A Presentation On Construction & GTA Services – An Overview 29th November 2012

Central Excise Commissionerate, Jaipur – I

Presents

Service Tax Seminar

A Presentation On
“Construction & GTA Services – An Overview”

Thursday By
29th November, 2012 Sanjiv Agarwal
Jaipur FCA, FCS

© Dr. Sanjiv Agarwal

This presentation covers –

 Overview of Taxation of Services
 Construction Services
 GTA Services


Service Tax in India (The Past)

 Introduced in India in 1994 as a simple, modest tax
with just three services
 Service tax – an indirect tax
 Approach to Service Tax – Selective as against
comprehensive one
 Governed by Finance Act, 1994 and a dozen of rules
 Legislative dependence on other laws


3

Brief Overview of Services /
Service Tax Share of Services in
GDP

Agricult ure
19%

Service
Sect or
Indust ry 59%
22%

GDP C O MPO S ITIO N IN MARC H, 2012

© Dr. Sanjiv Agarwal 4

Service Tax in India (The Past)

Selective Approach to Service Tax
 Selective v. Comprehensive approach
 Taxation by choice
 Service not defined but taxable service
defined.
 > 120 taxable services [section 65(105)]
 Untapped tax potential
 Economically justified


5

Service Tax - Today

Shift to Comprehensive Approach

 W.e.f. 1st July 2012
 Finance Act, 2012 – A land mark Act to shift
from positive to negative approach.
 All services to be taxed other than services
specified in the negative list and exempted
services – Section 66B.


6

Taxation of Services by Finance Act, 2012
All Services
(including declared Services

(-)

Specific Exclusions

(-)

Negative List Services

(-)

Exemptions

(=)

Taxable Services


The New Taxability Concept
SERVICE FOR A CONSIDERATION

9 DECLARED SERVICES
E: Employee
M: Money
A: Actionable claim E - MAGIC TEST
G: Goods
I: Immovable property
C: Court Fee
1. Non - 2.
Taxable Negative
territory
(POPS) list (17)
3.
Exemption
s (39)

Taxable

Taxable Services w.e.f. 1.7.2012

 All services Taxable
[section 65B(44)]
 Declared services Taxable
(section 66E)
 Services covered under Not Taxable
negative list of services
(section 66D)
 Services exempt under Mega Exempted
Notification No. 25/2012-ST
dated 20.6.2012
 Other specified Exemptions Exempted


Goods & Service Tax
(The Future)
GST: A Common Tax

on

Goods Services


Service Tax on
Construction Services

Service Tax on Construction
Services Prior to 1.7.2012
Construction related services taxable before
1.7.2012

 Commercial & Industrial Construction Services
[65(105)(zzq)]
 Construction of Complex Services [65(105)(zzzh)]
 Works Contract Services [65(105)(zzzza)]
 Erection, Commissioning or Installation Services
[65(105)(zzd)]
 Preferential Location Services [65(105)(zzzzu)]


Services
What is Service (W. e. f. 1.07.2012)

‗Service' has been defined in clause (44) of the new
section 65B and means –

 any activity

 for consideration

 carried out by a person for another

 and includes a declared service (66E)


Services
Construction services will include –

 No major changes in taxability from previous regime

 All activities related to construction except those in the
negative list (Section 66D)

 Specified Declared Services (Section 66E)
 Construction of Complex, Building or Civil
Structure
 Service portion of Works Contract


Service Tax on Construction Services

Negative List (Section 66D)
 No specific entry for construction related

activities

 Construction services by Government or
local authority (Clause a)


Construction Activities (Clause b – Section 66E)
Construction of a complex, building, civil structure or a 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
Explanation.— For the purposes of this clause,—
(I) the expression ―competent authority‖ means the Government or any authority
authorised to issue completion certificate under any law for the time being in
force and in case of non requirement of such certificate from such authority,
from any of the following, namely:––
(A) architect registered with the Council of Architecture constituted under the
Architects Act, 1972; or
(B) chartered engineer registered with the Institution of Engineers (India); or
(C) licensed surveyor of the respective local body of the city or town or
village or development or planning authority;
(II) the expression ―construction‖ includes additions, alterations, replacements or
remodeling civil structure


Construction activities means construction of a complex, building, civil
structure or a 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.
It includes construction of -
 Complex
 Building
 Civil structure or part thereof
 Complex or building intended for sale to a buyer except where
entire consideration is received after issuance of completion
certificate by the competent authority.
Actual sale after construction - if any consideration received before such
completion certificate, it will also be taxed.



 Construction is not defined
 But Construction Includes
 additions,

 alteration,

 replacement, or

 remodeling

of any existing civil structure
 Thus, it includes new construction as well as services on
existing construction



Who is Competent Authority to Issue Completion Certificate (CC)
 Government
 Any authority authorized to Issue CC under any law
 In absence of any requirement to issue CC,
• Architect under Architect Act, 1972

• Chartered Engineer registered with Institution of Engineers
• Licensed surveyor (of local body / development or planning
authority) of respective city / town /village



Works Contract (Clause h- Section 66E)
 Works contract as such is not taxable

 Only service portion in the execution of a
works contract is taxable


Works Contract [65B(54)]
 ―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 movable or
immovable property or for carrying out any other similar
activity or a part thereof in relation to such property.


Works Contract covers
 Construction
 Erection
 Commissioning
 Completion
 Fitting out
 Repair
 Maintenance
 Renovation
 Alteration, or
 Any other similar activity or part there of


Such activities could be in relation to any –
 Movable property
(plant, machinery, equipments etc.)
 Immovable property
(land, building, structures etc.)
 This definition is very vast and covers
almost everything


Some issues in works contracts

Labour contracts Excluded

Repair & Maintenance of motor vehicles yes if property in goods
transferred in execution of WC
Construction of pipeline / conduit yes, structures on land

Painting/repair/renovation of building , yes if involves provision of
wall tiling, flooring etc. material also
Erection/commissioning installation of yes if transfer of property in
plant/ machine etc goods is involved and machinery
etc


Value of service portion in execution of work contract = gross amount charged for works
contact less value of transfer of property in goods involved in execution of works contract

Gross amount includes Gross amount does not include
Labour charges for execution of the Value of transfer of property in goods involved in the
works execution of the said works contract.
Amount paid to a sub-contractor where value added tax or sales tax has been paid or payable
for labour and services on the actual value of property in goods transferred in the
Charges for planning, designing execution of the works contract, then such value adopted for
and architect’s fees the purposes of payment of value added tax or sales tax, shall
be taken as the value of property in goods transferred in the
execution of the said works contract. (Rule 2A explanation)

Cost of establishment of the Value Added Tax (VAT) or sales tax, as the case may be, paid,
contractor relatable to supply of if any, on transfer of property in goods involved in the
labour and services and other execution of the said works contract
similar expenses relatable to
supply of labour and services
Profit earned by the service
provider relatable to supply of
labour and services
25

Alternative valuation model (Rule 2A of Valuation Rules)
Where works contract is for… Value of the service portion shall be…

(A) execution of original works forty percent of the total amount charged
for the works contract

(B) maintenance or repair or seventy per cent of the total amount
reconditioning or restoration or servicing charged including such gross amount
of any goods
(C) in case of other works contracts, not sixty percent of the total amount charged
included in serial nos. (A) and (B) above, for the works contract
including contracts for maintenance,
repair, completion and finishing services
such as glazing, plastering, floor and wall
tiling, installation of electrical fittings.


 Total Value = Sum total of
+ gross amount charged
+ value of goods and services supplied free of
cost for use in or in relation to execution of WC
whether us same contract /any other contract
+ value of land charged as part of total
consideration
- amount charged for such goods / services, if
any
- VAT levied, if any
 If value of FOC goods / services is not ascertainable, it will be
determined on basis of fair market value having close resemblance
 FMV based on generally accepted accounting principles
 No Cenvat available on goods / inputs used in works contract to
service provider



Exemptions under
N. No. 25/2012-ST , Dated
20.6.2012 (w.e.f. 1.07.2012)

Services provided to the Government, a
Local Authority or a Governmental Authority
(S. No. 12)
Services provided to the Government, a ocal authority or a governmental authority by way of
construction, erection, commissioning, installation, completion, fitting out, repair, maintenance,
renovation, or alteration of -
(a) a civil structure or any other original works meant predominantly for use 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 use as
(i) an educational,
(ii) a clinical, or
(iii) an art or cultural establishment;
(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 the Explanation 1 to clause 44 of section 65 B of the said Act


(S. No. 12)
 Services to Government (States or Central) or any local
authority (such as municipal corporation, development authority
etc) or governmental authority (such as Revenue Board, Water
Board etc) shall be exempt from levy of service tax on
• construction,
• erection,
• commissioning,
• installation,
• completion,
• fitting out,
• repair,
• maintenance,
• renovation, or
• alteration,
in relation to specified structure, buildings or complex.


(S. No. 12)
 Construction of buildings or structures such as hospitals or
educational institutes for the government or local authority or
governmental authority –Exempt
 if such construction is for others – Taxable
 A civil structure or any other original works meant predominantly
for use other than for commerce, industry, or any other business
or profession – Exempt
 If service receiver is other than the Government, a local authority
or a governmental authority, service tax is required to paid
 Service tax is payable on construction of a residential complex
having more than one single residential unit



Residential Complex
 Complex comprising of one or more buildings having more than one
residential unit
 Even two units would be called ‗complex‘
 Single residential unit – self contained residential unit designed for
use, wholly / principally, for residence of one family
 Original work – new construction and all type of addition / alteration
to abandoned / damaged structures on land as are required to
make them workable / erection , commissioning, installation.


(S. No. 12)
Government – Not defined
 Section 3 (22) of General Clause Act, 1897
 Includes Central/State Government/ Union
Territory
 Actions taken in the name of President/
Governor
 Most of services provided by government
are in Negative List


Services provided to the Government, a Local
Authority or a Governmental Authority
(S. No. 12)
Local Authority - Section 65B(31)
 A Panchayat as referred to in clause (d) of article 243 of the
Constitution
 A Municipality as referred to in clause (e) of article 243P of
the Constitution
 A Municipal Committee and a District Board, legally entitled
to, or entrusted by the Government with, the control or
management of a municipal or local fund
 A Cantonment Board as defined in section 3 of the
Cantonments Act, 2006
 A regional council or a district council constituted under the
Sixth Schedule to the Constitution
 A development board constituted under article 371 of the
Constitution, or
 A regional council constituted under article 371A of the
Constitution.


Services provided to the Government, a Local
Authority or a Governmental Authority
(S. No. 12)
Governmental Authority (N. No. 25/2012-ST)
 board/ Authority / other body
 established with > 90% participation
 of government control/ equity
 set up by Act of Parliament or State Legislature
 to carry out any functions entrusted to
municipality u/s 243W of constitution


Services provided by way of construction,
erection, commissioning, installation,
completion, fitting out, repair, maintenance,
renovation, or alteration ( S. No. 13)
Services provided by way of construction, 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;
b) a civil structure or any other original works pertaining to a
scheme under Jawaharlal Nehru National Urban Renewal
Mission or Rajiv Awaas Yojana;
c) a building owned by an entity registered under section 12 AA of
the Income tax Act, 1961(43 of 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 a structure meant for funeral, burial or
cremation of deceased


Services provided by way of
construction, erection, commissioning, installa
tion, completion, fitting
out, repair, maintenance, renovation, or
alteration ( S. No. 13)
• Construction of roads for use by general public – Exempt
(body of people at large sufficiently defined by some common quality of public or
impersonal nature)

• Construction of roads which are not for general public use e.g.
construction of roads in a factory, residential complex etc –Taxable
• Construction of 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 – Exempt
• Repair, maintenance of airports, ports and railways -Taxable
• These services will be taxable if rendered to government or otherwise


Services by way of
construction, erection, commissioning, or
installation of original works (S. No. 14)
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 square metres per
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) mechanised food grain handling system, machinery or equipment
for units processing agricultural produce as food stuff excluding
alcoholic beverages;


Services by way of construction, erection,
commissioning, or installation of original works
(S. No. 14)
• ―Original works‖ as defined in Valuation Rules means –
(a) all new constructions; or
(b) all types of additions and alterations to abandoned or damaged
structures on land that are required to make them workable,
(c) erection, commission or installation of plant, machinery or
equipment or structures, whether prefabricated or otherwise
• No service tax liability on erection or installation of machineries or
equipments for units processing agricultural produce
• Erection or installation of machineries or equipments for dal
mills, rice mills, milk dairies or cotton ginning mills -Exempt
• Only erection and construction of original works is covered
• Exemption will cover low cost houses under the scheme of
affordable housing in partnership


Services provided by intermediaries
( S. No. 29)
Services by the following persons in respective capacities -
a) sub-broker or an authorised person to a stock broker;
b) authorised person to a member of a commodity exchange;
c) mutual fund agent to a mutual fund or asset management
company;
d) distributor to a mutual fund or asset management company;
e) selling or marketing agent of lottery tickets to a distributer or a
selling agent;
f) selling agent or a distributer of SIM cards or recharge coupon
vouchers;
g) business facilitator or a business correspondent to a banking
company or an insurance company, in a rural area; or
h) sub-contractor providing services by way of works contract to
another contractor providing works contract services which are
exempt;


Services

Abatement N. No. 26/2012-ST dated 20.6.2012

Sl. Description of taxable service Taxable Conditions
No value(%)

1 Construction of a complex, 25 (i) CENVAT credit on inputs used for
building, civil structure or a part providing the taxable service has not
thereof, intended for a sale to a been taken under the provisions of the
buyer, wholly or partly except CENVAT Credit Rules, 2004.
where entire consideration is
received after issuance of (ii) The value of land is included in the
completion certificate by the amount charged from the
competent authority service recipient.


Services
Partial reverse charge under N. No. 30/2012-ST dated 20.6.2012
 service portion in execution of works contract -
Provided or agreed to be provided
by
 any individual,
 Hindu Undivided Family or
 partnership firm, whether registered or not, including
association of persons,
located in the taxable territory
to a business entity registered as body corporate,
located in the taxable territory
 Reverse charge shall not be applicable if provider of service
was liable before 1.7.2012



Sr. No Description of Service Service Service receiver
provider

1. Services provided in service
portion in execution of works 50% 50%
contract

Explanation-
Valuation of services by services provider and service receiver can be on different principles,
if permitted by law



Place of Provision of Service

 POP of services relating to immovable
property shall be place where such property
is located or intended to be located (Rule 5)


Service Tax on GTA Service

Taxability prior to 1.07.2012
 Taxable w.e.f. 1.1.2005
 Section 65(105)(zzp)
 Services by GTA in relation to transport of
goods by road in a goods carriage
 Service tax payable by service receiver under
reverse charge
 GTA, goods, goods carriage and consignment
note defined

Service Tax on GTA Services

GTA Services will include –

 No major changes in taxability from previous regime

 All activities related to GTA except those in the
negative list (Section 66D)

 New definition of goods so as to include ‗securities‘
instead of ‗stock and shares‘


Negative List (Section 66D)

 No specific entry for GTA related activities

 GTA services provided by Government or Local Authority have been

specifically excluded from negative list (Clause a)

 Services provided in relation to transportation of goods by road

except the services of goods transportation agency is in negative list

(Clause p)



Nature of service relating to Whether covered in the negative
transportation of Goods list entry
By railways No
By air within the country or abroad No
By a vessel in the coastal waters No

By a vessel on a national waterway Yes

Services provided by a GTA No



Exemptions under N. No. 25/2012-ST dated 20.6.2012 (Entry No. 21)
Services provided by a goods transport agency by way of
transportation of –
a) fruits, vegetables, eggs, milk, food grains or pulses in a goods
carriage;
b) goods where gross amount charged for the transportation of goods
on a consignment transported in a single goods carriage does not
exceed one thousand five hundred rupees; or
c) goods, where gross amount charged for transportation of all such
goods for a single consignee in the goods carriage does not
exceed rupees seven hundred fifty.


Exemption under N. No. 25/2012-ST dated
20.6.2012 (Entry No. 22)

Services by way of giving on hire to a goods
transport agency, a means of transportation of
goods
 Hiring of goods carriage will not be a taxable



Specific Abatement
Sl. Description of taxable service Taxable Conditions
No value(%)

1 Transport of goods by road by Goods 25 CENVAT credit on inputs, capital goods and
Transport Agency input services, used for providing the taxable
service, has not been taken under the
provisions of the CENVAT Credit Rules, 2004.


Specific Abatement - Conditions
 Cenvat credit of inputs used for providing services should
not be taken.
 Cenvat credit of input services and capital goods can be
taken besides, abatement.
 Cost of land should form part of value of service.
 The complex / building should be meant for sale / intended
for sale.
 The entire consideration should be received after issuance
of completion certificate by the Competent Authority.
 The floor rise charges would be eligible for the abatement
but not for other components like "Preferential Location
Service" which may cover other services (CST, Mumbai
vide F.No. V/ST-I/Tech-II/463/11 dated 31st August, 2012 )



Reverse Charge Mechanism

Sr. No Description of Service Service Service receiver
provider

1. Services provided by a goods Nil 100%
transport agency in respect
of transportation of goods by
road

Explanation-I. - The person who pays or is liable to pay freight for the transportation of
goods by road in goods carriage, located in the taxable territory shall be treated as the
person who receives the service.



Person liable under reverse charge mechanism

For services provided by a goods transport agency in respect
of transportation of goods by road, the person liable to pay tax is one who
pays freight and is—
(a) any factory registered under or governed by the
Factories Act, 1948;
(b) any society registered under the Societies Registration Act, 1860 or
under
any other law for the time being in force in any part of India;
(c) any co-operative society established by or under any law;
(d) any dealer of excisable goods, who is registered under the Central
Excise Act, 1944 or the rules made thereunder;
(e) any body corporate established, by or under any law; or
(f) any partnership firm whether registered or not under any law
including association of persons



Exemption to exporters
Services relating to transportation of export goods by Goods
Transport Agency in a goods carriage received by an
exporter for transport of the said goods directly from –
(i) any container freight station or inland container depot to
the port or airport ,from where the goods are exported;
(ii) his place of removal, to an inland container depot, a
container freight station, a port or airport, from where the
goods are exported.
are exempt from service tax
(Refer Notification No.31/2012- ST dated 20.6.2012)


THANK YOU

FOR

YOUR

PRECIOUS TIME

AND

ATTENTION

Dr. Sanjiv Agarwal

FCA, FCS, Jaipur

asandco@gmail.com

sanjivservicetax@gmail.com

A Presentation On Construction & GTA Services – An Overview 29th November 2012

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A Presentation On Construction & GTA Services – An Overview 29th November 2012