The document discusses various types of agreements in the construction business and their tax treatment. It analyzes whether certain arrangements constitute works contracts or sales under the MVAT Act. Key points analyzed include whether consideration is in monetary terms, timing of property transfer, and who the construction is being performed for or on behalf of. Judicial precedents have interpreted similar arrangements differently, creating confusion around tax liability for construction activities.
The document discusses various aspects of performance and discharge of contracts under commercial law. It defines performance of contract as parties fulfilling their obligations agreed upon in the contract. It can be actual performance or attempted performance. Discharge of contract implies termination of contractual obligations and can occur through performance, agreement or consent between parties, impossibility of performance, lapse of time or operation of law. In case of breach of contract, remedies available include rescission of contract, suit for specific performance, injunction, quantum meruit or damages.
The document discusses various concepts related to contracts and agreements. It defines a contract as an agreement that is enforceable by law, containing two key elements - agreement and enforceability. An agreement requires plurality of persons, consensus between parties, and consideration to be a contract. Contracts can be classified based on formation, performance, validity and type. Conditions for a valid contract and circumstances in which contracts may become void or voidable are also outlined.
The document discusses various aspects of contract performance and discharge under commercial law in India. It covers the meaning of performance and discharge of a contract, modes of discharge such as performance, agreement, impossibility, lapse of time and operation of law. It also discusses remedies for breach of contract, including rescission, specific performance, injunction, quantum meruit and damages.
This document describes the step by step process of registering a property in India. Whether one buys property from an individual or from a real estate developer, sticking to the property registration process will make sure that property titles are free and clear and are legally assigned in buyer's name.
The document discusses the key aspects of contract law in India according to the Indian Contract Act of 1872. It provides an overview of the syllabus for the legal aspects of business exam, then summarizes the definition of a contract, agreement, and the differences between the two. It also outlines the essential elements of a valid contract including offer, acceptance, consideration, capacity of parties, free consent, lawful object and discharge of a contract. Specific types of contract discharge like breach of contract and remedies for breach are also summarized.
What are the various kinds of property disputes in India? What are the laws to resolve these property disputes? What kind of law is applicable to your specific property related dispute? Find it all in this document.
The document provides an overview of contract law concepts including formation, performance, discharge and remedies. It discusses key elements of a valid contract such as offer, acceptance, consideration and capacity. It also covers types of contracts, special contracts, and discharge of contracts through performance, breach or other means. Remedies for breach including rescission and specific performance are also mentioned.
The document provides information about the procedures a landlord must follow to recover service charges from residential tenants in Homer House. It discusses that the landlord must first refer to the leases to determine what repairs and costs are covered. He must then consult with tenants before undertaking repairs by serving Section 20 notices. The landlord can only recover reasonable costs as determined by the Leasehold Valuation Tribunal if disputed. The document also explains the legal rights of Homer House residents to acquire the freehold, including qualifications and following the formal collective enfranchisement process by serving notices.
The document discusses various aspects of performance and discharge of contracts under commercial law. It defines performance of contract as parties fulfilling their obligations agreed upon in the contract. It can be actual performance or attempted performance. Discharge of contract implies termination of contractual obligations and can occur through performance, agreement or consent between parties, impossibility of performance, lapse of time or operation of law. In case of breach of contract, remedies available include rescission of contract, suit for specific performance, injunction, quantum meruit or damages.
The document discusses various concepts related to contracts and agreements. It defines a contract as an agreement that is enforceable by law, containing two key elements - agreement and enforceability. An agreement requires plurality of persons, consensus between parties, and consideration to be a contract. Contracts can be classified based on formation, performance, validity and type. Conditions for a valid contract and circumstances in which contracts may become void or voidable are also outlined.
The document discusses various aspects of contract performance and discharge under commercial law in India. It covers the meaning of performance and discharge of a contract, modes of discharge such as performance, agreement, impossibility, lapse of time and operation of law. It also discusses remedies for breach of contract, including rescission, specific performance, injunction, quantum meruit and damages.
This document describes the step by step process of registering a property in India. Whether one buys property from an individual or from a real estate developer, sticking to the property registration process will make sure that property titles are free and clear and are legally assigned in buyer's name.
The document discusses the key aspects of contract law in India according to the Indian Contract Act of 1872. It provides an overview of the syllabus for the legal aspects of business exam, then summarizes the definition of a contract, agreement, and the differences between the two. It also outlines the essential elements of a valid contract including offer, acceptance, consideration, capacity of parties, free consent, lawful object and discharge of a contract. Specific types of contract discharge like breach of contract and remedies for breach are also summarized.
What are the various kinds of property disputes in India? What are the laws to resolve these property disputes? What kind of law is applicable to your specific property related dispute? Find it all in this document.
The document provides an overview of contract law concepts including formation, performance, discharge and remedies. It discusses key elements of a valid contract such as offer, acceptance, consideration and capacity. It also covers types of contracts, special contracts, and discharge of contracts through performance, breach or other means. Remedies for breach including rescission and specific performance are also mentioned.
The document provides information about the procedures a landlord must follow to recover service charges from residential tenants in Homer House. It discusses that the landlord must first refer to the leases to determine what repairs and costs are covered. He must then consult with tenants before undertaking repairs by serving Section 20 notices. The landlord can only recover reasonable costs as determined by the Leasehold Valuation Tribunal if disputed. The document also explains the legal rights of Homer House residents to acquire the freehold, including qualifications and following the formal collective enfranchisement process by serving notices.
Real estate transactions Under taxing lawGST Law India
The following presentation enumerates the taxing structure for real estate transactions and gst rates along with a comparison of the previous tax structure with the present structure under GST. it also discusses service tax on work contracts, service tax on renting, credit linked subsidy scheme, valuation of taxable supply, input tax credit, exemptions for builders, housing society.
Supreme Court Judgement - L&T / K Raheja (VAT on Builders)sandesh mundra
This presentation takes one through the details of recent Supreme Court Judgement in the case of Larsen & Toubro, which was a review of K Raheja Judgement. The judgement has a severe impact on the tax aspects of builders and real estate developers. It redefines the definition of works contract and levy of VAT on sale of flats and commercial premises
The document discusses service tax implications for real estate transactions in India. It provides definitions related to service tax law and clarifies that construction of a complex where money is received before issue of completion certificate is a declared taxable service. It examines various cases related to service tax applicability in situations like joint development agreements, construction for landowners, and timing of capital gains. Key points discussed include determining the service portion for works contracts and implications of a Supreme Court decision referring the Raheja Development case to a larger bench.
The document discusses service tax implications for real estate transactions in India. It provides definitions related to service tax law and clarifies that:
1) Construction of a complex with more than one residential unit is taxable, while construction of a single residential unit is exempt.
2) Where money is received for construction of a complex before the completion certificate is issued, it is considered a declared taxable service.
3) Joint development agreements between landowners and builders are examined, and the approaches to determining applicable service tax are outlined.
Evolution of Works Contract under VAT and ServiceAnmol Gupta
A works contract is a single indivisible contract that involves both the sale of goods and the provision of services necessary to fulfill the contract. Works contracts were first addressed by courts in cases involving State of Madras vs. Gannon Dunkerley & Co. and Gannon Dunkerley and Co. vs. State of Rajasthan. The document then discusses the definition of works contracts under various acts and laws, and how works contracts are taxed under sales tax and service tax laws. Value added tax is applied only to the value of goods involved in the works contract, which must be determined by deducting labor, services, and other charges from the total contract value.
Section 65(105)(zzzh) provides for a levy of service tax on services in relation to ‘construction of complex’ and an explanation was added by Finance Act, 2010.
This document discusses various practical problems and issues regarding the levy of service tax on construction and real estate activities in India. It begins by outlining the history of when service tax was levied on different construction and real estate services. It then lists numerous questions and issues that remain unclear or disputed regarding how and when service tax applies in various situations involving construction contracts, real estate sales, and related activities. The document focuses on defining key terms, analyzing court decisions, and seeking clarity on the complex tax treatment of the construction and real estate sector in India.
Real estate construction GST impact-great compilation by CA Shiv AshishShakir Shaikh
1) Construction and real estate contracts related to immovable property like buildings and civil structures are considered works contracts and treated as services under GST.
2) EMIs or advance payments for under-construction homes will attract GST, but supply of land and buildings where payment is received only after completion will be exempt from GST.
3) The tax rate for most construction and real estate contracts is estimated to be 18%, and transitional provisions have been made to allow credit for taxes already paid on stocks and contracts.
The document discusses the taxability of capital gains in the context of joint development agreements under Indian tax law. It summarizes key court decisions which have found that transfer occurs upon execution of the agreement if possession is handed over, or upon a later transaction granting possession if specified in the agreement. Where transfer triggers tax, the landowner can use fair market value or Section 54 exemption. Transfer generally requires allowing possession in part performance of an agreement to develop the property.
A building/construction contract is a legal agreement between a building owner and contractor that sets forth the terms for carrying out construction work, including payment terms, schedule, and penalties for non-compliance. Common contract documents that form the basis of the agreement include the contract or agreement itself, conditions of the contract defining legal obligations of parties, drawings, specifications describing project and material requirements, and other necessary documents like pricing schedules. The acceptance of the contractor's tender or proposal by the owner through signing or commencing work results in a valid construction contract.
This document summarizes key judgements related to indirect taxes in the Indian construction sector. It discusses two Supreme Court cases - Bharat Sanchar Nigam Ltd. v. Union of India regarding the tax treatment of telecom products with both goods and service components, and State of Andhra Pradesh v. Kone Elevators (India) Ltd regarding whether an elevator installation contract constitutes a works contract or supply of goods. It also discusses factors to consider regarding incidental installation services and interstate works contracts. Overall, the document analyzes how different transactions involving both goods and services have been treated for indirect tax purposes.
Transferable Development Rights (TDRs) allow land owners who surrender land for public projects to receive additional development rights that can be used or sold. There is debate around whether trading of TDRs is taxable under GST. TDRs have been considered a "benefit arising from land" by courts, making them immovable property. The sale of land is excluded from GST under Schedule III. Since TDRs are a benefit of land, their trading could be considered outside the scope of GST. However, due to conflicting judgments, developers are advised to pay GST on TDR trades and apply for refund until the tax treatment is clarified.
The document discusses taxation on works contracts in India. It provides an overview of how works contracts were historically considered service contracts but a constitutional amendment allowed them to be taxed as deemed sales. It discusses various court cases that shaped the principles of works contract taxation under state VAT and central service tax. Key points covered include the definition of works contracts, methods of valuing works contracts for different taxes, and debates around classifying certain contracts as works contracts or sales.
This document provides an overview of service tax on work contracts under Indian law. It defines what constitutes a work contract and declared services. A work contract is a single contract for material and labor to carry out works like construction, installation, etc. It discusses how work contracts are taxed, with the labor portion taxed under service tax and the goods portion taxed under VAT/Sales tax. There is a reverse charge mechanism for service tax on certain work contracts. The place of provision of service for work contracts is where the immovable property is located.
GST on Real Estate & Construction SectorLijo Philip
- Construction, building, and maintenance contracts are considered works contracts and treated as services for GST purposes.
- Under-construction projects will be taxed as services if consideration is received before completion, otherwise land and completed buildings are outside GST scope.
- Tax rates are estimated at 18% CGST+SGST or IGST for works contracts, with input tax credit available only for subcontractors that pay tax.
5. international standard contract for constructionHyoyoung Kim
This document outlines an international standard contract for construction between Korea International Cooperation Agency (Employer) and a construction company (Contractor). Key details include:
- The contract is for the execution of construction works in X Country, with a contract price of [currency] [amount] over a contract period from the effective date to a specified completion date.
- The contract incorporates general conditions covering definitions, notices, assignment of claims, contract deposits, construction period, materials inspections, safety, insurance, and representatives.
- The contractor must furnish contract deposits, carry out casualty insurance, inspect materials, ensure work safety, and appoint a representative to oversee construction in accordance with the design documents, specifications and
This ppt is a comprehensive presentation on various aspects for the entities working in the construction domain. Starting from Tendering to Budgeting and going on to indirect tax aspects like VAT and service Tax.
The document discusses GST implications for works contracts and real estate transactions in India. Some key points:
- Works contracts are treated as supply of services under GST and taxed at 18%, with some works contracts taxed at 12%. Labour contracts are generally taxed at 18%.
- Builders must pay GST on sale of flats/villas if any amount is received prior to completion certificate. The rate is 18% with a 1/3 deduction for land value.
- Landlord share of construction is treated as supply of service by the builder and taxed at 18%. Valuation methods include open market value or cost.
- Landlords must also pay GST if amounts are received
Embargo on levy of service tax on flats under composite contracts - Dr Sanjiv...D Murali ☆
Embargo on levy of service tax on flats under composite contracts - Dr Sanjiv Agarwal - Article published in Business Advisor, dated June 25, 2016 - http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/
Tweeted on www.twitter.com/BusinessAdvDM
This document discusses GST implications for works contracts and real estate transactions in India. Some key points:
- Works contracts are treated as supply of services under GST. Rates are 18% generally, but some specified contracts are 12%. Labour contracts are 18% except for certain exemptions.
- For builders selling flats/villas, the activity is treated as supply of service if any amount is received before completion. Rate is 18% with 1/3 deduction for land.
- For landlord share of construction, it is a works contract with the non-monetary consideration of land. Valuation methods are discussed and rate would be 18%.
- Plot sales are not taxable generally but development
More Related Content
Similar to Issues in VAT & ST in Construction Industry
Real estate transactions Under taxing lawGST Law India
The following presentation enumerates the taxing structure for real estate transactions and gst rates along with a comparison of the previous tax structure with the present structure under GST. it also discusses service tax on work contracts, service tax on renting, credit linked subsidy scheme, valuation of taxable supply, input tax credit, exemptions for builders, housing society.
Supreme Court Judgement - L&T / K Raheja (VAT on Builders)sandesh mundra
This presentation takes one through the details of recent Supreme Court Judgement in the case of Larsen & Toubro, which was a review of K Raheja Judgement. The judgement has a severe impact on the tax aspects of builders and real estate developers. It redefines the definition of works contract and levy of VAT on sale of flats and commercial premises
The document discusses service tax implications for real estate transactions in India. It provides definitions related to service tax law and clarifies that construction of a complex where money is received before issue of completion certificate is a declared taxable service. It examines various cases related to service tax applicability in situations like joint development agreements, construction for landowners, and timing of capital gains. Key points discussed include determining the service portion for works contracts and implications of a Supreme Court decision referring the Raheja Development case to a larger bench.
The document discusses service tax implications for real estate transactions in India. It provides definitions related to service tax law and clarifies that:
1) Construction of a complex with more than one residential unit is taxable, while construction of a single residential unit is exempt.
2) Where money is received for construction of a complex before the completion certificate is issued, it is considered a declared taxable service.
3) Joint development agreements between landowners and builders are examined, and the approaches to determining applicable service tax are outlined.
Evolution of Works Contract under VAT and ServiceAnmol Gupta
A works contract is a single indivisible contract that involves both the sale of goods and the provision of services necessary to fulfill the contract. Works contracts were first addressed by courts in cases involving State of Madras vs. Gannon Dunkerley & Co. and Gannon Dunkerley and Co. vs. State of Rajasthan. The document then discusses the definition of works contracts under various acts and laws, and how works contracts are taxed under sales tax and service tax laws. Value added tax is applied only to the value of goods involved in the works contract, which must be determined by deducting labor, services, and other charges from the total contract value.
Section 65(105)(zzzh) provides for a levy of service tax on services in relation to ‘construction of complex’ and an explanation was added by Finance Act, 2010.
This document discusses various practical problems and issues regarding the levy of service tax on construction and real estate activities in India. It begins by outlining the history of when service tax was levied on different construction and real estate services. It then lists numerous questions and issues that remain unclear or disputed regarding how and when service tax applies in various situations involving construction contracts, real estate sales, and related activities. The document focuses on defining key terms, analyzing court decisions, and seeking clarity on the complex tax treatment of the construction and real estate sector in India.
Real estate construction GST impact-great compilation by CA Shiv AshishShakir Shaikh
1) Construction and real estate contracts related to immovable property like buildings and civil structures are considered works contracts and treated as services under GST.
2) EMIs or advance payments for under-construction homes will attract GST, but supply of land and buildings where payment is received only after completion will be exempt from GST.
3) The tax rate for most construction and real estate contracts is estimated to be 18%, and transitional provisions have been made to allow credit for taxes already paid on stocks and contracts.
The document discusses the taxability of capital gains in the context of joint development agreements under Indian tax law. It summarizes key court decisions which have found that transfer occurs upon execution of the agreement if possession is handed over, or upon a later transaction granting possession if specified in the agreement. Where transfer triggers tax, the landowner can use fair market value or Section 54 exemption. Transfer generally requires allowing possession in part performance of an agreement to develop the property.
A building/construction contract is a legal agreement between a building owner and contractor that sets forth the terms for carrying out construction work, including payment terms, schedule, and penalties for non-compliance. Common contract documents that form the basis of the agreement include the contract or agreement itself, conditions of the contract defining legal obligations of parties, drawings, specifications describing project and material requirements, and other necessary documents like pricing schedules. The acceptance of the contractor's tender or proposal by the owner through signing or commencing work results in a valid construction contract.
This document summarizes key judgements related to indirect taxes in the Indian construction sector. It discusses two Supreme Court cases - Bharat Sanchar Nigam Ltd. v. Union of India regarding the tax treatment of telecom products with both goods and service components, and State of Andhra Pradesh v. Kone Elevators (India) Ltd regarding whether an elevator installation contract constitutes a works contract or supply of goods. It also discusses factors to consider regarding incidental installation services and interstate works contracts. Overall, the document analyzes how different transactions involving both goods and services have been treated for indirect tax purposes.
Transferable Development Rights (TDRs) allow land owners who surrender land for public projects to receive additional development rights that can be used or sold. There is debate around whether trading of TDRs is taxable under GST. TDRs have been considered a "benefit arising from land" by courts, making them immovable property. The sale of land is excluded from GST under Schedule III. Since TDRs are a benefit of land, their trading could be considered outside the scope of GST. However, due to conflicting judgments, developers are advised to pay GST on TDR trades and apply for refund until the tax treatment is clarified.
The document discusses taxation on works contracts in India. It provides an overview of how works contracts were historically considered service contracts but a constitutional amendment allowed them to be taxed as deemed sales. It discusses various court cases that shaped the principles of works contract taxation under state VAT and central service tax. Key points covered include the definition of works contracts, methods of valuing works contracts for different taxes, and debates around classifying certain contracts as works contracts or sales.
This document provides an overview of service tax on work contracts under Indian law. It defines what constitutes a work contract and declared services. A work contract is a single contract for material and labor to carry out works like construction, installation, etc. It discusses how work contracts are taxed, with the labor portion taxed under service tax and the goods portion taxed under VAT/Sales tax. There is a reverse charge mechanism for service tax on certain work contracts. The place of provision of service for work contracts is where the immovable property is located.
GST on Real Estate & Construction SectorLijo Philip
- Construction, building, and maintenance contracts are considered works contracts and treated as services for GST purposes.
- Under-construction projects will be taxed as services if consideration is received before completion, otherwise land and completed buildings are outside GST scope.
- Tax rates are estimated at 18% CGST+SGST or IGST for works contracts, with input tax credit available only for subcontractors that pay tax.
5. international standard contract for constructionHyoyoung Kim
This document outlines an international standard contract for construction between Korea International Cooperation Agency (Employer) and a construction company (Contractor). Key details include:
- The contract is for the execution of construction works in X Country, with a contract price of [currency] [amount] over a contract period from the effective date to a specified completion date.
- The contract incorporates general conditions covering definitions, notices, assignment of claims, contract deposits, construction period, materials inspections, safety, insurance, and representatives.
- The contractor must furnish contract deposits, carry out casualty insurance, inspect materials, ensure work safety, and appoint a representative to oversee construction in accordance with the design documents, specifications and
This ppt is a comprehensive presentation on various aspects for the entities working in the construction domain. Starting from Tendering to Budgeting and going on to indirect tax aspects like VAT and service Tax.
The document discusses GST implications for works contracts and real estate transactions in India. Some key points:
- Works contracts are treated as supply of services under GST and taxed at 18%, with some works contracts taxed at 12%. Labour contracts are generally taxed at 18%.
- Builders must pay GST on sale of flats/villas if any amount is received prior to completion certificate. The rate is 18% with a 1/3 deduction for land value.
- Landlord share of construction is treated as supply of service by the builder and taxed at 18%. Valuation methods include open market value or cost.
- Landlords must also pay GST if amounts are received
Embargo on levy of service tax on flats under composite contracts - Dr Sanjiv...D Murali ☆
Embargo on levy of service tax on flats under composite contracts - Dr Sanjiv Agarwal - Article published in Business Advisor, dated June 25, 2016 - http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/
Tweeted on www.twitter.com/BusinessAdvDM
This document discusses GST implications for works contracts and real estate transactions in India. Some key points:
- Works contracts are treated as supply of services under GST. Rates are 18% generally, but some specified contracts are 12%. Labour contracts are 18% except for certain exemptions.
- For builders selling flats/villas, the activity is treated as supply of service if any amount is received before completion. Rate is 18% with 1/3 deduction for land.
- For landlord share of construction, it is a works contract with the non-monetary consideration of land. Valuation methods are discussed and rate would be 18%.
- Plot sales are not taxable generally but development
Similar to Issues in VAT & ST in Construction Industry (20)
1. Sale of Premises – Service or Sale??
Construction business is growing at a rapid increase and it is expected that it will continue to
be achieve a higher value in the years to follow.
However with the introduction of VAT in the regime of collection of taxes, followed by the
introduction of Service Tax on Construction of Residential Complex has widened the scope
of collectibles of indirect taxation and it has been felt that the burden is not beneficial to the
need and desire of people.The levy of VAT on Works contract is on the sales effected by way
of transfer of property in goods (whether as goods or in some other form) involved in the
execution of a works contract, subject to such restrictions and conditions as may be
prescribed, in lieu of the amount of tax payable by him under this Act, whether in respect of
65 the entire turnover of sales effected by way of works contract or in respect of any portion
of the turnover corresponding to individual works contract, pay lump-sum by way of
composition,—
(a) equal to 5% of the total contract value of the works contract in the case of a
construction contract, and
(b) 8% of the total contract value of the works contract in any other case, after deducting
from the total contract value of the works contract, the amount payable towards sub-
contract involving goods to a registered sub-contractor.
The construction contract as defined under MVAT Act, 2002 “shall mean construction
contract as may be notified by the State Government in the Official Gazette, from time to
time”
Under these circumstances immergence of complex business structure has taken place,
entities have framed multifaceted agreements to save taxes through tax planning.
Government (both state and Central) over the period has ventured themselves to cover all
types of agreements in the tax regime, so that loss of revenue can be avoided. Following
table shows the certain types of business agreements which are prevalent in construction
business and there effect to the taxation regime are certain types of agreements which are
common in the business world and following are the corresponding views given by various
government authorities
1. Landowner appointing contractor for building apartment & Landowner allotting the flats
in consideration for contract which contractor may sell them as his property.
2. The contractor constructs building on land (owned by Landowner) using the material
owned by contractor. Generally, such transaction would be considered as works
contract. However, the consideration is in form of certain premises.
Definition of Sale under MVAT Act 2002 [Sec 2(24)]: “sale” means a sale of goods made
within the State for cash or deferred payment or other valuable consideration but does
not include a mortgage, hypothecation, charge or pledge; and the words “sell”, “buy”
and “purchase”, with all their grammatical variations and cognate expressions, shall be
construed accordingly. Unless money consideration is agreed upon, there is no question
of sale as per Sales Tax Laws.
Definition of Sale Price under MVAT Act 2002 [Sec 2(25)]: “sale price” means the amount
of valuable consideration paid or payable to a dealer for any sale made including any
sum charged for anything done by the seller in respect of the goods at the time of or
before delivery thereof, other than the cost of insurance for transit or of installation, when
such cost is separately charged.
It can be interpreted from the combined definition of sale and sale price that unless the
money consideration is determined for transfer of property, the transaction is not liable
under MVAT Act.
Judicial Pronouncements:
• The supreme court judgment incase of M/s. Gannon Dunkerley & Co. (9 STC 353) (SC)
brings out the following criteria for construing sale transaction:
a. Basic conditions for valid contract.
b. Subject matter of sale is moveable goods.
c. Money consideration for sale.
d. Transfer of property i.e. transfer of ownership from seller to purchaser.
Consideration should be in money terms. If consideration is not in money terms, i.e. in
any other mode, it may be exchange or barter, but not a sale.
• The supreme court judgment in case of CIT v. Motors & General Stores (P) Ltd., (66 ITR
692) also emphasis on the money consideration with reference to price defined u/s
2(10) of The Sale of Goods Act, 1930.
• As per the pronouncements of M/s. Davi Dass Gopal Krishnan and Other (22 STC 430)
(SC); M/s. Radhas Printers v. State of Kerela, (90 STC 201) (Kerela) and Sales Tax
Commissioner v. Ram Kumar Agarwal, (1967) (19 STC 400) (Allahabad High Court) it
was held that ‘Other valuable consideration’ must be interpreted on the basis of rule
3. of ejusdem generic to mean cheques, bills of exchange or such other negotiable
instruments. Thus it shall be concluded that unless consideration is in money terms,
contractor cannot be made liable to any tax under MVAT Act as the deal cannot be
construed as sale.
2. Owner of Land grants development rights to Developer who constructs the
superstructure. The Land and the superstructure are then separately conveyed by the
owner & developer respectively under tripartite agreement with the eventual buyer.
The Supreme Court in K. Raheja Development Corporation v. State of Karnataka, 2006 (3)
STR 337 (SC) delivered the judgment in context with the arrangement of tripartite
agreement between land owner, developer & prospective buyer. The Supreme Court
found that the developer was undertaking the construction activity on the behalf of the
prospective buyer. Under the Karnataka Sales Tax Provision, the definition of a works
contract being wide covers any type of agreement reflecting construction, and the
construction could be on behalf of owner of property or even by Owner himself. The
Court also stated that “if the agreement is entered into after the flat or unit is already
constructed, there would be no works contract. But so long as the agreement is entered
into before the construction is complete, it would be works contract.”
Subsequently Definition of ‘sale’ in sec. 2(24) of the MVAT Act, 2002 was amended to
bring it in par with the Karnataka sales tax provision. As a result, works contract came to
mean “ the transfer of property in goods (whether as goods or in some other form)
involved in the execution of works contract including building, construction,
manufacture, processing, fabrication, erection, installation, fitting out, improvement,
modification, repair or commissioning of any moveable or immovable property.”
In Trade Circular No. 12T of 2007 dated 07.02.2007, the MVAT Department clarified that
tripartite arrangements would be liable to MVAT. VAT authorities interpreted the
judgment of K. Raheja as to mean that every agreement entered into before the flat was
constructed would become a works contract.
In the Re: Hare Krishna Developers 2008 (10) STR 357 (AAR), decision was given in context
with the arrangement as in case of K. Raheja for which AAR held it as works contract
service i.e. developer was carrying out construction for and on behalf of the buyer.
3. Land owner himself undertakes construction and allots the flats to prospective buyers but
are subject to receipt of initial token money and execution of sale deed on completion
4. of construction. The land owner continued to enjoy rights and title over the apartments till
the execution of the registered sale deed.
In case of Assotech Realty Pvt. Ltd. v. State of UP [2007 (7) STR 129 (All)], Court held that
the developer was acting on its own behalf in constructing of flats & the right, title and
interest therein would only transfer over after sale deed was executed, after construction
had been completed. Court held that the arrangement was not a works contract and
that no sales tax would therefore be payable.
In the Re: Hare Krishna Developers 2008 (10) STR 341 (AAR), the arrangement was similar
to that of Assotech realty Pvt. Ltd. AAR held that the entry of ‘construction of complex
service’ would cover all the activities relating to construction of complexes including such
an arrangement. It added that the time of transferring of ownership would not determine
the liability of service tax.
Controversy has been created after the decision of Gauhati High Court in case of Magus
Construction Pvt. Ltd. v. Union of India [2008 (11) STR 225 (Gau)], which referred to tripartite
agreement as outright sale and out of the purview of service tax. The decision was based on
the circulars during the period of 2004 to 2009 collectively point out legislative intention that
construction activity undertaken by the builder / developer amounts to self service and will
not be liable to service tax.
These different patterns of execution, terms of payment and legal formalities have given rise
to confusion, disputes and discrimination in terms of service tax payments.
5. Construction Activity
Developer Transfer of property of
agrees to goods, whether as goods or Agreement to
undertake in some other form, involved sale of
construction in the execution of Works immovable
Contract property which
may be entered
before it is
constructed.
Works
Works Contract
Construction of chargeable to Controversy!!!!!
Contract
Complex Service / VAT
Service
Commercial or
Industrial
Construction based
on nature of
construction
Summarization before entry of Explanation (Finance Act, 2010):
Builder Model Developer Model
Agreement to sell is executed between Developer enters into contract with the
purchaser and builder. prospective buyer.
Conveyance is executed by builder on post Post construction, possession is handed over
completion and possession is handed over to & land is directly transferred to society /
buyer. owners of apartment (No separate sale
deed)
Contract for sale – No Construction Contract Construction Contract - No Contract for Sale
Levy of Stamp Duty No levy of Stamp duty as the property in
goods involved in works contract passes by
attainment during process of work.
6. Models of construction activity
Dealing of flat / space Assotech & Magus K. Raheja Model
after the construction Model
activity is completed
No Service tax. Under the ambit of Under the ambit of
Only Stamp Duty on Service Tax as per New Service Tax as per New
conveyance. Explanation Explanation
Introduction of explanation in the sub clause (zzzzh) of the S. 65(105) of the Act by the
Finance Act, 2010 with effect from 01.07.2010:
Construction of a complex with intended for sale, wholly or partially, by a builder or any
person authorized by the builder before, during or after construction (except in case of no
sum received from or on behalf of the prospective buyer by a builder or any person
authorized by the builder before grant of completion certificate from authority competent
to issue the same under any law for being in force) shall be deemed to be service provided
by the builder to the buyer.
The plain interpretation of above said provision is that sum received by the builder from
prospective buyer before completion of construction i.e. grant of “OC” is subject to Service
Tax w.e.f. 01.07.2010.
In order to achieve Legislative intent and bring in parity in tax treatment, to expand the
scope of existing service; the Explanation has been included. The three models of
construction activity are now covered under the ambit of service tax.
The amendment is introduced to enact a deeming fiction per which any amount received
prior to grant of Certificate of Completion are deemed to be consideration for the
performance of construction services by the builder to the buyer. However, exemptions are
provided incase such construction services are provided to Jawaharlal Nehru National Urban
7. Renewal Mission and Rajiv Awaas Yojana, services provided wholly within a port for certain
specified purposes and services provided wholly within a port an airport.
The construction service provided for personal use of buyer would not be covered by service
tax.
Vide Notification 36/2010 dated 28.06.2010, the sum of money received in advance from
prospective purchasers towards any unit in a building by a builder / developer prior to
01.07.2010 is not liable to service tax in case of construction services remaining pending to
be provided in the period post 01.07.2010
The Service tax (Removal of Difficulty) Order, 2010 dated 01.07.2010 widens the scope of
authority competent to issue Certificate of Completion by including an architect registered
under the Council of Architecture constituted under the Architects Act, Chartered Engineers
registered with the Institution of Engineers (India), or the licensed surveyor of the respective
local body or development or planning authority.
Options available under the Services applicable to Builders and Developers:
a. Commercial or Industrial Construction [S. 65(105)(zzq)] & Construction of Residential
complex [S. 65(105)(zzzzh)]
Options Amount Payable as ST CENVAT Credit
1. 10.30 % on value of services CENVAT Credit on capital goods, input
services and input goods
2. 10.30 % on 33 % of gross amount No CENVAT Credit.
including value of materials
supplied
3. 10.30 % on 25 % of gross amount No CENVAT Credit.
including value of materials
supplied and value of land
b. Works Contract service [S. 65(105)(zzzza)]
Options Amount Payable as ST CENVAT Credit
1. 10.30 % on value of services (excl. CENVAT Credit on capital goods, input
value of material supplied) services and input goods
2. 4 % of gross amount including No CENVAT Credit on inputs.
value of materials supplied
The deeming provision applicable to Builders / Developers was challenged by them before
various High Courts. The Bombay High Courts in case of Maharashtra Chamber of Housing
and Industry v. UOI (2010 TIOL 526 HC Mum. - ST) and Madras High Court in the case of A. P.
8. Ravi v. UOI (2010 TIOL 604 HC Mad. - ST) has granted an interim stay to petitioners. However,
recently in the case of G. S. Promoters v. UOI, 2011 (21) STR 100, Punjab & Haryana High
Court has pronounced its judgment and upheld the validity of the explanation inserted in S.
65(105)(zzzzh). The petitioner pleaded that sale and purchase was beyond legislative
competence of Union Legislature. If construction activity is not undertaken by a builder, then
the builder cannot be considered to be service provider in relation to services of
construction activities. The High Court observed that “the entries in the lists being merely
topics or fields of legislation, they must receive a liberal construction inspired by a broad and
generous spirit and not in a narrow pedantic sense.” Taxing of such transaction is not outside
the purview of the Union Legislature when it does not fall in any of the taxing entries of State
List. From the observations made by High court it can be contended that –
1. The presence of service or not has to be obtained not only from builders point of view but
also from the recipient’s angle.
2. Service is definitely involved when construction is carried out or before construction and
before flat is sold and therefore levy could not be held unconstitutional.
In view of above it is obvious that decision would be challenged in Hon. Supreme Court.
Further, there may not be any further consequence of the judgment in the jurisdiction of
Bombay & Madras High Court. The ultimate burden of service tax would be borne by flat
buyers as department may continue attempts to recover service tax. The issue is highly
complex and multifaceted.
HOWSOEVER THE GOVERNMENT WOULD TRY THE LEVY OF STAMP DUTY, SERVICE TAX AND VAT
WILL INDIRECTLY LEADS TO HIGHER CASH OUTFLOW FROM THE FINAL BUYER POINT OF VIEW.
THE BASIC NEEDS OF SHELTER IS SOMEWHERE BEING NEGLACTED BY THE GOVERNMENT , AND
UNDER CURRENT CIRCUMSTANCES IT SEEMS THAT LACK OF CLARIFICATION ON THESE
MAATERS ARE RESULTING INTO LOTS OF AMBIGUITY AND IT MAY WIDEN THE SCOPE OF OTHER
METHODS OF TAX PLANNING WHICH MAY NOT BE ETHICAL FFROM THE POINT OF VIEW OF
LEGISLATION AND SOCIETY.