A developer of a property has entered into a development agreement with a owner of land wherein the developer would pay a lumpsum consideration for the land and will develop and sell the flats (more than 12 units etc condiitons fulfilled). Is the developer liable to service tax. Can it be held that the developer is providing the services to owner of the land. If yes on what amount service tax would be payable.
Further if the developer enters into agreement with the prospective buyers before construction of the flat. Is the Supreme Court judgement in the case of K Raheja (rendered in the context sales tax wherein it was held it was works contract) applicable and if so whether it can be held that the builder(developer) has provided construction services to the ultimate customer
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Service Tax on Development Agreement
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The developer would be liable for both service tax and vat if the allottee becomes the owner of the apartment in pursuance to the agreement and the allottee is handed over possession pursuant to the said agreement on receiving full amount as per the agreement. In such a case the transaction would be that of works contract as held by the apex court in K. Raheja.However, if a conveyance/transfer deed is executed for the superstrucure, the transaction would be that of transfer of property. (Kindly refer to my article 2007-9 STT 61(MAG).
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