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TMI BlogConstruction Services / Commercial or Industrial Construction Services — InstructionsX X X X Extracts X X X X X X X X Extracts X X X X ..... omplexes, or completion and finishing services in relation to such complexes or repair, alteration/renovation or restoration of similar services in relation to residential complexes. 3. The specific exclusion of Estate Builders in the case of "Commercial or Industrial Construction Service", through a circular dated 17-9-2004, appears to have been considered on account of sale of commercial complex by estate builders as a final outcome; although the definition under Section 65(3aa) read with Section 65(zzzh) of the Finance Act, 1994 does not provide for such exclusion. The definitions as provided under the Act, as referred supra, are wide enough to include all such activities of a builder. 4. In a recent decision of Supreme Court in case of M/s. Raheja Development Corporation v. State of Karnataka [2005 NTC (Vol. 27)-243 (copy enclosed) the Hon'ble Court has clarified "that the activities undertaken by builders for construction of flat/building for or on behalf of the prospective customers for consideration in cash or deferred payment is covered under the works contract and not under sale". 5. Considering the above decision, if the construction is undertaken by the builder f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the service head of 'Construction of complex service', is reportedly too low. Please initiate pro-active measures to realize service tax on this service especially when only 43 days are now left in the current fiscal. 11. Action taken on the above may be communicated to us with a copy to the Member (Service Tax) on weekly basis. _____________________________________________ JUDGE(S) : Ar Lakshmanan S N Variava TEXT : MESSRS K. RAHEJA DEVELOPMENT CORPORATION v. STATE OF KARNATAKA. Appeal (Civil) 2766 of 2000, decided on May 5, 2005. SUPREME COURT OF INDIA S. N. VARIAVA : This Appeal is against the Judgment of the Karnataka High Court dated 19th November, 1999. Briefly stated the facts are as follows : The Appellants carry on the business of real estate development and allied contracts. They are having their Office at Bangalore. They enter into development Agreements with owners of lands. Thereafter they get plans sanctioned. After approval of the plans they construct residential apartments and/or commercial complexes. In most cases before they construct the residential apartments and/or commercial complexes they enter into Agreements of Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellants wanted to agitate all the grounds including the ground that there was no works contract. Such a contention would stand concluded by the High Court Judgment in Mittal Investment Corporation's case even after the Order passed in the Review Application. No purpose would therefore be served in remitting the matter back to the High Court. Mr. Mehta was therefore asked to proceed in this Court itself. Mr. Mehta drew the attention of this Court to relevant provisions of the Karnataka Sales Tax Act [hereinafter called the said Act]. Section 2(1)(k)(viii) defines a "dealer" as follows : "2(1)(k) "dealer" means any person who carries on the business of buying, selling or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes (viii) a person engaged in the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract." Thus a person engaged in the business of transfer of property in goods, whether as goods or in some other form, involved in execution of a works contract would be a dealer. Section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 5, but subject to sub-section (4), (5) or (6) of the said section, every dealer shall pay for each year, a tax under this Act on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule." Mr. Mehta submitted that by virtue of the Agreement entered into by the Appellants with the owner of the property the Appellants became owners of the property even though a formal conveyance in their favour had not been executed. He took this Court through various provisions of the Agreement entered into by the Appellants with the owner of the property. He submitted that under such Agreements almost the entire consideration amount is paid to the owners and possession of the property is handed over to the Appellants. He submitted that by virtue of the principles laid down in Section 53A of the Transfer of Property Act the Appellants were the owners of the property. In support of this submission, he relied upon the Judgments of this Court in the cases of C.I.T. vs. Podar Cement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of the term 'works contract' in the said Act is an inclusive definition. It does not include merely a works contract as normally understood. It is a wide definition which includes "any agreement" for carrying out building or construction activity for cash, deferred payment or other valuable consideration. The definition does not make a distinction based on who carries on the construction activity. Thus even an owner of the property may also be said to be carrying on a works contract if he enters into an agreement to construct for cash, deferred payment or other valuable consideration. We, therefore, do not need to go into the question whether the Appellants are owners as even if the Appellants are owners to the extent that they have entered into Agreements to carry out construction activity on behalf of somebody else for cash, deferred payment or other valuable consideration, they would be carrying out a works contract and would become liable to pay turnover tax on the transfer of property in the goods involved in such works contract. Further under the said Act there is no distinction between construction of residential flats or commercial units. Thus, a works contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed transaction (which would be by way of a package deal not capable of being segregated or separated or terminated one without the corresponding effect on the other) that K. Raheja Development Corporation as the Land-holder would agree to sell to such persons an undivided fractional interest in the said land described in the First Schedule hereunder written on condition that they i.e. M/s. K. Raheja Development Corporation as Developers on behalf of and as Developers of such person would construct for, as a unit ultimately to belong to such person a unit or units that would be so mutually selected and settled by and between K. Raheja Development Corporation and the person concerned; (r) The Prospective Purchaser is interested in acquiring ownership rights in respect of unit/s Nos. 1101 on the eleventh floor/s of the said multi-storeyed building named ' Raheja Towers' and also car parking space/s No./s nil in the basement/ground floor of the said building (hereinafter referred to as 'the said Unit')" 1. As and by way of a package deal : (a) K. Raheja Development Corporation, (as Holders) agree to sell to the Prospective Purchaser an undivided 0.42% share, right, titl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the full consideration money payable to the Developers under Clause 3 above. 7. If the Prospective Purchaser commits default in payment of any of the installments of consideration aforesaid on their respective due dates (time being the essence of the contract) and/or in observing and performing any of the terms and conditions of this Agreement, the Holders/Developers shall be at liberty, after giving 15 days notice specifying the breach and if the same remains not rectified within that time, to terminate this Agreement, in which event, a sum equivalent to 10% of the amounts that may till then have been paid by the Prospective Purchaser to the Holders and the Developers respectively shall stand forfeited. The Holders and the Developers shall, however, on such termination, refund to the Prospective Purchaser the balance amounts of the installments of part payment, if any, which may have till then been paid by the Prospective Purchaser to the Holders and the Developers respectively but without any further amount by way of interest or otherwise. On the Holder/Developers terminating this Agreement under this Clause, they shall be at liberty to dispose off the said Unit/s and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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