TaxTMI 
TaxTMI 
2008 (4) TMI 21
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....owing questions of law under section 96-C of the Finance Act, 1994 :- "1. Whether the applicant is liable to service tax under section 65 (105) (zzzza) of the Finance Act, 1994 under the notified taxable service of execution of works contact in case of Proposed Activity No.3? 2. If the answer to Question No.1 is in affirmative, whether the applicant is entitled to deduct the value of transfer of property in goods involved in the execution of said works contract if the applicant opts for payment of service tax at the rate of 2 per cent under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 as notified vide notification no.32/2007-Service Tax dated 22.05.2007. (The next part of the question beginning with the phrase "in other words" is omitted as unnecessary). 3. Whether the applicant is liable to service tax under section 65 (105) (zzzza) of the Finance Act, 1994 under the notified taxable service of execution of works contract in case of Proposed Activity No.4? 4. Whether the applicant is liable to service tax under section 65 (105) (zzzza) of the Finance Act, 1994 under the notified taxable service of execution of works contract in case of Propose....
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....ct in activities 3 & 4 involves construction of a new building, such an activity can only be covered under (ii) (b) in the above Explanation. The said classification i.e., (b) covers "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". Since the new building proposed to be constructed in the course of the execution of the works contract is a residential one, and is not for the purpose of commerce or industry, such a works contract will not fall under (b) and therefore will not attract service tax. The applicant further states that a works contract for construction of a new building for residential purposes is also not covered under any of the remaining classifications in (ii) of the Explanation to (zzzza). The classification (c) which covers "construction of a new residential complex or a part thereof" is not applicable in applicant's case as the works contract is for construction of an individual residential unit and not for construction of a residential complex. The applicant adds that construction of a new residential building, whether located inside the complex or outside sh....
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....007-ST dated 22/5/2007 or alternatively under sub rule (1) of rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 notified vide notification no.32/2007 dt.22.5.2007. Where an assessee opts for composition under the latter method, there is no scope of simultaneously availing the benefit of Rule 2 A of Service Tax (Determination of value) Rules, 2006 notified vide notification no.29/2007 dt.22.5.2007. 5. Shri Deepak Garg, the Senior Departmental Representative has made exhaustive submissions supporting the view point of the Commissioner, Ahmedabad. He has compiled a brochure on all the law points involved and filed detailed comments on behalf of the Department. 6. The central issue for decision in the present application is whether the service provided in relation to execution of a works contract, by the applicant itself in activity 3 and through another contractor in activity 4, for construction of a residential unit, for the buyer of a plot of land in a housing project to be set up by the applicant on its own plot of land, is leviable to service tax under section 65 (105) (zzzza) of the Finance Act, 1994. As per section 65 (105) (zzzza) "taxa....
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....tract has to meet the two conditions (i) & (ii) in the Explanation in (zzzza). The facts narrated above by the applicant indicate that condition (i) is met in the instant case as the transfer of property in goods involved in the execution of the works contract is leviable to tax as sale of goods under the local Sales Tax Act. To meet condition (ii), the activity involved in the works contract in 3 & 4 has to be covered by at least one of the classifications (a) to (e) in the Explanation in (zzzza). Proceeding serially, we find that building of a residential house on a sub-plot in a residential complex is clearly not covered in (a). As pointed out by the applicant itself, it is also not covered in (b) which covers construction of a new building intended primarily for commerce and industry and does not cover construction of a new building for residential purposes. (c) in (zzzza) covers "construction of a new residential complex or a part thereof". A residential complex is defined in sub section (91a) of section 65 as follows : "(91a) "residential complex" means any complex comprising of - (i) a building or buildings, having more than twelve residential units; (ii) a common area; a....
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.... by the applicant and he proposes to build thereon a complete residential complex comprising of not merely individual residences but also a club and other common facilities which will be used by all the residents of the complex. When the buyer of the sub-plot enters into a works contract, such a contract is not for the construction of an isolated house, but for one which will make available to the buyer, all the facilities such as a club house etc. provided for by the residential complex. Individual houses built through the works contract, therefore, have to be viewed as parts of a residential complex rather than as stand alone houses. Thus the expression "or a part thereof" occurring in clause (c) of (zzzza) of section 65 (105) squarely applies. 8. In the course of the hearing, the applicant has referred to the provisions of section 65A of the Finance Act to claim that classification of the works contract in activities 3 & 4 under classification (c) in (ii) of the Explanation in section 65 (105) (zzzza) has to be ruled out. They state that as per this section, if a taxable service is, prima facie, classifiable under two or more sub clauses of clause (105) of section 65, then the ....
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.... entered into with the buyer of the plot. Merely for the reason that the sub-contractor becomes liable to pay service tax for the specific services performed by him in relation to the construction activity, the applicant/main service-provider cannot be absolved of the obligation to pay service tax. However, we are not called upon to express any view as to the quantum or modalities relating to the payment of tax. Thus the applicant is liable to pay service tax under (zzzza) of section 65 (105) even when the sub-contractor pays service tax for service rendered in the course of execution of the works contract. 11. In the second question of law put forward in the application, the issue raised relates to the rate of duty and the method of evaluating the value of the taxable service on which service tax is to be paid, in a situation where the service provided in case of activity 3 is held to be liable to tax. In chapter V of the Finance Act 1944, section 66 provides that service tax at the rate of twelve per cent will be charged on the value of the taxable services specified in this section. Service provided in relation to execution of a works contract referred to in sub clause (zzzza) ....
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....Instead of paying service at the twelve per cent rate specified in section 66, rule 3(1) of the above Composition rules gives the service provider an option to discharge his duty liability by paying four per cent of the gross amount charged for the works contract. (The rate of 2% applicable earlier has been raised to 4% with effect from 1.3.08 vide notification no.7/2008-ST dt. 1.3.08) For ready reference rule 3(1) is extracted below : "3.(1) Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to four per cent of the gross amount charged for the works contract." (emphasis supplied) 15. In question 2 of the application it has been claimed that the applicant is entitled to deduct the value involved in transfer of property in goods in the course of execution of the works contract, from the gross value of the contr....