Company Logo

1

Basic Division of Construction Activity

60%

10%

10%

20%

Commercial or Industrial Construction Services.

Construction of Residential Complex Services.

Preferential Location Services.

Management, Maintenance and Repair Services.

08

Services Performed under Works Contract.

2

Progress Flow

Commercial or Industrial

Construction Services

w.e.f 10.9.2004

2004

Construction of

Residential Complex w.e.f.

16.6.2005

2005

2005

14

Management Maintenance

and Repair Service includes

Immovable Property from

16.6.2005

3

Progress Continue…

04

Works Contract prior to

1st June 2007

2009

Addition of Free Supply from 7th July 2009

• Bhayana Builders (P.) Ltd. [2013] 38 taxmann.com

221 (New Delhi - CESTAT) (LB)

• Notification No. 15/2004-ST, dated 10.09.2004,

• Intercontinental Conslt. & Tech. (P.) Ltd.[2009] 19

STT 320 (DELHI)

2007

4

Progress Continue…

05

Explanation Added in Commercial Or

Industrial Construction Services and

Construction of Residential Complex

Services from 1st July 2010 to Cover

Builder Services.

Then added

Preferential Location

Services w.e.f 1st July,

2010

2010

2012

Finally Negative List

became applicable

from 1st July 2012.

2010

5

Contractor and Repair Services

Builders Activity

Progress Resulted in Division of Activity in Two Parts

026

Resulted Further… Construction Activity Finally

Divided Into

02

Transfer of Material

Labour

+

7

Works Contracts

Company Logo

Which of the Construction is not taxable?

Taxability on Individual Collaboration agreements

Main-Contractor Vs. Sub Contractor

Whether CENVAT Credit is available with abatement.

Whether Abatement is available on PLC Charges after 1.7.2012

Development Rights Vs. Joint Venture

Valuation of Works Contract

Sale of Plot-whether taxable

Issues

8

Issue 1- Which of the Construction is not

Taxable?

9

Key issues to Understand First Issue

60%

10%

10%For Whom the Contractor is working

What is the nature of the construction activity that the Contractor is doing

What is the Project?

0810

Mega Exemptions…

60%

10%

10%

20%

09

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) a civil structure or any other original works meant predominantly

for use other than for commerce, industry, or any other business or

profession;

11

Mega Exemptions…

60%

10%

10%

20%

09

(b) a historical monument, archaeological site or remains of national

importance, archaeological excavation, or antiquity specified

under the Ancient Monuments and Archaeological Sites and

Remains Act, 1958 (24 of 1958);

(c) a structure meant predominantly for use as an educational, a

clinical, or an art or cultural establishment;

12

Mega Exemptions…

60%

10%

10%

20%

09

(d)canal, dam or other irrigation works;

(e) pipeline, conduit or plant for water supply, water treatment, or

sewerage treatment or disposal; or

(f) 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 Act;

13

Mega Exemptions…

60%

10%

10%

20%

09

13. Services provided by way of construction, erection, commissioning,

installation, completion, fitting out, repair, maintenance, renovation,

or alteration of:

(a) a road, bridge, tunnel, or terminal for road transportation for use

by general public;

(b) a civil structure or any other original works pertaining to a

scheme under Jawaharlal Nehru National Urban Renewal Mission or

Rajiv Awaas Yojana;

14

Mega Exemptions…

60%

10%

10%

20%

09

(c) a building owned by an entity registered under section 12AA of the

Income tax Act, 1961(43 of 1961) and meant predominantly for religious

use by general public;

(d) a pollution control or effluent treatment plant, except located as a

part of a factory; or

(e) a structure meant for funeral, burial or cremation of deceased;

15

Mega Exemptions…

60%

10%

10%

20%

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14. Services by way of construction, erection, commissioning, or

installation of original works pertaining to:

(a) an airport, port or railways, including monorail or metro;

(b) a single residential unit otherwise than as a part of a

residential complex;

(c) low- cost houses up to a carpet area of 60 square metres per

house in a housing project approved by competent authority empowered

under the ‘Scheme of Affordable Housing in Partnership’ framed by the

Ministry of Housing and Urban Poverty Alleviation, Government of India;

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Case-I

Facts:Developer XYZ Ltd has approached Mr. A (landowner) for constructionof building. All expenses related to construction will be borne bydeveloper. All land related expenses will be borne by landowner.Developer will get Third Floor of the constructed building in lieu thereofit will pay Rs. 1 Cr. to landowner. Landowner will get Ground Floor, FirstFloor and Second Floor.Developer has appointed ABC Ltd as contractor for construction ofbuilding. ABC Ltd has charged Rs. 1.5 Cr for construction.

Assumption:Market Value of Third Floor Rs. 3 Cr. Sold by Mr A.

Developer XYZ Landowner

Construction Service

Developer XYZLandowner

Construction Service

3rd Floor

3rd Floor

Landowner

Developer XYZ

Construction+ 1 Cr

ABC Ltd.Developer XYZ

1.5 Cr.

Activity 1Activity 2

Activity 3

Case I

Service Tax Impact

Developer:Output Liability: 14% of 40% of Rs. 2 Cr. (Rs. 3 Cr. – Rs. 1 Cr.)CENVAT Credit: Service Tax charged by contractor i.e. 14% of 40% of Rs.1.5 CrLandowner:Output Liability: 14% of 30% of Rs. 3 Cr.CENVAT Credit: Service Tax charged by developer pertaining to ThirdFloorContractor:Output Liability: 14% of 40% of Rs. 1.5 Cr.CENVAT Credit: Input Services and Capital Goods

Case-II

Facts:Developer XYZ Ltd has approached Mr. A (landowner) for constructionof building. All expenses related to construction will be borne bydeveloper. All land related expenses will be borne by landowner.Developer will get Ground Floor and Third Floor of the constructedbuilding in lieu thereof it will pay Rs. 2 Cr. to landowner. Landowner willget First Floor and Second Floor.Developer has sold Ground Floor for Rs. 3.5 Cr. before completion.Construction executed by developer itself.

Assumption:Market Value of Ground Floor Rs. 3.5 Cr. and Third Floor Rs. 3 Cr.

Developer XYZ Landowner

Construction Service

Developer XYZLandowner

Construction Service

Ground Floor & 3rd Floor

Ground Floor & 3rd Floor

Landowner

Developer XYZ

Construction+ 2 Cr

Developer XYZCustomer

3.5 Crore

Activity 1 Activity 2

Activity 3

Case II

Service Tax Impact

Developer:Output Liability: 14% of 40% of Rs. 4.5 Cr. (Rs. 6.5Cr. – Rs. 2 Cr.)CENVAT Credit: Input Services and Capital GoodsLandowner:Output Liability: 14% of 30% of Rs. 6.5 Cr.CENVAT Credit: Service Tax charged by developerpertaining to Ground Floor and Third Floor.

Case-III

Facts:Developer XYZ Ltd has approached Mr. A (landowner) for constructionof building. All expenses related to construction will be borne bydeveloper. All land related expenses will be borne by landowner.Developer will get Third Floor of the constructed building in lieu thereofit will pay Rs. 1 Cr to landowner. Landowner will get Ground Floor, FirstFloor and Second Floor.Developer has sold Third Floor for Rs. 4 Cr. after completion.Construction executed by developer itself.

Assumption:Market Value of Third Floor Rs. 3 Cr.

Developer XYZ Landowner

Construction Service

Developer XYZLandowner

Sale of Third Floor

3rd Floor

3rd Floor

Landowner

Developer XYZ

Construction+ 1 Cr

LandownerCustomer

4 Crore

Activity 1 Activity 2

Activity 3

Case III

Service Tax Impact

Developer:Output Liability: 14% of 40% of Rs. 2 Cr. (Rs. 3 Cr. –Rs. 1 Cr.)CENVAT Credit: Input Services and Capital GoodsLandowner:Output Liability: 14% of 30% of Rs. 3 Cr.CENVAT Credit: Service Tax charged by developerpertaining to Third Floor.

Case-IV

Facts:Developer XYZ Ltd has approached Mr. A (landowner) for constructionof building. All expenses related to construction will be borne bydeveloper. All land related expenses will be borne by landowner.Developer will get Third Floor of the constructed building in lieu thereofit will pay Rs. 1 Cr to landowner. Landowner will get Ground Floor, FirstFloor and Second Floor.landowner has sold Ground Floor for Rs. 3.5 Cr. before completion.Construction executed by developer itself.

Assumption:Market Value of Third Floor Rs. 3 Cr.

Developer XYZ

Landowner

Construction Service

Developer XYZLandowner

Sale of Ground Floor

3rd Floor

3rd Floor

Landowner

Developer XYZ

Construction+ 1 Cr

Developer XYZCustomer

3.5 Cr

Activity 1 Activity 2

Activity 3

Case IV

Service Tax Impact

Developer:Output Liability: 14% of 40% of Rs. 2 Cr. (Rs. 3 Cr. – Rs. 1Cr.)CENVAT Credit: Input Services and Capital GoodsLandowner:Output Liability: 14% of 30% of Rs. 3 Cr.

14% of 30% of Rs. 3.5 Cr.CENVAT Credit: Service Tax charged by developerpertaining to Ground Floor and Third Floor.

Issue 2- Main Contractor Vs Sub

Contractor

29

Issue 2

60%

10%

10%

20%

A

C

D

B

10

Clause 29(h) of Mega Exemption..

sub-contractor providing services by way of works contract to another

contractor providing works contract services which are exempt;

30

Mega Exemptions…

60%

10%

10%

20%

09

(d) Post- harvest storage infrastructure for agricultural

produce including a cold storages for such purposes; or

(e) Mechanized food grain handling system, machinery or

equipment for units processing agricultural produce as food stuff

excluding alcoholic beverages;

31

Issue 3- Abatement and CENVAT

Credit

32

New Abatement Valuation & Scheme

Old Abatement New Abatement

CommercialConstruction

66/75 Nil

Construction of Complex

66/75 Nil

Erection, Commission & Installation

66 Nil

Builder 75 75

33

10%Notification 26/2012 allow from 1st July 2012.

New Abatement Valuation & Scheme

34

Works Contract

ServiceCommercial Construction

Construction of Complex

Erection, Commissioning &

Installation

+

Repair & Materials

New Abatement Valuation & Scheme

Works Contract Service

Composition Scheme

@ 4.8% + Cess on

full value.

Now Deleted w.e.f

1.7.2012

Value = Gross Amount

Less Sale of/Transfer

in property

Exemption

Original work 60%

Completion work 40%

30%(from 1st October

2014)

Movable property 30%

No Credit of Inputs35

Issue 4-

Taxability of Joint Venture

36

Issue 4: Taxability of Joint Venture

60%

10%

10%

20%

A

C

D

B

10

FAQIR CHAND GULATI Versus UPPAL AGENCIES PVT. LTD. 2008 (12) S.T.R. 401 (S.C.)

The use of the words ‘joint venture’ or ‘collaboration’ in the title of an agreement or even in the body of the agreement will not make the transaction a joint venture, if there are no provisions for shared control of interest or enterprise and shared liability for losses. [para 21]

37

60%

10%

10%Circular 151/2012 dated 10.2.2012 deals with Joint Venture

and Collaboration Agreements.

08

Issue 4: Taxability of Joint Venture

38

39

Commercial/

Residential Units

(Eg. 100 units)

Land Owner Developer

Sales to prospective buyer30 units 70 units

•Taxable Value: FMV at the time of

receipt Development rights

•Effective rate of tax: 25% to 12.36%

(BSP)

•Benefit of CENVAT: Available w.e.f

1st july 2012

•Taxable Value: Transaction value

•Effective rate of tax: 25% to

12.36% (BSP)

•Benefit of CENVAT: Available

w.e.f 1st july 2012

Note: w.e.f. 1st july 2012, service tax would also apply on sale of allotted

units by land owners to prospective buyer.

Taxability At a Glance

S. No Activity Applicability of

Service Tax

Valuation

1. Sale of

Land/Development

Rights

No, Sale of

Immovable Property

NA

2. Units allotted to land

owner by the developer

Yes FMV of units at the time

receiving development

rights

3. Sale of such units by

land owner to

prospective buyers

Yes (w.e.f. 1st July,

2012)

Transaction Value

40

Issue 5-

Services of builder for providing

preferential location or development of

such complex

41

•Taxability of charges for other facilities as thesecharges do not form part of the taxable value forcharging tax on construction like:

•prime/preferential location charges for allottinga flat/commercial space according to the choiceof the buyer

•(i.e. Direction- sea facing, park facing,corner flat; Floor- first floor, top floor, Vastu-having the bed room in a particular direction;Number- lucky numbers);

Issue :5 - Services of builder for providing preferential

location or development of such complex

42

•(b) internal or external development charges which are collected for developing/maintaining parks, laying of sewerage and water pipelines, providing access roads and common lighting etc; (c) fire-fighting installation charges; and (d) power back up charges etc.

Issue :5 - Services of builder for providing preferential

location or development of such complex

43

Honorable Bombay High Court in the case of MAHARASHTRACHAMBER OF HOUSING INDUSTRY vs UNION OF INDIA 2012(25)S.T.R.305 (Bom.) “special value addition service includes the provisionof a flat on a preferred floor to a prospective buyer, a flat facing aparticular direction or a particular room in a particular direction. Thisinvolves a locational choice of a prospective buyer having an extraadvantage for which additional payment is made by the buyer to thebuilder over and above the basic sale price. Since these charges are inthe nature of service provided by the builder to the buyer over andabove the construction service”

Rate of Tax in case of PLC (Positive List)

44

Rate of Tax in case of PLC (Negative List)

Naturally Bundled Service Floor rise charges or charges where increase in cost of flat is linked with construction cost.

PLC not bundled Service

(Mumbai Commissionerate vide F.No. V/ST-I/Tech-II/463/11 dated 31st August 2012)45

Exclusion

60%

10%

10%

20%

Development charges, to the extent they are paid to StateGovernment or local bodies, will be would be excluded from thetaxable value levy

Any service provided by Resident Welfare Associations orCooperative Group Housing Societies consisting ofresidents/owners as their members would not be taxable underthis service.

0846

Sale of Plot

60%

10%

10%

20%

[2013] 30 taxmann.com 42 (SC) Narne Construction (P.) Ltd.

Vs. Union of India

366(29A) of Constitution prescribe “deemed sale” empower

state to levy tax on composite contract and Centre is

empowered through declared services.

08

Question is how to value?

47

CA. Atul Kumar Gupta

atul@servicetax.net

pctl@rediffmail.com

www.servicetax.net

+91-9810103611

Thank You!

48