Service Tax on Construction activity- Part-I

[R.S. Mangal]

Before paradigm shift in service tax provisions and procedures due to introduction of negative list approach from 01.07.201 ,construction activities were taxed under three different categories

(a)  Commercial or industrial construction service as specified under Section   65(105) (zzq). Or

(b)   Works Contract service as specified under Section 65(105)(zzzza), or

(c ) Construction of complex service as specified under Section 65(105)(zzzh).

a) Commercial or Industrial construction service:

Construction activities were taxable under this service category, if activity was

-> Construction of a new building or civil structure or part thereof or completion & finishing services in relation to building or civil structure           OR

-> Construction of pipeline or conduit                                         OR

è    Repair, alteration ,renovation or restoration of or similar services in relation to building, civil structure or pipeline or conduit                             

                                           and                                                                                                    

Such construction was with the purpose of using/occupying or engaging building/civil structure/pipeline/conduit for commerce or industry or intended to do so.

Further under this service category service provider enjoyed the benefit of abatement at specified percentage or else benefit of Notification no.12/2003

b) Work Contract service

->Erection ,commissioning or installation of certain specified items/work     OR

->Construction or completion & finishing services of a new building or civil structure or part thereof or of pipeline or conduit primarily for the purpose of commerce & industry                                                                                     OR

->Construction or completion & finishing services of a Residential Complex  OR

->Turnkey Projects including EPC contracts                           and

Transfer of Property involved in the execution of such contracts is leviable to tax as sale of Goods.

Further service provider could avail the benefit of composition at his option.

C) Construction of Complex :

-> Construction of new residential complex or part thereof            OR

->Completion & finishing services or repair, alteration, renovation or restoration or similar services in relation to residential complex.

Residential complex not having Twelve residential units or common area or common facilities were kept out the purview of service tax.

Further under this service category service provider enjoyed the benefit of abatement at specified percentage or else benefit of Notification no.12/2003

Position of Service Tax on Construction activity in new Service Tax regime applicable from 01.07.2012--

After the introduction of new service tax regime Construction activities will fall under the purview of following “Declared services” under Sec.66E of the Finance Act 1994,

è    Construction of a complex ,building, civil structure or part thereof will be now be regarded as Declared service as given in Sec. 66E (b) of the Finance Act,1994.

Construction includes

(i)   additions,

(ii)  alterations,

(iii)  replacements

(iv)  or remodeling

of any existing Civil structure

constructions intended for sale to a buyer wholly or partly is also included except where the entire consideration is received after issuance of completion certificate by the competent authority.

 Explanation I  appended to Section 66E(b) of the said Act explains  “competent authority"  for issuance of completion certificate means

(i)    the Government or

(ii)   any authority authorized to issue completion certificate under any law for the time being in force

In case of non requirement of such certificate from such authority, from any of the following,

a)    architect registered with the Council of Architecture constituted under the Architects Act, 1972; (20 of 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; taxmanagementindia.com

è    Service portion in the Execution of Work Contract as given in sec.66E(h)

With effect from 01.07.2012 the following definition of Work contract is applicable

 “Works Contract means a contract wherein transfer of property in goods involved  in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out

• construction
• erection
• commissioning
• installation
• completion
• fitting out
• repair
• maintenance
• renovation
• alteration

of any movable or immovable property or for carrying  out any other similar activity or a part thereof in relation or for carrying to such property.”

Scope of the work contract has increased immensely. The major striking difference     is that it applies to movable property also

Contd-