There was a wide confusion on applicability of service tax on the construction activity where the developer carry the entire activity of construction of complex themselves without engaging the contractor.

The confusion widened like anything after a clarification issued by the DGST dated 16.2.2006.

However, later on CBEC has clarified the issue by issuing a circular No.96/7/2007-ST dated 23.8.2007 and by withdrawing its earlier circulars. Now the question arises, whether the circular no. 96/7/2007 is prospective in nature or retrospective in nature.

Now CESTAT has decided the issue as under:

"If no other person is engaged for construction work and the builder/ promoter / developer / any such person undertakes construction work on his own without engaging the services of any other person, then in such cases,

(i) service provider and service recipient relationships does not exist,

(ii) services provided are in the nature of self-supply of services.

Hence, in the absence of service provider and service recipient relationship and the services provided are in the nature of self-supply of services, the question of providing taxable service to any person by any other person does not arise. Since the circular is by way of clarification of the law, we hold that it will apply retrospectively" 

However, the matter is remanded back for denovo consideration . 

(For full text of judgment visit - 2008 -TMI - 3605 - CESTAT, NEW DELHI)

Self-supply of construction services negates a service provider-recipient relationship and affects service tax applicability. Where a developer undertakes construction without engaging any other person, no service provider-service recipient relationship exists and the activity is self-supply of services, so no taxable service is provided to another; the tribunal treated the administrative clarification as retrospective and remanded the matter for de novo consideration.