ST on Individual Villas located in a gated community

[santhosh kumar]

Dear Experts,

Our builder is selling plots and constructing individual villas along with land in a gated community (which constitutes yet to be constructed swimming pool, park, club house) to interested individuals. Around 50 villas are sold and occupied out of 200 villas. Almost all 50 are registered sepertely for land and building contract.The payment was made as per stage wise completion of villas. Most them are now occupied, however, without handing over the completion certificate from builder, but on full payment of contracted amount (most of them are under 30 lakhs).

Now, the builder is demanding to pay individual villa owners to pay ST as he is claiming that Asst Commissioner of city issued notice to him for not paying the same. The builder is demanding the same from us by issuing a letter in his letter pad (with corporate address from another state) by quoting his Service tax number.

On consulting a local expert, we are told that on payment, we can get the refund of the ST paid as we are indivduals and the property is for personal use.

Now my queries are :

1. Are we really taxable as we are using only individual villas, though the amenties like water tank, park, swimming pool are common.

2. Is it not the ST to be borne by builder as the contracted price is already fixed.

3. If at all, we have to pay, can we raise RTI, under which rule we are taxed. (Bez, many such communities are not taxed, as far as we learned).

4. Is it the builders' duty to issue in proper invoice as well as with the local address, where his operational office is located. (bez, we think, in future, it may be a point of contention due to the different localities, service provider and reciever).

5. Regarding getting the refund of ST paid, is it really true ? if yes, kindly tell about the chances of getting it from government and ways to get it. (Many of the customers advances towards building construction was unilaterly adjusted against this ST by builder)

6. I have asked enough questions, already, thank you.

Regards,

Santhosh.

[Ganeshan Kalyani]

Sir, in this regard I would like to reproduce the extract of relevant clause from mega exemption notification, as below:

14. Services by way of construction, erection, commissioning, or installation of original works pertaining to,-

(a) ......

(b) a single residential unit otherwise than as a part of a residential complex;

Sir from the above provision it is inferred that service tax is exempt on the construction of single residential unit otherwise than as a part of a residential complex.

You may bring the above clause to the notice of your contractor. Also ask the copy of notice that he has received for your perusal. Thanks.

[santhosh kumar]

Thanks sir..but he uses the same line

"Otherwise than a part of residential complex".. as we all residents enjoy common amenities, he says we r taxable..

Pl elaborate sir..also i will try to get the invoice copy..

Thanks..

[KASTURI SETHI]

Sh.Santosh Ji,

With due respect to Sh.Ganeshan Kalyani, Sir, I am of the view that ST is leviable. Your villa is part of residential complex. Contractor has constructed more than one villa in the same residential complex. Go through serial no. 12 of Notification No.26/12-ST dated 20.6.12 as amended and Notification No.24/12-ST dated 20.6.12 as amended carefully.

[YAGAY andSUN]

Service Tax: Availability of exemption-Notification No. 4/2013-SC dated 1st March, 2013 - in case there is a common agreement of obtaining the sanction and then build an individual house, it would be covered under the exemption notification. - AAR

[KASTURI SETHI]

Thanks to M/s.YAGAY and SUN Sirs, for posting such useful information. Now the assessee has to see whether they qualify all the parameters laid down in this case law read with relevant notifications cited by me.So this case law cannot be read in isolation. It has to be read in conjunction with all the Notifications/circulars on the issue vis-a-vis terms and conditions of the agreement.

[Ganeshan Kalyani]

Sir, I agree with Sri Kasturi Sir's , the mega exemption notification, the notification that is referred in the case law and the case law itself along with the views of the experts to be read to arrive at a conclusion. Thanks.

[santhosh kumar]

Thank you sirs..

however, is the villa not a single unit..is there any reference which says only flat comes under the definition of residential complex.."Otherwise than a part of residential complex"......since these houses r individual only..if we take them as a part of complex, then there won't be much left..as all to be constructed building will be some part of complex...

the builder is still not shown the notice..also, is there any possibility that he can collect ST and keep in his pocket..how can we check whether he paid or not..

also, is there any way we can get the paid ST as reverse charge or through any other means...

regards, santhosh

[KASTURI SETHI]

Sh.Santosh Ji,

Your villa is a residential unit and a part of residential complex. You may call it a flat or a house or villa whatever the case may be. It is a part of residential complex with so many common facilities available in the complex to be availed by the residents of villa. Service Tax is applicable. The builder will have to deposit ST into Govt. account after collecting from you failing which interest will be charged from the builder and penalty will be imposed. If any person collects ST but does not deposit with Govt. rate of interest is 30% per annum.Penalty is additional.

[Ganeshan Kalyani]

Sri Kasturi Sir,

With due respect I would like to draw your attention to the Hon'ble Delhi High Court Judgment in the case of Suresh Kumar Bansal Vs Union of India &Ors. The decision was in favour of the assessee.

Request you to please share your valuable views.

Thanks.

[KASTURI SETHI]

Dear Sir,

The department knows how to handle any case law. Until or unless the case is decided by the Apex Court, the assessees will follow the present rules in toto, in their own interest to avoid interest and penalty.

[Ganeshan Kalyani]

Thanks Sri Kasturi Sir for presenting your views.

Now the querist have to take the decision.

Also see the notice thar is received by the builder from the department for your perusal. Thanks.

[KASTURI SETHI]

Sh.Ganeshani Kalyani Ji,

Where is the Notice ? I intend to peruse.

[Ganeshan Kalyani]

Sir, Sri Santosh ji, has yet to get a copy from the builder. So I mean to mention him to check the notice once. Sorry Sri Kasturi Sir I have not specified the same in my reply. Thanks.

AI Summary

Builder Demands Service Tax on Villas Despite Fixed Prices; Participants Question Exemption Status and Potential Misuse A forum participant raised concerns about a builder demanding service tax (ST) payment for villas in a gated community, despite the contracted price being fixed. The villas, part of a larger complex with shared amenities, are individually registered. The builder claims an Assistant Commissioner issued a notice for unpaid ST. Participants debated whether the villas qualify for ST exemption under specific notifications, given their status as part of a residential complex. Some suggested consulting relevant case laws and obtaining the notice for clarity. Concerns were also raised about the builder potentially misappropriating collected ST.