TAXATION OF CONSTRUCTION ACTIVITIES AS DECLARED SERVICE .

[Dr. Sanjiv Agarwal]

Declared services shall also include construction activities which means 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.

Explanation.— For the purposes of this clause,—

(l) the expression “competent authority” means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following,

namely:––

(a)  architect registered with the Council of Architecture constituted under the Architects Act, 1972; or

(b)  chartered engineer registered with the Institution of Engineers (India); or

(c)  licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(II) the expression “construction” includes additions, alterations, replacements or re-modeling of any existing civil structure; [Section 66E(b)]

Explanation II to this clause states that ‘construction’ shall include the following activities, in relation to existing civil structure, besides main construction activities –

(i) additions,

(ii) alteration,

(iii) replacement, or

(iv) remodeling

This is an inclusive definition of construction but actually what a construction is, has not

been defined. According to Oxford Dictionary, construction means the action of building something, typically a large structure. According to Wikipedia, construction is a process that consists of the building or assembling of infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking. Normally, the job is managed by a project manager, and supervised by a construction manager, design engineer, engineer or project architect.

According to the definition, construction of the following shall be included in declared services –

• Complex
• Building
• Civil structure or part thereof
• Complex or building intended for sale to a buyer except where entire consideration is received after issuance of completion certificate by the competent authority.

Competent authority can be a registered architect, registered chartered engineer or licensed surveyor of the respective local body of the city/town/village/development authority/planning authority.

In certain States requirement of completion certificate are waived of for certain specified types of buildings. In terms of explanation in section 66E in such cases the completion certificate issued by a architect or a chartered engineer or a licensed surveyor of the respective local body or development or planning authority would be treated as completion certificate for the purposes of determining chargeability of service tax.

Literally, according to Oxford Dictionary, building means a structure with a roof and walls, such as a house or factory; the action or trade of constructing something.

According to Advanced Law Lexicon, building means any work of construction done in any manner by use of any material and includes a farm building for agriculture purposes, plinth, doorstep, wall, drain, advertisement board and other things fixed with such building.

According to Cantonment Act, building means a house, outhouse, stable, latrine, shed, hut or other roofed structure, whether of masonry, bricks, wood, mud, metal or other material, and any part thereof.

It may be noted that this service is already taxable as part of construction of residential complex service under clause (zzzh) of sub-section 105 of section 65 of the Act and as part of service in relation to commercial or industrial construction under clause (zzq) of subsection 105 of section 65 of the Act. This entry covers the services provided by builders or developers where building complexes, civil structure or part thereof are  offered for sale but the payment for such building or complex or part thereof is received before the issuance of completion certificate by a competent authority.

There are various types of arrangements under which builders or developers sell buildings, flats, office space etc. to buyers where entire consideration is received before completion certificate is issued including tripartite model, redevelopment model, investment model, reconversion model, BOT projects and joint development agreement model. A detailed circular has been issued by the Board dealing with such arrangements in the context of existing taxable service of same description vide Circular No. 151/2/2012 ST dated 10/2/12 issued from F.No. 332/13/2011 TRU.

Prior to Finance Act, 2012 amendments, following corresponding services were taxable-

• Commercial & Industrial construction [section 65(105) (zzq)
• Construction of complex services [section 65(105) (zzzh)

Construction Services Exempted

Following construction related activities have been exempted from levy service tax vide

Notification No. 12/2012-ST dated 17.03.2012 –

1)         Services provided to the Government or local authority by way of erection, construction, maintenance, repair, alteration, renovation or restoration of -

(a)  a civil structure or any other original works meant predominantly for a non-industrial or non-commercial use;

(b)  a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

(c)   a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

(d)  canal, dam or other irrigation works;

(e)  pipeline, conduit or plant for (i) drinking water supply (ii) water treatment (iii)sewerage treatment or disposal; or

(f)   a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Finance Act;

2)         Services provided by way of erection, construction, maintenance, repair, alteration, renovation or restoration of-

(a)  road, bridge, tunnel, or terminal for road transportation for use by general public;

(b)  building owned by an entity registered under section 12AA of the Income-tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public;

(c)  pollution control or effluent treatment plant, except located as a part of a factory;

     or

(d)  electric crematorium;

3)         Services by way of erection or construction of original works pertaining to-

(a)  airport, port or railways;

(b)  single residential unit otherwise as a part of a residential complex;

Original work would mean all new constructions and all types of additions and alteration to abandoned or damaged structures on land that are required to make them workable.

Residential complex means any complex comprising of one or more buildings, having more than one residential unit. A single residential unit would comprise of an independent residential unit with specific facilities for living, cooking and sanitary requirements.

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