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janardhana reddy kota (Senior Engineer)     02 April 2015

Flat service tax -urgent

 

Hi All

I have purchased  flat for 3100000  on 01/01/2012

 

I have done house warming ceremony on 05/02/2015 by clearing all dues to builder as per agreement of sale.

 

After house warming ceremony builder is demanding and threatning  for service tax which I  opposite to pay as it is builder liability to pay service tax. it is not mentioned any where as in agreement of sale,

 

In fact I asked builder to issue notice to me for service tzx but he said I can not do it.

 

After three days of house warming ceremony, he put another lock to my house with out nay intimation to me.

 

But I did not shift luggage to new house as have wood work is pending.

 

I want to break the lock and take possession by shifting some luggage.

 

Please suggest me how can i proceed in this case.

 

Regards

JK

 



Learning

 8 Replies

Kapil Chandna (Lawyer at Supreme Court of India)     02 April 2015

Sir, Firstly read all the terms of the contract between you and the builder and find the service tax part .... Then check whether you have paid all the dues on you or not ? Then only think to take this extreme step .... Regards Kapil Chandna Adv 9899011450

Shalini Kaul (Independent Legal Practitioner)     02 April 2015

Dear Mr. Reddy,

Please check the completion certificate issued by the local authority to your builder. If you have purchased the flat before the issuance of the completion certificate then, your flat was “under-construction” at the time of your purchase. In such case the flat will attract service tax. If your purchase is after the completion certificate, then there should be no service tax levy.

Also please check your agreement with the builder. Ordinarily construction agreements contain clauses to the effect that the buyer shall bear "all taxes" levied on the flat. Using this clause, most builders cast the service tax burden on the buyer. 

However, irrespective of whether tax is payable or not, I find the conduct of the builder in putting a lock on your flat illegal. Having sold the flat to you and having given you possession the builder cannot take back possession for non-payment of service tax. He has to follow proper procedure and recover the money from you. In my opinion he cannot claim a right to the flat. You must visit a local lawyer and initiate appropriate action against the builder for this illegal conduct and also to clarify the service tax issue.

1 Like

Manish Gandhi (Superintendent)     10 April 2015

I agree with Shalini Kaul if it is simple case of sale of Flat after completion. But there is grey area, suppose what if the said Flat was booked once before completion and S.Tax recovered and paid on part payment received from prospective buyer but later on deal was cancelled anyhow and amount refunded to prospective buyer.  In such case builder is liable to pay S.Tax as and when the said Flat is re-sold anytime irrespective of before or after completion.

Other wise all the builder and buyer will adopt modus operandi like this way-

builder building  5 flats i.e. Flats 1,2,3,4,5 for prospective buyers a,b,c,d,f respectively , receive part payment pay S.Tax and cancel all the deals just one day before the date of completion and get service tax refund/adjustment.

Then after getting completion, next day the said Flats are sold to same group of buyers but not the same Flat but different Flat i.e. Flats 1,2,3,4,5 sold to buyers f,e,d,c,b,a respectively showing the same as new deals.

This may be a modus operandi to evade S.Tax.

Shalini Kaul (Independent Legal Practitioner)     14 April 2015

Dear Mr. Gandhi,

The situation you apprehend cannot arise, because Service Tax is payable only at the time of completion of the building and not before that. Hence, there is no possibility of booking a flat which is under construction, paying service tax, cancelling allotment and seeking refund etc. because no service tax would have been paid at this stage at all. 

Hope this clarifies your apprehension.

Manish Gandhi (Superintendent)     15 April 2015

Ms Shalini Kaul, please recheck. Completion date  determine taxability of service. In case any payment received, irrespective of whether part payment or full, before completion date, service tax to be paid on whole value of service. Service Tax payment liability determined on the basis of Point of Taxation Rules, 2011 i.e. service provided, invoice raised or payment received whichever is earliest.

So, if once taxability is determined w.r.t. completion date, i.e. if booking amount is received before completion date,  activity to build particular Flat is taxable and tax to be paid for as and when payment is received.

Regards

RADHAKRISHNAN (SUPERINTENDENT OF CENTRAL EXCISE)     17 June 2015

manish Gandhi is right

Shalini Kaul (Independent Legal Practitioner)     22 June 2015

Service Tax is leviable when a builder engages in the activity of building a flat for an identified allottee or for a prospective allotee. The underlying logic is that the builder is not building the flat for self consumption but for someone else. i.e. he is doing a service for someone else. Conversley that the other party is enjoying the builder's service.

Significantly, the payment of tax has nothing to do with date when the allottee pays consideration to the builder. So irrespective of whether the allottee has paid consideration during the construction stage or after completion of construction, the government would collect service tax from the builder (on the basic underlying principle that the flat was built for somebody else's consumption and not for the builder). The tax is paid/tendered to the government by the builder at the completion of the flat.

The question posed by the querist on the web site was whether the builder can shift the burden of the tax on the buyer/allottee. My opinion remains that the buyer/allottee is definitely liable to bear the burden of the tax if he has purchased/obtained allottment of the flat during the construction phase. However, where the purchase is made of a completed/fully constructed flat, the buyer can resist demand for service tax by the builder. While there is no bar or illegality in the builder demanding the tax from the buyer, yet there is absolutely no strict rule which imposes this tax liability on the buyer of a fully constructed flat. Hence in my opinion, there is room for negotiation between buyer and builder in this situation and the parties may negotiate the extent of burden that each party is ready to bear. 

At any rate without intervention of a court, the builder cannot re-possess a flat from the allotee to whom possession has been delivered. Hence the conduct of putting a lock on the flat is certainly illegal.

Hope this clarifies the position.   

RADHAKRISHNAN (SUPERINTENDENT OF CENTRAL EXCISE)     23 June 2015

if the builder completes the flat and gets the completion certificate without taking any advance amount from any customer,then no question of service tax arises.however,if any advance is received then service tax is payable.it should be collected by the builder and remitted.

   If the builder pays the ST, he can very well file a suit for recovery of the ST from the buyer


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