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Under the  current service tax provisions “construction of residential complex service” was one of the services which was subject matter of litigation all over India. Various Departmental circulars giving contradictory clarifications as well as pronouncements by various courts and tribunals also played there part in making it the hot topic for discussion in professional as well as trade forums .To a lesser extent the related services of Commercial and Industrial construction and Works contract  were also been subject of litigation.Now under the  new provisions proposed by Finance Bill 2012 these services are brought under declared services and are mostly in line with current provisions.However due to  changes in concepts  as well as lack of clarity in some of the provisions  the  scope for litigation and contrary views have increased.Also the exclusions and exemptions prevailing under the current provisions have been taken back   through some deft  changes in the  provisions.

As per the current regime there are three categories of taxable services under construction .The services in the order of inclusion are (i) Commercial and Industrial Construction(Section 65(105)(zzq)),(ii) Construction of Residential Complex (Section 65(105)(zzzh)) & (iii) Works Contract (Section 65(105)(zzzza)).Under the proposed provisions the services are included under Section 66E (Declared Services )under  two categories under sub clause  Construction of complex (Section 66 E(b)) and Service portion in execution of works contract(Section  66 E (h)).

The declared service which is taxable under section 66  E(b) is 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. Explanation I to 66 E(b)defines the competent authority to issue the completion certificate and Explanation II defines that  expression "construction" includes additions, alterations, replacements or remodeling of any existing civil structure also. These provisions are more or less similar to  the current provisions.

Under the current provisions Residential complex  as well as Commercial or Industrial construction construction services  are defined under subclauses of section 65 of Finance Act 1994 .  

A.“residential complex” means any complex comprising of—

(i) a building or buildings, having more than twelve residential units;

(ii) a common area; and

(iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person.

Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this clause, —

(a) “Personal use” includes permitting the complex for use as residence by another person on rent or without consideration;

(b) “Residential unit” means a single house or a single apartment intended for use as a place of residence;]

Section 65(91a) of the Finance Act, 1994

B.“Commercial or Industrial Construction” means —

(a) construction of a new building or a civil structure or a part thereof; or

(b) construction of pipeline or conduit; or

(c) completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is —

(i) used, or to be used, primarily for; or

(ii) occupied, or to be occupied, primarily with; or

(iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;(Section 65(25b) of the Finance Act, 1994)

As per the definition under Section 65(91a) construction of  a building or buildings with more than twelve residential units  with a common area , one or more of the common amenities  and constructed with approved lay out under any law  will only become a residential complex and hence covered under taxable services. Also construction not primarily used, occupied or engaged for commerce or industry  were outside the scope of taxable services.

Section 65 will be repealed from a date to be notified by the Central Government and the new section 65B will be applicable from that date.So the current defintion will not be applicable for the new provisions. Even though the word “complex” is used under the new provisions, no definition is given in section 65 B for the word.However a defintion is given for residential complex in Notification No.12/2012-ST  dt 17.03.2012  .As per the notification residential complex is defined as any complex comprising of a building or buildings, having more than one single residential unit .Single Residential Unit is defined as an independent residential unit with specific facilities for living, cooking and sanitary requirements.

Further as per Notification No.12/2012-ST dt 17.03.2012 the following services related to construction are exempted

Services provided to the Government or local authority by way of erection, construction, maintenance, repair, alteration, renovation or restoration of -

(a) a civil structure or  any other original works meant predominantly for a non-industrial or non-commercial use;

(b) 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);

(c) a structure meant predominantly for use  as (i) an educational, (ii) a clinical, or  (iii) an art or cultural establishment; 

(d) canal, dam or other irrigation works;

(e) pipeline, conduit or plant for (i) drinking water supply (ii) water treatment  (iii)sewerage treatment or disposal; or 

(f) a residential complex predominantly meant for self-use 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;

Services provided by way of erection, construction, maintenance, repair, alteration, renovation or restoration of,-

(a) road, bridge, tunnel, or terminal for road transportation for use by general public;

(b) building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public;

(c) pollution control or effluent treatment plant, except located as a part of a factory; or

(d) electric crematorium;

Services by way of erection or construction of original works pertaining to,-

(a) airport, port or railways;

(b) single residential unit otherwise as a part of a residential complex;

(c) 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;

(d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or

(e) mechanised food grain handling system, machinery or equipment for units  processing  agricultural produce as food stuff excluding alcoholic beverages;

The word original work is defined by the notification as

“Original works” means –

(a) all new constructions;or

(b) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable,

Under the proposed provisions, the first category of exemptions are available only for the works  performed for government or local authority. So the exclusion available currently for non- commercial / non- industrial constructions are only available for works done for government or local authority .Under the second category there is an exemption for work related to a building  owned by an entity registered under section 12 AA of the Income tax Act, 1961 and meant predominantly for religious use by general public, Only religious use is specified and It seems that even a charitable organisation registered under section 12AA of the Income tax Act 1961 will not get the exemption of service tax on building used  predominantly for other than religious purpose like a old age home ,orphanage etc. Also service tax will be applicable for  buildings constructed  for religious organisations, if they are not registered under section 12AA of the Income tax Act 1961 or the buildings are not used perdominantly for religious purposes like schools etc .

As per the notification exemption is available  for original works relating to a single residential unit not being part of a residential complex. The exclusion available upto twelve residential units will not continue under new provisions. Also as per the definition given for single residential unit,  if  a residential building consists of   more than one independent unit with specific facilities for living, cooking and sanitary requirements,  the benefit will not be  available. Also the exclusion  provided for construction of complex by a person  for self use including purposes given in explanation to  section 65(91a)like renting,use for staff as residential quarters etc will not be available under new scheme.

Now the other questions are what will qualify for original work pertaining to construction of single residential unit as addition or alteration of abandoned or damaged structures on land that are required to make them workable and all new constructions are considered as  original works .As per Explanation II to section 66E construction" includes additions, alterations, replacements or remodeling of any existing civil structure, So it can be assumed that all new construction defined in the original works includes all new additions,alterations,replacements or remodeling of existing civil structure namely single residential unit. Another interesting question is since the exemption is given for single residential unit not being part of a residential complex what will happen to repairs or alteration of a residential unit after it is transferred to the owner. As per section 66E(b) service is not taxable , if the entire consideration is received after obtaining  certificate of completion  from the competent authority.So if the alteration ,repairs or modification happens after the issue of completion certificate it should not be taxable.But there should be some clarification on these issue by the department.

Even though the provisions will be applicable prospectively, taxability of  continuing works not taxable under existing provisions but covered under new provisions will also be problem for the industry as the projects were conceived without considering these taxes .Hopefully some notification will be issued for clarification for all concerned but from past experience  usually the clarificatory circulars and department notifications  had made the matter even more complicated.   

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