Service Tax on Re-Development Projects.

[Rohan Rane]

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. 

AI Summary

Service Tax Applicability in Redevelopment Projects: Exemptions, Taxability, and Valuation Issues Under Sections 65(30a) and 65(91a). A discussion on service tax applicability in redevelopment projects highlights several points: a circular from 2012 exempts service tax for societies entering agreements with developers, but a subsequent guide states that flats constructed post-2012 are taxable. The development agreement (DA) specifies flat allocation and compensation without monetary valuation, raising questions about tax applicability and valuation. Definitions under sections 65(30a) and 65(91a) are questioned for relevance, and clarification is sought on whether similar principles apply to companies building residential complexes for employees. Replies request further clarification on these issues.