Builder's pre-sale construction under agreement to sell is self-service and outside service tax on construction of complex.

Construction activity undertaken by a builder or promoter under an agreement to sell, before execution of the sale deed, is treated as self-service and falls outside service tax on construction of complex under Section 65(105)(zzzh). The Board's circular dated 29-01-2009 clarified that construction-linked payments received from purchasers do not by themselves make the builder's pre-transfer activity taxable, because ownership remains with the builder until conveyance. It also recognised that construction for an ultimate owner's personal use is covered by the residential complex exclusion. On this reasoning, the value attributable to land and the builder's own construction activity were not taxable.

---

---

Issues: Whether service tax was leviable on a builder or developer in respect of construction-linked payments received from purchasers of residential units, including the question whether the value attributable to land and the nature of the transaction as an agreement to sell excluded the activity from tax.

Analysis: The levy on construction of complex under Section 65(105)(zzzh) of the Finance Act, 1994 was clarified by the Board's circular dated 29-01-2009. Under that clarification, where a builder or promoter enters into an agreement to sell with the ultimate purchaser and receives construction-linked payments, the property remains with the builder until execution of the sale deed. The construction activity till that stage is treated as self-service and does not attract service tax. The clarification also states that where the ultimate owner engages the promoter for construction of a residential complex for personal use, the activity falls within the exclusion applicable to residential complex. On that basis, the objections regarding inclusion of land value and the taxability of the builder's own construction activity do not survive.

Conclusion: Service tax was not payable on the impugned transactions, and the demand confirmed against the appellants was unsustainable.

Ratio Decidendi: Construction activity undertaken by a builder or promoter pursuant to an agreement to sell, before transfer of ownership by sale deed, is self-service and outside the levy of service tax on construction of complex.

---