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Service tax on construction company for collection of mc

Raviprasaddhulipalla Raviprasa (13 Points)

26 May 2016

Dear sir,

Please let me know the service tax on construction company against the collection of maintainance charges from its customers before handing over to welfare association.

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7 Replies

anonymous (student) (750 Points)
Replied 26 May 2016

what exactly you want to know

Raviprasaddhulipalla Raviprasa (13 Points)
Replied 26 May 2016

One real estate company(indu Projects) had developed a JVproject in Hyderabad in association with Housing Board(Owner) and not project is not completed till date however, they have handed over 680 flats in the year 2012 they have transferred the title to the purchasers and the handed over the possession without title to them. Since june 2012, they were collecting maintenance charges as they are providing service viz., housekeeping,Security, paying common electricity charges and water charges to the vendors. They have not formed the association so far. Now they received notice from service tax authorities to pay some amount along with interest and they are transferring the same to us. When they have not handed over township can they transfer the same to us. A line of response is solicited from respected members. With kind regards, Ravi prasad

Raviprasaddhulipalla Raviprasa (13 Points)
Replied 26 May 2016

Dear sir,

One real estate company(indu Projects) had developed a JVproject in Hyderabad in association with Housing Board(Owner) and project is not completed till date however, they have handed over 680 flats in the year 2012 they have transferred the title to 265 purchasers and they have not transferred title to 415 purchasers as on date hoever, they have handed over the possession without title to 415. As per the condition precedent of Owner, since june 2012, they were maintaining the township and collecting maintenance charges. They are providing service viz., housekeeping,Security, paying common electricity charges and water charges along with charges to the above house keeping and security vendors. They have not formed the association so far.

It appears that they are paying service tax to the department however not paid service on collection of MC. Now they received notice from service tax authorities to pay some amount along with interest on the above treating this as their income. Instead of replying to notice, they are transferring the same to us. In strict sense their is no receiver to 415 purchasers.

Query: When they have not handed over township to the residents by forming an association, can they transfer the demand received to them from them to us.

A line of response is solicited from respected members.

With kind regards,

Ravi prasad

JOJY THOMAS (CHARTERED ACCOUNTANT) (295 Points)
Replied 27 May 2016

Circular No.175 /01 /2014 - ST

F. No.354/237/2013-TRU

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise& Customs

Tax Research Unit

North Block, New Delhi

10th January, 2014

Chief Commissioners of Central Excise and Service Tax (All), Director General (Service Tax), Director General (Central Excise Intelligence), Director General (Audit), Commissioners of Service Tax (All), Commissioners of Central Excise and Service Tax (All).

Madam/Sir,

Subject: Levy of service tax on services provided by a Resident Welfare Association (RWA) to its own members - regarding.

Service tax on 'club or association service' which covers Resident Welfare Association (RWA) was introduced with effect from 16.06.2005, vide section 65(105)(zzze) read with section 65(25a)[(25a) was later renumbered as (25aa)]. Under the positive list approach which was followed prior to 1st July 2012, exemption was available under notification No. 8/2007-ST dated 01.03.2007, if the total consideration received from an individual member by the RWA for the services does not exceed three thousand rupees per month. This notification was rescinded vide notification No. 34/2012-ST dated 20th June 2012, with effect from 1st July, 2012.

2. Under the negative list approach, with effect from 1st July, 2012, notification No.25/2012-ST [sl.no.28 (c)] provides for exemption to service by a RWA to its own members by way of reimbursement of charges or share of contribution up to five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members.

Certain doubts have been raised regarding the scope of the present exemption extended to RWAs under the negative list approach. These doubts have been examined and clarifications are given below:

Sl. No.	Doubt	Clarification
1.	(i) In a residential complex, monthly contribution collected from members is used by the RWA for the purpose of making payments to the third parties, in respect of commonly used services or goods [Example: for providing security service for the residential complex, maintenance or upkeep of common area and common facilities like lift, water sump, health and fitness centre, swimming pool, payment of electricity Bill for the common area and lift, etc.]. Is service tax leviable? (ii) If the contribution of a member/s of a RWA exceeds five thousand rupees per month, how should the service tax liability be calculated?	Exemption at Sl. No. 28 (c) in notification No. 25/2012-ST is provided specifically with reference to service provided by an unincorporated body or a non-profit entity registered under any law for the time being in force such as RWAs, to its own members. However, a monetary ceiling has been prescribed for this exemption, calculated in the form of five thousand rupees per month per member contribution to the RWA, for sourcing of goods or services from third person for the common use of its members. If per month per member contribution of any or some members of a RWA exceeds five thousand rupees, the entire contribution of such members whose per month contribution exceeds five thousand rupees would be ineligible for the exemption under the said notification. Service tax would then be leviable on the aggregate amount of monthly contribution of such members.
2.	(i) Is threshold exemption under notification No. 33/2012-ST available to RWA? (ii) Does 'aggregate value' for the pusrpose of threshold exemption, include the value of exempt service?	Threshold exemption available under notification No. 33/2012-ST is applicable to a RWA, subject to conditions prescribed in the notification. Under this notification, taxable services of aggregate value not exceeding ten lakh rupees in any financial year is exempted from service tax. As per the definition of 'aggregate value' provided in Explanation B of the notification, aggregate value does not include the value of services which are exempt from service tax.
3.	If a RWA provides certain services such as payment of electricity or water bill issued by third person, in the name of its members, acting as a 'pure agent' of its members, is exclusion from value of taxable service available for the purposes of exemptions provided in Notification 33/2012-ST or 25/2012-ST ?	In Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, it is provided that expenditure or costs incurred by a service provider as a pure agent of the recipient of service shall be excluded from the value of taxable service, subject to the conditions specified in the Rule. For illustration, where the payment for an electricity bill raised by an electricity transmission or distribution utility in the name of the owner of an apartment in respect of electricity consumed thereon, is collected and paid by the RWA to the utility, without charging any commission or a consideration by any other name, the RWA is acting as a pure agent and hence exclusion from the value of taxable service would be available. However, in the case of electricity bills issued in the name of RWA, in respect of electricity consumed for common use of lifts, motor pumps for water supply, lights in common area, etc., since there is no agent involved in these transactions, the exclusion from the value of taxable service would not be available.
4.	Is CENVAT credit available to RWA for payment of service tax?	RWA may avail cenvat credit and use the same for payment of service tax, in accordance with the Cenvat Credit Rules.

3. Trade Notice/ Public Notice to be issued. Hindi version to follow.

Raviprasaddhulipalla Raviprasa (13 Points)
Replied 27 May 2016

Sir,

Thanks for your reply.

In our case Construction company had not formed RWA due to non completition of project and non completition registration to the purchasers.

Construction company only maintaining the township and collecting the MC.

1. In that event can the construction company take benefit of the circular referred by you.

2. The construction compnay submitting returns(ST3) to the service tax authorities since long however, they neever mentioned about the collection of MC charges, During the audit by the authorities for the period october 2010 to March 2015, they noticed about the collection of MC Charges and directed to the pay the tax on MC charges along with interest. The authorities are demanding this for the period w.e.f 1.7.2012 to 31.3.2015 by way of letter dated 11.3.2016. can they collect tax now, is it not barred by limitation.

With kind regards,

Ravi Prasad

JOJY THOMAS (CHARTERED ACCOUNTANT) (295 Points)
Replied 28 May 2016

only for resident welfare association the above circular is applicable. The circular is not applicable to company.

Raviprasaddhulipalla Raviprasa (13 Points)
Replied 28 May 2016

Sir thanks. My specific doubt is whether the construction company is liable to pay service tax in the event of maintaining its own project. In our case it is not providing service to any 3rd party whereas it is providing service to us and collecting the charges paid by it authorities.