SERVICE TAX ON CONTRACTORS

The new orders came on 1.8.2006 from TRUclarifies that service tax shall be charged when a relationship of provider and recipient develops at the level of contractor-builder on gross amount of payments/contract value made and no abatement is allowed. The mis-conception of abatement @67% allowed to the contractors on account of material etc. has clarified that these goods are not sold rather these goods has been consumed by the contrctaor and a new service in shape of complex is provided to the builder (recipient). The abatement of 67% as per notification 1/2006 is allowed only to the builders if the construction is done by the builder himself as a builder acts as a contractor and no relationship of provider-recipients exists. But, when builder sell the flat/complex to the buyer at that time the relationship of provider-recipient develops and service tax applies only on the part of construction of complex, which is ascertained @33% of the total sale value of flat. The abatement of 67% is allowed to the builder for land and other expenses because as per act service tax is charged only on the "construction of complex" and not on total sale price.

Further, the mis-conception to the builders that service tax is applicable only to the contrcators is again not fully right as per the Act, Rules and Notifications. The Act clerly stipulates that 33% shall be considered for the assessment of service tax on the "construction of complex". In that whatever the service tax is paid in the hands of contractors against the construction of complex, the balance shall be paid by the builder/promotor at the time of his assessment, in which builder shall take benfit of service tax paid in the hands of contractor and balance builder shall pay to the department.

The mis-conception regarding orders 1/2006 that service tax is not applicable to the builders/promoters is totally wrong, as buiders/promoters can bye-pass the service tax by carrying out construction at their own level without hiring any contractor.