sid chopra (proprietor)     27 August 2011

# Vat and service tax on flats

What is the latest news on Vat and service tax on flats?

What is the difference between the two? I mean service tax and vat. Can both be charged?

I have bought a flat which is under constructioin. I had paid up 95% at time of purchase in Jan 2010.since it was a capital gain amount.

The builder has not yet given me possession although he had promised it in July this year. It probably will take another year.

Now he is asking for 2.5% tax as service tax on remainder amount.

Also he is asking for 5% Vat at the time of possession?

Is it valid? Has the bill been passed by the Govt?

It is preposterous to keep paying taxes.. we have already paid income tax for everything and taxes never seem to end!!

Dr. MPS RAMANI Ph.D.[Tech.] (Scientist/Engineer)     25 September 2011

It appears that no one has responded to this question for almost a month. I am not competent to answer this question. However as angels have feared to tread let me try. As services appear as value addition both are same as far the meaning of the word goes.. But service tax is levied by the Central Government and Vat by the State Goverment. The two Governments can separately levy tax on the same thing. Hence it can be that both are payable. Q.E.D.

Sachin Agarwal (Propritor)     25 September 2011

Dear Sid Chopra,

Service is levied on service whereas VAT is levied on Goods. If you want to more detail on this topic. You can write email with full detail of Your Problem. My email id is sachinagarwalcallb@gmail.com

Thanks

Sachin Agarwal CA LLB

Dr. MPS RAMANI Ph.D.[Tech.] (Scientist/Engineer)     26 September 2011

Cost of materials + services = Cost of the flat.

Cost of Goods + value added = Cost of the product (Flat)

Cancelling out common terms in the above two equations:

Services = Value added. This was what both Adam Smith and later Karl Marx said.

The difference is only that one is levied by the Central Government and the other the State Government. If the same agency levies both it will amount to double taxation.

After a month my response at least inspired someone else also to respond to you.

dhiraj aggarwal (TAXPOINT (Director) 9829551008)     10 October 2011

As per sales of goods act, 1930 immovable property not covered under the defination of good. Section 2(7) specifically excluded the immovable property for chargability.

and Mr chopra this type of any circular or amendment not come under the VAT according to our knowledge.

Construction of complex” means —

a)    construction of a new residential complex or part thereof; or

b)    completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or

c)     repair, alteration, renovation or restoration of, or similar services in relation to, residential complex;

“Residential complex” means any complex comprising of —

i.      a building or buildings, having more than twelve residential units;

ii.      a common area; and

iii.      any one or more of facilities or services such as park, lift, parking space, community hall, common         water supply or effluent treatment system,

located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person.

Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this clause, —

(a)   “Personal use” includes permitting the complex for use as residence by another person on              rent or without consideration;

(b)     “Residential unit” means a single house or a single apartment intended for use as a place   of    residence;

SCOPE OF SERVICE

Construction of residential complex service would generally cover construction service in respect of a building over 12 residential parts or units; such residential complexes are normally constructed after obtaining approval from statutory authority for their layout. For the purpose of this levy, residential complex means-

i.        Any complex of a building or buildings, having more than twelve residential units within the said  premises

ii.        Having common areas (Stair case, road etc)

iii.        Having common facilities or services ( Swimming pool, Gym , sports facility etc)

SERVICE TAX LIABLITY

From the above it is clear that, when construction of residential complex is having more then twelve dwelling units in a common area, and such premises being approved by an authority in law, would be liable to service tax. Further the said service would also cover post construction finishing service also. Based on the above definition, it is imperative, when residential complex consists of less than or equal to 12 residential units, then the same would not be liable for the purpose of service tax.

However the definition of Residential complex specifically excluded a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for use as residence by such person.

Further an explanation provides, personal use includes permitting complex for use as residence by another person on rent or without consideration.

Eg: ABC Ltd entering into contract with a contractor for construction of Residential complex, for the purpose of letting the same on rent for its employees, therefore the same would get covered under the exclusion list, since the same is used for personal use of ABC Ltd.

The aforesaid explanation created havoc in the industry, bringing a question mark on the levy of service tax itself on Residential complex, when any residential complex is constructed either for self occupancy or even on rent; the same would not attract service tax, thanks to the concept of personal use supported by its explanation. Since the aforesaid exception used the words any person. However the said view requires judicial confirmation on the aspect of personal use.

CIRCULAR 108/02/2009

Subsequently circular 108/02/2009 –ST dated 29.01.2009, further created confusion, since the said circular completely brought in a new aspect which was not present in the aforesaid provision prior to inception of the said circular.

The circular read as under “if the ultimate owner enters into a contract for construction of a residential complex with a promoter/builder/developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax.

Eg: If ABC Ltd enters into a contract with a promoter/builder/developer, but not with the contractor. Such promoter/builder/developer provides the services of designing, planning and construction, the said property is used by ABC ltd for itself or let the same on rent, the same would not be subjected to service tax.

However as per principle of law, circular can’t contradict the provisions of law. However looking into the intension of the circular which was introduced as a relief to overcome recession, and moreover the same was never challenged by the department, as circulars are binding on department and to add to its wounds it is assessee friendly, wherein assessee would take a benefit of the said circular.

I hope so yours every doubts has been cristal clear now.

sudalaimuthu, (Advocate and Tax Consultant sudalaipearls@rediffmail.com)     11 October 2011

sir, basically, the Value added tax will be levied only on the materials purchased for the purpose of constructing the buildings. the labour charges has to be excluded from the net of Value added tax.

Dr. MPS RAMANI Ph.D.[Tech.] (Scientist/Engineer)     11 October 2011

It is the builder who puchases the materials for construction and not the customer. So only builder is liable to pay vat on building materials and not the customer.

dhiraj aggarwal (TAXPOINT (Director) 9829551008)     11 October 2011

Whats the silly answers regarding this.

He is just purchase a residential constracted flat and how he is liable to pay VAT on material or any other things.

Great ........

Dr. MPS RAMANI Ph.D.[Tech.] (Scientist/Engineer)     12 October 2011

Government(Parliament)  is a sovereign authority. They can tax anything as they like so long it doesnot contravene any provisions of the Constitution nor in conflict with any other previous law. Any other law can be amended or they have to put only the phrase "Notwithstanding anything in that law". They can amend the Constitution too. If Man can do it, he can undo it also. Nothing silly in this.

sachin (managing director)     13 October 2011

in maharashta 1% vat is imposed on the flat purchaser and 4 % service tax is imposed  on the flat purchaser several writ petition is lodged against such imposed taxes by the government but the picture is still not clear but the builder are collecting the tax and depositing it in the court once the order comes it will be returned back to the customer or given to the government

sachin (managing director)     13 October 2011

SERVICE TAX AND VAT ON THE SALE OF FLAT IS STILL NOT JUSTIFIED BY THE GOVERNMENT

ALREADY THE BUILDER IS PAYING VAT ON THE PURCHASE OF MATERIAL AND PAYING SERVICE TAX ON CONTRACT LABOUR AND WORK CONTRACT TAX

AND NOW AGAIN  VAT AND SERVICE TAX ON SALE OF FLAT

CONSUMERS ARE PAYING STAMP DUTY AND REGISTERATION FEES ON MARKET VALUE

I SERIOUSLY DO NOT UNDERSTAND THE TAX STRUCTURE MAD BY THE GOVERNMENT ITS  IS KIND OF DOUBLE TAXATION ON THE SAME PRODUCT

GOVERNMENT IS CHARGING DOUBLE TAXATION AND THE BURBED IS BEING TRANSFERED TO THE END CONSUMER

IS THE GOVERNMENT TRYING TO REDUCE THE COST OF FLATS IN MUMBAI OR TRYING TO INCREASE THEM ???????????

AND AT THE END OF THE DAY THEY ARE QUOTING THE GOVERNMENT IS WORKING FOR THE COMMON PEOPLE ????????????

A COMMON PERSON CANNOT AFFORD TO BUY A FLAT IN MUMBAI ITS BECOME SO EXPENSIVE ???????

SACHIN (Accouts Executive)     14 October 2011

Dear Sid Chopra jI

I think Dealer may charge vat and service tax both from you.  It depends in which type of service he is registered.  Normally on product, all taxation burdens are imposed on consumer in last.  Well in construction bill both taxes may levy on you.  In Construction, bill is divided in two parts, material and labour.  Vat is charged on 80% bill value and service tax is charged on 20% labour value.

SACHIN

Accounts Executive

dhiraj aggarwal (TAXPOINT (Director) 9829551008)     15 October 2011

PLZ QUOTE THE AMENDEMENT/CIRCULAR/NOTIFICATION. NOT SAY IN ANY OTHER MANNER.

shankar (self)     17 December 2011

1.How can i find if the Real Estate company is registered for taking VAT taxes from Buyers?
2. The receipts which they had issued me earlier didnt had VAT number on that. and on request to they dont Provide me the VAT number, But asks me to pay VAT amount.
3.This VAT amount was NOT mentioned in my Sale Agreement ealier.
4. What is this ST(Service Tax ) and on what this is applied? I didnt had any construction Agreement done, i had only Sale Agrrement, but still am i liable to pay VAT and ST?

This is in Karnataka- Bangalore

shankar (self)     18 December 2011

Hi All,

I entered into a Tri Party Agreement(Bank, Builder and Buyer) and bought an Under Construction Flat, Now i am asking for

registration of Flat and Builder is charging me Extra VAT and ST as 4 and 2.5 % respectively, There wasnt any Construction

agreement but we had ONLY sale agreement and according to the sale agreement i need not pay any VAT and ST(Cost Sheet/Booking

Agreement Date - Jan 2010
Actual Flat Possession Date - Dec 2010
Current Status - Not Giving Possession still

1.How can i find if the Real Estate company is registered for taking VAT taxes from Buyers?
2. The receipts which they had issued me earlier didnt had VAT number on that. and on request to they dont Provide me the VAT

number, But asks me to pay VAT amount before registring the FLAT.
3.This VAT amount was NOT mentioned in my Sale Agreement ealier.
4. What is this ST(Service Tax ) and on what it should be applied? I didnt had any construction Agreement done, i had only Sale

Agrrement, but still am i liable to pay VAT and ST?

Property is in Bangalore

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