Service Tax on Re-Development Projects.

[Guest]

Sir,

1) Clarification provided under Cir.151/2/2012 dated 10.02.2012 clearly exempted Service Tax on Society/member who enter into Development agreement with Builder/Developers. 

2) Service Tax Education Guide issued in 20.06.2012,  Para 6.2.2 mentioned that after 01.07.2012 all the Flats constructed under redevelopment project shall be liable under service tax. Hon. Comm. of Service Tax Mumbai, under Trade Notice. F.No.V/ST-I/Tech-II/463/11again retierated the same fact. 

3) DA between the society member & builder/developer simply mentions the area of the flat to be alloted to he members & compensation for renting during the course of construction against which the Society members have no objection. The DA doesn't have any quantification in terms of valuing the work undertaken or property given in terms of Rupees. 

4) Service Tax Charging Section is 66B & Construction is being declared service under 66E. The assumption provided is since the, 'personal use' clause from the definition of 'construction of complex' has been abolished. 

5) Under the definition Section 65(30a) defines 'Construction of Complex' & 65(91a) defines 'Residential Complex' for the whole of the Finance Act. However, Definition of 'Residential Complex' under Notf. 25/2012, clearly specifies 'only for the purpose of this Notification.'

Questions:

Q.1) Are the definition under 65(30a) & 65(91a) irrelevant?

Q.2) Technically, how would the Development agreement chargeable to Service Tax?

Q.3) How to Value the Development Agreement. Since, no value is prescribed for DA. Also, construction work ideally starts 3-4 years after DA is signed by the all members. Completion take place nearly 5-7 years after the orginally DA is signed.

Q.4) Would the same principle apply to Company undertaking construction of complex for the residence of its employees. 

Please Advise. Greatly appreciate your expert views on the matter. 

Thank you. 

[DR.MARIAPPAN GOVINDARAJAN]

Whether you have got clarified in the above issue? If not please inform.

[Paresh Jain]

No response received request you to clarify

AI Summary

Service tax liability on redevelopment agreements depends on characterization as construction service and valuation of non-monetary consideration. Whether service tax applies where society members enter development agreements with builders turns on characterization of the transaction as a taxable 'construction' service and interaction between the Act's definitions and a notification limiting 'residential complex' for exemption. Key operative issues are how the development agreement is chargeable as a service, how to value non-monetary or non-quantified consideration over multi-year construction timelines, and whether similar principles apply to company-provided employee housing.