construction of building

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ranjit kumar (Querist)

26 April 2011 query regarding Service tax.
we have started a project and hand over to a contractor for completation work in this concern we are liable of service tax or not? if yes then what we have to do further and we also know about that we need to register for VAT, please help me in this regards.

CA Deep Upadhyay

CA Deep Upadhyay (Expert)

26 April 2011 You have hired the contractor for completion of project. That cannot allow you to escape from service tax liability. On basis of Court decisions and CBE&C circulars, it was more or less settled that a builder entering into contract for sale of flat or industrial unit (gala) or shop or a developer entering into contract for construction of an individual flat for personal residential use of client are not liable to pay service tax.

Service tax will not apply only when a builder sales a ready flat or shop or industrial unit (gala) after Building completion certificate is obtained from local authority (like Municipal Corporation, Municipality, Gram Panchayat etc.) and entire consideration is obtained only after building completion certificate is obtained.
Thus, practically in all cases, the builder/developer will be liable to pay service tax, except in case of few flats or shops or commercial galas, which he usually keeps for sale at a later date at higher prices. Even in this case, the builder/developer will not be liable only if entire transaction (including receipt of money) takes place after obtaining ‘completion certificate’ from municipal or other competent authority.

CA Deep Upadhyay

CA Deep Upadhyay (Expert)

26 April 2011 The service can be classified as works contract service only if it is subject to work contract tax under VAT / Sales Tax i.e. property in goods are also provided with and as part of execution of contract. Then and then only the such service is classifiable as works contract service. Otherwise it shall be classifiable under respective heads of services such as construction / site formation etc.

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