Status of Service Tax liability

[Sandhya Vijaykumar]

Hello experts,

Thanks in advance. May I know the legal status in the given transaction.

Here is a transaction such that, an agreement was entered between promoter/builder and prospective buyer for sale of flat on completion of construction of residential complex. Now, at the stage when only foundation and compound walls have been constructed leaving the rest of the majority work incomplete, the promoter/builder has transferred the agreement to execute the contract to another promoter/buyer. In this scenario, what would be the status of service tax liability on the new promoter/buyer?

N S SANDHYA

Advocate, Bangalore

[ashish chaudhary]

If new promoter receives advance from the buyer, service tax liability would arise. If no advance received before completion of service by new builder, no liability in his hand

[Mahir S]

The original (old) builder has to first discharge his duty liability for all payments and advances received till date and thereafter the new promoter shall be liable.

AI Summary

Service tax liability follows receipt of consideration; successor liable for advances received after transfer, predecessor for earlier receipts. Where a promoter transfers a sale agreement before construction completion, Service tax liability attaches to the party receiving consideration: the new promoter is liable for service tax on payments or advances he receives before completion of the service; the original promoter must discharge tax on all payments and advances he received up to the transfer date, with subsequent receipts attracting the successor's liability.