Service Tax - Construction Service - Confusion Spreads - Commissioner Clarifies
AS you will remember, the Finance Act 2010 added this explanation to Section 65(105)(zzzh)
"Explanation. - For the purposes of this sub-clause, 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;"
This had been challenged and the Bombay High Court had granted an interim relief – 2010-TIOL-526-HC-MUM-ST.
On 01.10.2011, the DNA Newspaper carried a report as follows:
Legal Corner Icon — the image was hosted by the publisher and was not captured.Service tax relief for real estate
Service Tax officials Sushil Solanki, Commissioner Service Tax, Mumbai I and Wilson Hangshing, Commissioner Service Tax, Mumbai II met the MCHI team representing the developer community, to explain the implications of the recent High Court order on the issue. The Court ruled that realty developers would not have to pay the service tax, but they need to get their books assessed. MCHI expressed its happiness at the clarification and clearing the confusion among developers. The discussion is part of the MCHI initiative towards the welfare of developers so that they can serve society better.
Since then, we have been getting many calls and mails asking us to clarify the issue. We are told that DNA had carried a correction to the above report, but somehow, while the original report spread like wildfire, the correction went unnoticed.
As the confusion was spreading fast to several parts of the country, thanks to the modern communication systems, TIOL contacted the Mumbai–I Service Tax Commissioner Sushil Solanki, who was very helpful and readily clarified the issue.
He issued the following clarification:
A meeting was held with members of MCHI (Maharashtra Chamber of Housing Industry) to explain to them the service tax provisions with regard to construction activities. It was attended by good number of representatives of builders and developers. Following legal position was clarified by us in the meeting.?
++ Mumbai High Court has issued interim order in July 2010 () on the petition of MCHI that "no coercive steps shall be taken against the petitioners for recovery of service tax in relation to the provisions in question, but it is clarified that assessments may proceed in accordance with law”. By a subsequent order, the petitioners were allowed to deposit service tax with the high court.
++ In the meeting, it was clarified that even though there is stay against recovery of service tax but all service providers must take registration and file service tax return in time. In case of failure to file return, department may initiate investigations for issue of show cause notices and extended period would be available to the department.
++ It was also clarified that it is in their interest to collect service tax and pay to Government or to the court, because in case the petition is decided against them, they would be saddled with huge liability.
++ It was also clarified that stay order of court is available only to the person who has been admitted as petitioner by the court and not to others.
++ Issues like taxability in case of redevelopment and SRA project was also explained.
However, the DNA newspaper reported wrongly that I have clarified that builders are not required to pay taxes in view of High Court order. When I came to know about the misreporting, immediately MCHI was contacted as they had issued the press release earlier. MCHI issued correction report to the newspaper and it was clarified that builders are required to deposit service tax to the Court, they should also get registered and get their records assessed. The corrected report was published too.
++ It is also brought to your knowledge that said case is still pending before High Court
Well, that was only a storm in the teacup after all!
TIOL is grateful to Commissioner Solanki for readily giving the clarification.