Service Tax on builders – Board clarifies
In a letter addressed to the Chairman of Builders Association of India, Board has clarified several issues.
1. Residential Complex:
++ In a case where the builder, promoter or developer builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of such residential complex, the contractor shall be liable to pay service tax on the gross amount charged for the construction services provided, to the builder / promoter / developer under ‘construction of complex’ service falling under section 65(105)(zzzh) of the Finance Act, 1994.
++ If no other person is engaged for construction work and the builder / promoter / developer undertakes construction work on his own without engaging the services of any other person, then in such cases in the absence of service provider and service recipient relationship, the question of providing taxable service to any person by any other person does not arise. (How can construction be done without engaging the services of any other person?)
++ Service tax exemption for small service providers upto an aggregate value of taxable services of Rs. 4 lakh provided in any financial year vide notification No. 6/2005-Service Tax dated 01.03.05 is applicable for ‘construction of complex’ service also.
2. Own Commercial complex:
To a question whether Service Tax is applicable when a builder builds a commercial complex for himself and later sells it or gives it on rent, the Board clarifies Commercial complex does not fall within the scope of “residential complex intended for personal use”. Hence, service provided for construction of commercial complex is leviable to service tax.
Here also there is no service provider; how can there be a tax?
3. Individual bungalow:
Whether construction of an individual residential bungalow attract Service Tax?
Board clarified that the issue had been already clarified vide F. No. B1/6/2005-TRU dated 27.07.05, that residential complex constructed by an individual, intended for personal use as residence and constructed by directly availing services of a construction service provider, is not liable to service tax.
4. What will happen if Service provider has vanished?
The association had asked for detailed guidelines on tax calculation and what would happen if the service provider has left the work; then who would pay?
The Board replied that tax can be paid on 33% of the gross receipts, that commercial or industrial construction’ service was effective from 10.09.04 and construction of complex’ service from 16.06.05.
Board has not answered about the truant service provider. We may answer it. There is no liability on the service receiver except in some cases like a foreign service provider. So if a service provider has vanished, it is the government’s job to find him and the service receiver is in no way responsible.
The Board has advised the association to contact the jurisdictional officers with relevant facts for appropriate guidance. That really is the problem. If the jurisdictional officers could provide appropriate guidance, there would have been absolutely no confusion, but the jurisdictional officers confess that they are as confused if not more as the assessees.
If there is clarity in conception and expression, there could be less confusion in implementation.
Board’s F. No. 332/35/2006 – TRU dated 1st August, 2006.