Mere transfer of title in immovable property is exempted from Service Tax - CBEC Clarifies
AS per Section 66E(b) of the Finance Act 1994, the following shall constitute declared services, namely: -
(a) renting of immovable property;
(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.
So, if a builder sells a flat before issuance of completion-certificate, he is liable to pay Service Tax on the sale of the flat!
And there were disputes on this for the last ten years or so.
It seems in places like Mumbai Metropolitan Region (MMR) comprising of Municipal Corporation of Greater Mumbai, Thane, Kalyan, Navi Mumbai, Ulhasnagar etc. as per Municipal Corporation Act for time being in force, the building completion certification is furnished by the licensed surveyor or any person approved by the Commissioner to erect the building. Once the occupancy certificate is granted for the premises it signifies that construction of building is completed. But the Law says you need a completion certificate.
We had carried an article on 25.02.2015, Occupancy Certificate equals Completion Certificate? wherein the author had suggested to the Board to issue a Circular/Instruction to clarify that no service tax shall be applicable in case of sale of premises after grant of occupancy certificate by the competent authority.
Board has responded!
In a Press Note issued yesterday, CBEC clarifies,
In order to resolve a long standing issue relating to levy of Service Tax on sale of flats/dwellings etc. after issue of occupancy certificate but before issue of completion certificate in areas under the jurisdiction of Municipal Corporation of Greater Mumbai i.e. Brihanmumbai Municipal Corporation (BMC), it has been conveyed to the Service Tax Authorities in Mumbai on Friday, 23rd October, 2015 that sale of flats/dwellings etc., where the entire consideration is received after issue of occupancy certificate by BMC, leading to a mere transfer of title in immovable property, falls outside the definition of “Service” provided in Section 65B (44) of the Finance Act, 1994, and is therefore, not taxable.
Now this is a very important clarification from the Board and it comes out in the form of a Press Note! And will the Board clarify whether this clarification applies only to Mumbai and not other cities. Should the builders in other cities approach the Board for similar clarifications?