There are three categories in the Service Tax Net (Chapter V of the Finance Act, 1994) related to civil construction:

1. 65(105)(zzq)     Commercial or Industrial Construction Service w.e.f - 10-09-2004
2. 65(105)(zzzh)    Construction of Complex - w.e.f 16-06-2005
3. 65(105)(zzzza)  Works contract - w.e.f. 01-06-2007

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The scope of taxable services within the above three categories prior to amendment vide Finance Bill, 2010 was as under:

1. 65(105)(zzq)     Commercial or Industrial Construction Service w.e.f - 10-09-2004

Taxable Service 65(105)(zzq)

Any service provided or to be provided to any person, by any other person, in relation to commercial or industrial construction service;

Meaning of Commercial or Industrial construction Service - 65(25b)

"commercial or industrial construction service" means—

(a)  construction of a new building or a civil structure or a part thereof; or

(b)  construction of pipeline or conduit; or

(c)  completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

(d)  repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit,

which is—

( i)  used, or to be used, primarily for; or

 ( ii) occupied, or to be occupied, primarily with; or

( iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;

2. 65(105)(zzzh)    Construction of Complex - w.e.f 16-06-2005

Taxable Service 65(105)(zzzh)

Any services provided or to be provided to any person, by any other person, in relation to construction of complex;

Meaning of Residential complex - 65(91a)

"residential complex" means any complex comprising of—

(i) a building or buildings, having more than twelve residential units;

(ii) a common area; and

( iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person.

Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this clause,—

(a) "personal use" includes permitting the complex for use as residence by another person on rent or without consideration;

(b)  "residential unit" means a single house or a single apartment intended for use as a place of residence;';

3. 65(105)(zzzza)  Works contract - w.e.f. 01-06-2007

Taxable Service 65(105)(zzzza)

Any services provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

Explanation.—For the purposes of this sub-clause, "works contract" means a contract wherein,—

(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and

(ii) such contract is for the purposes of carrying out,—

(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or

(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

(c) construction of a new residential complex or a part thereof; or

(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or

(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;

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The scope of Taxable Services after amendments as proposed vide Finance Bill, 2010

1. 65(105)(zzq)     Commercial or Industrial Construction Service w.e.f - 10-09-2004

Taxable Service 65(105)(zzq)

Any service provided or to be provided to any person, byany other person, in relation to commercial or industrial construction; [The word in the last "service" omitted]

Explanation.—For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorised by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer.

Meaning of Commercial or Industrial construction Service - 65(25b)

"commercial or industrial construction service" means—

(a)  construction of a new building or a civil structure or a part thereof; or

(b)  construction of pipeline or conduit; or

(c)  completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

(d)  repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit,

which is—

( i)  used, or to be used, primarily for; or

 ( ii) occupied, or to be occupied, primarily with; or

( iii) engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;

2. 65(105)(zzzh)    Construction of Complex - w.e.f 16-06-2005

Taxable Service 65(105)(zzzh)

Any services provided or to be provided to any person, by any other person, in relation to construction of complex;

Explanation.—For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorised by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer.

Meaning of Residential complex - 65(91a)

"residential complex" means any complex comprising of—

(i) a building or buildings, having more than twelve residential units;

(ii) a common area; and

( iii) any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person.

Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this clause,—

(a) "personal use" includes permitting the complex for use as residence by another person on rent or without consideration;

(b)  "residential unit" means a single house or a single apartment intended for use as a place of residence;';

3. 65(105)(zzzza)  Works contract - w.e.f. 01-06-2007 [No Change]

Taxable Service 65(105)(zzzza)

Any services provided or to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

Explanation.—For the purposes of this sub-clause, "works contract" means a contract wherein,—

(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and

(ii) such contract is for the purposes of carrying out,—

(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or

(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

(c) construction of a new residential complex or a part thereof; or

(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or

(e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;

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Relevant Circulars and Notifications

D.O.F. No.334/1/2010-TRU - dated - 26-02-2010  

Changes proposed in service tax law and procedure in Union Budget 2010-11 - regarding

1.  Notification No. 1/2006 ST dated 1/3/2006

2.  Notification no. 12/2003 dated 20-6-2003, exemption to the material sold.

3.  Notification no. 25/2007 ST dated 22-5-2007 - Exemption to construction of port or other port. Earlier the exemption was granted under Notification No. 16/2005 ST dated 07-06-2005

4.  Circular No. 80/10/2004 ST dated 17-9-2004 - Clarification

5.  F. No. B 1 /6 /2005 TRU dated 27-7-2005  - Instruction to the department

6.  Letter F. No. /DGST/22/ Audit/Misc/ 1/2004, dated 16-2-2006 - Clarification

7   Circular No. 96/7/2007 dated 23/8/2007 - Clarification

8.  108/02/2009 - dated - 29-01-2009 - Imposition of service tax on Builders - regarding

Taxability of builder services: construction intended for sale is deemed a taxable service by the builder under amended provisions. Three service-tax categories apply to construction: Commercial or Industrial Construction Service, Construction of Complex, and Works Contract. The 2010 amendments deem construction intended for sale by a builder to be a service provided by the builder to the buyer (subject to an exception where no sum is received before completion certificate). Exclusions cover major infrastructure projects and the Works Contract definition remains unchanged.