No Service Tax on Residential Complex for personal use - CBEC reiterates
NATIONAL Building Construction Corporation Limited (NBCC) requested the CBEC for a clarification on the applicability of service tax on construction of residential houses. The Board Clarifies:-
++ The activity of building new residential complexes falls within the definition of taxable service, namely, ‘Construction of Complexes'. Normally, the type of complex proposed to be built by NBCC falls within the definition of residential complexes. However, as per definition, the residential complex (for service tax purposes) does not include a complex which is constructed by a person directly engaging any other person for designing/planning/construction and is intended for personal use as residence by such person. The definition also explains that personal use includes promoting use of such property as residence by another person on rent or even without consideration.
++ Ministry of Urban Development (GOl) has directly engaged the NBCC for constructing residential complex for central government officers. Further, the residential complexes so built are intended for the personal use of the GOI which includes promoting the use of complex as residence by other persons (i.e. the Government officers or the Ministers).
++ As such the GOl is the service receiver and NBCC is providing services directly to the GOl for its personal use. Therefore, as for the instant arrangement between Ministry of Urban Development and NBCC is concerned, the service tax is not leviable.
++ It may, however, be pointed out that if the NBCC, being a party to a direct contract with GOl, engages a sub-contractor for carrying out the whole or part of the construction, then the sub-contractor would be liable to pay service tax as in that case, NBCC would be the service receiver and the construction would not be for their personal use.
This seems to be the original and consistent view of the Board that individual houses for personal use are not taxable. In M/s MACRO MARVEL PROJECTS LT Vs COMMISSIONER OF SERVICE TAX, CHENNAI - , the Tribunal noted, “it appears, the law makers did not want construction of individual residential units to be subject to levy of service tax”.
In the above clarification, substitute builder for the NBCC and individual buyer for Government. Now this individual buyer buying the property for his personal use, is not covered under Service Tax!
In most of the cases, the residential complexes are built by directly entering into contract with the builder/developer by the individuals for their personal use. Such arrangements are squarely covered under the above clarification given. The intention is obviously to tax such persons (cosntructing residential complexes) as middle men between the develper/builder and ultimate purchaser of residential units. It is high time the CBEC comes out with a clear clarification; otherwise the middle class sections of society end up paying service tax (as small builders collect it from purchasers to avoid the wrath of the department) while the rich get away (because they puchase palatial residential units in a complex containing normally less than 12 units )
Then what is the controversy about the cost of land being included, the explanation inserted in the Finance Act, 2010 and Notification No. Dated 22nd June 2010?
Again the Board has hidden such an important clarification. It is not placed in the public domain.
Today we bring you yet another incisive article on the subject, where the Author feels that there is no question of including the land cost. Please see our "Guest Column”
CBEC Letter F.No.332/16/2010-TRU Dated: 24th May, 2010.