Posts tagged ‘contractor’

Service Tax On Apartment Purchase –Latest Clarification

The Central Board of Excise and Customs had come out with a circular dated 29-01-09 clarifying various conflicting opinions regarding the levy of service tax on purchase of apartments. This circular seeks to clarify the applicability of service tax when the developer enters into an agreement, with the ultimate owner for selling a dwelling unit in a residential complex at any stage of construction (or even prior to that) and who makes construction linked payment.  The following are the clarifications of the board:
a.  The initial agreement between the developer and the ultimate owner is in the nature of an agreement to sell. This, 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 ie. the developer. 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.
b.  If the ultimate owner enters into a contract for construction of a residential complex with a 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’.
c.  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.