Service Tax Liability

[Guest]

Whether the builder has duty and responsibility to collect service tax from the Land Owners towards their respective share under the Joint Development Agreement?

[Mahir S]

Yes sir..

[Mahir S]

To quote from para 6.2.1 of the Guidance Note :-

6.2.1 What would be the liability to pay service tax on flats/houses agreed to be given by builder/developer to the land owner towards the land /development rights and to other buyers. If payable, how would the services be valued?

Here two important transactions are identifiable: (a) sale of land by the landowner which is not a taxable service; and (b) construction service provided by the builder/developer. The builder/developer receives consideration for the construction service provided by him, from two categories of service receivers: (a) from landowner: in the form of land/development rights; and (b) from other buyers: normally in cash.

Construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land was received by the builder/ developer before the issuance of completion certificate and the service tax would be required to be paid by builder/developers even for the flats given to the land owner.

[KASTURI SETHI]

SH. BT RAVI JI,

I concur with the views of Sh.Mahir S, Sir. I also add that in the Joint Development Agreement, land owner is also your service receiver (customer) directly or indirectly. With effect from 1.7.12, all kinds of construction service fall under one roof i.e. Works Contract Service. Pl. also go through Notification No.30/12-ST dated 20.6.12 (Serial No.9). It may be applicable to you keeping in view of the terms and conditions of the Joint Development Agreement and the status of the land owner whether individual or business entity.

[vasudevan unnikrishnan]

Dear experts, a corollary querry---If the JV agreements are preior to 1/7/2010 ,does it make any difference?

[KASTURI SETHI]

Sh.Vasudevan Unnikrishnan Ji,

Yes, Sir. It makes no difference. It is natural that there would be no clause regarding payment of ST in the JV Agreement; even then Service Tax has to be paid. and it would also be covered under WCS.

AI Summary

Service tax on construction services requires builders to account for tax on flats allotted to landowners when consideration precedes completion. Service tax is payable where a builder/developer receives consideration as land or development rights before the completion certificate; construction service is taxable and the builder must account for tax on flats allotted to the landowner under a Joint Development Agreement, with the landowner treated as a service receiver. Consolidation of construction activities under Works Contract Service brings such transfers within taxable scope, and prior agreement dates do not eliminate the liability if the conditions for taxable construction service are satisfied.