Liability of service tax on accomodation services

[Guest]

A Pvt Ltd company is going to execute a contract at a site. as per the agreement, it is the responsibilty of the client to provide accomodation to the people working at site.But the company requested the client that the company will construct its own accomodation at the land belongiing to the client ie erect a temporary shed which will be dismantled once the project is over. the total cost of constructing the temporary structure is Rs 1cr. the client agreed only to reimburse Rs 40 lacs to the company. my query is the company liable to pay any service tax on the Rs 40 lac received from the client. My opinion is that since this being a purely a reimursement of capital expendityre, service tax should not be levied. i need your valuable advice

[Guest]

Only detailed analysis of facts and circumstances would help to determine the true position of service tax law.

[Madhukar N Hiregange]

When there is no service to others there may notbe a liability. Further contruction servcie is when construction is done for another person not for his use. In this case it can be said that contractually it is for his use, therefore again not liable. Further it is a composite contract and therefore there is no ST attracted as per Daelim Industries case. I think there maybe no liability at all.

AI Summary

Service tax on reimbursement for construction of client accommodation may not arise where no taxable service is rendered. Receipts reimbursing part of the cost to erect temporary accommodation may not attract service tax if they constitute recovery of capital expenditure, the construction is for the client's use (not a construction service 'for another'), no separate service is provided to third parties, and the contract is composite; however, outcome depends on detailed factual analysis of contractual allocation, beneficial use, and the true nature of the consideration.