real estate and construction indutry 18.12

Microsoft PowerPoint - Real Estate and Construction Indutry 18.12.11 Kolkata (2)

Constructions and Real Estate Sector Services Practical Problems and Vexed

IIssues

Kolkatta Chartered AccountantsKolkatta - Chartered Accountants

Presented ByJ.K. MITTAL (Advocate)

Ch i I di t T C ittChairman, Indirect Taxes Committee,PHDCCI

LL B FC A FC S LL.B.,F.C.A., F.C.S. NEW DELHI

Ph: 011- 22056635

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Fax: 011- 22447420Email: [email protected]

Levy of Service Tax on Construction & Real Estate Activities& Real Estate Activities

Commercial or Industrial Construction Services-w.e.f. 10.09.2004

Residential Complex Services- w.e.f. 16.06.2005p

Works Contract Services w e f 01 06 2007Works Contract Services w.e.f. 01.06.2007

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sale of flats/ Buildings to prospective buyers-w.e.f. 01.07.2010

Construction & Real Estate Services full of doubtsServices full of doubts

Whether levy prior to 1.06.2007 wasconstitutionally valid?

Whether service tax is applicable on supply ofReady Mix Concrete (RMC)?

Wh th S i T i li bl ll dWhether Service Tax is applicable on so calledFree Supply of materials?

Whether service tax can be levied on the entireWhether service tax can be levied on the entirevalue of contract including the material involved inthe execution of such construction contract?

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Whether Service Tax levy on sale of flats toprospective buyers is constitutionally valid?


What is a Works Contract?Whether Benefit of Composition Scheme is

available to ongoing project (started prior to1.6.07)?

Wh th i d t f t (4%) h ll bWhether increased rate of tax (4%) shall 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?

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What is the meaning of Road?


Whether service tax is applicable on theWhether service tax is applicable on thebasic sale price/consideration of the flat?

Whether service tax is required to be paidWhether service tax is required to be paidfor the contracts entered into prior to 1stJuly 2010 for which payments is received

f 1 t J l 2010?after 1st July 2010?

Whether service tax is required to be paidfor the payments received prior to 1st Julyfor the payments received prior to 1st July2010 (as per Down linking payment Plan)for which services will be rendered after 1st

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July 2010?


Wh th i t i li bl d t fWhether service tax is applicable as per date ofagreement to sale or on date of construction?

Whether service tax shall be applicable for theWhether 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 butconstructions also completed prior to said date butpayments received on or after 01-07-2010?

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Whether service tax shall be applicable on theWhether 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?

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Whethe se ice ta shall be applicable on theWhether service tax 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 themembership, car parking etc. what are thecategories of taxable services and what is theapplicable rate of tax whether abatement of75% available?75% available?

Under GST - immovable property transactions arenot to be covered- then how and what shall be the

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not to be covered- then how and what shall be thetax treatment of sale transactions?

Works Contract Service Works Contract Service introduced w e f Works Contract Service introduced w.e.f.

01.06.2007

taxable service means any service provided or taxable service means any service provided orto be provided, to any person, by any otherperson in relation to the execution of a workscontract, excluding works contract in respect ofcontract, excluding works contract in respect ofroads, airports, railways, transport terminals,bridges, tunnels and dams.

Explanation.For the purposes of this sub-p p pclause, works contract means a contractwherein,

(i) transfer of property in goods involved in the( ) p p y gexecution of such contract is leviable to tax assale of goods, and

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Works Contract Service

(ii) such contract is for the purposes of carryingout,

(a) erection, commissioning or installation of plant,(a) erection, commissioning or installation of plant,machinery, equipment or structures, whetherpre-fabricated or otherwise, installation ofelectrical and electronic devices, plumbing,electrical and electronic devices, plumbing,drain laying or other installations for transportof fluids, heating, ventilation or air-conditioningincluding related pipe work, duct work andincluding related pipe work, duct work andsheet metal work, thermal insulation, soundinsulation, fire proofing or water proofing, liftand escalator, fire escape staircases orand escalator, fire escape staircases orelevators; or

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Works Contract Service (b) i f b ildi i il(b) construction of a new building or a civil

structure or a part thereof, or of a pipeline orconduit, primarily for the purposes ofcommerce or industry; orcommerce or industry; or

(c) construction of a new residential complex or apart thereof; or

(d) completion and finishing services repair(d) completion and finishing services, repair,alteration, renovation or restoration of, orsimilar services, in relation to (b) and (c); or

(e) turnkey projects including engineering(e) turnkey projects including engineering,procurement and construction orcommissioning (EPC) projects; [section

65(105)(zzzza)]65(105)(zzzza)]

What is Works Contract?h f S f dh d h In the case of State of Andhra Pradesh v

Larsen & Tourbo Ltd. 2008-TIOL-158-SC-VAT, the Supreme Court held as under:

12 A t t f k i " k t t"12. A contract of work, i.e., "works contract"involves transfer of property and also elementof service or work rendered. That is why it iscalled composite contract Works contractscalled composite contract. Works contractscan be of two types only:

(a) Works contracts for constructions; and(b) Works contract in relation to any movable(b) Works contract in relation to any movable

property like repairs to vehicles, printingcontracts etc.

What is Works Contract? h f i d Shi d d In the case of Hindustan Shipyard Ltd. v

State of A.P. (2000) 6 SCC 579; (2000) 119STC 533 : AIR 2000 SC 2411, the question

which arose for consideration was whether awhich arose for consideration was whether acontract constituted a sale or works contract.Laying down the tests therefore, having regardto the terms and conditions contained therein, itto the terms and conditions contained therein, itwas opined that a contract of the sale of goodswas separate from a contract for works andlabour. In regard to the categories of the

t t it t t dcontract, it was stated: (i) the contract may be for work to be done for

remuneration and for supply of materials used inth ti f th k f ithe execution of the work for a price;

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What is Works Contract? What is Works Contract?

(ii) i b f k i hi h h(ii) it may be a contract for work in which theuse of the materials is accessory or incidental tothe execution of the work; and

(iii) it b t t f l f(iii) it may be a contract for supply ofgoods where some work is required to be done asincidental to the sale.

Whereas the first contract was held to be acomposite contract, the second was held to be acontract for work and labour not involving the salecontract for work and labour not involving the saleof goods and the third was held to be a contract ofsale where the goods were sold as chattels and thework done was merely incidental thereto.work done was merely incidental thereto.

Construction Services Whether levy prior to 1.06.2007 was constitutionally valid?

Circular No. 98/1/2008-ST, dated04.01.2008 - The Government clarifiedthat the service providers who havethat the service providers who havepaid service tax prior to 01.06.2007under commercial construction orunder commercial construction orresidential complex service is notentitled to pay the tax under thecomposition scheme under WorksContract services for the contract

t d i t i t 01 06 2007

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entered into prior to 01.06.2007.

High Courts Decision on on-going Projects and Validity of Circular

d d 04 01 08dtd.04.01.08

h f j C i In the case of Nagarjuna ConstructionCompany Ltd. v GOI 2010-TIOL-403-HC-AP-ST, 2010 (019) STR 0321 (A.P.) thechallenge was made to the Circular Nochallenge was made to the Circular No.98/1/2008-ST, dated 04.01.2008.

The Court reiterated that the said Circular is in The Court reiterated that the said Circular is inconformity with the provision of the Rule 3(3) ofthe composition rules. The Court held that theCircular dated 04 01 2008 is wholly inCircular dated 04.01.2008 is wholly inconformity with the provisions of Rule 3(3)(supra).

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High Courts Decision on on-going Projects and Validity of Circular dtd.04.01.08

The Court held that the fact that the nature of theworks executed by the petitioner which hitherto

fell within the ambit of the taxable servicesfell within the ambit of the taxable servicesenumerated in Clauses (zzd), (zzq) and (zzzh),now fall within services classified as a workscontract in Clause (zzzza) does not have anycontract in Clause (zzzza), does not have anybearing on the entitlement of the petitioner to thebenefits of the composition scheme under the2007 Rules as such scheme is available only inrelation to works contract services.

SC case in Kerala State Electricity Board v yCCE, 2007-TIOL-226-SC-ST : 2008 (9) STR 3

in para 27 held as under :27. There is a distinction betweenthe object of tax the incidence of taxthe object of tax, the incidence of taxand the machinery for the collectionof the tax. The distinction isof 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 with

f t it i id

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reference to its incidence ormachinery

Complexity Levy of Excise Duty and

The CBEC Government of India

p y y yService Tax both on same transactions

The 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 and1) Whether both the Service Tax andExcise duty are payable; on sameactivity or not?activity or not?2) Whether for both taxes, the samevalue is considered or different value is

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considered.

Whether same transactions/activities can besubjected to excise duty as well as service

No As per Entry 84 of the Union List of Schedule

subjected to excise duty as well as servicetax?

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.India is competent to levy Taxes on 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,

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Entry 25 may become redundant.

Whether service tax is applicable on supply of pp pp yReady Mix Concrete (RMC)?

The production of RMC is an activityamounting to manufacture within themeaning of section 2(f) of the Central Exciseg ( )

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,excise 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) Circularof 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

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a separate tariff entry under sub heading3824.20 of the Central Excise Tariff Act, 1985.

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 proceedingsopinion that while the adjudication proceedingsmay go on and be concluded by theRespondents, they will not include for the

f d t i i th t bl i thpurposes of determining the taxable service thesupply of free material to the Petitioner and tothis extents the Explanation appearing against

Serial No.7 in the table given in the Notificationdated 1st March, 2006 will not be applied to thedetriment of the Petitioner

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detriment of the Petitioner

Whether service tax can be levied on the entire value of contract including the material involved

MOF Instructions F No 233/2/2003 CX 4

value of contract including the material involved in the execution of construction contract?

MOF Instructions F. No. 233/2/2003-CX.4,dated 3-3-2006:

3. The matter has been examined by the Board. Thef h f 2/2003 S d d 20 6intention of the Notification No. 12/2003-ST, dated 20-6-

2003 is to provide exemption only to the value of goodsand material sold subject to documentary evidence of

such sale being available. Therefore, in case, the goodsare consumed during the provision of service and arenot available for sale, the provision of the said

notification would not be applicable. Therefore, insupersession of clarification to contrary, it is clarifiedthat goods consumed during the provision of service,

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g g p ,that are not available for sale, by the service providerwould not be entitled to benefit under Notification No.12/2003-ST, dated 20-6-2003.

Works Contract and FOC Material

h h h ll i l d h fWhether gross amount shall include the freeof cost materials supplied by contractee?

The Government has amended, w.e.f 7-7-2009,th W k C t t (C iti S h fthe Works Contract (Composition Scheme for

Payment of Service Tax) Rules, 2007 byNotification No. 23/2009-ST, dated 7-7-2009. As

per the amended Rule gross amount charged forper the amended Rule, gross amount charged forWorks Contract for payment of service tax underthe Composition scheme, shall include:(a) the value of all goods used in or in relation to(a) the value of all goods used in or in relation tothe execution of Works Contract- whether suppliedunder other contract for a consideration, orotherwise.

Works Contract and FOC Material 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.Contract on hire.

But, it shall not include:(a) VAT/sales tax paid on transfer of property in

d i l d goods involved. (b) the cost of machinery and tools used in the

execution of the said Works Contract.

FOC Material Board Circular dated 13.11.2007

The Board has issued InstructionF.No.137/118/2007-CX.4 dtd.13.11.07 aftertaking note of the interim relief granted by thetaking note of the interim relief granted by theHigh Courts that .Therefore, it may be moreappropriate to deny abatement claimed underthe said notification instead of asking thethe said notification instead of asking theassessee to include cost of material and thenavail abatement.

Tribunals Decision on FOC Material

ihi d j The Tribunal in the case of Jaihind ProjectsLtd. v CST, Ahmedabad2010(018)STR 0650 Tri-Ahm.2010-( )

TIOL-124-CESTAT-AHM, came to theconclusion that the material-supplied by thecustomer/ service receiver to the contractor is to

b d i d i d bbe treated as construction and required to beadded in the value of taxable services. However,in the opinion of the author, the decision of the

Tribunal does not appear to be in consonanceTribunal does not appear to be in consonancewith the law and requires to be taken up in thehigher courts to settle long pending disputes.

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) th AdAAR/03(ST)/2008), the Advance

Ruling Authority held that the sale ofhouse is taxable service underhouse is taxable service underconstruction of complex service.

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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.,

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The Supreme Court in the case of Larsen& Toubro Ltd v State of Karnataka

t d i 2008 (12) STR 257 (SC)reported in 2008 (12) STR 257 (SC)has disagreed the decision in the K.Raheja Development Corporation v StateRaheja 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 referred

the matter to the Larger Bench of the

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Supreme Court.


Circular No. 108/02/2009 ST , dated 29thJanuary 2009

any service provided by such seller in connectionwith the construction of residential complex tillthe execution of such sale deed would be in thet e e ecut o o suc sa e deed ou d be t enature of self-service and consequently wouldnot attract service tax

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Construction Services-C ll b ti A tCollaboration Agreement

Faqir Chand Gulati v Uppal AgenciesPvt. Ltd. and Anr. in Civil Appeal No.3302 f 2005 t l l3302 of 2005, agreements are popularly

known as joint venture agreements ordevelopment agreements or collaborationdevelopment 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 the

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management, nor sharing of profits andlosses

Deemed Service Concept

The Finance Act, 2010 hasintroduced the Deemedintroduced the DeemedService Concept both inC i l d R id i lCommercial and ResidentialConstruction ServicesCo st uct o Se ces

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Commercial Construction Service Inserted by the Finance Act 2010 Inserted by the Finance Act, 2010 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 or

any person authorised by the builder before,during or after construction (except in cases forwhich no sum is received from or on behalf of the

prospective buyer by the builder or the personauthorised by the builder before grant ofcompletion certificate by the authority competentp y y pto issue such certificate under any law for the

time being in force) shall be deemed to be serviceprovided by the builder to the buyer; [sectionp y y ; [65(105)(zzq)].

Residential Construction Services inserted by the Finance Act, 2010 w.e.f. 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 for

l h ll tl b b ildsale, wholly or partly, by a builder or any personauthorised by the builder before, during or afterconstruction (except in cases for which no sum is

received from or on behalf of the prospectivereceived 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 suchy y pcertificate under any law for the time being in

force) shall be deemed to be service provided bythe builder to the buyer; [section 65(105)(zzzh)].

Board Circular dtd 26 02 10Board Circular dtd. 26.02.10

d h l ifi d h f h l i Board has clarified the scope of the explanationintroduced by the Finance Act, 2010, both underCommercial and Residential Construction

ServicesServices.

8.6 In order to achieve the legislativeintent and bring in parity in tax treatment anintent and bring in parity in tax treatment, anExplanation is being inserted to provide thatunless the entire payment for the property ispaid by the prospective buyer or on his behalfpaid by the prospective buyer or on his behalfafter the completion of construction (includingits certification by the local authorities), theactivity of construction would be deemed to be aytaxable service provided by the

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Board Circular dated 26.02.2010

builder/promoter/developer to the prospectivebuyer and the service tax would be chargedaccordingly This would only expand the scope ofaccordingly. This would only expand the scope ofthe existing service, which otherwise remainunchanged.

Board Circular F. No.334/ 03/ 2010 -TRU dtd. 01.07.10

The Board has clarified that If agreement isentered into or any payment is made for sale of

complex or apartment in residential complexcomplex or apartment in residential complex,service tax will be leviable on such transactionsince the builder provides the construction

service service.

Applicability of Service Tax w.e.f. 01.07.10

h d h b d b i i The amendment has been made by inserting anexplanation which gave a doubt whether it is aprospective or retrospective, but the Board

clarified in Circular dated 01 07 2010 that it isclarified in Circular dated 01.07.2010 that it isprospective in nature.

2 1 Vide Finance Act 2010 eight new 2.1 Vide Finance Act, 2010, eight newservices were added to the list of taxableservices while the scopes of nine existingservices were modified As these changesservices were modified. As these changesbecome effective from 01.07.2010, activitiesthat are covered under taxable servicecategories due to above additions orgmodifications, would start attract service taxfrom this date.

Exemption for the payment received prior to 01.07.10

hil l ll i bl h While legally tax is payable on such amountsreceived, it has been decided to specificallyexempt service tax on that partial or full amount

which is received by the service provider/ personwhich is received by the service provider/ personliable to pay the tax (and not by an agent, whoin turn transfers such amount to such personafter this date) before 01.07.2010, pertain to aafter this date) before 01.07.2010, pertain to aservice which has become taxable on account ofthe provisions of the Finance Act, 2010 and isprovided on or after 01.07.2010. Any amount

i d ft 01 07 2010 b th ireceived after 01.07.2010 by the serviceprovider/ person liable to pay the tax would besubjected to tax. (Refer Notification No.36/2010-

Service Tax dated the 28th June 2010 asService Tax dated the 28th June 2010 ascorrected vide corrigendum dated 29th July,2010).

Authority Allowed to Grant Completion Certificate

Th G b O d N 1/2010 d d 22 06 2010 The Government by Order No.1/2010 dated 22.06.2010declared that following are covered under the authoritycompetent to grant completion certificate:

(i) architect registered with the Council of Architecture (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;authority;who is authorised under any law for the time being inforce, to issue a completion certificate in respect ofresidential or commercial or industrial complex as aresidential or commercial or industrial complex, as aprecondition for its occupation.

Abatement of 75%

Notification No.29/2000-ST dtd.22.06.10 hasgranted abatement of 75% for providing deemedservices related to construction if cost of land isservices related to construction, if cost of land isincluded in the amend charged.

PLC Services provided by Builders . w.e.f. 01.07.2010 Builders . w.e.f. 01.07.2010

bl i i id dTaxable service means any services provided or tobe provided, to a buyer, by a builder of aresidential complex, or a commercial complex, or

any other person authorised by such builder forany other person authorised by such builder, forproviding preferential location or development ofsuch complex but does not include servicescovered under sub-clauses(zzg), (zzq), (zzzh) andcovered under sub clauses(zzg), (zzq), (zzzh) andin relation to parking place.

Explanation For the purposes of this sub-clauseExplanation. For the purposes of this sub clause,preferential location means any location havingextra advantage which attracts extra payment overand above the basic sale price [sectionp [

65(105)(zzzzu)].

Clarification Related to PLC Services Dtd.26.02.2010

8 1 C i f i l i d i l8.1 Construction of commercial or industrialstructures was brought under service tax net in2004 while construction of residential complexesbecame a taxable service in 2005 The scope ofbecame a taxable service in 2005. The scope ofthe existing services includes construction,completion and finishing, repairs, alterations,renovation or restoration of complexes. It hasrenovation or restoration of complexes. It hasbeen reported that in addition to these activities,the builders of residential or commercialcomplexes provide other facilities and charge

t l f th d th h d t fseparately for them and these charges do not formpart of the taxable value for charging tax onconstruction. These facilities include,-

ticontinue..


i / f i l l i h f ll i(a) prime/preferential location charges for allottinga flat/commercial space according to the choiceof the buyer (i.e. Direction- sea facing, park

facing corner flat; Floor first floor top floorfacing, corner flat; Floor- first floor, top floor,Vastu- having the bed room in a particulardirection; Number- lucky numbers);

(b) internal or external development charges which(b) internal or external development charges whichare collected for developing/maintaining parks,laying of sewerage and water pipelines,providing access roads and common lightingp g g getc;

(c) fire-fighting installation charges; and(d) power back up charges etc.(d) power back up charges etc.

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8 2 Si h h i h f 8.2 Since these charges are in the nature ofservice provided by the builder to the buyer ofthe property over and above the constructionservice such charges are being brought underservice, such charges are being brought underthe new service. Charges for providing parkingspace have been specifically excluded from thescope of this service. Development charges, toscope of this service. Development charges, tothe extent they are paid to State Government orlocal bodies, will be would be excluded from thetaxable value levy. Further, any service providedb R id t W lf A i ti C tiby Resident Welfare Associations or Cooperative

Group Housing Societies consisting ofresidents/owners as their members would not be

taxable under this servicetaxable under this service.

Applicability of the Rate of Tax for the Works Contract

Rate of tax of works contract was increased from2% to 4% w.e.f. 01.03.2008. The Disputearises whether service tax rate shall apply asarises whether service tax rate shall apply asapplicable on the receipt of the payment or therendering of service or the date of entering intocontractcontract.

Board Clarification Dtd. 28.4.08 - Applicability of Tax

h d h h i /6/200 The Board through Instruction F.No. 545/6/2007-TRU dated 28.04.2008 has clarified that service taxshall become chargeable on receipt of payment, on

the amount received for the service provided or tothe amount received for the service provided or tobe provided, whether or not services areperformed, and rate of service tax shall beapplicable at the rate in force at the time serviceapplicable at the rate in force at the time servicetax becomes chargeable. In other words, throughInstruction dated 28.04.2008, the Board hasclarified that the rate of service tax shall be

li bl th d t f i t f tapplicable on the date of receipt of paymentirrespective of date of performance of service. Inour opinion, the aforesaid Instruction is not inconsonance with law as service tax rate cannot beconsonance with law, as service tax rate cannot beapplied when even taxable event does not occur.

Taxability on Construction of Government Houses

Instruction No.332/16/2010-TRUdated 24.05.2010 has clarified that GOI

is the service receiver and NBCC is providingservices directly to the GOI for its personal use.Therefore as for the instant arrangementTherefore, as for the instant arrangementbetween Ministry of Urban Development andNBCC is concerned, the service tax is notleviableleviable.

Applicability of Tax on Construction of Houses for Construction of Houses for Army Personnel

Instruction F.No.137/26/2006-CX 4 dtd 05 07 06CX.4 dtd. 05.07.06 has clarified

that service tax would not be leviable onconstruction of complexes under question ifconstruction of complexes under question iftheir layout does not require approval by anauthority under any law for the time being inforceforce.

Applicability of Tax on Construction ofHouses for Army PersonnelHouses 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.

What is commercial construction?

h G h h Ci l 80/10/200 S The Govt. through Circular No.80/10/2004-ST,dtd.17.09.2004 clarified that

13.2 The leviability of service tax would dependprimarily upon whether the building or civilstructure is 'used, or to be used' for commerce

or industry The information about this has to beor industry. The information about this has to begathered from the approved plan of the buildingor civil construction. Such constructions whichare for the use of organizations or institutionsare for the use of organizations or institutionsbeing established solely for educational,religious, charitable, health, sanitation orphilanthropic purposes and not for the purposesp p p p p pof profit are not taxable, being non-commercial

in nature.

What is commercial construction?

G ll b ildi i ilGenerally, government buildings or civilconstructions are used for residential, officepurposes or for providing civic amenities.p p p gThus, normally government constructionswould not be taxable. However, if suchconstructions are for commercial purposesconstructions are for commercial purposeslike local government bodies getting shopsconstructed for letting them out, suchactivity would be commercial and buildersactivity would be commercial and builderswould be subjected to service tax.

Exemption to Services provided wholly within Port

ifi i 38/20 0 S d d Notification No. 38/2010-ST, dated28-6-2010 exemption from thewhole of the service tax leviable onwhole of the service tax leviable oncommercial or industrial constructionservices when provided wholly

ithi th t th t fwithin the port or other port, forconstruction, repair, alteration andrenovation of wharves, quays,renovation of wharves, quays,docks, stages, jetties, piers andrailways.

Exemption to Services when provided wholly within Airport

Notification No. 42/2010-ST,dated 28-6-2010 exemption fromthe whole of the service tax leviable

on the commercial or industrialconstruction service provided whollywithin the airport.

Exemption to Services provided wholly within Port

ifi i /20 S d d Notification No. 11/2011-ST, dated1-3-2011 has granted exemption from

the whole of the service tax leviable onthe works contract services whenprovided wholly within the port or otherport, for construction, repair, alterationport, for construction, repair, alterationand renovation of wharves, quays, docks,

stages, jetties, piers and railways, fromthe whole of service tax leviable thereonthe whole of service tax leviable thereonunder section 66 of the Finance Act

Any service within Port is a port service only

t bl i i id d t b id d t taxable service means any service provided or to be provided, to any person, by any other person, in relation to port services in a port, in any manner:

Provided that the provisions of section 65A shall not apply to any Provided that the provisions of section 65A shall not apply to any service when the same is rendered wholly within the port. [Section

65(105)(zn)]

Mi i t th h I t ti M F (D R ) L tt D O F N Ministry through Instruction M.F. (D.R.) Letter 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 wholly

within the portwithin the port.

If that be the case, the said exemption Notifications haveno relevance and if exemption is to be granted, then it is tob t d f th t i i t d f i lbe granted for the port services instead of commercialconstruction services

Exemption to Services when provided wholly within Airport

Notification No. 10/2011-ST, dated1-3-2011 has granted exemptionfrom the whole of the service tax

leviable on the works contractservices provided wholly within theairport.

Any service within Airport is only 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 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 thatcommercial or industrial construction service in relation to airportwould now be classified as airport service when provided wholly

ithi th i twithin the airport.

If that be the case, the said exemption Notifications haveno relevance and if exemption is to be granted, then it isno relevance and if exemption is to be granted, then it isto be granted for the Airport services instead ofcommercial construction services

Validity of the Composition Scheme

Rule 3. (1) Notwithstanding anythingcontained in section 67 of the Act and rule 2Aof the Service (Determination of Value) Rules,

2006, the person liable to pay service tax inrelation to works contract service shall have theoption to discharge his service tax liability on thep g yworks contract service provided or to beprovided, instead of paying service tax at therate specified in section 66 of the Act, by payingp , y p y gan amount equivalent to four per cent. of the

gross amount charged for the works contract.

Whether Benefit of Composition Scheme is available 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 worksprior to 01.06.2007 but the nature is of workscontract, even though prior to 01.06.2007instead of such contract tax was paid in any

th t f t bl i h t tother category of taxable service, such contractshall be categorized under works contractservice on or after 01.06.2007 even though partof such service were categorized in any other

category of taxable service and paid service taxon the same under the said category of taxable

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on the same under the said category of taxableservice. Continue

Whether Benefit of Composition Scheme is available 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 suchclarified that if the service tax in respect of suchcontract (which commenced prior to 01.06.2007)has been made in other category of taxable

i th ill t b bl t t thservice, they will not be able to opt thecomposition scheme because such scheme hasnot been opted prior to commencement of the

contract and such option is available for theentire contract and cannot be altered.

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[Notification No. 1/2011-ST, dated 1-3-2011 [40% credit]Is it against the provisions of section 65(105)(zzzza)?Is it against the provisions of section 65(105)(zzzza)?

(2A) The CENVAT credit of tax paid ontaxable services as referred to under sub-

l ( d) ( ) d ( h) f lclauses (zzd), (zzq) and (zzzh) of clause(105) of section 65 of the Finance Act,

1994 shall be available only to the extent1994, shall be available only to the extentof 40% of the service tax paid when suchtax has been paid on the full value of thepservice after availing CENVAT credit on

inputs..

Exemption for execution of works contract in respect of building canalsin respect of building canals

Notification No. 41/2009-ST, dated 23-10-2009has granted exemption from the whole of servicetax leviable on the taxable services in relation totax leviable on the taxable services in relation toexecution of a works contract in respect ofbuilding canals used other than for the purposeof commerce and industryof commerce and industry.

Exemption has been granted for canal systemsbuilt other than for the purpose of commercep pand industry. whereas, the canal system which isused for other than commerce and industry isnot taxablenot taxable

Whether repair, renovation or restoration of road is a taxable service?road is a taxable service?

Notification No. 24/2009-ST, dated 27-7-2009whereby taxable service in relation tomanagement maintenance or repair of road hasmanagement, maintenance or repair of road hasbeen fully exempted from the levy of servicetax.

The Government has further amended the saidNotification by Notification No. 54/2010-ST,dated 21-12-2010 with a view to extend theexemption of management, maintenance orrepair of roads, bridges, tunnels, dams, airports,railways and transport terminalsrailways and transport terminals

In the words of Mahatma Gandhit e o ds o a at a Ga d

You must not worry whether theydesired result follows from your actionor not, so long as your motive is pure,, g y p ,your means correct

Thank you..

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