Service tax to land owner + engineer building a resi.complex

This query is : Resolved

K. meharnath (Querist)
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26 October 2012 Dear sir,

Kindly clarify the following doubt:

1. I am a land owner & civil engineer constructing an apartment complex on my self owned land.
2. There are 12 residential units in the apartment.
3. The agreements for sale is made with 2 prospective purchasers in the month of nov 2011 and feb 2012.
4. There are 2 agreements one for selling undivided share of land and the other construction agreement.
5. There is a chartered engineer certificate showing the level of construction as on 01/07/2012.
6. The agreement is such that all the initial payments as shown in the agreement go for only undivided share of land and later after the exhaustion of the sum to be paid for undivided share of land, the payments for construction start.
7. A post dated cheque is received from the purchaser of the flat, for the construction agreement, such that all the other payments of undivided share of land is exhausted and the value of construction starts with this PDC.

Clarifications for.

1. Is service tax applicable for my complex.
2. If so, since the agreements are made before 01/07/2012, will those 2 prospective purchasers, exempted from service tax, since they had entered into agreement before the law came into force.
3. If S.Tax is applicable which is the best method for my kind of work.
4. How turnover is to be taken into consideration for knowing whether I will be exempted from 10lacs turnover limit for last year.
5. Will the service tax be applicable on a prorata basis for the services made upto 01/7/12.

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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27 October 2012 Service tax is applicable on sale of complex and not on land if separate agreement for land and construction has been entered. If you sale the apartment after completion then it is not but as you have already entered into an agreement for advance sale it is applicble

K. meharnath

K. meharnath (Querist)
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28 October 2012 Hello mr. aggarwal.

If I raise a material bill, then the service is for my self, and if it is for the prospective client, then it is for his personal use. The conveyance happens only after I give the possession of the property and not before that. Where is the act of service provider and service receipent.
As long it is not conveyed the bill is in my name and for self use there is no service tax, and
since I am entering into a separate land cum construction agreement, then if it is for the prospective purchaser, then only the construction agreement cost is subjected to service tax on works contract basis only, and not like residential complex.
For a residential complex basis of service tax the receipent himself is constructing his unit of apartment for his self use and therefore it is not subjected to service tax isn't it.

thanks
meharnath.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2025 This is a nuanced area — let me break down your questions based on the service tax law as it stood around 2012 and the related rulings:

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### 1. Is service tax applicable on your apartment complex?

* **Yes, service tax is applicable on the works contract service part (construction),** if the agreement for construction is separate from the sale of land.
* **Sale of land is not subject to service tax.**
* Since you are constructing the building and entering into agreements for the construction, that portion attracts service tax as a works contract service.

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### 2. Are the purchasers exempt if agreements were signed before 01/07/2012?

* Service tax on works contract for construction of residential complex was introduced effective **1 July 2012**.
* **If agreements for construction were entered before 01/07/2012, those would generally be exempt from service tax** (provided no further amendment or specific ruling applies).
* However, since payments related to construction start after exhaustion of payments for land, taxability would begin when construction payments start (after 01/07/2012).
* The question depends on the timing of consideration and performance of services, so **advance payments for land are not taxable but payments for construction after 01/07/2012 will be taxable.**

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### 3. Best method for your kind of work?

* Since you have separate agreements for land and construction, you should treat:

* **Land sale as exempt from service tax.**
* **Construction agreement as works contract service (taxable).**
* Service tax on construction can be discharged either by:

* Paying service tax on gross value (without abatement), or
* Using notified abatement rates if eligible (for example 40% abatement for original works).
* Maintain clear separation of invoicing and accounting for land vs construction parts.

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### 4. How turnover is taken for exemption?

* The **aggregate turnover for the preceding financial year determines exemption from registration and payment**.
* Include **all taxable services provided** by you in the turnover calculation, i.e. value of construction service portion.
* Land sale receipts are excluded as they are not taxable services.

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### 5. Is service tax applicable on pro-rata basis up to 01/07/2012?

* Service tax liability **starts only from 01/07/2012**, so construction services provided before that date are not taxable.
* For works partly done before and partly after 01/07/2012, only the value of construction service provided **from 01/07/2012 onwards** is taxable.
* If possible, get a **certified engineer’s certificate to show level of completion as on 01/07/2012**, so you can reasonably calculate taxable value.

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### Additional thoughts:

* If you are both landowner and builder, the service tax rules apply on your *service* (construction) part, not the land.
* For the **two purchasers who entered agreement before 1 July 2012**, payments related to land only (or construction before 1 July) are exempt.
* Your situation requires proper documentation and split billing between land and construction.
* The **works contract service is taxable at 12.36% (including cess)** on the value of construction service after abatement.

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If you want, I can share the relevant notifications and rulings for deeper clarity or help draft a summary of accounting and invoicing steps.

Does this help clear your doubts? Would you like me to focus on any specific part?

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