Embed Size (px)
Citation preview
Service Tax on Builders & Developers
Madhukar N Hiregange
Coverage Today
Post 1.7.2012 – “service”, declared, -ive List
ExemptionsValuation Issues & Possible SolutionsQ/A – time permitting
2Hiregange
i.Ensure compliance with thisuncertain, ever changing law
Understand the poor drafting/ omissions
ii.Least amount of disputes- SC would be decide All
iii. Optimisation of Creditiv. Value additive advice
Objectives of Advisor..
Activity [ not service anymore.. Much wider]
For a Consideration – “valuable benefit passed by promisor to promisee” [ Sec 67]
Excludes… Includes….
“Service” ??
Service excludes
Activity which constitutes merely -
• transfer of title in immovable property
by way of sale, gift or in any other
manner;
-> Single Agreement of Sale – Is it a
transfer of Title?
-> One Agreement to Sell + 1
Construction
-> Joint Venture?
5Hiregange
At time of contract – agreement to sell for value of the Immovable property +Balance value construction
As building progresses, the VAT [5%] + ST [ 5%] would be on reduced value. Maybe at 90% complete only @ net impact of 1 %.- On average considering todays trend – 3% total.
Give Shylock his due
Best now? Post L&T
Related Declared Service-66E (b) construction of a complex, building, civil
structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority. the expression "construction" includes
additions, alterations, replacements or remodelling of any existing civil structure;
(h) service portion in the execution of a works contract;
7Hiregange
Competent authority◦ "competent authority" means the Government or
any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:- (A) architect registered with the Council of Architecture
constituted under the Architects Act, 1972; or (20 of 1972.)
(B) chartered engineer registered with the Institution of Engineers (India); or
(C) licensed surveyor of the respective local body of the city or town or village or development or planning authority;
8Hiregange
Same competent authority- monthwise valuation
Add other evidences – electricity – individual meters
Stage wise completion
Works Contract – Definition – Sec. 65B(54)
• Transfer of property in goods involved in the execution
of such contract is leviable to tax as sale of goods.
• Contracts are for the purposes of carrying out-
– construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation,
alteration of
– any moveable or immovable property or
– for carrying out any other similar activity or a part thereof
– in relation to such movable or immovable property10Hiregange
Exemption – Relevant Entries
Exemptions – Sl. No. 12 Services provided to the Government, a
local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –◦a civil structure or any other original works meant predominantly for a non-industrial or non-commercial use;
12Hiregange
Exemptions – Sl. No. 12
◦a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);
◦a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
13Hiregange
Exemptions – Sl. No. 12 contd..
◦ canal, dam or other irrigation works;
◦ pipeline, conduit or plant for (i) drinking water
supply (ii) water treatment (iii)sewerage
treatment or disposal; or
◦ a residential complex predominantly meant for
self-use or the use of their employees or other
persons specified in the Explanation 1 to clause
44 of section 65 B of the said Finance Act;
14Hiregange
Exemptions – Sl. No. 13 Services provided by way of erection,
construction, maintenance, repair, alteration, renovation or restoration of,-◦road, bridge, tunnel, or terminal for road
transportation for use by general public;◦building owned by an entity registered
under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public;
15Hiregange
Exemptions – Sl. No. 13
◦pollution control or effluent treatment plant, except located as a part of a factory;
◦or◦electric crematorium;
16Hiregange
Exemptions – Sl. No. 14 Services by way of erection or construction of
original works pertaining to,- (does not cover repair, alteration etc ??)
◦airport, port or railways;◦single residential unit otherwise as a part of a residential complex;
◦low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority …
17Hiregange
Exemptions – Sl. No. 14 Services by way of erection or
construction ..◦post- harvest storage infrastructure for
agricultural produce including a cold storages for such purposes; or
◦mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages;
18Hiregange
Exemptions – Sl. No. 14Services by way of erection or construction of original works pertaining to,- (does not cover repair, alteration etc)◦airport, port or railways;◦single residential unit otherwise as a part of a residential complex;
19Hiregange
Exemptions – Sl. No. 14◦ low- cost houses up to a carpet area of 60
square metres per house in a housing project approved by competent authority ..
◦ post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or
◦ mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages;
20Hiregange
Residential Complex
"residential complex" means any complex
comprising of a building or buildings, having
more than one single residential unit
"single residential unit" means a self-contained
residential unit which is designed for use, wholly
or principally, for residential purposes for one
family;
{ Common amenities???}
21Hiregange
Exemptions – Sl. No. 29 (h)
• Sub-contractor providing services by way of works
contract to another contractor providing works
contract services which are exempt.
• Available only for WORKS CONTRACT sub-contract
which is EXEMPTED.
• If only labour portion is sub-contracted, exemption
not available.
• However if the activity is covered under any other
entry it is possible to claim that exemption.22Hiregange
Abatement – Not. 26/2012-ST Construction of a complex, building, civil
structure or a part thereof, intended for a
sale to a buyer, wholly or partly (except
where entire consideration is received
after issuance of completion certificate by
the competent authority)
23Hiregange
Abatement – Not. 26/2012-ST Abatement is 75%-(i) the carpet area of
unit<than 2000 sq ft; and (ii) amount charged for
the unit is less than Rs 1crore;
or 70%
Conditions : Inputs credit is not taken ◦ Value of land is included in the amount charged
from the service receiver
24Hiregange
ValuationPost 1.7.2012
Methods In case of only labour works service tax on
full value. In case of contracts which are not covered
within the meaning of works contract though involves material - service tax on full value.
In case of works contact as per the definition – service tax is on service portion of the contract – arrived as per valuation rules.
26Hiregange
Methods Service portion in execution of WC -> Gross Amount
Charged Less Value of property in goods trfd. Less VAT/Sales Tax on such value of property.
Value of property in goods trfd. how to determine: ◦ Where VAT is paid on turnover arrived based on
records by deducting labour and other charges – Value for Service Tax is Balance Amount
◦ Where VAT is paid on composition– Value of goods transferred to be determined based on records and deducted to arrive at taxable value
◦ Where VAT is paid ad-hoc basis – Since it is said not possible to ascertain value of goods next option.
27Hiregange
Methods to compute value If not as per above – (compulsory)
◦ For original works – 40% of the total amount ◦ If repair, maintenance or servicing of goods - 70%
of the total amount ◦ Other contracts including maintenance, repair,
completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property – 60% of the total amount
28Hiregange
Other Aspects of Valuation
• Original Works means –
– All New Constructions;
– Additions and alterations – to abandoned or damaged
structures to make them workable
– erection, commissioning or installation of plant, machinery or
equipment or structures, whether pre-fabricated or otherwise
• Total Amount = Gross Amount (+) FMV of all goods
and services supplied (by the service receiver) (–)
any amount charged for such supply (-) VAT.
29Hiregange
L&T Limited v. State of Karnataka (2013-TIOL-46-SC-CT-LB)
Affirmed its earlier decision in K Raheja case The Court in Raheja Development held:
◦ the developer would be liable to pay tax on works contract.
◦ If the agreement is entered into after the flat or unit is constructed, there would be no works contract.
Decision-L&T
The decisions in the Magus Construction Pvt Ltd Vs Union of India - (2008-TIOL-321-HC-GUW-ST) and Assotech Realty no longer valid
JD liable on non-monetary consideration [maybe-disputed]?
Decision-L&T-ST implications
Whether single agreement liable u/s 66E(b) upto date of agreement and under WC entry thereafter?
Whether amounts received earlier to agreement date could be treated as immoveable property-excluded from Service definition?
Whether pure service contracts alone covered in declared services entry 2?-as WC more specific entry………..
Decision-L&T-ST Issues:
Inputs not allowed in WC
Capital goods used – Cranes, hoists, dumpers, tippers, concrete mixers – Allowed if used partially
Capital goods used in building/ Mall itself- lifts, DG, travellators, escalators, parking equipment? – what if part rented
Inputs services – all if eligible.
Which Credit Availability?
Site Development & sale- Single Contract would that be covered prior to 1.7.2012
Coverage after 1.7.12?
Issues
“Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority”.
Possible Solution??- One agreement to sell [ completions stage wise] + development agreement – Bifurcated for roads, sewage, electrical lines, drains [ 60%] + others [40%]
FOC Supply- If not part of agreement, If not charged – No liability? – Bhayana Builders
Under 33% can we continue OR have to change to pay on actual basis or 40% of 12.36 ? Nagarjuna- SC
Issues
Issues??? Whether service Tax can be paid on full
value and take credit of duty paid on inputs
in full in new law?
• In case of joint development with land
owner, whether developer is liable for share
given to land owner?
38Hiregange
Issues ???
• If liable on what value and when it is to be paid?
• Whether the land value claimed by the developer
is in case of joint development, where land is
registered directly by the land owner to buyer, is
eligible for exclusion from scope service
definition?
• Whether the profit/gross amount charged by the
developer on land is liable for service tax?
39Hiregange
Issues ???
• Whether the said activities in relation to single
residential unit can be claimed as exemption-
Villa?
• Whether compensation received for transfer of
buying right is liable for service tax?
Nomination/ Relinquishment
• Whether the amounts forfeited for non-payment
of installments is liable for service tax?
40Hiregange
