A delayed but welcome clarification has been issued by the CBEC vide 108/02/2009 - ST dated 29-1-2009 as follows:

           "The matter has been examined by the Board. Generally, the initial agreement between the promoters / builders / developers and the ultimate owner is in the nature of 'agreement to sell'. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of 'self-service' and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a residential complex with a promoter / builder / developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of 'residential complex'. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax."

The above clarification is in contrast with the ruling given by the Authority of Advance Ruling in the matter of Re. M/s Harekrishna Developers - 2008 TMI -3717 AUTHORITY FOR ADVANCE RULINGS and Re. M/s Harekrishna Developers- 2008 TMI -3610 FOR ADVANCE RULINGS.

As per the provision of Advance Ruling, a ruling delivered by AAR is binding on the applicant and revenue.

Therefore, the contents of circular no. 108/02/2009 would prevail over Advance ruling in the matter of Harekrishna.

In the era of recession and cut in employment, this move would be welcomed by the public at large.

Self-service exclusion: seller-provided construction services before execution of sale deed are not subject to service tax. Services rendered by a seller/promoter in relation to construction of a residential complex prior to execution of the sale deed are treated as self-service and do not attract service tax; if an owner engages a promoter who personally provides design, planning and construction and the owner takes the completed property for personal use, that activity is excluded as a residential complex; however, third-party contractors or designers providing services remain liable to pay service tax.