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subodh (Accountant & Tax Consultant)     15 July 2008

SERVICE TAX LIABILITY OF BUILDERS

The Builders who enters into property development agreement with land owners, constructs & enters into agreement for sale of flat/units(while doing construction) are held  liable as "Works Contract"  under Maharashtra VAT Act,  Is it correct ?


If  yes, will they be liable for Service Tax ?


Is the ratio of recent Gohati High Court judjement


MAGUS CONSTRUCTION PVT LTD
Vs
UNION OF INDIA


Is applicable to all  ?



Learning

 4 Replies

Guest (n/a)     16 July 2008

In respect of Service Tax, the Builder shouldn't be liable to Service tax, because, the Builder is not providing any service to the flat purchasers individually. The Builder has taken up development on its own and subsequently selling the flats. Hence, there is no contractual relationship between the Builder and flat purchaser for providing service nor is the relationship developed down the line. It is just a sale and purchase and thus not liable to service tax.

K.Prakash Babu (Advocate)     19 July 2008

If the Builders who enters into property development and sale agreement for some consideration with land owners, constructs & enters into agreement for sale of flat/units with buyer of flats/dwelling units (while doing construction)  are held  liable as "Works Contract"  under respective state VAT acts. Apart from the levy of concerned state VAT, his services are leviable to Service Tax under Works Contract Services, if the dwelling units are more than 12.  The Service Tax is leviable on the value of services relating to labour and other allied 8 categories which have been excluded in the respective state VAT.


The ratio pronounced in the case of Magus constructions by Guwahati High Court do not apply in the above referred case.  That ratio is applicable only to such properties which have been transferred to the buyer of flat or dwelling unit, after total completion of construction and not while under construction.


Hope this is clear.

subodh (Accountant & Tax Consultant)     19 July 2008

a

Brindha (Legal - Manager)     10 November 2008

 


Dear Sir,

 

Are the purchasers of flats eligible to get the refund of the Service tax they paid to the builder (during 2007-08) ? 

 

From the below circular, it looks like that the property buyers need not pay service tax to builder/developer. On the other hand if the developers had employed the services of a contractor, it is the contractor who will have to pay service tax and not the developer builder.














Issue


Clarification


Whether service tax is liable under construction of complex service [section 65(105)(zzzh) ] on builder, promoter, developer or any such person,-

 

(a) who gets the complex built by engaging the services of a separate contractor, and

 

(b) who builds the residential complex on his own by employing direct labour?


(a) In a case where the builder, promoter, developer or any such person builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of the said residential complex, the contractor in his capacity as a taxable service provider (to the builder / promoter / developer / any such person) shall be liable to pay service tax on the gross amount charged for the construction services under `construction of complex' service [section 65(105)(zzzh) ].

 

(b) If no other person is engaged for construction work and the builder / promoter / developer / any such person undertakes construction work on his own without engaging the services of any other person, then in such cases,-

(i) service provider and service recipient relationship does not exist,

(ii) services provided are in the nature of self-supply of services.

Hence, in the absence of service provider and service recipient relationship and the services provided are in the nature of self-supply of services, the question of providing taxable service to any person by any other person does not arise.



Query:

1. Which section of service tax act demands that the service tax to be paid by hte property buyer to the builder ?

2. Is there any relevent decision by the SC or any advance ruling on this matter?

 

Thanks,

 

Brindha

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