Re: Service tax Liability in case of Joint venture between Lanowner and Developer for construction of Residential Projects

[ramakrish...@gmail.com]

Sir,

I have one doubt bewlow on service tax. 

Generally if buyer purchased the flat from Builder, Builder will take the service tax from the buyer and paid to Service tax dept.

if buyer purchased the flat from Landowner, is the servicetax to be paid by buyer to Landowner?

 

Regards

Ramakrishna

 

On Sunday, November 18, 2012 8:41:17 PM UTC+5:30, DS wrote:

Dear Mr. Tarun,

Construction of residential complex consisting of 20 flats and intended for sale to a buyer, wholly or partly is a declared service under clause (b) of section 66E of chapter V the Finance Act, 1994 except where the entire consideration is received after issuance of completion certificate by the competent authority.

Answer to Question No. 1

A, the landowner has sold his share of 5 flats and is receiving consideration for the same from the buyers.  It seems from the query that payment is being received by A before the issuance of completion certificate. As the construction is not yet complete and A is receiving consideration before that, he is required to pay service tax on the consideration received by him from the buyers. (Reference: Service tax education guide- Para 6.2.3, page No. 83)

 

Answer to Question No. 2

B has received consideration from A in the form of land/development rights for the construction service to be provided by him to A. B is required to pay service tax on this consideration for the 5 flats given to A since land/ development rights was received by him before the issuance of completion certificate. Value for the purpose of service tax will be the value of the land when the same is transferred and the point of taxation will also be determined accordingly. (Reference: Service tax education guide- Para 6.2.1, page No. 81 & 82)

 

Answer to Question No. 3

Service portion in the execution of a works contract is a declared service under clause (h) of section 66E of chapter V of the Finance Act, 1994. If developer B provides other services like painting, flooring etc. to individual buyers, then it will be a works contract service provided it involves provision of materials as well. Rule 2A of the Service Tax (Determination of Value Rules, 2006) provides the manner to determine the value of service portion in the execution of works contract.

As per clause (i) thereof read with explanation (a) thereto, value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred (excluding VAT/Sales Tax )in the execution of the said works contract.

However, where the value could not be determined under clause (i), then as per clause (ii), it has to be determined under the composition scheme (at 40%, 60% or 70% depending upon the nature of works contract).

As per sub-clause (C ) of Clause (ii) to Rule 2A, service tax is  payable on 60% of the total amount charged in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property.

If B opts for the composition scheme, then in my view, services like painting, flooring etc. being provided by B, being in the nature of completion and finishing services will be covered by Sub-Clause (C ) and hence, service tax shall be payable on 60% of the total amount charged for such services.

Regards, 

CA D.S.Agarwala|D.S.Agarwala & Co.|Email: aga...@gmail.com|Mob: 94330-97972 

On Friday, November 9, 2012 1:13:37 PM UTC+5:30, tarun kejriwal wrote:

Dear All,

Request you to provide your opinion on the below query.

Facts :

 There is an agreement between Landowner (A) and developer (B) for construction of residential complex consisting of 20 flats.

 A’s share – 25 % i.e. 5 flats.

 B’s  share – 75 % i.e. 15 flats.

 B is receiving consideration for 15 flats

 B is collecting service tax from the buyers @ 3.09%( availing the abetment of 75%)and depositing the same.

 A is receiving the consideration of 5 flats.

 

 Now the question is:

 1)      Who will collect and pay the service tax on 5 flats sold by A ?

 2)      Will there be any service tax liability on B towards service provided to A for construction of 5 flats ?

If yes, how to calculate the amount ?

 3)      Suppose the developer ( B ) provides other services like painting, flooring etc to the individual  buyer’s, what will be service tax liability of B ? 

[vksv...@gmail.com]

Dear Mr. Ramakrishna,

Service Tax is not applicable in case the entire consideration is paid after issuance of completion certificate by the relevant authority. Meaning, if the flat construction is completed, then no Service Tax shall be levied.

Secondly, under Service Tax law, Service Tax has to be paid by the service provider in the case of construction services, if applicable. In your case, you would certainly not be required to pay any Service Tax by yourself, but if Service Tax is applicable as mentioned above, then it has to be collected from you and be paid by the service provider.

- CA Vikas Vishwakarma

[kpinfrast...@gmail.com]

In case
Part1 is main contractor.
Part2 will jv with part1 for construction of project.
Client will paid 1/2 service tax in part1 service tax account.so, who is liable for second 1/2 service tax.

[mukher...@gmail.com]

[manavp...@gmail.com]

Hi,
I am Kasi from Chennai.
I have a very similar Joint Development situation where I need expert advice as Landowner.

B - builder
L - Land Owner

We had entered into JV in 2013 when the land value per sq.ft was Rupees 1750/- for a total of 7,395 sq.ft

Now the construction is COMPLETE without any pre booking of customers. Both B & L are doing their own sales of their shares of 12 apartments each.

As Landowner when I find a customer finalized, I get a advance amount of 1 Lakh and sign a sale agreement (me) and construction agreement (Builder signs) that the apartment will be completed in 1 month time.

1. Is Land owner liable for any SERVICE TAX and SALES TAX for any of the apartments that I am selling from my part?
If yes, how to calculate the Service Tax & Sales tax in my case. I am providing all the data required here.

2. Is Landowner liable for service tax for 12 apartments that Builder constructed for Landowner as part of JV agreement?
If NO. Is Builder responsible for service tax? And how is the service tax calculated in this scenario?

Builder is asking for Service Tax of 3.7% of gross amount (Sale agreement + Construction agreement) and he is also asking Sales Tax of 2% on construction agreement. Builder is asking this payment as self cheque payment in my name rather than in his company or personal bank account name, when queried why self cheque, he told that he will have accounting questions from IT department.

Regards,
Prabhu

[ANKIT JAIN]

Dear All

In my view..

In case of Answer to Question No.2 as decided by the High Level Committee (HLC) 

valuing the service of construction provided by a builder/developer to a landowner, who transfers his land/ dwellings from builder/developer, the Service Tax assessing authorities should be guided by the said Board Circular dated 10.2.2012 and not the

Education Guide.

And as per Board Circular value of these flats would be equal to the value of similar flats charged by the builder/ developer form other buyers. In case the price of flats/house undergo a change over the period of sale, the value of similar flats as are sold nearer to the date on which land is being made available for construction should be used for arriving at the

value for the purpose of tax.

Thanks & Regards

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Regards

 

C.A. Ankit Jain