Declared service

The activity of construction of a building, carried out for another person, for a consideration is a service only even though the end result of the service is an immovable property that comes into existence. However, if the consideration is received only towards the sale of fully constructed building, it would not be a service. For example, you engage a builder to construct a building for you on your own land, it would be a service. If you enter into a contract for the purchase of a building that is under construction, it would still be a service. However, if you enter into a contract for the purchase of a building and pay for it only after its fully constructed, it would only be a sale and not a service.

If you own land of building on land and sell the same- it is sale of immovable property- not a services as per defintion.

If you book an apartment in Bangalore which is being constructed- then there could be 2 components - 1- sale of undivided interest in land

2. Construction of your partment along with others.

The second part is taxable under VAT and Service Tax.

There is an interesting proposition put forward in the L&T SC decision. They say that VAT is not payable on the completed construction as well as the land part. Only the balance construction as on date of agreement would be liable. Of course the developer may have to restrict his credits in VAT for sure and maybe for ST. This concept has not been embraced by most of the developers due to possibility of confudsion as well as restriction on credits. Most developers have a clasue that VAT & ST is payable and would not give possession or register the property until the ST & VAT is paid in the end.