CA Sumat Singhal
( Expert )
18 February 2012
By the Finance Act, 2010 the Government has amended the definition of Commercial or Industrial Construction Service [Section 65 (25b) read with Section 65 (105) (zzq)] and construction of Residential Complex [Section 65 (30a) read with Section 65 (zzzh)].
The scope of these categories is expanded to cover sale of flats/units under construction. Builders/developers are now liable to service tax if any payment towards sale consideration is received before the grant of completion certificate by the competent authorities for such flats/units. This amendment overrides the Gauhati High Court’s decision in the case of Magus Construction Private Limited v/s UOI [2008 11 STR 225].
Therefore, if a builder/developer receives the entire sale consideration for flats/units after issue of completion certificate, the same is not liable to service tax.
There is an abetement of 75% of the sale value. Thus, the tax will be levied on 25% of the sale value of flat at the rate of 10.3%. For example if the agreement value of a flat sold under construction is Rs. 50,00,000/- then service tax @ 10.3% is payable on Rs. 12,50,000/- which works out to 1,28,750/-. Thus, there will be an additional burden of 2.6% on the agreement value of flat. The amendment will be effective from the date to be notified by the Central Government.
This amendment did not take the form of a retrospective amendment, but going by the logic it was always going to be prospective w.e.f 1-7-2010.
Date of booking is not relevant. Date of provision of service is relevant as provision of service is the taxable event. Hence, if construction service is provided after 1-7-2010, service tax will be payable.
If construction is complete before 1-7-2010 even if completion certificate is not received, no tax is payable, as service tax is on provision of service, provided the facts can be made clear from books of accounts.
In case of payments received prior to 1-7-2010, as per Notification No. 36/2010-ST dated 28-6-2010, if any advance payment was received prior to 1-7-2010, for service to be provided after 1-7-2010, service tax was made fully exempt.