Real estate and construction indutry 18.12

Constructions and Real Estate Sector
Services –Practical Problems and Vexed
Issues

Kolkatta - Chartered Accountants

Presented By
J.K. MITTAL (Advocate)
Chairman, Indirect Taxes C
Ch i I di tT Committee,
itt
PHDCCI
LL.B.,F.C.A., F.C.S.
LL B F C A F C S
NEW DELHI
Ph: 011- 22056635
Fax: 011- 22447420
Email: jkmittal@vsnl.net 1

Levy of Service Tax on Construction
& Real Estate Activities

Commercial or Industrial Construction Services-
w.e.f. 10.09.2004

Residential Complex Services- w.e.f. 16.06.2005
p

Works Contract Services –w.e.f. 01 06 2007
w e f 01.06.2007

sale of flats/ Buildings to prospective buyers-
w.e.f. 01.07.2010
2

Construction & Real Estate
Services – full of doubts

Whether levy prior to 1.06.2007 was
constitutionally valid?
Whether service tax is applicable on supply of
Ready Mix Concrete (RMC)?
Whether Service T
Wh th S i Tax i applicable on so called
is li bl ll d
“Free Supply” of materials?
Whether service tax can be levied on the entire
value of contract including the material involved in
the execution of such construction contract?
Whether Service Tax levy on sale of flats to
prospective buyers is constitutionally valid? 3


What is a Works Contract?
Whether Benefit of Composition Scheme is
available to ongoing project (started prior to
1.6.07)?
Whether i
Wh th increased rate of t
d t f tax (4%) shall b
h ll be
applicable to payment received on or after 1-3-2008
for the works executed prior to said date?
What is non a commercial project?
What is the meaning of Road?

4

Whether service tax is applicable on the
basic sale price/consideration of the flat?
Whether service tax is required to be paid
for the contracts entered into prior to 1st
July 2010 for which payments is received
after 1st J l 2010?
f t July

Whether service tax is required to be paid
for the payments received prior to 1st July
2010 (as per Down linking payment Plan)
for which services will be rendered after 1st
July 2010?
5

Whether
Wh th service t
i tax i applicable as per d t of
is li bl date f
agreement to sale or on date of construction?
Whether service tax shall be applicable for the
construction already completed but payment for
sale of flats received on or after 01-07-2010?
Whether service tax shall be applicable on the
agreement entered into prior to 01-07-2010 and
constructions also completed prior to said date but
payments received on or after 01-07-2010?

6

Whether service tax shall be applicable on the
security deposits both interest bearing and non-
interest bearing?
Whether service tax is applicable on the
mobilization advances?
Whether Service Tax is applicable on construction
for ‘personal use’?
Why the construction of building for sale is not
treated as ‘works contract’?

7

Whether service tax
Whethe se ice ta shall be applicable on the
additional activities like preferred location
charges, lease rent, electrical sub-station
charges, fire fighting, power back up, interest
free maintenance security charges, club
membership, car parking etc. what are the
categories of taxable services and what is the
applicable rate of tax – whether abatement of
75% available?
Under GST - immovable property transactions are
not to be covered- then how and what shall be the
tax treatment of sale transactions?
8

Works Contract Service
Works Contract Service introduced w.e.f.
wef
01.06.2007

“taxable service” means any service provided or
taxable service
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-
p p p
clause, “works contract” means a contract
wherein,—
( ) transfer of property in goods involved in the
(i) p p y g
execution of such contract is leviable to tax as
sale of goods, and
Continue…..


(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
Continue…..

(b) construction of a new b ildi
i f building or a civil
i il
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
services, repair,
alteration, renovation or restoration of, or
similar services, in relation to (b) and (c); or
(e) turnkey projects including engineering,
engineering
procurement and construction or
commissioning (EPC) projects; [section
65(105)(zzzza)]

What is Works Contract?
In the case of S
h f State of Andhra Pradesh v
f dh d h
Larsen & Tourbo Ltd. 2008-TIOL-158-SC-
VAT, the Supreme Court held as under:
“12.
“12 A contract of work, i
t t f k i.e., ""works contract"
k t t"
involves transfer of property and also element
of service or work rendered. That is why it is
called composite contract Works contracts
contract.
can be of two types only:
(a) Works contracts for constructions; and
(b) Works contract in relation to any movable
property like repairs to vehicles, printing
contracts etc.”

In the case of Hindustan Shi
h f i d Shipyard Ltd. v
d d
State of A.P. (2000) 6 SCC 579; (2000) 119
STC 533 : AIR 2000 SC 2411, the question
which arose for consideration was whether a
contract constituted a sale or works contract.
Laying down the tests therefore, having regard
to the terms and conditions contained therein, it
was opined that a contract of the sale of goods
was separate from a contract for works and
labour. In regard to the categories of the
contract, it was stated:
t t t t d
“(i) the contract may be for work to be done for
remuneration and for supply of materials used in
the
th execution of th work f a price;
ti f the k for i
Continue…..

(ii) it
i may b a contract f
be for work i which the
k in hi h h
use of the materials is accessory or incidental to
the execution of the work; and
(iii) it may b a contract f
be t t for supply of
l f
goods where some work is required to be done as
incidental to the sale.”

Whereas the first contract was held to be a
composite contract, the second was held to be a
contract for work and labour not involving the sale
of goods and the third was held to be a contract of
sale where the goods were sold as chattels and the
work done was merely incidental thereto.

Construction Services – Whether levy
prior to 1.06.2007 was constitutionally valid?

Circular No. 98/1/2008-ST, dated
04.01.2008 - The Government clarified
that the service providers who have
paid service tax prior to 01.06.2007
under commercial construction or
residential complex service is not
entitled to pay the tax under the
composition scheme under Works
Contract services for the contract
entered i t prior t 01 06 2007
t d into i to 01.06.2007.
15

High Court’s Decision on on-going
Projects and Validity of Circular
dtd.04.01.08
d d 04 01 08

In the case of Nagarjuna C
h f j Construction
i
Company Ltd. v GOI 2010-TIOL-403-HC-AP-
ST, 2010 (019) STR 0321 (A.P.) the
challenge was made to the Circular No No.
98/1/2008-ST, dated 04.01.2008.

The Court reiterated that the said Circular is in
conformity with the provision of the Rule 3(3) of
the composition rules. The Court held that the
Circular dated 04 01 2008 is wholly in
04.01.2008
conformity with the provisions of Rule 3(3)
(supra).

Continue…

High Court’s Decision on on-going
Projects and Validity of Circular
dtd.04.01.08

The Court held that the fact that the nature of the
works executed by the petitioner which hitherto
fell within the ambit of the taxable services
enumerated in Clauses (zzd), (zzq) and (zzzh),
now fall within services classified as a works
contract in Clause (zzzza) does not have any
(zzzza),
bearing on the entitlement of the petitioner to the
benefits of the composition scheme under the
2007 Rules as such scheme is available only in
relation to works contract services.

SC case in Kerala State Electricity Board v
y
CCE, 2007-TIOL-226-SC-ST : 2008 (9) STR 3

in para 27 held as under :
“27. There is a distinction between
the object of tax the incidence of tax
tax,
and the machinery for the collection
of the tax. The distinction is
important but is apt to be confused.
Legislative competence is to be
determined with reference to the
object of the levy and not with
reference
f to
t its
it incidence
i id or
machinery” 18

Complexity – Levy of Excise Duty and
p y y y
Service Tax both on same transactions
The CBEC,
CBEC Government of India
Ministry of Finance, in its Instruction Dy. No.
167/11/08-CX.4, dated 05.03.2008 has indicated
that they are examining the issues: Quote

“1) Whether both the Service Tax and
Excise duty are payable; on same
activity or not?
2) Whether for both taxes, the same
value is considered or different value is
considered. “
19

Whether same transactions/activities can be
subjected to excise duty as well as service
tax?

No.
No As per Entry 84 of the Union List of Schedule
VII of the Constitution of India, duty of excise can
levied on “goods” manufactured or produced in
India, whereas as per Entry 92C of the Union List of
Schedule VII of the Constitution of India, Union of
India is competent to levy “Taxes on Services”.
Taxes Services .

Reference: The Supreme Court in the case of Calcutta
Gas Co. v State of West Bengal 1962 Supp (3) SCR 1 :
g pp ( )
AIR 1962 SC 1044 had occasion to deal with the conflict
between two Entries and held that if the industry in
Entry 24 is interpreted to include gas and gas work,
Entry 25 may become redundant.

20

Whether service tax is applicable on supply of
pp pp y
Ready Mix Concrete (RMC)?

The production of RMC is an activity
amounting to “manufacture” within the
meaning of section 2(f) of the Central Excise
g ( )
Act, 1944 and an item covered under Tariff item
No. 3824 50 10 by specifying Nil rate of duty of
excise under the Central Excise Tariff Act, 1985,
which is also specifically clarified by the Board
through various circulars. As per Central Board
of Excise & Customs, New Delhi (CBEC) Circular
No. 368/1/98-CX, dated 6-1-1998 : “Ready Mix
Concrete is thus an excisable product which has
a separate tariff entry under sub-heading
sub heading
3824.20 of the Central Excise Tariff Act, 1985”.
21

Construction Services- Whether
Service Tax is applicable on so called “Free
pp
Supply” of materials?

The Delhi High Court in Writ Petition No. 3048/2008
by Order dated 22.05.2008 held that “we are of the
opinion that while the adjudication proceedings
may go on and be concluded by the
Respondents, they will not include for the
purposes of d t
f determining th t
i i the taxable service th
bl i the
supply of free material to the Petitioner and to
this extents the Explanation appearing against
Serial No.7 in the table given in the Notification
dated 1st March, 2006 will not be applied to the
detriment of the Petitioner”
Petitioner

22

Whether service tax can be levied on the entire
value of contract including the material involved
in the execution of construction contract?

MOF Instructions F No 233/2/2003 CX 4
F. No. 233/2/2003-CX.4,
dated 3-3-2006:
“3. The matter has been examined by the Board. The
intention of the Notification No. 12/2003-ST, d
f h f 2/2003 S dated 20 6
d 20-6-
2003 is to provide exemption only to the value of goods
and material sold subject to documentary evidence of
such sale being available. Therefore, in case, the goods
are consumed during the provision of service and are
not available for sale, the provision of the said
notification would not be applicable. Therefore, in
supersession of clarification to contrary, it is clarified
that goods consumed during the provision of service,
g g p ,
that are not available for sale, by the service provider
would not be entitled to benefit under Notification No.
23
12/2003-ST, dated 20-6-2003.”

Works Contract and FOC
Material
Whether gross amount shall i l d the f
h h h ll include h free
of cost materials supplied by contractee?
The Government has amended, w.e.f 7-7-2009,
the W k C t
th Works Contract (C
t (Composition S h
iti Scheme f for
Payment of Service Tax) Rules, 2007 by
Notification No. 23/2009-ST, dated 7-7-2009. As
per the amended Rule gross amount charged for
Rule,
Works Contract for payment of service tax under
the Composition scheme, shall include:
(a) the value of all goods used in or in relation to
the execution of Works Contract- whether supplied
under other contract for a consideration, or
otherwise.

Works Contract and FOC
Material … Contd.
(b) the value of all the services that are required
to be provided for the execution of Works
Contract.
(c) the charges for obtaining machinery and tools
used in the execution of the said Works
Contract on hire.
But, it shall not include:
(a) VAT/sales tax paid on transfer of property in
goods i
d involved.
l d
(b) the cost of machinery and tools used in the
execution of the said Works Contract.

FOC Material – Board
Circular dated 13.11.2007
The Board has issued Instruction
F.No.137/118/2007-CX.4 dtd.13.11.07 after
taking note of the interim relief granted by the
High Courts that “….Therefore, it may be more
appropriate to deny abatement claimed under
the said notification instead of asking the
assessee to include cost of material and then
avail abatement.”

Tribunal’s Decision on FOC
Material
The Tribunal in the case of Jaihind Projects
ihi d j
Ltd. v CST, Ahmedabad
2010(018)STR 0650 Tri-Ahm.2010-
( )
TIOL-124-CESTAT-AHM, came to the
conclusion that the material-supplied by the
customer/ service receiver to the contractor is to
be
b treated as ‘
d ‘construction’ and required to b
i ’ d i d be
added in the value of taxable services. However,
in the opinion of the author, the decision of the
Tribunal does not appear to be in consonance
with the law and requires to be taken up in the
higher courts to settle long pending disputes.

Whether Service Tax is leviable on sale of
flats to prospective buyers?

Harekrishna Developers 2008-TIOL-
03-ARA-ST (Ruling No.
AAR/03(ST)/2008),
AAR/03(ST)/2008) the
th Advance
Ad
Ruling Authority held that the sale of
house is taxable service under
construction of complex service.

28


Magus Construction Pvt Ltd v
UOI reported in 2008-TIOL-321-
p
HC-GUW-ST, the High Court held
the sale of flat/ house to the
prospective buyer is not a
service at all, hence not taxable.
,

29


The Supreme Court in the case of Larsen
& Toubro Ltd v State of Karnataka
reported i 2008 (12) STR 257 (SC)
t d in
has disagreed the decision in the K.
Raheja Development Corporation v State
of Karnataka 2005-TIOL-77-SC-CT : 2006
( )
(3) STR 337 (SC) : AIR 2005 SC 2350 :
( )
(2005) 5 SCC 162 case and has referred
the matter to the Larger Bench of the
Supreme Court.
30


Circular No. 108/02/2009 – ST , dated 29th
January 2009
any service provided by such seller in connection
with the construction of residential complex till
t e e ecut o o suc sa e
the execution of such sale deed would be in the
ou d t e
nature of ‘self-service’ and consequently would
not attract service tax

31

Construction Services-
Collaboration Agreement
C ll b ti A t

Faqir Chand Gulati v Uppal Agencies
Pvt. Ltd. and Anr. in Civil Appeal No.
3302 of 2005 agreements are popularly
f 2005, t l l
known as joint venture agreements or
development agreements or collaboration
agreements are treated as provision of
service to the owner of land unless there
is real joint venture that is community of
interest or common/joint control in the
management, nor sharing of profits and
losses 32

Deemed Service Concept
The Finance Act, 2010 has
introduced the Deemed
Service Concept – both in
Commercial and R id
C i l d Residential
i l
Co st uct o Se ces
Construction Services

Continue …

Commercial Construction Service –
Inserted by the Finance Act 2010
Act,
w.e.f. 01.07.2010.

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
p y y p
to issue such certificate under any law for the
time being in force) shall be deemed to be service
p
provided by the builder to the buyer; [section
y y ; [
65(105)(zzq)].

Residential Construction Services –
inserted by the Finance Act, 2010 w.e.f.
01.07.2010.

Explanation.—For the purposes of this sub-clause,
construction of a complex which is intended for
sale, wholly or partly, b a b ild
l h ll tl by 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
y y p
certificate under any law for the time being in
force) shall be deemed to be service provided by
the builder to the buyer; [section 65(105)(zzzh)].

Board Circular dtd. 26.02.10
dtd 26 02 10

Board h
d has clarified the scope of the explanation
l ifi d h f h l i
introduced by the Finance Act, 2010, both under
Commercial and Residential Construction
Services.
Services

“8.6 In order to achieve the legislative
intent and bring in parity in tax treatment an
treatment,
Explanation is being inserted to provide that
unless the entire payment for the property is
paid by the prospective buyer or on his behalf
after the completion of construction (including
its certification by the local authorities), the
activity of construction would be deemed to be a
y
taxable service provided by the
Continue ….

Board Circular dated
26.02.2010
builder/promoter/developer to the prospective
buyer and the service tax would be charged
accordingly.
accordingly This would only expand the scope of
the existing service, which otherwise remain
unchanged.”

Board Circular F. No.334/
03/ 2010 -TRU dtd. 01.07.10
The Board has clarified that “If agreement is
entered into or any payment is made for sale of
complex or apartment in residential complex
complex,
service tax will be leviable on such transaction
since the builder provides the construction
service.”
service ”

Applicability of Service Tax
w.e.f. 01.07.10
The amendment h
h d has b
been made b i
d by inserting an
i
explanation which gave a doubt whether it is a
prospective or retrospective, but the Board
clarified in Circular dated 01 07 2010 that it is
01.07.2010
prospective in nature.

“2.1
“2 1 Vide Finance Act 2010 eight new
Act, 2010,
services were added to the list of taxable
services while the scopes of nine existing
services were modified As these changes
modified.
become effective from 01.07.2010, activities
that are covered under taxable service
g
categories due to above additions or
modifications, would start attract service tax
from this date.”

Exemption for the payment
received prior to 01.07.10
“While legally tax i payable on such amounts
“ hil l ll is bl h
received, it has been decided to specifically
exempt service tax on that partial or full amount
which is received by the service provider/ person
liable to pay the tax (and not by an agent, who
in turn transfers such amount to such person
after this date) before 01.07.2010, pertain to a
service which has become taxable on account of
the provisions of the Finance Act, 2010 and is
provided on or after 01.07.2010. Any amount
received after 01 07 2010 b
i d ft 01.07.2010 by th the service
i
provider/ person liable to pay the tax would be
subjected to tax. (Refer Notification No.36/2010-
Service Tax dated the 28th June 2010 as
corrected vide corrigendum dated 29th July,
2010).”

Authority Allowed to Grant
Completion Certificate
The Government b O d
Th G by Order N 1/2010 d
No.1/2010 dated 22 06 2010
d 22.06.2010
declared that following are covered under the authority
competent to grant completion certificate:
(i) architect registered with the Council of Architecture
constituted under the Architects Act, 1972( 20 of 1972);
or
( )
(ii) chartered engineer registered with the Institution of
g g
Engineers (India); or
(iii) licensed surveyor of the respective local body
of the city or town or village or development or planning
authority;
who is authorised under any law for the time being in
force, to issue a completion certificate in respect of
residential or commercial or industrial complex
complex, as a
precondition for its occupation.

Abatement of 75%
Notification No.29/2000-ST dtd.22.06.10 has
granted abatement of 75% for providing deemed
services related to construction if cost of land is
construction,
included in the amend charged.

PLC Services provided by
Builders . w.e.f. 01.07.2010

“Taxable service means any services provided or to
“ bl i i id d
be provided, to a buyer, by a builder of a
residential complex, or a commercial complex, or
any other person authorised by such builder for
builder,
providing preferential location or development of
such complex but does not include services
covered under sub-clauses(zzg), (zzq), (zzzh) and
sub clauses(zzg),
in relation to parking place.

Explanation. For
Explanation —For the purposes of this sub-clause
sub clause,
‘‘preferential location’’ means any location having
extra advantage which attracts extra payment over
and above the basic sale price” [section
p [
65(105)(zzzzu)].

Clarification Related to PLC
Services Dtd.26.02.2010
8.1 Construction of commercial or i d
81 C i f i l industrial
i l
structures was brought under service tax net in
2004 while construction of residential complexes
became a taxable service in 2005 The scope of
2005.
the existing services includes construction,
completion and finishing, repairs, alterations,
renovation or restoration of complexes. It has
been reported that in addition to these activities,
the builders of residential or commercial
complexes provide other facilities and charge
separately f th
t l for them and th
d these charges d not f
h do t form
part of the taxable value for charging tax on
construction. These facilities include,-
continue…..
ti

(a) prime/preferential l
i / f i l location charges f allotting
i h for ll i
a flat/commercial space according to the choice
of the buyer (i.e. Direction- sea facing, park
facing,
facing corner flat; Floor first floor top floor
Floor- floor, floor,
Vastu- having the bed room in a particular
direction; Number- lucky numbers);
(b) internal or external development charges which
are collected for developing/maintaining parks,
laying of sewerage and water pipelines,
p
providing access roads and common lighting
g g g
etc;
(c) fire-fighting installation charges; and
(d) power back up charges etc.
continue…..

8.2 Since these charges are i the nature of
8 2 Si h h in h f
service provided by the builder to the buyer of
the property over and above the construction
service,
service such charges are being brought under
the new service. Charges for providing parking
space have been specifically excluded from the
scope of this service. Development charges, to
the extent they are paid to State Government or
local bodies, will be would be excluded from the
taxable value levy. Further, any service provided
by Resident Welfare A
b R id t W lf Associations or C
i ti Cooperative
ti
Group Housing Societies consisting of
residents/owners as their members would not be
taxable under this service
service.

Applicability of the Rate of
Tax for the Works Contract
Rate of tax of works contract was increased from
2% to 4% w.e.f. 01.03.2008. The Dispute
arises whether service tax rate shall apply as
applicable on the receipt of the payment or the
rendering of service or the date of entering into
contract.
contract

Board Clarification Dtd.
28.4.08 - Applicability of Tax
The Board through Instruction F.No. 545/6/2007-
h d h h i /6/200
TRU dated 28.04.2008 has clarified that service tax
shall become chargeable on receipt of payment, on
the amount received for the service provided or to
be provided, whether or not services are
performed, and rate of service tax shall be
applicable at the rate in force at the time service
tax becomes chargeable. In other words, through
Instruction dated 28.04.2008, the Board has
clarified that the rate of service tax shall be
applicable on th d t of receipt of payment
li bl the date f i t f t
irrespective of date of performance of service. In
our opinion, the aforesaid Instruction is not in
consonance with law as service tax rate cannot be
law,
applied when even taxable event does not occur.

Taxability on Construction
of Government Houses
No.332/16/2010-TRU
Instruction
dated 24.05.2010 has clarified that GOI
is the service receiver and NBCC is providing
services directly to the GOI for its personal use.
Therefore,
Therefore as for the instant arrangement
between Ministry of Urban Development and
NBCC is concerned, the service tax is not
leviable.
leviable

Applicability of Tax on
Construction of Houses for
Army Personnel
F.No.137/26/2006-
Instruction
CX.4 dtd. 05.07.06
CX 4 dtd 05 07 06 has clarified
that service tax would not be leviable on
construction of complexes under question if
their layout does not require approval by an
authority under any law for the time being in
force.
force

Applicability of Tax on Construction of
Houses for Army Personnel

The Government through Instruction
F.No.137/26/2006-CX.4
dtd.07.06.06 has clarified that
married accommodation constructed
for Army Personnel - Exclusion for
personnel use as residence, for such
personnel would not be applicable in
this case.

What is commercial construction?

The G
h Govt. through Ci
h h Circular No.80/10/2004-ST,
l 80/10/200 S
dtd.17.09.2004 clarified that

“13.2 The leviability of service tax would depend
primarily upon whether the building or civil
structure is 'used, or to be used' for commerce
or industry The information about this has to be
industry.
gathered from the approved plan of the building
or civil construction. Such constructions which
are for the use of organizations or institutions
being established solely for educational,
religious, charitable, health, sanitation or
p
philanthropic purposes and not for the purposes
p p p p p
of profit are not taxable, being non-commercial
in nature.

What is commercial construction?

Generally, government b ildi
G ll buildings or civili il
constructions are used for residential, office
p p
purposes or for providing civic amenities.
p g
Thus, normally government constructions
would not be taxable. However, if such
constructions are for commercial purposes
like local government bodies getting shops
constructed for letting them out, such
activity would be commercial and builders
would be subjected to service tax.”

Exemption to Services
provided wholly within Port
Notification No. 38/20 0 S
ifi i 38/2010-ST, d
dated
d
28-6-2010 exemption from the
whole of the service tax leviable on
commercial or industrial construction
services when provided wholly
within th port or other port, f
ithi the t th t for
construction, repair, alteration and
renovation of wharves, quays,
docks, stages, jetties, piers and
railways.

Exemption to Services when
provided wholly within Airport

Notification No. 42/2010-ST,
dated 28-6-2010 exemption from
the whole of the service tax leviable
on the commercial or industrial
construction service provided wholly
within the airport.

Exemption to Services
provided wholly within Port
Notification No. 11/2011-ST, d
ifi i /20 S datedd
1-3-2011 has granted exemption from
the whole of the service tax leviable on
the works contract services when
provided wholly within the port or other
port, for construction, repair, alteration
and renovation of wharves, quays, docks,
stages, jetties, piers and railways, from
the whole of service tax leviable thereon
under section 66 of the Finance Act

Any service within Port is a
port service only
“taxable service” means any service provided or to be provided, to
“t bl i ” i id d t b id d t
any person, by any other person, in relation to port services in a
port, in any manner:
Provided that the provisions of section 65A shall not apply to any
service when the same is rendered wholly within the port. [Section
65(105)(zn)]

Ministry th
Mi i t through I t
h Instruction M F (D R ) L tt
ti M.F. (D.R.) Letter D O F N
D.O.F. No.
334/3/2010-TRU, dated 1-7-2010 has also clarified that
commercial or industrial construction service in relation to port
would now be classified as port service when provided wholly
within the port
port.

If that be the case, the said exemption Notifications have
no relevance and if exemption is to be granted, then it is to
be
b granted f
t d for th port services i t d of commercial
the t i instead f i l
construction services

Exemption to Services when
provided wholly within Airport

Notification No. 10/2011-ST, dated
1-3-2011 has granted exemption
from the whole of the service tax
leviable on the works contract
services provided wholly within the
airport.

Any service within Airport is
only a Airport service
“taxable service” means any service provided or to be provided,
to any person, by airports authority or by any other person, in
any airport or a civil enclave:
Provided that the provisions of section 65A shall not apply to any
service when the same is rendered wholly within the airport or
civil enclave. [Section 65(105)(zzm)]

Ministry through Instruction M.F. (D.R.) Letter D.O.F. No.
334/3/2010-TRU, dated 1-7-2010 has also clarified that
commercial or industrial construction service in relation to airport
would now be classified as airport service when provided wholly
within th airport.
ithi the i t

If that be the case, the said exemption Notifications have
no relevance and if exemption is to be granted, then it is
to be granted for the Airport services instead of
commercial construction services

Validity of the Composition
Scheme
Rule 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
p g y
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
p , y p y g
an amount equivalent to four per cent. of the
gross amount charged for the works contract.

01.06.2007)?

Circular No. 128/10/2010-ST, dated
24.08.2010 clarified that those contracts started
prior to 01 06 2007 but the nature is of works
01.06.2007
contract, even though prior to 01.06.2007
instead of such contract tax was paid in any
other category of t
th t f taxable service, such contract
bl i h t t
shall be categorized under works contract
service on or after 01.06.2007 even though part
of such service were categorized in any other
category of taxable service and paid service tax
on the same under the said category of taxable
service. Continue…
61

01.06.2007)?

However, despite the above-mentioned
clarification in the same Circular, the Board has
clarified that if the service tax in respect of such
contract (which commenced prior to 01.06.2007)
has been made in other category of taxable
service, th
i they will not b
ill t be able t
bl to opt th
t the
composition scheme because such scheme has
not been opted prior to commencement of the
contract and such option is available for the
entire contract and cannot be altered.

62

[Notification No. 1/2011-ST, dated 1-3-2011 [40%
credit]
Is it against the provisions of section 65(105)(zzzza)?

“(2A) The CENVAT credit of tax paid on
taxable services as referred to under sub-
clauses ( d) (
l (zzd), (zzq) and (
) d (zzzh) of clause
h) f l
(105) of section 65 of the Finance Act,
1994,
1994 shall be available only to the extent
of 40% of the service tax paid when such
tax has been paid on the full value of the
p
service after availing CENVAT credit on
inputs.”.

Exemption for execution of works contract
in respect of building canals

Notification No. 41/2009-ST, dated 23-10-2009
has granted exemption from the whole of service
tax leviable on the taxable services in relation to
execution of a works contract in respect of
building canals used other than for the purpose
of commerce and industry
industry.
Exemption has been granted for canal systems
built other than for the purpose of commerce
p p
and industry. whereas, the canal system which is
used for other than commerce and industry is
not taxable

Whether repair, renovation or restoration of
road is a taxable service?

Notification No. 24/2009-ST, dated 27-7-2009
whereby taxable service in relation to
management,
management maintenance or repair of road has
been fully exempted from the levy of service
tax.
The Government has further amended the said
Notification by Notification No. 54/2010-ST,
dated 21-12-2010 with a view to extend the
exemption of management, maintenance or
repair of roads, bridges, tunnels, dams, airports,
railways and transport terminals

In the words o Mahatma Ga d
t e o ds of a at a Gandhi

“You must not worry whether the
y
desired result follows from your action
or not, so long as your motive is pure,
, g y p ,
your means correct”

………Thank you………..

66

Real estate and construction indutry 18.12

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