abatement of 75% notification 1/2006

[hubert fernandes]

The Builder during construction stage enters into an agrt for sale with purchaser .The builder pays service tax (Complex construction service) after availing abatement of 75% as per notification 1/2006 dt 1-3-2006.

One of the clauses in the agrt states that the builder during the course of construction ie before completion of the residential project, agrees to undertake extra civil works or  additional works at request of the purchaser. These extra works can be categorised as completion and finishing services.The builder before giving possession and before project completion executes these works and raises a seperate invoice.

Whether you can claim abatement as per the above refered notification  on bills raised for such extra works? if YES than what shall be the explaination for claiming abatement on such extra works? OR whether  such works being  completion and finshing services and as stated in notification 1/2006 no abatement shall be allowed and shall be taxed at 100%..

What happens if a sale takes place in a completed project and all money ie sale consideration is received by the builder post such completion, whether extra works carried by the builder on such sale will  it be taxable ? OR  being a completed project will it be exempted? If taxable then under what service shall it be taxed? (complex construction or works contract) if taxed under complex construction will such extra works qualify for abatement? or being only completion and finishing services it will be taxed @ 10.30% on enire amount

Pl would appreciate if my above queries are resolved

[Guest]

Sir,

If a developer  is constructing apartments more than 50 or 100 and receives advances after

registering for booking  of flats, few purchasers are paying in instalments Rs.50000 or 1 lakhs

etc.,  after completion he will pay the balance amount for Registration,  how to assess tax for advance payments received. how to invoice them for every advance payments, the developer issues only receipts for advances received.   and paying tax on advance payments.    It is confusion for issuing invoices for every advances.   Please clarify whether to pay tax on advance payments or to pay after the completion.

P.S.Ramapriyan

[Vijay kumar]

Firstly, as per the explanation inserted in the definition of "Construction of Complex Service" w.e.f. 1.7.2010, unless it is a case of outright sale by the builder (after issue of completion certificate by the municipal authorities), construction of a residential complex having more than 12 units in a common area is liable to service tax under the said service. In the case cited by you, the additional works will also become part of the construction work (since they are provided before issue of completion certificate, as understood) and hence the total amount charged (including the completion and finishing services) is liable for service tax and the entire amount is eligible for abatement in terms of Nofn.1/2006.

Secondly, finishing works done for a complex are also taxable unless it is a case of  personal use, in terms of the definition of the said service under Section 65 (105)(zzzzh) r/w 65 (30a) of the Finance Act, 1994, Whether works contract or complex service depends on how the work is executed. If a contract involving transfer of property and payment of VAT thereon is involved, it will fall under WCS. If the contract is only for finishing works, only such amount will be charged to service tax.

[NK SHETE]

 finishing works done for a complex are also taxable as per above opinion. The taxable value for this service too will be entitled for abatement under Nofn.1/2006 dt 1-3-2006?

[rajkumar shukla]

FINISHING WORK IS TAXABLE BUT ABATEMENT UNDER 1/2006 IS NOT AVAILABLE IF IT IS ONLY FINISHING WORK.

AI Summary

Abatement for construction services: eligibility for additional finishing works depends on whether they form part of construction. Whether abatement under Notification 1/2006 applies to additional finishing works performed by a builder before issuance of the completion certificate. One position treats such pre-completion extra works as part of the Construction of Complex Service and thus eligible for abatement; another position treats isolated finishing contracts as standalone finishing services taxable without abatement. The discussion also notes classification issues between works contract and construction service and practical concerns about invoicing and taxation of advance payments.