ST implication on REAL ESTATE SECTOR V.Raghuraman.
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Transcript of ST implication on REAL ESTATE SECTOR V.Raghuraman.
ST implication on REAL ESTATE SECTOR
V.Raghuraman
Gannon Dunkerley & Company (Madras) Ltd AIR 1958 SC 560
No sale of goods involved in works contract
States does not have legislative competence to levy Sales tax on works contract
V.Raghuraman
Art. 366(29A) – 46th Amendment Act, 1982
tax on the sale or purchase of goods” includes (b) a tax on the transfer of property in goods
(whether as goods or in some other form) involved in the execution of a works contract;
and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made
V.Raghuraman
Constitutional validity of Art. 366(29A)
Builders Association AIR 1989SC 1371
Gannon Dunkerly & Co. Vs. State of Rajastan, 1993 88 STC 204 SC
V.Raghuraman
Important issues under VAT on WC
Works contract Vs. Pure Servicei. Sasken Communications. Kar. HCii. Hindustan Shipyard Ltd. (2000) 119 STC 533 SC AIR 2000 SC 2411
Principal of accretion-State of Andhra Pradesh and others v. Larsen & Toubro Ltd. and others [2008] 17 VST 1(SC)
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Important issues under VAT on WC
Activities of developer of apartment- covered under works contract
Larsen & Toubro Ltd. 2013-TIOL-46-SC-CT-LB
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V.Raghuraman
SERVICE TAX on Real estate activities
Gist of Background of ST on Real estate activities
Commercial construction
Residential Construction
Works Contract Services
Levy w.e.f.
10.09.2004 16.05.2005 1.6.2007
Levy on
Service of construction of a building structure meant /used for Business or Commerce
Construction of Residential Complex
Works Contract relating to certain Specified activities
Real estate agent services were brought to tax w.e.f. 16.10.1998
V.Raghuraman
Important circulars relating to levy on developer
Circular ref# Summary
80/10/2004-S.T., dated 17-9-2004
Estate Builders” (i.e. who get such construction done) are not covered under the ambit of these services
F.No.B1/6/2005-TRU dated 27.7.2005
Construction services provided by contractors to builder, promoters would get attracted
V/DGST/22/Audit/ Misc/1/2004, dated 16-2-2006
Builders are also covered under service tax net
Circular F. No. 332/35/2006-TRU, dated 1-8-2006
Builder is not liable but contractor who is engaged to construct the complex is liable. If no contractor is engaged but construction is done by Builder by employing labour, it becomes self service
Important circulars relating to levy on developer
Circular ref# Summary
96/7/2007-ST dt 23.08. 2007
Builder is not liable but contractor who is engaged to construct the complex is liable. If no contractor is engaged but construction is done by Builder by employing labour, it becomes self service
108/02/2009-ST dated 29.01.2009
- Builder is not liable-Transfer of immovable property and not service- Self service- Personal use
Trade Facility No. 1/2011, dated 15-2-2011
The Service of Construction of Residential Complex would attract service tax from 1-7-2010
Circular No. 151/2/2012-S.T., dated 10-2-2012
For the period prior to 1-7-2010 : construction service provided by the builder/developer will not be taxable,
Important circulars relating to Construction and Works Contract
Circular Summary
B1/16/2007-TRU, dated 22-5-2007
Contracts which are treated as works contract for the purpose of levy of VAT/sales tax shall also be treated as works contract for the purpose of levy of service tax
98/1/2008-S.T., dated 4-1-2008
Classification of a taxable service is determined based on the nature of service provided
128/10/2010-S.T., dated 24-8-2010
long term contracts are classifiable under ‘works contract services’
123/5/2010-TRU, dated 24-5-2010
It is the nature of the contract (i.e. a contract wherein the transfer of property in goods involved is leviable to a tax as sale of goods) rather than the nature of activities undertaken, that distinguishes construction / erection servicesIf the nature of the activities is such that they are excluded from aforesaid two services (construction or erection ) then they would generally remain excluded from this taxable service as well.
Important decisions relating BuildersCircular ref# Summary
Magus Construction Pvt. Ltd 2008 (11) S.T.R. 225 (Gau
Activities of developer amounts to transfer of immovable property and not service.
GS Promoters-2011 (21) S.T.R. 100 (P & H)
Validity of Explanation inserted w.e.f. 1.7.2010
Shrinandnagar’s-IV Co-op. Housing Society Ltd. 2011 (23) S.T.R. 439 (Guj.)
Amendment w.e.f. 1.7.2010 is only prospective in nature
Macromarvel Projects Vs. CCE, 2008(12) STR 603(Tri.-Chen)
Construction of individual residential houses does not attract service tax.
Civil appeal before SC against said order is dismissed -2012 (25) S.T.R. J154 (S.C.)]
Sujal Developers 2013 (31) S.T.R. 523 (Guj
Agreement between developer and the society which holds land, for development and construction of houses is not taxable under construction services.
Important decisions relating WCCircular ref# Summary
Nagarjuna Construcitons. 2012 (28) S.T.R. 561 (S.C.)
No Composition scheme for ongoing contracts as on 1.6.2007
CESTAT Large Bench decision in Bhayana Builders (P) Ltd.
Materials supplied free of cost by the recipient of service need not be included for the purpose of computation of abatement.
Ramky Infrastructure Ltd. v. Commissioner — 2013 (29) S.T.R. 33 (Tribunal)
Turnkey contracts / EPC even if the same is for non commercial purposes or for the purpose of irrigation or water supply etc., would be liable to service tax under works contract.
GD Builders, 2013-TIOL-908-HC-DEL-ST
The service portion of the composite contracts can be made subject matter of service tax. Aspect doctrine is applied for bifurcating/vivisect the composite contract
Important decisions relating WC
Circular ref# Summary
LARSEN & TOUBRO LTD2013 (32) S.T.R. 410 (Tri. - Del
Whether for period prior to 1-6-2007 such contract could be vivisected and service components subjected to tax under other pre-existing taxable services Matter referred to Larger Bench
2014-TIOL-1753-CESTAT-BANG
No service tax on builders till 1.7.2010Individuals who have paid ST to builder are eligible for refundLimitation: refund allowable if claimed within 1 year from date of payment to builder.
V.Raghuraman
SERVICE TAX UNDER NEGATIVE LIST SCHEME
Service tax –Negative List
Introduction to Negative List schemeService is being definedRenting, construction, software
etc are specifically termed as service as declared services
Certain services not liable - listed under negative list
Definition of Service
Any activity for considerationBy one person to another Includes declared servicesExcludes
Transfer of title in goods or immovable property Deemed sale in terms of Art. 366(29A) Transaction in money or actionable claim Functions of MP, MLA, Members of Panchayat or
Municipality or Local authority Services by employee to employer in the course
of employment
DEFINITIONS
(22) "declared service" means any activity carried out by a person for another person for consideration and declared as such under section 66E
(49) "support services" means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis
V.Raghuraman
DEFINITIONS
(54) "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property
V.Raghuraman
DEFINITIONS- EXPLAINED
Contract in which transfer of property in goods involved in execution of such contract which is liable to VAT / Sales tax
And Such contract is for the purpose of : Construction Erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration
of any movable or immovable property or for carrying out any other similar activity or a part
thereof in relation to such property
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DECLARED SERVICES – SECTION 66E
(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority.
(h) service portion in the execution of a works contract
V.Raghuraman
Explanation – for Construction.
(I) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:(A) Registered Architect; or (B) Registered Chartered engineer; or(C) licensed surveyor of respective local body of the city or town or village or development or planning authority;
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Explanation- for Construction
(II) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure;
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Construction activity
What are the activities covered construction of a complex, building, civil structure
or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly
When it is taxable If consideration is received prior to issue of
completion certificate by the competent authorityConstruction" includes additions, alterations,
replacements or remodeling of any existing civil structure
V.Raghuraman
EXEMPTIONS
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Notification. No. 25/2012
Services provided to the United Nations or a specified international organization (Sl. No.1)
Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities (Sl. No.4)
V.Raghuraman
Notification. No. 25/2012- Sl. No. 12
Provider Any person
Recipient Government or a local authority or governmental authorityGovernmental authority’’ means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution
Nature of Services
Construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of Specified structures of buildings:
V.Raghuraman
(a) a civil structure or original works predominantly for a non-industrial or non-commercial use;
(b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity etc.;
(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
(d) canal, dam or other irrigation works;
Notification. No. 25/2012- Sl. No. 12
V.Raghuraman
Notification. No. 25/2012- Sl. No. 12
(e) pipeline, conduit or plant for (i) drinking water supply (ii) water treatment (iii)sewerage treatment or disposal; or
(f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Finance Act; Meaning “residential complex” means any complex comprising of a building or buildings, having more than one single residential unit, “single residential unit” means an independent residential unit with specific facilities for living, cooking and sanitary requirements,
V.Raghuraman
Notification. No. 25/2012- Sl. No. 13
Provider Any person
Recipient Any person
Nature of Services
Construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of:
(a) a road, bridge, tunnel, or terminal for road transportation for use by general public
(b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;
V.Raghuraman
Notification. No. 25/2012- Sl. No. 13
(c) a building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public
(d) a pollution control or effluent treatment plant, except located as a part of a factory; or
(e) a structure meant for funeral, burial or cremation of deceased
V.Raghuraman
Notification. No. 25/2012- Sl. No. 14
Provider Any person
Recipient Any person
Nature of Services
construction, erection, commissioning, or installation of original works pertaining to
(a) an airport, port or railways, including monorail or metro
(b) a single residential unit otherwise than as a part of a residential complex;
(c) low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India
V.Raghuraman
Notification. No. 25/2012- Sl. No. 14
(d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes
(e) Mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages
Original Work: (i) all new constructions;(ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;(iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise
V.Raghuraman
Notification. No. 25/2012- Sl. No. 29
Services of sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt
V.Raghuraman
VALUATION&
ABATEMENTS
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Valuation rules- Specific Services-2A
Works contract services
Value of Service = Gross amount charged minus Value of Goods
Gross amount charged excludes VAT Sales Tax
V.Raghuraman
Works contract- Valuation
V.Raghuraman
Value of Service = Gross amount charged minus Value of Goods
Actual value of services
Option 1 Option 2
Original Works
Pay on 40% of Gross value
Pay on 70% of Gross value
Other than original Works
No CENVAT on inputs used for execution of WC
Valuation rules- Specific Services
Gross amount includesLabour charges for execution of the works;
Amount paid to a sub-contractor for labour and services
Charges for planning, designing and architect’s fees
charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract
cost of consumables such as water, electricity, fuel, used in the execution of the works contract
cost of establishment of the contractor relatable to supply of labour and services
other similar expenses relatable to supply of labour and services; and
profit earned by the service provider relatable to supply of labour and ser
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Valuation rules
Where VAT/Sales Tax is paid on actual value of goods transferred: Such value shall be treated as value for deducting
the value of goods
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Works Contract
If VAT is not paid on actual value then Nature of works Valuation
Original works 40% of the total amount charged
Maintenance, repair, reconditioning etc of goods
70% of the total amount charged
Other works including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property
Condition: No Credit of inputs shall be availedV.Raghuraman
Works Contract
Original Works:(i) all new constructions;(ii) all types of additions and alterations to
abandoned or damaged structures on land that are required to make them workable;
(iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise
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Works Contract
(d) “total amount” sum total of the gross amount charged for the
works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting-
(i) the amount charged for such goods or services, if any; and
(ii) the value added tax or sales tax, if any, levied thereon:
V.Raghuraman
ABATEMENT- Notification No.26/2012
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, etc.
Percentage of Abatement- 75%Conditions:
No Cenvat shall be availed on inputs Value of land is included in the amount charged from
the service receiver
V.Raghuraman
ABATEMENT- Notification No.26/2012
Nature of works Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, etc.
Percentage of Abatement-
Carpet area upto 2000 square feet and where the amount charged is less than rupees one crore;
75%(pay tax on 25%)
Others 70%(pay tax on 30%)
Condition: a)No Cenvat shall be availed on inputsb) Value of land is included in the amount charged from the service receiver
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PLACE OF PROVISION
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PLACE OF PROVISION
Applicable Rule
Rule 4- In respect of works contracts relating to movable propertyEg. Repair & maintenance
Rule 5- in case of immovable property related works contract and construction service
If services are provided at more than one location (one or more locations in taxable territory and one or more locations in non taxable territory)- location in the taxable territory where the greatest proportion of the service is provided
If both provider and recipient located within taxable territory- location of recipient see rule 8
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POPS immovable property:
Nature of services Place of provision
Services relating to immovable property Services directly directly in relation to an immovable property, including services provided in this regard by experts and estate agents, provision of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including architects or interior decorators,
place where the immovable property is located or intended to be located
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POINT OF TAXATION
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Point of Taxation in general
Rule 3 Earliest of following events would be the point
of taxation Date of invoice Date of completion of service (if invoice is not issued
within 30 days of completion of service) Date of receipt of advance (to the extent of advance)
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Proviso to R. 3: continuous supply of services
Meaning: services are to be provided on continuous basis or
recurrent basis under a contract for a period exceeding 3 months period with obligation for payment on periodical basis or from time to time
OR Notified by Government
Service Notified by Government Telecommunication services Service portion in works contract
V.Raghuraman
Rule 3 –continuous supply of services
Where contract provides for determination of value of service on periodical basis on completion of an event Date of completion of such specified event
Where no such event is specified General provisions under Rule 3 would apply
V.Raghuraman
Point of taxation for Construction service
If construction activity would last for more than 3 months and there is an obligation for payment on periodical basis or from time to time
Then in such case, completion of event or the period as provided in contract would be point of taxation
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Point of taxation for Works Contract
Notified by Government as Continuous Supply of service
If contract / agreement provides for payment on periodical basis then Each event or period shall be point of taxation
Else, follow Rule 3
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Rule 4 –Change in effective rate of tax
Meaning:Change in the rate of tax shall include
a change in the portion of value on which tax is payable in terms of a notification issued in the Official Gazette under the provisions of the Act, or rules made thereunder
i.e. change in the abatements, composition rates etc.
V.Raghuraman
Change in Effective RateProvision of service
Invoice &/or payment Rate applicable
Point of Taxation
Before rate change
Either invoice is issued or payment is received before rate change
OLD RATE
Date of invoice or payment whichever is earlierAfter
rate change
If both invoice as well as payment is received before rate change
OLD RATE
In all other cases NEW RATE
Date of invoice or payment whichever is later
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Rule 5 new services:
Situation Taxability
Where invoice has been issued and the payment received against such invoice before service became taxable
No tax shall be payable to the extent of the invoice raised and payment received.
Invoice issued before service became taxable but consideration received after the same became taxable
Liable to the extent received
Where the payment has been received before the service becomes taxable and invoice has been issued within 30 days as specified in rule 4A of the Service Tax Rules, 1994.
No tax shall be payable
Where invoice is not issued within 30days Taxable
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Rule 7:Services still taxable on payment basis
Services where person other than provider of service is liable to pay tax [68(2)] GTA, import of service, Sponsorship, manpower supply,
works contract
If payment is not made within 6 months from date of invoice- then Rule 3 would be applicable
Service tax payable as recipient of works contract service would be on the basis of payment made to contractor
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REVERSE CHARGE OR
JOINT CHARGE
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Nature of service
Provider Recipient Person liable
Works contract
IndividualPartnership,AOP
Business entity registered as a Body corporate
Proportionate basis by Recipient and provider if both are located in taxable territory
50% each
Both provider and recipient could adopt their own valuation methods
Business Entity & Person
(i) an individual,(ii) a H U F,(iii) a company,(iv) a society,(v) a LLP,(vi) a firm,
(vii) an association of persons or body of individuals, whether incorporated or not,
(viii) Government,(ix) a local authority, or(x) every artificial juridical person,
not falling within any of the preceding sub-clauses;
(17) "business entity" means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession;
(37) Person includes:
Business entity
Business entity registered as a Body Corporate – Section 2(7) of Companies Act, 1956.
Society which is deemed to be a body corporate as per Societies Registration Act, cannot be termed as ‘body corporate’ for reverse unless the same is registered as such.
V.Raghuraman
Questions?
EMAIL ID : [email protected]
Thank You
V.RAGHURAMAN.B Com, FCA, ACS, Grad.CWA LLB,
Partner M/s.. Raghuraman & Chythanya, Advocates.
V.Raghuraman