TMI Blog2008 (4) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... pective buyers who will also enter into a works contract with the applicant for the construction of residential units. While in activity no.3 the applicant himself will execute the works contract and construct a residential house, in case of activity no.4, the applicant will further enter into a works contract with other contractors who will be constructing the residential houses. The applicant seeks advance ruling on the following questions of law under section 96-C of the Finance Act, 1994 :- 1. Whether the applicant is liable to service tax under section 65 (105) (zzzza) of the Finance Act, 1994 under the notified taxable service of execution of works contact in case of Proposed Activity No.3? 2. If the answer to Question No.1 is in affirmative, whether the applicant is entitled to deduct the value of transfer of property in goods involved in the execution of said works contract if the applicant opts for payment of service tax at the rate of 2 per cent under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 as notified vide notification no.32/2007-Service Tax dated 22.05.2007. (The next part of the question beginning with the phrase in other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant. Service provided to any person, by any other person in relation to the execution of works contract, excluding certain specified works contracts, attracts service tax under sub clause (zzzza) of clause (105) of section 65 of the Finance Act, 1994. The works contracts which attract service tax under this head are outlined in (a) to (e) of (ii) of the Explanation to (zzzza). The applicant contends that since the works contract in activities 3 4 involves construction of a new building, such an activity can only be covered under (ii) (b) in the above Explanation. The said classification i.e., (b) covers construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry . Since the new building proposed to be constructed in the course of the execution of the works contract is a residential one, and is not for the purpose of commerce or industry, such a works contract will not fall under (b) and therefore will not attract service tax. The applicant further states that a works contract for construction of a new building for residential purposes is also not covered under any of the remainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity 4 does not alter this conclusion. Service tax is therefore liable to be paid by the applicant as per the above section. With regard to the rate of the tax and the value of the taxable services, he states that the Finance Act provides for two modes of payments of taxes on services rendered by one person to another in the course of execution of a works contract : under section 66 of the Finance Act, 1994 read with notification no. 29/2007-ST dated 22/5/2007 or alternatively under sub rule (1) of rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 notified vide notification no.32/2007 dt.22.5.2007. Where an assessee opts for composition under the latter method, there is no scope of simultaneously availing the benefit of Rule 2 A of Service Tax (Determination of value) Rules, 2006 notified vide notification no.29/2007 dt.22.5.2007. 5. Shri Deepak Garg, the Senior Departmental Representative has made exhaustive submissions supporting the view point of the Commissioner, Ahmedabad. He has compiled a brochure on all the law points involved and filed detailed comments on behalf of the Department. 6. The central issue for decision in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said sub plot. In activity 4, the applicant will enter into a works contract with a contractor who would undertake the actual construction. The applicant further states that in the course of the execution of the works contract, property in the goods used in the construction would be transferred to the buyers and that such transfer of property in goods would be leviable to tax as sale of goods. To attract service tax under (zzzza) of section 65 (105), a works contract has to meet the two conditions (i) (ii) in the Explanation in (zzzza). The facts narrated above by the applicant indicate that condition (i) is met in the instant case as the transfer of property in goods involved in the execution of the works contract is leviable to tax as sale of goods under the local Sales Tax Act. To meet condition (ii), the activity involved in the works contract in 3 4 has to be covered by at least one of the classifications (a) to (e) in the Explanation in (zzzza). Proceeding serially, we find that building of a residential house on a sub-plot in a residential complex is clearly not covered in (a). As pointed out by the applicant itself, it is also not covered in (b) which covers const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for construction of individual houses and not for construction of a residential complex as such, the works contract cannot be classified under (c) of (ii) of Explanation in (zzzza). This plea cannot be accepted. A perusal of the draft of the works contract indicates that this contract is not for construction of a house on any plot of land but on a land which is located within the perimeters of the bigger plot located at Survey No.2/1, Moje Nana Chiloda, Gandhinagar. This plot is owned by the applicant and he proposes to build thereon a complete residential complex comprising of not merely individual residences but also a club and other common facilities which will be used by all the residents of the complex. When the buyer of the sub-plot enters into a works contract, such a contract is not for the construction of an isolated house, but for one which will make available to the buyer, all the facilities such as a club house etc. provided for by the residential complex. Individual houses built through the works contract, therefore, have to be viewed as parts of a residential complex rather than as stand alone houses. Thus the expression or a part thereof occurring in clause (c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is the applicant who has entered into a works contract for construction of a house with the buyer of the plot in the residential complex. The sub-contractor with whom the applicant further enters into a works contract and who actually constructs the house, works under the supervision and as per the specifications of the applicant. In such a situation it is the applicant who is providing the service of construction of a residence in the residential complex in pursuance of the works contract entered into with the buyer of the plot. Merely for the reason that the sub-contractor becomes liable to pay service tax for the specific services performed by him in relation to the construction activity, the applicant/main service-provider cannot be absolved of the obligation to pay service tax. However, we are not called upon to express any view as to the quantum or modalities relating to the payment of tax. Thus the applicant is liable to pay service tax under (zzzza) of section 65 (105) even when the sub-contractor pays service tax for service rendered in the course of execution of the works contract. 11. In the second question of law put forward in the application, the issue raised rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods involved in the execution of the said works contract. 13. Section 93 of the Finance Act empowers the Central Govt. to exempt, in public interest, a taxable service from the whole or any part of the service tax leviable thereon. Under this section the Govt. has notified (Notification No.32/2007-ST dated 22.5.2007) a composition scheme for payment of tax on the service component of a works contract through the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. 14. Instead of paying service at the twelve per cent rate specified in section 66, rule 3(1) of the above Composition rules gives the service provider an option to discharge his duty liability by paying four per cent of the gross amount charged for the works contract. (The rate of 2% applicable earlier has been raised to 4% with effect from 1.3.08 vide notification no.7/2008-ST dt. 1.3.08) For ready reference rule 3(1) is extracted below : 3.(1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
