The readers would remember the issue of the
leviability of service tax on the selling of flats to the buyers/prospective
buyers by the promoters/developers/builders, which was raised by the Director
General of Service Tax.
We at Marwah & Associates categorically had opined that there is no
question of leviability of service tax on such activity. Our stand has been
vindicated. It is a matter of immense satisfaction that recently the Central
Board of Excise & Customs vide letter TRU F. No. 332/35/2006 dated 1st
Aug, 2006 has clarified that no service tax is leviable on the activity
of sale of flats to the buyers/prospective buyers by the promoters/developers/builders.
The gist of the clarification issued by the Central Board of Excise &
Customs is given below.
i) Residential Complex:
In a case where the builder, promoter or developer builds a residential
complex, having more than 12 residential units, by engaging a contractor
for construction of such residential complex, the contractor shall be liable
to pay service tax on the gross amount charged for the construction services
provided, to the builder/promoter/developer under ‘construction of
complex’ service falling under section 65(105)(zzzh) of the Finance
Act, 1994.
If no other person is engaged for construction work and the builder/promoter/
developer undertakes construction work on his own without engaging the services
of any other person, then in such cases in the absence of service provider
and service recipient relationship, the question of providing taxable service
to any person by any other person does not arise.
Service tax exemption for small service providers up to an aggregate value
of taxable services of Rs. 4 lakh provided in any financial year vide notification
No. 6/2005-Service Tax dated 01.03.05 is applicable for ‘construction
of complex’ service also.
ii) Own Commercial complex:
To a question whether Service Tax is applicable when a builder builds a
commercial complex for himself and later sells it or gives it on rent, the
Board clarifies Commercial complex does not fall within the scope of “residential
complex intended for personal use”. Hence, service provided for construction
of commercial complex is leviable to service tax.
iii) Individual bungalow:
Whether construction of an individual residential bungalow attract Service
Tax?
Board clarified that the issue had been already clarified vide F. No. B1/6/2005-TRU
dated 27.07.05, that residential complex constructed by an individual, intended
for personal use as residence and constructed by directly availing services
of a construction service provider, is not liable to service tax.
iv) What will happen if Service provider has vanished?
The association had asked for detailed guidelines on tax calculation and
what would happen if the service provider has left the work; then who would
pay?
The Board replied that tax can be paid on 33% of the gross receipts, that
commercial or industrial construction’ service was effective from
10.09.04 and construction of complex’ service from 16.06.05. [In our
opinion, the service tax can only be demanded from the service provider
and the service receiver cannot be held responsible for payment of service
tax in such matters]. |
