completion, Fitting out, repair,maintenance, renovation, alterationin respect of Civil Structure for Non-CommercialPurpose. Historical Monument etc. Structure for use as clinical,educational, or culturalestablishment Canal, Dam Etc. Pipeline, Conduit Etc. Residential Complex for self ofemployees of aboveRoad, Bridge, Tunnel etc.Civil Structure under Jawaharlal NehruNational Urban Mission or Rajiv AwaasYojanaA building owned by entity registeredunder Section 12AA of Income Tax Act,1961A pollution Control plantStructure for burial, funeral etc.
Services provided to any person by way of construction, erection,commissioning or installation pertaining to (Entry No 14): Airport, port & railways (including monorail & metro) Single residential unit otherwise as a part of residential complex Low-cost houses up to a carpet area of 60 sq metres. Post-harvest storage infrastructure for agriculture produce Mechanised food grain handling system, machinery, or equipments forunits processing agricultural produce.Services of Works Contract provided by a Sub-Contractor toanother contractor providing Works Contract services which areExempt from Service Tax [Entry No 29 (h)]
Renting of Immovable Property Service:Negative List of services (Section 66D):(m) services by way of renting of residential dwelling for use asresidence;
Renting of precincts of a religious place meant for generalpublic (Entry No 5). Renting of a premises for the conduct of Religious Ceremony(Entry No 5). Renting of Immovable Property to an Educational Institutionproviding education which is exempted from Service Tax (EntryNo 9). Renting of a hotel, inn, guest house, club, campsite or othercommercial places meant for residential or lodging purposes,having declared tariff of a room below rupees one thousandper day or equivalent (Entry No 18).Exemptions available to Renting of Immovable PropertyService vide Notification No 25/2012 dated 20.06.2012