Whether Service tax is applicalbe or not for residential complex?(New Circular)

Dear Friends,

This circular was much awaited and needed but has come when many developers have been paying, many in refund  litigation and many having paid from 1.6.2007. However now with intimation to the dept. the developer who only transfer the IP after completion ( as per agreement also) would not be liable.

The developers who did not collect and pay therefore would be vindicated.

However developers who have collected have to pay back or pay the govt.

Contractors who provide services to developers would continue to be liable.

Have attached a file of an article which provides more detail.

Warm Regards

 

Thanks for the clarification and the attached document Madhukar. Just this one clarification. I'm paying [monthly installments+service tax] to the developer/promoter who has further subcontracted the work to a contracter in Bangalore(for around 300 flat residential complex). The possession/signing of sale deed will happen after couple of months The question now is, in the light of this service tax circular dated 29Jan09, am I liable to continue paying service tax? The developer have sub-contracted further, but I'm dealing with him and he's demanding ST. The developer might have to pay ST to contracter, but not me, correct? Where in this document, https://www.servicetax.gov.in/circular/st-circular09/st-circ-108-2k9.htm, does it make a clear case for refund or otherwise?

Uncertainty in taxing provisions are biggest tyranny by the state. This circular clarify an issue. But for such lack of clarification for years, thousands of people will suffer. The state must compensate them.

Service Tax has become as much a tyranny for everybody. No persons can be sure how the tax has to be levied, assesed and collected. Till now we dont have a service tax law. We dont know what is the definition of "service". The definition given in the service tax are provisions are inclusive definition, which does not define anything. Then everyday a new circular is issued, channg the very way tax was being asesed for last many years. The penalty/interest provisions has been made in such a fashion that for difference in interpretation of confusing law, a liability may arise which can bust any service business.

This is injustice. Such laws are designed to promote corruption and ad hocism.

Taxation, without justice, is robbery by the state. 

I agree with you Rajesh and share the same very frustation. IT IS a robbery by the state behind the cloak of all these ambiguous circulars/laws.  We are fleeced every now and then by state/central govt's.

Now look at this very general scenario we have. In Bangalore, not many promoters are builders and do not hire direct labour. Construction is sub-contracted. We, as an end consumer, do not have clarity if we have or not to pay service tax?

Since it's sub-contracted, it's the service provider, the builder/contractor, who has to pay the ST to govt. But what's happening is that the promoter is demanding ST from us! Is that correct? Or is my interpretaion of the circular wrong?

Kindly help me understand if as a would-be-resident (to a 100+ apartment complex), do I have to pay ST to promoter who has sub-contracted the contruction to the contractor?

 

No. When subcontractor has to pay the service tax, the builder is the receiver of service and liable to pay the tax.

Even when the builder has to pay service tax, there is no law which empoweres the builder to recover the tax from the buyer. Many a times a service provider may decide to absorb the burden of tax. There must be expressed agreement between the builder and buyer as to who will pay the tax. In absence of any such agreement, the builder has to bear the burden of tax.

 

Thanks Rajesh.

Since our promoter is not agreeing to the demands of ST refund, how should we proceed on this?

Should we demand a reply/clarification in writing from his legal/tax department and then pursue it with a tax expert like you?

What do you suggest? Kindly guide

 

 

You should ask promotoer to provide you details about the service tax paid and name of the person who has borne the service tax. The invoice, on which service tax has been paid will have details of the person who has borne the service tax. I am sure, every buyer will have a copy of that invoice on which he paid the service tax.

Based on that invoice, you can file for refund of service tax.

Thanks Rajesh. Will try to get the invoice copy.

You were very helpful and prompt. Thanks once again.

 

Response from the Contractor

"

d. As stated above, we are registered and covered under a different category viz., “works contract service” and remitting service tax under the said category.

e. The clarification issued by the Board on 29.1.2009 will not apply to our activities and hence we are under an obligation to charge service tax under the category of ‘works contract service’.

 

In view of the above, we are constrained to inform that the Circular dt.29.1.2009 cannot be used by us to provide service tax relief to our customers.

"

Is that correct?

 

 

Ya, The same is the situation with me. The builder has given me the same reply.

In light of the notification No 32/2007 dated 22.05.2007 are we liable to pay service tax. In may case I have an agreement with the builder that Service tax would be paid by me.

Yes, the service tax is payable on work contract and this circular in not relevant on work contract service.

Originally posted by :Rajesh Kumar

I am in the process of buying a flat in Bangalore. I have started paying in Januvary 08.  The following are the facts of my case

1. Checked with my builder-based on above circular that service tax is not applicable. But Builder replied that in case of two separate agreements one for sale and other for construction, above circular is not applicable. However builder provided a letter informing dates of deposit of service tax and indicating that service tax has not been refunded.

2. Based on receipts I had and reply of builder as above, I have applied for refund of Service tax on o1-04-09. The service tax commissionnerate replied on 29-06-09 with a show cause notice, and following are the salient points for refusing refund

a). The refund claim by me (i.e buyer) pertains to service tax payments made by builder and hence can not be refunded.

b) The claim for refund is partially hit by time bar i.e 1 year prior to date of application for refund (01-04-09)

c) The documents under which service tax was paid not enclosed. 

I am planning to file a reply based on information I have and claim for refund.

I think it is fairness to general public that the service tax commissionerate publishes the proedure and documents required for claiming refund of service tax paid. I would appreciate feed back on similar experience of any other person. 

It is time for all those who are affected by above issue to file for refund en-mass.

R.Prabhu

09449869645

Dear Mr.Rajesh Kumar,

I'm representing a copany which owns and promotes residential complexes (with more than 12 residences and with facilities like health club, gymnasium etc. . The construction is not oursourced, but done by the company itself. Is service tax applicable for us? Is there a clear solution yet?

 

Thanks in advance for your valuable inputs.

 

regards,

Shiva

Service Tax is a tax on transaction. We have to examine a transaction and decide whether service tax is payable on this particular transaction or not.

As a construction company, you construct flats ans sell to your customer. This is a sale transation and service tax is not payable. It happens that after selling the flats you maintain the building/club/power back up etc., and charge an amount from your customers/members. This charge is a charge for services, and service tax is payable.

Similarly, when you hire services from some contractors, architects, labour supplier, security agencies etc., these services are taxable; however liability to pay service tax in on service provider.