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Discussion > Service Tax > Queries >

Service tax on land development

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Sr. Manager - Accounts

[ Scorecard : 178]
Posted On 12 August 2011 at 11:16 Report Abuse

Dear sir,

Mr. X is a land owner of 10Acres. X Promoted the project being a laying consiting of 100 Plots and got Layout approval from necessary authorities.

M/s. ABC Pvt. Ltd. entered into an agreement with Mr. X for Developing, Marketing & Selling of above Layout [Plots].

The agreement says that M/s. ABC Pvt. Ltd. is authorized to deal the customer on end-to-end basis and can collect full consideration from Plot Buyer. All Marketing, Advt., etc., should be born by M/s. ABC Pvt. Ltd. It is the responsibility of M/s.ABC Pvt. Ltd. to complete the development of layout such as Laying Blacktop Roads, Sewage, Drainage, Electricity, Compound wall, Water Tank etc. to ensure the timely completion of plot [piece of land] development for customer.

On registration, the sale deed says that Land belongs to Mr.X, Developing by M/s.ABC Pvt. Ltd., and will register the document in favour of Customer / Plot Buyer. X have no responsibility of development activities proposed in Sale deed. On registration of Plot, Mr.X will get his part of sale consideration for land from M/s. ABC Pvt. Ltd.

From the above, It is clear that, the land development agreement is between ABC Pvt. Ltd. and the Plot Buyer. Mr.X doesn't accept to be a part of development activity. He is getting only consideration for Land as per the agreement entered with M/s. ABC Pvt. Ltd.

It is M/s. ABC Pvt. Ltd. which collects full sale consideration [for both Land Cost & Development Cost] from the Plot Buyer and pay Mr.X only Land Cost as agreed before. So, Mr.X is in development agreement neither with M/s. ABC Pvt. Ltd. nor with the Plot Buyer.

The sale deed is also saying that Land owner [Mr.X] is getting consideration for Land amount only. It further says that, M/s. ABC Pvt. Ltd. is getting consideration only for development activities.

In case of Above, Please guide me by answering the following:

1. Whether M/s. ABC Pvt. Ltd. liabile to Pay Service Tax?

2. If, answer to Question No. 1 is Yes, under which section he is liabile to pay service tax and on What is the Rate of Tax?

3. As M/s. ABC Pvt. Ltd. is entering Development agreement with individual plot buyers through Sale Deed, is Service Tax Exempted?

Please mention case laws / notifications / circulars (available if any) with your answer.

Thanks in Advance!!


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CA Unnikrishnan Nair N
Chartered Accountant

[ Scorecard : 2068]
Posted On 12 August 2011 at 11:50

Services provided by   ABC is taxable under construction of complex services. If any money is received from the buyer prior to getting completion certificate, the service is taxable notwithstanding that the agreement is for sale of villa/unit .
 





Sidhardh
Sr. Manager - Accounts

[ Scorecard : 178]
Posted On 12 August 2011 at 12:15

Sir,

It seems that my question itself contains confusing words.

For clarrification, there is no construction activity. It's a pure Land Dealing.

X is Landowner who promoted the Layout.

ABC Pvt. Ltd. is Land Developer [No Construction Activity of building / house included].

Land Development includes Common Water Tank Construction for all Plots in Layout, Laying Black top Roads, Compound wall Construction around Layout with Solar Fencing, Landscaped Avenue Plantations, Water, Electiricity & Sewage Connections, etc. for each Plot in Layout.

Hope it is clear now when read with original posted query. Kindly suggest your advice...

Thanks You sir!!




CA Unnikrishnan Nair N
Chartered Accountant

[ Scorecard : 2068]
Posted On 12 August 2011 at 13:04

Neither residential complex nor commercial construction. It appears to be classifiable under site formation services. But detailed examination of facts in the light of  related judicial decisions is warranted before conclusion.



Total thanks : 1 times



U S Sharma
glidor@gmail.com

[ Scorecard : 19381]
Posted On 18 August 2011 at 08:56

look in to agreement of X and ABC Ltd. and whether the rights of transfer goes to ABC Ltd after the agreement? i .e X does not have to sign the sale registration deeds direct or through POA? if he does not have to sign then .............ABC is liable for ST, but if X has to sign the registration instrument , then ABC is contractor for property of X, here the ST liability remains with the poerpty owner X.




Sidhardh
Sr. Manager - Accounts

[ Scorecard : 178]
Posted On 18 August 2011 at 12:25

Thak your sir.

I got clear clarriffication of one side that ABC is liable to ST, if X need not to sign on registration documents.

Taking the another side (i.e., ABC Ltd. can't register the document infavour of customer with out X signature), Is really ABC Ltd. is free from Service Tax liability?

why because, in this case, its look like ABC Pvt. Ltd. is renderting services to X. But, there is no agreement with X for development of Site. The agreement is only between ABC Pvt. Ltd. and Customer and Mr.X is not promising the customer / accepting any responsibility of site development.

Please bear this to reply..




U S Sharma
glidor@gmail.com

[ Scorecard : 19381]
Posted On 18 August 2011 at 17:02

service tax is a chain system, if abc is providing services to X then X is eligible to take input credit and then charge the buyer. this scenerio appears only when at the point of sale, land and development both are offered at the same time at point of sale.

 

if the land is sold prior to development, then ABC is liable to service tax and collect the same from buyer who got the plot from X

 



Total thanks : 1 times



Sidhardh
Sr. Manager - Accounts

[ Scorecard : 178]
Posted On 18 August 2011 at 18:33

Great sir. Really appreciate you. Thank you so much.




Vikash Kharvar
CA-IPCC Student as well as Asst. Manager- F&A

[ Scorecard : 464]
Posted On 18 August 2011 at 18:38

Nice conversation .................




Vignesh.R
article assistant

[ Scorecard : 22]
Posted On 19 March 2012 at 18:08

@ U S Sharma:  Sir can u be little clear on ur reply to the land development query. How can Mr.X, the land owner pay service tax without doing any servcie regarding the land development. where ABC Ltd exclusively develops the land and as well as make Mr.X to sell the land to the prospective customer, is only doing servcie for and on behalf of the land owner, Mr.X. Then in this scenario whether Mr.X is not liable for service tax?

 



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