Construction services in respect of residential complex becomes taxable w.e.f. 16/06/2005, the definition of Construction of Complex as per Section 65 (30a) of Finance Act 1994 is as below : -
"construction of complex" means —
construction of a new residential complex or a (a) part thereof; or completion and finishing services in relation (b) 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 repair, alteration, renovation or restoration (c) of, or similar services in relation to, residential complex;
and the definition of residential complex as per Section 65 (91a) of Finance Act 1994 is as below : -
"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;
"taxable service" means any service provided or to be provided - to any person, by any other person, in relation to construction of complex; Chapter V Section 65 clause 105 sub clause zzzh of Finance Act 1994.
Now in budget 2010-11 an Explanation is added to clause (zzzh) which is as below,
For the purpose of this sub clause, construction of complex which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before , during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorized by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer,".
This explanation come into effect from 01.07.2010 (Notification No.24/2010 - S.T. dated 22-06-2010).
So, any payments received from the prospective buyer by the builder or his authorized representative in respect of Construction of residential complex will be subject to tax if it is received prior to obtaining completion certificate from competent authorities for this purpose.
(1) Following transactions are not covered under this Construction of Complex hence service tax is not payable at all.
(a) Residential Complex comprising of 12 or less than 12 residential units.
(b) Sales of residential unit (flat) or shop after obtaining completion certificate from competent authorities for this purpose, and entire consideration is received only after building completion certificate is obtained.
(c) Exemption has been provided for construction of residential complex, when the same is rendered as part of Jawaharlal Nehru national Urban Renewal Mission (JNNURM) and Rajiv Awass Yojana refer notification no. 28/2010 - Service Tax dated 22/06/2010.
(d) Part or full payments (Advance payment) received before 01/07/2010. (Notification No. 36/2010 Service Tax dated 28/06/2010).
(2) In all other cases, the builder will be liable to pay the service tax. Now the date of provision of Service, date of completion residential complex as certified by the competent authorities and date of part or full consideration received are now important. Before the issuance of completion certificate if payment is made for complex or residential unit or shop (Gala) in residential complex , then service tax will be leviable on such transaction since the builder provides the construction service as per explanation inserted w.e.f. 01-07-2010.
(3) Authorities competent to issue completion certificate In the Finance Act, 2010 Changes have been made in the construction services , both commercial construction and construction of residential complex , using the phrases ' Completion Certificate ' issued by ' Competent authority'. Considering the practical difficulties, the scope of the phrase ' authority competent to issue completion certificate has been widened by issue an order for removal difficulty (Refer M.F.(D.R.) Order No.1/2010 dated 22/06/2010.Besides Government authorities the expression 'authority competent 'includes following authorities -
( i) an architect registered with the council of Architecture constituted under the Architects Act,1972.
( ii) Chartered Engineer registered with the Instiute of Engineers(India)
(iii) Licensed surveyor of the respective local body of the city town or village or development or planning authority. Who is authorized under any law for time being in force, to issue a completion certificate in respect of residential or commercial or industrial complex, as a precondition for its occupation.
(4) I am trying to link the taxability of this service with business practices generally prevail in respect of construction of residential complex or residential flats before obtaining completion certificate from competent authorities. (a) Sales of land to the builder by landowner and builder give residential flat or Shop or both to the land owner In this case in lieu of money , builder is providing residential flat or Shop , indeed this type of transaction is within the scope of construction of complex w.e.f. 01/07/2010 and service tax is payable .
(b) Agreement to sell is entered into prior to 01/07/2010, part /full amount is paid on the date of agreement to sale but the services are provided on or after 01/07/2010
Yes in this case, builder is providing construction services to the buyer before obtaining completion certificate, service tax is payable, however amounts received by the builder prior to 01-07-2010 are not taxable as per Notification No.36/2010- Service Tax dated 22-06-2010 but any amounts received on or after 01-07-2010 are taxable, and indeed builder has to pay the service tax on amount received on or after 01-07-2010.
(c) Agreement to sell is entered into after 01/07/2010, part /full amount is paid on the date of agreement to sale and the completion certificate is issued on or after 01/07/2010
Yes this transaction is taxable and builder has to pay the service tax on payments received from the buyer from 01-07-2010 till the date of issue of completion certificate.
(d) Any consideration received in part or full by the builder on account sale of residential unit or shop etc. after obtaining the completion certificate from competent authorities is not taxable at all because it is sale of immovable properties .In simple language sale of ready residential flat or shop for which completion certificate is received from competent authorities.
(5) Rate of Service Tax At present the rate of service tax is 10% + 2% Education Cess on Service Tax and 1% Secondary and Higher Secondary Education Cess on service, so effective rate becomes 10.30%,
(6) Valuation of taxable service
If any service is taxable, calculation of value for the purpose of service tax is an important aspect. In case of Construction of Complex ,Service provider (Builder) can take the benefits of notification no. 1/2006 S.T. 01.03.2006 as amended vide notification no. 29/2010 Service Tax dated 22/06/2010 w.e.f. 01/01/2010 and value for the purpose of calculation of service tax is as below : -
(a). If builder does not recovered the Cost of Land separately then builder can take the abatement 75% of the Gross amount charged i.e. service tax is payable only on 25% of gross amount charged for e.g.
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a) Gross amount charged say
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Rs. 10,00,000
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b) Less : abatement 75%
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Rs. 7,50,000
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c) Taxable Value ( a - b )
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Rs. 2,50,000
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d) Service Tax 10% on c
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Rs. 25,000
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e) Education Cess 2% on d
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Rs. 500
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f ) SHED Cess 1% on d
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Rs. 250
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g ) Total Bill Value
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Rs. 10,25,750
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So, service tax in this case is Rs. 25,750 i.e. 2.575 % on basic value .
(b) If builder recovered the Cost of Land separately then builder can take the abatement 67% of the Gross amount charged i.e. service tax is payable only on 33% of gross amount charged for e.g.
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a) Gross amount charged say
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Rs. 10,00,000
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b) Less : abatement 75%
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Rs. 6,70,000
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c) Taxable Value (a - b)
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Rs. 3,30,000
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d) Service Tax 10% on c
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Rs. 33,000
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e) Education Cess 2% on d
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Rs. 660
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f) SHED Cess 1% on d
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Rs. 330
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g) Total Bill Value
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Rs. 10,33,990
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So, service tax in this case is Rs. 33,390 i.e. 3.339 % on basic value .
(c) If builder takes the benefit of notification No. 1/2006 S.T .dt. 01.03.2006 as amended vide notification no. 29/2010 Service Tax dated 22/06/2010 w.e.f. 01/07/2010, then builder can not take Cenvat credit on Inputs, Capital Goods, and Input services used for the purpose of providing of services and also he can not deduct the value of materials provided or used for the purpose of providing the taxable service.
(d) However builder has to add the cost of materials supplied by the prospective buyer for provision of services. For e.g. Buyer Mrs. A provides Marble cost of which is Rs. 25000 to be fixed on the normal kitchen kadappa provided by the builder as per the agreement to sell, then builder has to add this Rs. 25000 on gross amount charged and then take the abatement
(e) The abatement is not available if only completion or finishing services are provided.
OPTION II - BUILDER
Under this option instead of taking the abatement of 67% or 75% as per the notification no. No. 1/2006 S.T. dt. 01.03.2006 as amended vide notification no. 29/2010 Service Tax dated 22/06/2010 w.e.f. 01/07/2010. builder can take Cenvat credit on Capital Goods, Inputs services used for the purpose of provision of service, charged 10 % service tax , 2% Education Cess on Service Tax, 1% SHED on Service tax on value of services provided and pay the difference in between the Service Tax recovered and Cenvat credit taken by GAR 7 to Govt. Here the taxable value of services will be Gross amount charged less cost of land and Value of materials used for the purpose of provision of service. That means service tax is on value of services provided (Cost of construction plus profit margin)
(7) Procedure to be followed by the builder complying the requirements of Service Tax
If builder is providing the taxable service of construction of residential complex, he has to comply the following procedures under Finance Act 1994 and Service Tax Rules 1994 as amended.
1) Registration
a) Create a valid mail ID
b) Submit application for registration through ACES module - Automation in central excise and service tax
a) Take print out application for registration submitted electronically through ACES
b) Submit the print out of application of registration along with self attested copies of PAN Card, proof address such as electricity bill , municipal tax receipt etc of premises to be registered to the Jurisdictional Superintendent of Service Tax
2) After obtaining the Registration Certificate, submit in duplicate the list of accounts of maintained for the purpose of discharging the service tax liability to the Jurisdictional Superintendent of Service Tax.
3) Payment of taxes
a) Payment of service tax is to be made on amount received and not on amount billed, even though the bills are not issued but payments received (Advance Payments) service tax is payable .In case of advance payments received, service tax can be calculated on back calculation basis ,i.e. amount received shall be taken as cum tax value (inclusive of tax)
b) Payments received on or after 01/07/2010 from prospective buyer.
1. In case the constitution of builder is other than individual, sole proprietorship or partnership firm then he has to make the payments of service tax , Education Cess 2%, SHED Cess 1% within five 5 day at the end of the month except in case of March , payments has to be made latest by 31st March and not on 5th April. Here month is calendar month for e.g. payments received during July 2010 then payments of service tax to be made on or before 05/08/2010.
2.In case the constitution of builder is other than individual , sole proprietor or partnership firm then he has to make the payments of service tax , Education Cess 2%, SHED Cess 1% within five 5 day at the end of the quarter except in case of quarter January to March , payments has to be made latest by 31st March and not on 5 th April. Here the period quarter means April to June, July to September, October to December and January to March. For e.g. payments received during the quarter July to September, the service tax to be paid on or before 05/10/2010.
3. IF BUILDER MAKES PAYMENTS ELECTRONICALLY THEN HE CAN INSTEAD OF 5TH DAY AT THE END OF QUARTER OR MONTH HE CAN MAKE THE PAYMENTS UPTO 6TH DAY .
4. In case of delay in making the payments of service tax, interest to be paid @ 13% p.a. for the delayed period .
5. Non payment / short payments of taxes attract penal action from the department.
6. In case of service provider if liability to pay the service tax exceeds Rs. 10 Lakhs in previous year for all taxable services provided from all premises then service provider has to compulsorily make payments of service tax electronically.
4. Submission of half yearly return in Form ST - 3
Service provider has to submit the half yearly return in Form ST - 3 in triplicate (in case of paper return) to the concerned Jurisdictional Superintendent of service tax or he may file ST
3 return electronically through ACES module. The due dates are as below : -
a) For the half year April to Sept - 25th October
b) For the half year October to March - 25th April
Mandatory penalty for late filing of return in Form ST - 3 :
If the half yearly return in Form ST 3 is submitted after the due date the it attract the mandatory penalty.
1. delay period upto 15 days from due date of filing of ST 3 return - Rs. 500
2. delay period beyond 15 days but upto 30 days - Rs. 1000
3. delay period beyond 30 days - Rs. 2000
5. Revised Return
Service provider can file the revised if he found that there are some omissions or mistakes in original return filed, he can file the revised return upto 90 days from the date of submission of original return. However the period of 90 days is calculated from 25th April / October.
6. In Chapter V of Finance Act 1994, Section 76, 77, 78 prescribed for penal action which are Not discussed here.
7. Issue of Invoice by the service provider
Service provider here builder, has to issue invoice to the prospective buyer / buyer and charged Separately Service Tax 10% (Current rate), 2% education cess on service tax, 1% SHED Cess on service tax. Besides the amount on which Service tax is calculated (in case of abatement taken 67% or 75%), same must be shown on invoice, and the invoice must be issued with in 14 days from date of provision of service. Invoice must comply other provision of rule.
It is advisable to keep proper service tax register, besides other books of accounts, so it becomes easy to calculate the service tax liability.
8. Cenvat Credit
The Cenvat Credit Rules, 2004 which was introduced w.e.f. from 10.09.2004 provides for availment of the credit of service tax / Central excise duties paid on the Input services / Inputs / Capital goods. Such credit amount can be utilized towards payment of service tax by an assesssee on their output services. Following points to be noted in this respect : -
a) Cenvat credit on input services can be availed only after making payment of the amount indicated in the invoice / bill / challan.
b) If Service provider takes abatement of 67% or 75 % he can not take Cenvat credit.
c) If service provider charged the service tax only on value of services then he can take Cenvat credit only on Input Services and Capital goods and not on Inputs.
d) If service provider is providing both taxable and exempt services and does not keep separate account of receipts, consumption and inventory of inputs and input service used for providing of services, then he tax to pay 6% of value of exempted services or reversal of Cenvat credit attributable to inputs and input services used for providing exempted service.
e) Head office of Service provider if registered as Input Service distributor then ISD can take and distribute the Cenvat credit taken inputs, Capital Goods and Input Service subject to some conditions.
9. Other aspects
(1) Another service is included in the list of taxable service w.e.f. 01-07-2010 is : - Services provided by a builder etc. to the prospective buyer such as providing preferential location or external or internal development of complexes on extra charges excluding parking place. Builders of residential or commercial complexes provide other facilities and charge Separately for them and these charges does not form part of the taxable value for charging tax on construction. These facilities include :
(a) prime / preferential location charge for allotting a flat / commercial space according to the choice of the buyer (i.e. Direction - sea facing , park facing , corner flat, Floor - first floor, top floor, vastu having bed room in a particular direction; Number - lucky numbers)
(b) internal or external development charges which are collected for developing / maintaining parks , laying sewerage and water pipelines , providing access roads and common lighting etc.
(c) Fire fighting installation charges and
(d) Power back up charges etc.
Since these charges are in the nature of service provided by the builder to the buyer of the property over and above the construction service , such charges are being brought under the this new service.
Following charges are excluded from the scope of this service
(a) Charges for providing parking space have been specifically excluded.
(b) Development charges to the extent they are paid to State Government or local bodies
(c) Any service provided by RWA or Co-operative Group Housing Societies consisting of residents / owners as their members would not be taxable.
There is no change in the definition of Construction of Complex except deleting the word
service and insertion of explanation, certain transactions which, according to the Government were remaining out of taxnet, have been brought within tax net. It should be noted that the transactions which were taxable under this head earlier will continue to be so.
3. Persons (Contractors / sub contractors) providing services to builders like construction of plinth , RCC slab, plastering, painting , etc. with or without materials are continue to tax .
4. Basic exemption of Rs. 10 lakhs from payment of service tax as per the Notification No. 6/2005 S.T. 01-03-2005 as amended vide Notification No.8/2008 S.T. dated 01-03-2008 subject to conditions mentioned therein is available.
5. In cases where service provider pays the service tax on amount received from the buyer and later on , booking is cancelled by the buyer, entire amount is also refunded to the buyer, here in this case, service tax paid can be adjusted towards next month / quarter payment of service tax.
6. If Vat / Sale tax is payable on as per State Vat / Sales Tax Act, then the service does not classify under this head and it will be classified as WORKS CONTRACT SERVICE. The above is my understanding of provisions of law relating to service tax in respect of construction of complex, readers and or department may have different view or opinion. After all person has to follow as per own thinking and interpretations. I do not have any responsibility for any damages suffered by any person due to following of my understanding of law.
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