Builder liable for service tax or vat ?

Querist : Anonymous (Querist) 19 November 2010 This query is : Resolved
Sir, i am confused that a builder is liable for service tax or vat?
For example:- If I am a builder who had completed a apartment having 13 flats + 5 shop. Flats are sold on installments whereas shops are sold directly by agreement to sale/sale deed?

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R.Ramachandran (Expert) 19 November 2010
Dear Anonymous,
First and foremost it is to be understood that if ready built flats / shops are sold (without there being no agreement to sell either prior to during the construction) then the constructed property would fall under the category of 'Immovable property' and it would not attract either service tax or VAT. It will only attract Stamp Duty.
However, if the builder enters into any agreement to sell prior to and during the construction and only thereafter the constructed portion is given to the buyers, then the builder is liable to pay service tax under (i) Construction of Complex Service in respect of the 13 flats and (ii) Commercial or industrial Construction Service in respect of the shops.
The construction activity includes both material and labour. While for labour portion service tax is payable, for the material portion VAT is payable.
Both under VAT and also under Service tax a 'Composition Scheme' is available whereunder a fixed % of tax VAT and fixed % of Service Tax is payable on the 'gross value of the contract'. In cases where the builder avails the composition scheme, he would not be entitled to take input tax credit of the VAT paid while purchasing the materials and similarly CENVAT Credit of the service tax paid if any in availing the input services.
IN SHORT, the builder is liable to pay both VAT and Service Tax.