TIOL-DDT 1794 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1794</font><br> 13.02.2012<br> Monday</strong></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">DDT in Limca Book of Records</font></strong></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_Limca_Book.jpg" alt="Legal Corner Icon" width="377" height="524" hspace="5" border="0" align="center"></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT</strong> has entered the Limca Book of Records as the longest running daily online column on tax. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">AS the citation above shows, <strong>DDT</strong> had completed 1641 issues by June 30, 2011. That is the cut off date for Limca Book of Records for entries for the year 2012. After that date, <strong>DDT</strong> has come out with more than 150 issues as today's <strong>DDT</strong> is the 1794 th one. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is a proud moment for all of us in <strong>TIOL</strong> that we now hold the prestigious Limca record, but at the same time, we realize that we are here not for the records but to make the records straight for you. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT</strong> is grateful for all the support from the Netizens, the Government and colleagues, who made this possible. DDT will continue its pursuit, with your support. A BIG <strong>Thank You</strong>! </font></p> <p align="justify"> <font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/accolades/accolades.htm" target="_blank"><strong>TIOL ACCOLADES </strong> </a></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Construction of Complex service - Complex Clarifications </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>PERHAPS </strong>this service is aptly named as “Construction of Complex Service”. It involved complex construction of legal provisions, definitions and clarifications. This service was introduced in 2005 and after nearly seven years, we are still receiving clarifications on who has to pay service tax and who is not liable to pay. When such an important sector is brought under tax net, proper homework should have been done on various business models across the country, but the approach of the Board seems to be just shoot and aim rather than aim and shoot. After seven years, now they realised that divergent business models and practices are followed across the country and came with yet another clarification, of course not without further confusion. Vide this new Circular, the liability of service tax on various types of construction models has been explained. <strong>DDT's</strong> comments are marked in red colour. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2.1. <u><strong><em>Tripartite Business Model</em></strong></u> <em>(Parties in the model: (i) landowner; (ii) builder or developer; and (iii) contractor who undertakes construction): Issue involved is regarding the liability to pay service tax on flats/houses agreed to be given by builder/developer to the land owner towards the land /development rights and to other buyers. </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><u>Clarification:</u></strong> <em>Here two important transactions are identifiable: (a) sale of land by the landowner which is not a taxable service; and (b) construction service provided by the builder/developer. The builder/developer receives consideration for the construction service provided by him, from two categories of service receivers: (a) from landowner: in the form of land/development rights; and (b) from other buyers: normally in cash. </em></font></p> <p align="justify"><strong><u><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(A) Taxability of the construction service : </em></font></u></strong></p> <blockquote> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) For the period prior to 01/07/2010: construction service provided by the builder/developer will not be taxable, in terms of Board's Circular No.108/02/2009-ST dated 29.01.2009. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) For the period after 01/07/2010, construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land was received by the builder/ developer before the issuance of completion certificate and the service tax would be required to be paid by builder/developers even for the flats given to the land owner. </font></em></p> </blockquote> <p align="justify"><u><strong><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(B) Valuation : </font></em></strong></u></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(i) Value, in the case of flats given to first category of service receiver, is determinable in terms of section 67(1)(iii) read with rule 3(a) of Service Tax (Determination of Value) Rules, 2006, as the consideration for these flats i.e., value of land / development rights in the land may not be ascertainable ordinarily. Accordingly, the value of these flats would be equal to the value of similar flats charged by the builder/developer from the second category of service receivers. In case the prices of flats/houses undergo a change over the period of sale (from the first sale of flat/house in the residential complex to the last sale of the flat/house), the value of similar flats as are sold nearer to the date on which land is being made available for construction should be used for arriving at the value for the purpose of tax. Service tax is liable to be paid by the builder/developer on the ‘construction service' involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument(eg. allotment letter). </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) Value, in the case of flats given to the second category of service receivers, shall be determined in terms of section 67 of the Finance Act, 1994. </font></em></p> </blockquote> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board should have mentioned about the earlier circulars also on this issue. For example, in this type of arrangement, vide Circular No 96/2007 dated 23.8.2007 it was clarified that though builder is not liable to pay service tax, if he engages a contractor for construction, the contractor is liable to pay service tax. This new clarification is silent as to whether the third party., i.e, the contractor who undertakes the construction has to pay the service tax. The above clarification identified only two transactions, i.e., sale of land by landowner and construction service provided by the builder. But what about the construction service provided by the contractor to the Builder? In other words, is the Circular No 96/2007 dated 23.8.2007, stating that the contractor is liable to pay service tax is still valid? If not, why not make a mention about that? Otherwise, field formations will raise demands / confirm demands on contractors. </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>2.2 Redevelopment including slum rehabilitation projects : Generally in this model, land is owned by a society, comprising members of the society with each member entitled to his share by way of an apartment. When it becomes necessary after the lapse of a certain period, society or its flat owners may engage a builder/developer for undertaking re-construction. Society /individual flat owners give ‘No Objection Certificate' (NOC) or permission to the builder/developer, for re-construction. The builder/developer makes new flats with same or different carpet area for original owners of flats and additionally may also be involved in one or more of the following: </em></font></p> <blockquote> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i. construct some additional flats for sale to others; </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii. arrange for rental accommodation or rent payments for society members/original owners for stay during the period of re-construction; </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iii. pay an additional amount to the original owners of flats in the society. </font></em></p> </blockquote> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><u>Clarification:</u></strong> Under this model, the builder/developer receives consideration for the construction service provided by him, from two categories of service receivers. First category is the society/members of the society, who transfer development rights over the land (including the permission for additional number of flats), to the builder/developer. The second category of service receivers consists of buyers of flats other than the society/members. Generally, they pay by cash. </font></em></p> <p align="justify"><strong><u><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(A) Taxability : </font></em></u></strong></p> <blockquote> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) Re-construction undertaken by a building society by directly engaging a builder/developer will not be chargeable to service tax as it is meant for the personal use of the society/its members. Construction of additional flats undertaken as part of the reconstruction, for sale to the second category of service receivers, will also not be a taxable service, during the period prior to 01/07/2010; </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) For the period after 01/07/2010, construction service provided by the builder/developer to second category of service receivers is taxable in case any payment is made to the builder/ developer before the issuance of completion certificate. </font></em></p> </blockquote> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">This is contrary to the logic adopted at para 2.1 above. To understand the issue better, let us assume a society member had one flat before re-construction and after re-construction, he is given two flats in the new building. As per this clarification, no service tax is attracted on two flats given to the society member. If we apply the same logic, there should be no service tax on the flats given to the landowner by the builder at para 2.1 above. Alternatively, after reconstruction, if any additional flats are given to the society members, service tax should be levied on these additional flats given. </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(B)<em><strong> Valuation:</strong></em> Value, in the case of flats given to second category of service receivers, shall be determined in terms of section 67(1)(i) of the Finance Act, 1994. </font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><u>2.5 Non requirement of completion certificate / where completion certificate is waived or not prescribed: </u></strong>In certain states, completion certificates have been waived or are considered as not required for certain specified types of buildings. Doubts have been raised, regarding levy of service tax on the construction service provided, in such situations. </font></em></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Clarification:</strong> Where completion certificate is waived or is not prescribed for a specified type of building, the equivalent of completion certificate by whatever name called should be used as the dividing line between service and sale. In terms of the Service Tax (Removal of Difficulty) Order, 2010, dated 22/06/2010, authority competent to issue completion certificate includes an architect or chartered engineer or licensed surveyor. </font></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">In addition to the above, the Circular has also clarified the position with regard to Investment model (Para 2.3), Conversion Model (para 2.4), Build- Operate - Transfer (BOT) Projects (para 2.6) and Joint Development Agreement Model (Para 2.7). </font></strong></font></p> <p align="justify"><font color="#FF6633"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Instead of issuing such clarifications repeatedly, why can't the Government realise that construction activity comes under infrastructure sector and just exempt service tax on all construction activity? At least that will give impetus to this sector, which has very good potential of employment generation. </font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We bring you a detailed article on the subject today. Please see <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=14275" target="_blank">ST SE GST Tak </a></strong></font></p> <p align="justify"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2012/sercir151.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC Circular 151/2/2012-ST, Dated: February 10, 2012 </font></strong></a></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Now a Tax on Marriage</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Taxman's ingenuity is unlimited. It seems in the 11th Century there used to be taxes on hair. Now the Vijayawada Municipal Corporation has imposed a tax on marriages!</font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> – Tuesday's cases</font></strong></font></strong></font></p> <p><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left">Customs</font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Import of Rig for construction of roads - Merely because after servicing and overhauling Rig was tested by boring 4-5 holes at Delhi Metro Rail premises it would be unfair to deny benefit of exemption notification 21/2002-Cus - CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> issue involved in this case is whether the appellants have not fulfilled the conditions of Notification 21/02 Sr, no. 230 which requires them to use the imported rig for construction of road only. The impugned order has been passed on the ground that the rig was used in the premises of Delhi Metro Rail for boring. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax</font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Whether while computing gross total income as per explanation to Sec 73, share trading loss cannot be adjusted against income from service charges - NO, it can be: Bombay HC </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>assessee claimed that in computing the gross total income for the purpose of the explanation to Section 73, the income from service charges had to be adjusted against the loss in share trading. An order of Assessment was passed under Section 143(3) of the Income Tax Act, 1961 on 30 December 1998 by which the Assessing Officer disallowed the share trading loss, which was held to be a speculation loss. The Assessee preferred an Appeal, which was allowed by the Commissioner (Appeals). The Tribunal in an Appeal by the Revenue confirmed the decision of the Commissioner. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Making available space on website of appellants is prima facie taxable under Section 65(105)(zzzm) of Finance Act, 1994 - Plea that service would amount to export of service prima facie is not acceptable – On limitation also no prima facie case has been made out – Pre-deposit of Rs 35 lakhs ordered: CESTAT</font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> appellants are receiving payments for making available space on their website for advertisement service. The Commissioner has confirmed the demand of service tax under Section 65 (105) (zzzm) of the Finance Act, 1994 which reads: </font></p> <blockquote> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Any service provided or to be provided to any person, by any other person, in relation to sale of space or time for advertisement, in any manner; but does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organization”. </font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Commissioner has come to a conclusion that the appellants have made available space on their website for advertisement and that they have been paid for such services. The appellants argued that the language of Section 65 (105) (zzzm) requires “any other person” to mean a third person causing or effecting sale of space. However, the Tribunal was not convinced with this plea. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT </strong></font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a Nice Day. </font></p> <p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:vijaywrite@taxindiaonline.com"><strong>vijaywrite@taxindiaonline.com </strong></a></font></p> </body> </html>