Service Tax on Construction Services / Works Contract wherein the cost of Land is involved - Retrospective amendment

Section 129 of the Finance Act, 2017 read with Sixth Schedule,  seeks to retrospectively amend rule 2A of the Service Tax (Determination of Value) Rules, 2006 in the manner specified in column (3) of the Sixth Schedule with retrospective effect, on and from and up to the date specified in column (4) thereof, so as to make it clear that value of service portion in execution of a works contract, which involves transfer of land or undivided share of land, as the case may be, shall not include value of property in land or undivided share of land so transferred.

Sub Section (2) of Section 129 further states that:

(2) Notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, any action taken or anything done or purported to have been taken or done at any time during the period specified in column (4) of the Sixth Schedule relating to the provisions as amended by sub-section (1) shall be deemed to be and deemed always to have been, for all purposes, as validly and effectively taken or done as if the amendment made by sub-section (1) had been in force at all material times.

Earlier, Hon’ble Delhi High Court had struck down levy of service tax on the builders after the amendment carried out vide Finance Act, 2010, in the absence of explicit machinery provisions.

       See:-  Suresh Kumar Bansal & Anuj Goyal & Ors. Versus Union Of India & Ors. [2016 (6) TMI 192 - DELHI HIGH COURT]

Now to put to rest the controversies and confusions, central government came out with such retrospective amendments.

Consequently, all the builders, developers are now required to pay service tax on the construction activity / works contract even for the past period.

                However, since, the retrospective amendment has been made vide Finance Act, 2017, an assesee may be able to save its service tax liability on the ground of period of limitation where the show cause notice was not issued earlier. A careful approach would held the assessee to save the liability of service tax beyond the normal period of limitation.

The hope of the buyers / purchasers of the flat from relief of service tax or getting refund of service tax, if paid earlier, dashed.