TMI BlogService tax on construction services — regarding.X X X X Extracts X X X X X X X X Extracts X X X X ..... Customs and Central Excise (All) Commissioner of Central Excise and Service Tax (All) Commissioner of Service Tax (All) Madam/Sir, Subject: Service tax on construction services regarding. Many issues have been referred by the field formations, in the recent past, seeking clarification regarding the levy and collection of service tax on construction services [ clauses (zzq),(zzzh) of section 65(105) of the Finance Act, 1994 ], in the light of varying business models. Across the country, divergent business models and practices are being followed in the construction sector. Some of these business models and practices could be region specific. 2. From the issues referred by the field formations, im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original owners of flats in the society. Clarification : 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 consist of buyers of flats other than the society/members. Generally, they pay by cash. (A) Taxability : (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 mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it from the project at a later date, either before or after the issuance of completion certificate, the builder/developer would be entitled to take credit under rule 6(3) of the Service Tax Rules, 1994 ( to the extent he has refunded the original amount). If the builder/developer resells the flat before the issuance of completion certificate, again tax liability would arise. 2.4 Conversion Model : Conversion of any hitherto untaxed construction /complex or part thereof into a building or civil structure to be used for commerce or industry, after lapse of a period of time. Clarification : Mere change in use of the building does not involve any taxable service, unless conversion falls within the meaning of commercial or industrial co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rification : Transactions involving taxable service take place usually at three different levels: firstly, between Government or its agency and the concessionaire; secondly, between concessionaire and the contractor and thirdly, between concessionaire and users, all in terms of specific agreements. At the first level, Government or its agency transfers the right to use and/or develop the land, to the concessionaire, for a specific period, for construction of a building for furtherance of business or commerce (partly or wholly). Consideration for this taxable service may be in the nature of upfront lease amount or annual charges paid by the concessionaire to the Government or its agency. Here the Government or its agency is pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be paying a rent or premium on the sub-lease for temporary use of immovable property or part thereof, to the concessionaire. At this third level, concessionaire is the service provider and user of the building is the service receiver. The concessionaire may provide to the users, taxable services such as renting of immovable property service , business support service , management, maintenance or repair service , sale of space for advertisement , etc. Service tax is leviable on the taxable services provided by the concessionaire to the users. There could be many variants of the BOT model explained above and implications of tax may differ. For example, at times it is possible that the concessionaire may outsource the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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