Collection of Service Tax by a Flat Promoter

[Guest]

Hi,

Recently I purchased one Studio apartment at Chennai for a consolidated amount of ₹ 39.30 Lacs which includes all registration and service tax applicable. However, during the handover of the apartment, the builder came back and said I have to pay additional amount of another ₹ 48000/- due to change in Service Tax Rate and gave me a break up of the amount. In that workings i noted that they are charging service tax on Legal & documentation charges, Assessment Charges and TNEB, Metro Water, Sewage Deposit. I objected for charging Service Tax on these activities since they are in the nature of agent obligation to the purchaser and no service involved, hence Service Tax not applicable and referred Exemption given under Rule 5 (2) of the Service Tax (Determination of Value)Rules, 2006. Further they also charged service tax on Maintenance for three years (Rs.3 per sq.ft * Salable Area * 36 Months) which will be paid to a society that is going to be formed shortly, I objected for this also and said that Services rendered as a pure agent cannot be considered as a reimbursement of expenses and hence, Maintenance charges being collected and going to be paid to a society as an agent of the buyer, is exempted from Service Tax vide Circular 175/1/2014 dt. 10-01-2015.

Once I mentioned all the above facts and gave the required notification/circulars, the builder is now refusing to attend my calls and even when I go to his office and try to meet them and sort the issue, they are saying that their Director is not available to discuss on this.

I would like to know whether my objection is correct and what is the recourse available in this situation. Sine I have already paid more than 95% of the total amount and incurring interest cost also, Can i pay the amount they demand and take possession of the property and then ask for a refund from the Service Tax department or Can i file public grievance complaint with the service Tax department.

Please advise.

[KASTURI SETHI]

Whatever amount of Service Tax charged by the builder on account of increase in rate of Service Tax and others factors, he can not keep that amount in his own pocket. He will have to deposit with Service Tax department. You are correct only on the point of 'pure agent' but there is also limit of ₹ 5000/- per member per year. If he is charging ST for three years in advance, he will have to deposit the whole amount of Service Tax in advance with the Central Govt. You cannot claim refund direct from the department. In case any amount is paid in excess, the assessee will either adjust in ST-3 returns or file refund claim with the jurisdictional Asstt. Commissioner/Deputy Commissioner. The jurisdictional Range Officer will examine whether amount of ST has been paid in excess or not. Pl. note that as per Service Tax law, it is statutory duty of Service Provider to collect Service Tax from the Service Receiver and deposit with the Central Govt. Ultimately, consumer has to bear the burden of Service Tax. Better option is to deposit and then discuss with him or the jurisdictional Range Officer.

AI Summary

Studio Apartment Buyer Challenges Builder on Additional Service Tax Charges; Examines 'Pure Agent' Exemption for Relief. A purchaser of a studio apartment in Chennai raised concerns over additional service tax charges imposed by the builder, which included taxes on legal, documentation, assessment charges, and maintenance fees. The purchaser argued these charges should be exempt under specific service tax rules and circulars. The builder became unresponsive after these objections. A response advised that while the purchaser is correct regarding the 'pure agent' exemption, the builder must deposit any collected service tax with the government. It was suggested that the purchaser could pay the demanded amount, take possession, and then address any excess payment through the appropriate tax authorities.