Service Tax - Construction of Residential Complex for Army Personnel in Cantonments
WE got this rather monumental doubt from a Netizen.
A Netizen, who was in the business of construction of residential complex service, sought a clarification if the quarters constructed by him to defence personnel in a Cantonment area would attract service tax under Construction of Complex service.
As per the definition of 'residential complex' given in the Finance Act, 1994 (extracted below) construction of complex service attracts service tax only if such construction is done in a premises approved under law and also if such residential units constructed are not for personal use.
(91a) "residential complex" means any complex comprising of-
(i) a building or buildings, having more than twelve residential units;
(ii) a common area; and
(iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system,
located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person.
Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this clause, -
(a) "personal use" includes permitting the complex for use as residence by another person on rent or without consideration;
(b) "residential unit" means a single house or a single apartment intended for use as a place of residence;
It is understood that for construction of quarters for defence personnel in a military Cantonment Area, field formations of Ministry of Defence (obviously by engaging services of a construction contractor), do not require any approval by an authority under law. This is the view taken by the CBEC in a letter addressed to the Commissioner of Service Tax, New Delhi (F.No. dated 5.7.2006), wherein it is clarified that:
"4. In view of the above, it is now further clarified that service tax would not be leviable on construction of complexes under question if their layout does not require approval by an authority under any law for the time being in force."
Further, in reply dt. 3.10.2011 to an RTI Applicant, MoD (Army), New Delhi, had also clarified that no layout approval by Cantonment Board is required for construction of residential quarters to Army personnel in a cantonment Area.
The RTI Reply states:
S. No. | Info Demanded | Info Supplied |
|---|---|---|
a. | Whether the construction of residential accommodation for army personnel, which are being carried out by your organization in cantonment area, Lucknow, requires the Layout to be sanctioned by the Cantonment Board. | No |
b. | If it is so, then under what provisions of the law | Not Applicable |
c. | Supply a copy of the sanctioned layout of construction being completed under phase I in relation to the above stated Cantonment Area, Lucknow. | Not Applicable |
d. | Also supply a copy of fee deposited to them for sanctioning of such layout | Not Applicable |
It is also the view of the Government, as clarified by the letter F.No.332/16/2010-TRU dt. 24.05.2010 that construction of residential houses by National Building Construction Corporation Limited (NBCC) for Central Government officers is not liable to service tax as the quarters constructed to Government personnel by the Government are not to be considered as intended for 'personal use'; hence the same is out of the purview of definition of residential complex.
Taking into consideration the above clarifications issued by the Government/respective authorities, it is clear that construction of quarters to defence personnel in a cantonment area is out of the purview of the 'construction of complex service' as such construction do not require any layout approval and also such quarters constructed are not for personal use.
Therefore, construction of quarters to Government/military personnel should be considered as out of the service tax net. However, there is no surprise if the service providers, like that of the Netizen, are made to knock at the doors of CESTAT/High Courts for justice, as the Adjudication authorities at the lower level, always take whimsical interpretation and find excuse to reject the clarification issued by the Government as above, just to confirm the demand as the motto consciously pursued by the authorities in the field formations is 'I Remain Safe' (for short 'IRS')
And what is the position from 1.7.2012?