Board Vs Board
SERVICE Tax - Valuation of Flats given to land owner - Board overrules Board - Board Circular superior to Education Guide.
A land owner enters into an agreement with a builder, whereby, the land owner gives either land /development rights (to construct/develop a residential complex and sell flats/houses of such complex to buyers) to the builder. The builder/developer, in turn, agrees to assign a portion of the constructed area, in the form of flats in favour of the land owner. The remaining flats are sold by the builder/developer to various buyers.
In para 6.2.1 of the Education Guide released by the Board on 20.06.2012, the Board clarified:
6.2.1 What would be 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. If payable, how would the services be valued?
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.
Value will be the value of the land when the same is transferred and the point of taxation will also be determined accordingly.
In Circular No. dated 10.2.2012, the Board clarified:
Value 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).
There is apparent contradiction between the Board Circular created by the bright boys of CBEC's TRU and the Education Guide created by the bright boys of CBEC's TRU.
Now Board has given a clarification that the Service Tax assessing authorities should be guided by the Board Circular dated 10.2.2012 and not the Education Guide.
CBEC Instruction in F.No.354/311/2015-TRU., Dated: January 20, 2016
Please also see:
1. Service tax on construction services: TRU clarifies to reduce litigation
2. Service Tax on Construction Services - CBEC Clarification falls short of expectations
3. Construction of Complex service - Complex Clarifications
4. Clarifications on applicability of service tax on Realty Sector - A Critical Peep
5. Service Tax on Construction Activities - A Comprehensive Analysis
6. Negative Blues - XII JVs in construction
7. Valuation of barter between Landowner and Developer - ‘Complex' construction
8. Service Tax Implications on Joint Development Agreements
9. ST on Construction Services - grey areas