STinConstructionIndustry.pptx

8/18/2019 STinConstructionIndustry.pptx

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APPLICABILITY OF

SERVICE TAX INCONSTRUCTION

INDUSTRY

CA Ashok BatraSpecial Invitee, Indirect Taxes Committee


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Services provided by aDeve oper!Co"#rac#ors

$%&Services by way of Construction and Sale ofats/units in a complex.

$'& Services by way of Works Contracts

$(& Services by way of Renting of Immovable roperty

$)& Services by way of maintenance of aComplex/!uilding


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E"#ries o* Dec ared Lis# +over"i"+Co"s#r,c#io"!B,i ders Services $Sec#io" --E&

"a# Renting of immovable property$

"b# Construction of a complex% building% civil structure or apart t&ereof% including a complex or building intendedfor sale to a buyer% w&olly or partly% except w&ere t&eentire consideration is received after issuance of

completion'certi(cate by t&e competent aut&ority$

" service portion in t&e execution of a works contract$


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Re"#i"+ o* I..ovab e Proper#yService/

Ne+a#ive Lis# o* services $Sec#io" --D&/

$.& services by way of renting of residential dwelling for use

as residence$


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Co"s#r,c#io" Service/ Vario,s E0e.p#io"s

Services provided #o1over".e"#! LocaA,#2ori#y! 1over".e"#a

A,#2ori#y ")ntry o 85#

Services provided #o a"yPerso" ")ntry o 8:#

Services by way of Construction,Completion, Fitting out, repair,maintenance, renovation,alteration in respect of :

Services by way of Construction,Completion, Fitting out, repair,maintenance, renovation,alteration in respect of

Civil Structure for on'Commercialurpose.

;istorical +onument etc.Structure for use as clinical%educational% or culturalestablis&mentCanal% 0am )tc.

ipeline% Conduit )tc.Residential Complex for self of

employees of above

Road% !ridge% ,unnel etc.Civil Structure under o=ana

3 building owned by entity registeredunder Section 8533 of Income ,ax 3ct%8?98

3 pollution Control plantStructure for burial% funeral etc.


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Services provided #o a"y perso" by 3ay o* co"s#r,c#io"4erec#io"4 co..issio"i"+ or i"s#a a#io" per#ai"i"+ #o

")ntry o 8@# /

3irport% port A railways "including monorail A metro#Single residential unit ot&erwise as a part of residential complex

2ow'cost &ouses up to a carpet area of 97 sB metres.ost'&arvest storage infrastructure for agriculture produce+ec&anised food grain &andling system% mac&inery% or eBuipmentsfor units processing agricultural produce.

Services o* 5or6s Co"#rac# provided by a S,b7Co"#rac#or #o a"o#2er co"#rac#or providi"+ 5or6sCo"#rac# services 32ic2 are E0e.p# *ro. Service Ta0

)ntry o 5? "D


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Renting of precincts of a religious place meant for general public (Entry No 5) .

Renting of a premises for the conduct of Religious Ceremony(Entry No 5) .

Renting of Immovable Property to an Educational Institution providing education which is e empted from Service !a

(Entry No 9) .

Renting of a hotel, inn, guest house, club, campsite or othercommercial places meant for residential or lodging purposes,having declared tari" of a room below rupees one thousand

per day or e#uivalent (Entry No 18) .

)xemptions available to Renting of Immovable ropertyService vide oti(cation o 56/5785 dated 57.79.5785


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C2ar+es co ec#ed by B,i ders a"d ra#e o* ServiceTa0 app icab e o" said c2ar+es

S8No

C2ar+es Ra#e o* Service #a0

%8 !asic C&arges :.7?E/:.F7GE

'8 referential 2ocationC&arges

85.:9E

(8 C ,b C2ar+es ,owards cost ofconstruction4or members&ip of club

rovision of 4ood/ot&erservices

:.7?E/:.F7GE

85.:9EI2/85.:9E

)8 Car arking' open Acovered

:.7?E/:.F7GE


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S8No

C2ar+es Ra#e o* Service #a0


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>ai"#e"a"ce Services provided by a

Deve oper!B,i der3part from construction Services developers/!uilders also providet&e services of maintenance of buildings/complexes constructed byit. 4or providing suc& services developer c&arges maintenancec&arges form t&e occupants of ats/oJces. ,&e nature of c&argescollected by builders and Rate of ,ax applicable on t&e same &asbeen summarised as underK

Mai Maintenance Charges

C2ar+es Descrip#io" Ta0abi i#y

+aintenance

C&arges

,owards maintenance of

building/complex

85.:9E

)lectricity C&arges 4or supplying electricity inats/s&ops "C&arged on

actual basis#

on ,axable

Common 3rea)lectricity C&arges

,owards cost of electricityconsumed in Common 3rea

85.:9E


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Construction for $%&' Charitable Institutions made ta able

Renting for $%&' Charitable Institutions made ta able

Services in relation to development of plots provided bybuilders made ta able

Changes in the de(nition of Residential Comple

Scope of entry no. )* of $oti(cation $o. *+'* )* dated* . -.* )*

Impact of egative 2ist Regime


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C3S) S,10I)S


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Case Study'8

/C ltd has entered into a contract for construction of roadmeant for general public. /C ltd sub contracts the aforesaidwor0 to three contractors namely1

2EF 3td , the wor0 of site formation for construction of road 456 3td , laying the surface of road %7I 3td , other physical activities in respect of such roads.

/C ltd has entered into a contract for construction of roadmeant for general public. /C ltd sub contracts the aforesaidwor0 to three contractors namely1

2EF 3td , the wor0 of site formation for construction of road 456 3td , laying the surface of road %7I 3td , other physical activities in respect of such roads.

8hat will be the Service ta implication on the aforesaidtransactions ?


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Services provided by way of construction of road meant foruse by general public is )xempted from payment of Service

,ax. ,&us% any service w&ic& is used in t&e construction ofsaid road s&all be exempted from Service ,ax as per E"#ry%($a& o* N!N '9!'=%' da#ed '=8=-8'=%'8 3ccordingly% allt&e aforesaid services in respect of roads are not exigible toService ,ax.

4urt&er% as far as laying of surface is concerned same is alsocovered under de(nition of Works Contract as engraftedunder Section 96! "6@# of 4inance 3ct% 8??@. Since% mainContractor en=oys exemption% t&e sub contractor alsocontinue to en=oy t&e exemption in respect of Works ContractServices ' E"#ry '


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Case Study'5

+/s 3!C vt 2td is engaged in construction of &ospitals andeducational institutes. W&et&er +/s 3!C vt 2td. is reBuired topay Service ,ax on t&e same ?

+/s 3!C vt 2td is engaged in construction of &ospitals andeducational institutes. W&et&er +/s 3!C vt 2td. is reBuired topay Service ,ax on t&e same ?

If +/s 3!C 2td is constructing suc& structures for t&e government% alocal aut&ority or a governmental aut&ority% in t&at case +/s 3!C isnot reBuired to pay Service ,ax on t&e same as per E"#ry %' $a& o*No#i?ca#io" No '9!'=%' .

;owever% if suc& structure are built for persons ot&er t&angovernment% a local aut&ority% governmental aut&ority% +/s 3!C 2tdis reBuired to pay Service ,ax on t&e same.


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Case Study':

+/s *>L vt 2td is engaged in maintenance A Repair of orts.W&et&er +/s 3!C vt 2td. is liable to pay Service ,ax on t&esame ?

+/s *>L vt 2td is engaged in maintenance A Repair of orts.W&et&er +/s 3!C vt 2td. is liable to pay Service ,ax on t&esame ?

>es% +/s *>L vt 2td is reBuired to pay Service ,ax on t&e same asvide )ntry o 8@ of oti(cation o 56/5785 dated 57.79.5785%

exemption &as been provided only to services in respect ofConstruction of orts.


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Case Study'@

+/s *>L vt 2td is Renting out its Immovable roperty to an-. W&et&er +/s *>L vt 2td is reBuired to pay Service ,ax on

t&e same ?

+/s *>L vt 2td is Renting out its Immovable roperty to an-. W&et&er +/s *>L vt 2td is reBuired to pay Service ,ax on

t&e same ?

>es% +/s *>L vt 2td is reBuired to pay Service ,ax on t&e same asexemption &as not been granted to suc& activity anyw&ere under4inance 3ct% 8??@.


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Case Study'6

+r. 3 &as rented a &ouse to +r. !% consisting of two oors. oneoor of w&ic& is to be used as residence and t&e ot&er for t&e

purpose of running of a oJce ? W&at s&all be t&e Service ,aximplications on t&e same ?

+r. 3 &as rented a &ouse to +r. !% consisting of two oors. oneoor of w&ic& is to be used as residence and t&e ot&er for t&e

purpose of running of a oJce ? W&at s&all be t&e Service ,aximplications on t&e same ?

Suc& renting for two diMerent purposes is not naturally bundled in t&eordinary course of business. ,&erefore if a single rent deed isexecuted it will be treated as a service comprising entirely of suc&

service w&ic& attracts &ig&est liability of Service ,ax. In t&is caserenting for use as residence is a egative 2ist Service w&ile rentingfor non'residence use is c&argeable to tax. Since% t&e latter categoryattracts &ig&est liability of Service ,ax amongst t&e two servicesbundled toget&er% t&e entire bundle would be treated as renting ofcommercial property.


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Case Study'9

,&is will be a case of !undled Services w&ere a number of services&ave been provided in lieu of a Single Consideration. 3ccordingly%taxability of t&e same s&all be determined as per Sec#io" --F o*

Fi"a"ce Ac#4 %


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3213,I- 3S )C,S I R)23,I- ,-C- S,R1C,I- S)R IC)S


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aluation in respect of Works Contract Services

SERVICE TAX (DETERMINATION OF VALUE), RULES,200 1

RULE 2A, D!t!r"#n$t#on o% &$' ! o% !r*! +ort#on #n

t ! !-!* t#on o% $ .or/ *ontr$*t

C a,se$i&/ ,axable alue s&all be ross 3mount C&argedexcluding 3,/Sales ,ax paid / payable on transfer of property in

goods involved in execution of works contractD for t&e workscontract service less t&e value of transfer of property in goodsinvolved in t&e execution of t&e said works contract.3s per said Rule labour c&arges% amount paid to sub'contractors%c&arges for planning% designing etc% cost of consumables% cost ofestablis&ment of t&e contractor% and ot&er similar expenses inrelation to supply of labour are reBuired to be included in t&e ross

3mount C&arged.


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$ii& In case t&e value cannot be determined under clause "i#above% t&en taxable value s&all be determined as followsK

S8No8

PURPOSE OF 5OR@CONTRACT

PROPORTION OF T ETOTAL A>OUNT ON

5 IC SEVICE TAX ISPAYABLE

8. 4or execution of original works @7E

5. works contracts% includingmaintenance% repair%completion and (nis&ing

services of an immovableproperty

97E

:. +aintenance or repair orreconditioning or restoration orservicing of any goods

F7E


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aluation in respect of !uildersN Services

LABOUR CONTRACTS for Construction of a complex% building%civil structure or a part t&ereof

Va ,e o* Service O ross 3mount C&arged "Rate of Service ,ax K 85.:9E#

Contract for Construction of complex or building intended for saleto a buyer% w&erein co"sidera#io" is received *ro. b,yerpar# y or 32o y prior #o Iss,a"ce o* Co.p e#io" Cer#i?ca#eby a Co.pe#e"# A,#2ori#y

Va ,e o* Service O ross 3mount C&arged '9 !(="Rate of Service ,ax K :.7?E / :.F7GE#

$N!N87 '-!'=%' da#ed '=8=-8'=%' s a.e"ded vide N!N7'!'=%(da#ed =%8=(8'=%( a"d N!N7

Co"#i",ed 8


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aluation in respect of !uildersN Services

Perce"#a+e a"d Co"di#io"s *or aba#e.e"#sConstruction of a complex% building% civil structure or a part t&ereof%intended for a sale to a buyer% w&olly or partly except w&ere entireconsideration is received after issuance of completion certi(cate by t&ecompetent aut&ority%58e8* =%8(8'=%(Aba#e.e"# o* :9 "i# 4or residential unit &aving carpet area upto 5777 sBuare feet a"d w&ere t&e amount c&arged is less t&an rupees one croreAba#e.e"# o* :=$ii& 4or ot&er t&an "i# above

Fro. =%8=:8'=%' #o ';8='8'=%(Aba#e.e"# o* :9

CONDITIONS/ %8 Va ,e o* La"d i"c ,ded i" 1ross A.o,"#C2ar+ed

'8 CENVAT Credi# i" respec# o* INPUTS NOT AVAILED


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3part from adopting met&ods prescribed by Rule 53% t&eperson providing Works Contac service provider &as an option

to valued its service as per t&e provisions contained inSec#io" -: read 3i#2 R, e 9 o* Service Ta0$De#er.i"a#io" o* Va ,e& R, es4 '==-

$ow the moot #uestion arises whether a person providing8or0s Contract Services is mandatorily re#uired todischarge its Service !a 3iability as per aforesaid Rule *or can avail any other method of valuation ?

Case Study'F


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Case Study' G

builder engages three sub9contracts in order to e ecute theconstruction wor0 :including material; of a new building. !hesaid Sub9Contractors have been awarded the wor0 as follows1

Civil wor0 has been given to


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!he scope of term ?Construction@ can not be restricted tomerely putting up walls, roof and Aoor etc. In di"erent words,

completion and (nishing services Bsuch as gla ing, plastering,Aoor and wall tiling, installation of electrical (ttings, plumbingwor0s etc.D also fall within the ambit of term ?Construction@which itself gets covered under the de(nition of term ?&riginal8or0s@.

!herefore, all above contracts are eligible to discharge serviceta liability on the of the total amount charged for thewor0s contract.

!he scope of term ?Construction@ can not be restricted tomerely putting up walls, roof and Aoor etc. In di"erent words,

completion and (nishing services Bsuch as gla ing, plastering,Aoor and wall tiling, installation of electrical (ttings, plumbingwor0s etc.D also fall within the ambit of term ?Construction@which itself gets covered under the de(nition of term ?&riginal8or0s@.

!herefore, all above contracts are eligible to discharge serviceta liability on the of the total amount charged for thewor0s contract.


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8hat are the options available to a /uilder fordischarging its Service !a 3iability ?

In addition to disc&arging Service ,ax liability after availingabatement as per No#i?ca#io" No '-!'=%' da#ed'=8=-8'=%' % t&e builder can also disc&arge its Service ,ax2iability as per Rule 53 of Service ,ax "0etermination of alue#%Rules% 5779 provided it entered into a separate agreementwit& t&e allottee for t&e sale of land. ,&e same &as beenexplained wit& t&e &elp of following illustration.

Case Study' ?


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A b,i der ABC L#d8 co"s#r,c# a"d so d #2e b,i di"+8

Cos#s i"c,rred by 2i. *or co"s#r,c#i"+ #2e b,i di"+ o#2er re eva"# de#ai s are as ,"der/

S8No Par#ic, ars A.o,"#$Rs8&

%8 ,otal ross 3mount C&arged 8%77%777'8 Cost of 2and 97%777(8 alue of +aterial used 55%777)8 Cost of 2abour Services @%77798 C) 3, Credit on Input 8577

-8 C) 3, Credit on Inputs services @85

:8 C) 3, Credit on Capital oods ",otalC) 3, is RS. @77. 67E of t&e &as beenavailed#

577


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PARTICULARS Va ,a#io" >e#2ods

Op#io" A Op#io" B Op#io" C Op#io" D

Re eva"# No#i?ca#io"!provisio"No8

'-!'=%'

Separa#e La"d A+ree.e"# is reG,ired #o be.ade

R, e 'A $i&R, e 'A

$ii& Sec#io" -:

ross 3mount C&arged Rs. 8%77%777 Rs.8%77%777Rs.

8%77%777Rs. 8%77%777

2ess K ' )xemption of F6E "Rs. F6%777# I2 I2 I2

2ess K' Cost of 2and I2 "Rs.97%777# "Rs.97%777# "Rs. 97%777#

2ess K' alue of +aterial I2"Rs.

55%777# I2 I2

Ta0ab e Va ,e Rs8 '94=== Rs8 %;4===Rs8

)=4=== Rs8)=4===

Service Ta0 #2ereo" $%'8(- & Rs8 (4=


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alue for Reversal under Rule 9 ":# ofC) 3, Credit Rules% 577@


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Case Study'87

For In t$n*!>alue of Aats sold by alue; Rules, * -, i.e. on of aforesaidvalue.%ross mount Charged for construction of Road G Rs), , ,(E-!"+t! S!r*! Entry No 13 o% Not#4*$t#on No25 2012 $t! 2060 62012)6 Further, /C 3td has availed CE$> ! Credit of Rs , , inrespect of aforesaid services.

7 $t .#'' ! t ! $"o nt . #* A C &t Lt #'#$ '! to +$y $ +!r R '! (3) o% CENVAT Cr! #t

R '! , 200:;


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mount re#uired to be paid as per Rule - :H; :i; of CE$> !Credit Rules, * O 9E of )xempted Services

O 9E of Rs 8%77%77%777 O Rs 9%77%777

3mount reBuired to be paid as per Rule 9 ":# "ii# ofC) 3, Credit Rules% 577@ O

@7%77%777 Q 8%77%77%777 5%77%77%777

O Rs 57%77%777

To Co"c ,de/ T2e va ,e s2o, d be #a6e" *or #2ep,rpose o* a*oresaid R, e s2a be 1ross A.o,"#C2ar+ed "o# #2e a.o,"# o" 32ic2 Service Ta0 2asbee" paid8


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%8 >ai"#e"a"ce services'8 Services provided by b,i ders!deve opers #o a"d

o3"ers ,"der co abora#io" a+ree.e"#s ,&e said services are treated as Continuous Supply of Servicesas per Rule 5"c# of oint of ,axation Rules% 5788.

roviso to Rule : of oint of ,axation Rules% 5788 provides fordetermination of point of taxation in suc& type of services

36 Sa e o* b,i di"+s $s2ops!o ces& o* a"d o3"er byb,i ders•. Services provided by La"d o3"er #o b,yers/ oint of

taxation s&all be determined as per proviso #o R, e ( ofoint of ,axation Rules% 5788.

•. Services Provided by B,i der #o La"do3"er/ oint of

taxation s&all be determined as per R, e ( of oint of ,axation Rules% 5788

-I , -4 ,3*3,I- 4-R C)R,3I R)2) 3 , ,R3 S3C,I- S


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,&ank >ou youCA6 A o/ $tr$6 :513::30

Documents

STinConstructionIndustry.pptx