Service tax to Joint venture of consturction

[Sunil M D]

Dear All,

Request you to provide your opinion on the below query.

Facts :

There is an agreement between Landowner (A) and developer (B) for construction of residential complex consisting of 20 flats.

A’s share – 40 % i.e. 8 flats.

B’s share – 60 % i.e. 12 flats.

B is receiving consideration for 12 flats

B is collecting service tax from the buyers @ 3.09%( availing the abetment of 75%)and depositing the same.

A is receiving the consideration of 8 flats.

Now the question is:

1) Who will collect and pay the service tax on 8 flats sold by A ?

2) Will there be any service tax liability on B towards service provided to A for construction of 8 flats ?

If yes, how to calculate the amount ?

3) Suppose the developer ( B ) provides other services like painting, flooring etc to the individual buyer’s, what will be service tax liability of B ?

[Rajagopalan Ranganathan]

Sir,

The answer to your quries are as follows: -[

Q.1: B will pay service tax on the 8 flats given free of cost to A, the land owner. When A sells the 8 flats to independent buyers he has to pay sales tax/VAT as per the law applicable.

Q.2: Yes. B is liable to pay service tax in respect of 8 flats given free of cost to A. Value of the 8 flats is to be determined on the basis of price of comparable flats sold by B to independent buyers. If such price is not available then on the basis of cost of construction plus reasonable profit.

Q.3: If painting, flooring etc forms part of the sale price of the flats no separate service tax is payable on such activity since the same will be part and parcel of the price of flats. If the same is undertaken after sale of the flats to independent buyers, then the service provider has to pay service tax on such service.

[KASTURI SETHI]

Sh.Sunil M.D.

Sir, I agree with the views of Sh.Rajgopolan Ranganathan Sir. I would like to add as follows:-

Reply to Q. No.2 If comparable prices are not available, Chartered Engineer's Certificate can serve the purpose of arriving at the construction cost of 8 flats.

Q.No.3 If the builder provides the service of painting, flooring etc. with material separately to the sold flats, this activity will be covered under Works Contract Service and abatement of 60% from the gross receipt will be available and RCM will also be available. If such service is provided without material, it will be pure labour and pure laboiur cannot be classified under Works Contract Service. In that situation, neither RCM nor abatement will be admissible.

[KASTURI SETHI]

Sir,

Fool proof reply is possible only after going through terms and conditions of the agreement.

[Ganeshan Kalyani]

Sir if the tax amount involved is substantial, which here seems to be obvious, it is suggested to appoint a consultant. You may contact the above replied experts who have got excellent knowledge and rich experience or the one in your circle. Thanks.

AI Summary

Service tax on construction services: developer liable for tax on flats transferred to landowner, valued by comparables or construction cost. The developer is liable to pay service tax on flats allotted to the landowner as consideration; valuation is by comparable sales or, if unavailable, cost of construction plus reasonable profit (a Chartered Engineer's certificate may evidence cost). Painting, flooring or similar services included in the sale price form part of the composite sale and do not attract separate service tax; if supplied after sale, the service provider owes service tax. Services provided separately with material qualify as Works Contract Service with abatement and reverse charge considerations; pure labour without material does not.