SERVICE TAX AS APPLICABLE TO
REAL ESTATE INCLUDING JOINT
CHARGE & REVERSE CHARGE
By CA Sudhir V S
COVERAGE THIS NOON
Services applicable to builders and its changes
upto 30.06. 2012
 Position from 01.07.2012
 Comparison per and post 01.07.2012
 Reverse charge and joint charge
Q&A

POSITION PRIOR TO 30TH JUNE 2012
MILE STONE OF SERVICES
Dates
Event
07.07.1997
Consulting Engineer
01.07.2003
Erection Commissioning & Installation
2003
Daelim Industrial Co. Ltd. vs Commissioner of C. Ex.,
Vadodara 2003 (155) ELT 0457 Tri.-De – vivisection
10.09.2004
Industrial & Commercial Construction Service
MILE STONE OF SERVICES
Dates
Event
05.05.2005
K. Raheja Development Corporation vs State of
Karnataka 2006 (003) STR 0337 S.C – Sales Tax
Case
16.06.2005
Construction of Complex Service
01.08.2006
Circular F. No. 332/35/2006-TRU, dated 1-8-2006
Clarifying Builder/Real Estate Developers Not
Liable
01.06.2007
Works Contract Service with 2.06% composition
MILE STONE OF SERVICES
Date
Event
04.01.2008
Circular No. 98/1/2008-S.T., dated 4-1-2008 - Baring change of
classification
01.03.2008
Composition Rate increased to 4.12% from 2.06%
15.05.2008
Magus Construction Pvt. Ltd. vs Union of India 2008 (011)
STR 0225 Gau – Builder not liable
29.01.2009
Circular No. 108/2/2009-S.T., dated 29-1-2009 – Personal use
not liable
MILE STONE OF SERVICES
Date
Event
01.07.2010
Explanation added creating deeming fiction for the
Developer for Complex service and not Works Contract
Service & Builder’s Special Service
19.08.2010
A.P. Ravi v. Union of India - 2010 (20) S.T.R. J119
(Mad.) – Stay on the Explanation
01.12.2010
G.S. Promoters vs Union of India 2011 (021) STR 0100
P&H. – Upheld the constitutional validity of the
circular.
30.03.2012
SLP admitted by SC on the decision of the HC
01.07.2012
New Service Tax Law
INDUSTRIAL AND COMMERCIAL
CONSTRUCTION
Const of New Buildings or civil structures
 Completion and finishing of building or civil
structures
 Repairs of bldg, civil structures or pipelines
 Used for Commerce or Industry
 Other than roads, airports, railways, transport
terminals, bridges, tunnel, and dams.
 Phrase “Service” deleted w. e. f 01.07.2010

CONSTRUCTION OF COMPLEX SERVICE
Construction of complex, part there of
 Completion of complex alone and not part there
of
 Repair of complex
 12 units; common area & facility; layout
approved
 Personal use exempt

PERSONAL USE ISSUES
Circular 108 validity? Rathan Melting wire SC
 Contracts liability?
 After Explanation? Still Valid
 Litigation chance – 90%, Success chance???
 Tribunal stay in various issues – Mothisham
Builders
 Period of this provision from 16.06.2005 till date

EARLIER OPTIONS FOR PAYMENT OF
SERVICE TAX

Commercial Complex


Pay ST @ Full rate (10.3) take CENVAT on Steel and
Cement. Excluding Land
Residential Complex
Option I: 2.575% on full consideration including Land
 Option II: 3.40% on Consideration Excluding Land
(Value of Land can be as agreed also)
 Option III: 4.12% less CENVAT on input Service
Capital Goods

CRITERIA FOR CHOOSING EARLIER
OPTIONS
Option I : For people having less land valuation
and no sub-contractors and outside consultants
 Option II For Builders having higher land
valuation and no sub-contractors and outside
consultants
 Option III: For Builders with Higher Land Value
and having Sub-contract

RELEVANT PROVISIONS –
ON OR AFTER 01.07.2012
DEFINITION OF “SERVICE” – SEC 65B(44)

"service" means 
any activity

carried out

by a person

for another (person)

for consideration,

includes a declared service,

but shall not include ……………………..
SERVICE EXCLUDES

Activity which constitutes merely ◦
transfer of title in goods or immovable property by
way of sale, gift or in any other manner;

◦
transaction of deemed sale;
◦
Transaction in money and actionable claim;
Provision of service by employee to employer in
course of or in relation to his employment ;

Fees taken in any court or tribunal established;
RELATED DECLARED SERVICE 66E
 (b)
construction of a complex, building, civil
structure or a part thereof, including a complex
or building intended for sale to a buyer, wholly
or partly, except where the entire
consideration is received after issuance of
completion certificate by the competent
authority.
 the expression "construction" includes
additions, alterations, replacements or
remodelling of any existing civil structure;
 (h) service portion in the execution of a
works contract;
COMPETENT AUTHORITY
 "competent authority" means the Government or any authority
authorised to issue completion certificate under any law for
the time being in force and in case of non-requirement of such
certificate from such authority, from any of the following,
namely: (A) architect registered with the Council of Architecture constituted
under the Architects Act, 1972; or (20 of 1972.)
 (B) chartered engineer registered with the Institution of Engineers
(India); or
 (C) licensed surveyor of the respective local body of the city or town or
village or development or planning authority;
WORKS CONTRACT IN GENERAL





Any contract undertaken for execution of work
Professional contracts are not works contract
Service contracts are not works contract
Sales Tax laws defines it – Gujarat State Any agreement for execution of works relating to


civil
works,
construction,
manufacture,
processing, fabrication, erection, Installation,
fitting out, improvement, modification, repair or
commissioning of any movable or immovable property
for cash/deferred payment or other valuable
consideration is a works contract.
AP VAT – Inclusive Definition
CAN WORKS CONTRACT BE DIVIDED
 If
terms divides it for sale and service
separately, it can be. If it is not so, then it
cannot be divided. – Gannon Dunkerly &
Co., - [1993] 88-STC-204
 However in terms of the amendments to
the constitution, the state is given powers
to divide it notionally for the purpose of
levying sales tax
 Daelim Industrial Co. Ltd. vs
Commissioner of C. Ex., Vadodara 2003
(155) ELT 0457 Tri.-De – vivisection
WORKS CONTRACT – DEFINITION – SEC.
65B(54)


Transfer of property in goods involved in the
execution of such contract is leviable to tax as
sale of goods.
Contracts are for the purposes of carrying outconstruction, erection, commissioning, installation,
completion, fitting out, repair, maintenance,
renovation, alteration of
 any moveable or immovable property or
 for carrying out any other similar activity or a part
thereof
 in relation to such movable or immovable property

VALUATION
METHODS
In case of only labour works service tax on full
value.
 In case of contracts which are not covered within
the meaning of works contract though involves
material, - service tax on full value.
 In case of works contact as per the definition –
service tax is on service portion of the contract –
arrived as per valuation rules.

METHODS


Service portion in execution of WC -> Gross Amount
Charged Less Value of property in goods trfd. Less
VAT/Sales Tax on such value of property.
Value of property in goods trfd. how to determine Where VAT is paid on turnover arrived based on records
by deducting labour and other charges – Value for Service
Tax is Balance Amount
 Where VAT is paid on composition– Value of goods
transferred to be determined based on records and
deducted to arrive at taxable value
 Where VAT is paid ad-hoc basis – Since it is said not
possible to ascertain value of goods next option.

METHODS TO COMPUTE VALUE

If not as per above – (compulsory)
For original works – 40% of the total amount
 If repair, maintenance or servicing of goods - 70% of
the total amount
 Other contracts including maintenance, repair,
completion and finishing services such as glazing,
plastering, floor and wall tiling, installation of
electrical fittings of an immovable property – 60% of
the total amount

OTHER ASPECTS OF VALUATION

Original Works means –






All New Constructions;
Additions and alterations – to abandoned or damaged
structures to make them workable
erection, commissioning or installation of plant,
machinery or equipment or structures, whether prefabricated or otherwise
Total Amount = Gross Amount (+) FMV of all
goods and services supplied (by the service
receiver) (–) any amount charged for such supply
(-) VAT.
Input Service and Capital goods Credit is
available
Inputs Credit is not available.
EXEMPTIONS – SL. NO. 12

Services provided to the Government, a local
authority or a governmental authority by way of
construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance,
renovation, or alteration of –
a civil structure or any other original works meant
predominantly for a non-industrial or non-commercial use;
 a historical monument, archaeological site or remains of
national importance, archaeological excavation, or
antiquity specified under Ancient Monuments and
Archaeological Sites and Remains Act, 1958 (24 of 1958);
 a structure meant predominantly for use as (i) an
educational, (ii) a clinical, or (iii) an art or cultural
establishment;

EXEMPTIONS – SL. NO. 12
canal, dam or other irrigation works;
 pipeline, conduit or plant for (i) drinking water
supply (ii) water treatment (iii)sewerage treatment or
disposal; or
 a residential complex predominantly meant for selfuse or the use of their employees or other persons
specified in the Explanation 1 to clause 44 of section
65 B of the said Finance Act;

EXEMPTIONS – SL. NO. 14

Services by way of erection or construction of original
works pertaining to,- (does not cover repair, alteration
etc)





airport, port or railways;
single residential unit otherwise as a part of a residential
complex;
low- cost houses up to a carpet area of 60 square metres per
house in a housing project approved by competent authority
empowered under the ‘Scheme of Affordable Housing in
Partnership’ framed by the Ministry of Housing and Urban
Poverty Alleviation, Government of India;
post- harvest storage infrastructure for agricultural produce
including a cold storages for such purposes; or
mechanised food grain handling system, machinery or
equipment for units processing agricultural produce as food
stuff excluding alcoholic beverages;
RESIDENTIAL COMPLEX
"residential complex" means any complex
comprising of a building or buildings, having
more than one single residential unit
 "single residential unit" means a self-contained
residential unit which is designed for use, wholly
or principally, for residential purposes for one
family;

EXEMPTIONS – SL. NO. 29 (H)
Sub-contractor providing services by way of
works contract to another contractor providing
works contract services which are exempt.
 Available only for WORKS CONTRACT subcontract which is EXEMPTED.
 If only labour portion is sub-contracted,
exemption not available.
 However if the activity is covered under any
other entry it is possible to claim that exemption.

ABATEMENT – NOT. 26/2012-ST
Construction of a complex, building, civil
structure or a part thereof, intended for a sale to
a buyer, wholly or partly (except where entire
consideration is received after issuance of
completion certificate by the competent
authority)
 Abatement is 75%
 Conditions –

Inputs credit is not taken
 Value of land is included in the amount charged from
the service receiver

SERVICE TAX IMPLICATION
PRE & POST 1.7.2012
TRANSACTION
1.7.2012
ONWARDS
PRIOR TO
1.7.2012
Sale of flats/units where any part of
sale consideration is received before
issuance of completion certificate
Taxable
Taxable
Sale of flats/units where entire sale
consideration is
received after issuance of completion
certificate
Non-Taxable Non-Taxable
Sale of single residential unit otherwise Exempt
than as a part of
a residential complex
Non-Taxable
Sale of residential flats in
building/complex having
more than 1 unit but not more than 12
units
Taxable
Non-Taxable
Sale of residential flats in
building/complex having more
than12 units
Taxable
Taxable
TRANSACTION
Re-sale of flats/units
1.7.2012
ONWARDS
PRIOR TO
1.7.2012
Non-Taxable
Non-Taxable
Sale of Entire Building ( having more than 12 Taxable
units) under construction to a company meant
for use of its employees as staff quarters.
Non-Taxable
Sale of under construction units for
Taxable
commercial purpose (irrespective of number of
units in a complex)
Taxable
Sale of under construction units to
Government
Exempt
Non-Taxable
Sale of residential unit pre-dominantly meant Exempt
for employees of Government, MP, MLA etc
Non-Taxable
Sale of unauthorized / unapproved flats
Non-Taxable
Taxable
TRANSACTION
1.7.2012
ONWARDS
PRIOR TO
1.7.2012
Sale of under construction flats/units to
entity registered under Sec 12AA of Income
tax Act, 1961 and to be used by general
public for religious purpose
Non-Taxable
Non-Taxable
Sale of units to charitable trusts for
educational / hospital / clinic etc.
Taxable
Non-Taxable
Notification No 26/2012 dt 20.07.2012 notified changes in abatement:
PARTICULARS
POST 1.7.2012
PRE 1.7.2012
Sale of under construction flats/
units where any consideration is
received before issuance of
completion certificate provided
value of land is included in
consideration
Taxable
Value
Effective Taxable
Tax
Value
Effective
Tax
25%
3.09%
2.575%
25%

Cenvat Availability
Inputs (such as cement, steel
etc)
Not available
Not available
Input Services (such as
architect,
contractor etc.)
Available
Not available
Capital Goods (such as
machinery,
equipment etc.)
Available
Not available

Reverse Charge Meaning & Reasons for Introduction
Service tax - payable by the service provider of taxable
service – “GENERALLY”
When there is a tax-shift and service recipient has to pay
Service tax such a mechanism of tax collection is known as
Reverse Charge.
Reasons:
 Administrative Convenience
 Increase the tax coverage viz. Unorganized sectors
 Curb Tax evasion
Reverse Charge-Joint Charge
S.NO.
Description of Service
%ST
SP
SR
1.
Insurance Agent to a person carrying Insurance
business
NIL
100%
2.
Goods Transportation Agency
NIL
100%
3.
Sponsorship Services
NIL
100%
4.
Advocate or firm of advocates 2
NIL
100%
5.
Support Services by Govt. except Renting , Posts,
transportation of goods or passengers 2
NIL
100%
6.
Manpower/Security services1
25%
75%
7.
Service portion in Works Contract1
50%
50%
8.
Hiring of Vehicles (Abated value)1
NIL
100%
9.
Hiring of Vehicles (Non-Abated)1
60%
40%
10.
Import of services
NIL
100%
11.
Directors Remuneration( incl. Sitting Fees)
NIL
100%
1
SP= Individual, Hindu Undivided Family or partnership firm and
SR=Body Corporate
2
SP= Advocate/Firm of Advocate &Government/Local authority as
the case maybe
SR=Business Entity
Business Entity defined under Section 65B(17) as –
-person ordinarily carrying out
-any activity relating to
-industry, commerce or any other business or profession
ISSUES???
What happens to continuing works where service
tax was being on 33% without credit prior to
01.07.2012?
 What happens to continuing works where service
tax was being paid under works contract
composition prior to 01.07.2012?
 What happens to continuing works of
construction of residential houses less than 12
units but more than 1?
 Whether Service Tax can be paid on full value
and take credit of duty paid in inputs in full in
new law?

ISSUES ???
Whether developer is liable to pay service tax
under works contract?
 In case of joint development with land owner,
whether developer is liable for share given to
land owner?
 If liable on what value and when it is to be paid?
 Whether the land value claimed by the developer
is in case of joint development, where land is
registered directly by the land owner to buyer, is
eligible for exclusion from scope service
definition?
 Whether the profit/gross amount charged by the
developer on land is liable for service tax

ISSUES ???
Whether the sub-contractor is liable to pay
service tax when main contractor has paid
tax/exempted?
 Whether flooring work, plastering, painting,
glazing, carpentry, plumbing, interiors etc., done
during the course of construction can be
considered as original works for valuation
purposes and pay tax on 40%?
 Whether construction includes the above said
activities?

ISSUES ???
Whether scope of entry 14 in exemption is
restrictive in its scope as it covers only erection or
construction of original work only?
 Whether the said activities in relation to single
residential unit can be claimed exemption?
 Whether compensation received for transfer of
buying right is liable for service tax?
 Whether the amounts forfeited for non-payment
of installments is liable for service tax? If yes
whether it is applicable on full value or as per
valuation rules?

e-mail: vssudhir@gmail.com
Contact: 9908 11 3787