Complexity on Complex Service continues even after Finance Act, 2010
THE Government brought construction service under Service Tax net in 2004 and 2005 without any proper study of how VAT legislation worked for construction sector. They realized this and brought in the Works Contract service in 2007, reproducing the definitions of Commercial or Industrial Construction/ Construction of Complex Service and Erection Commissioning and Installation Service in Works Contract Service. But they did not know how to clear the mess created by them from 2004. To top it, several clarifications were issued to add to the confusion. With a single stroke amendment of inserting an explanation to the construction services, they tried to put to rest the confusion. The said explanation was termed in the JS(TRU) letter explaining the Budget changes as “expanding the scope of existing services”. As per this explanation,
“Construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorised by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer”.
The JS(TRU) post budget letter explains everything except the vital point, whether the amendment is prospective or retrospective. There is a general tendency among the tax collectors that any explanation has retrospective effect. Why not clear the confusion / uncertainty among all by giving a clarification on the effective date of this amendment?
Further, the Works Contract definition given under Section 65(105)(zzzza) contained identical definitions for construction of complex service and commercial or industrial construction service. The explanation expanding the scope of the services has been inserted in Section 65(105)(zzq) and 65(105)(zzzh) and apparently the said expansion of service vide amendment to the Finance Act, 2010 does not apply to the construction services undertaken as works contract under Section 65(105)(zzzza). Given that most of the assessees in the construction sector are assessed under Works Contract, the attempt to extend the scope of construction service would be a futile exercise.