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Industry News
Finance Ministry clarifies Service Tax on residential complexes, upholds CREDAI's appeal
Posted On : 2009-02-03 09:48:00( TIMEZONE : IST )
Central Board of Excise and Customs has issued a clarification on the application of Service Tax on construction of residential complexes.
The clarification has come after CREDAI's (Confederation of Real Estate Developers' Associations of India) representation to the Board, on behalf of its member developers, in July, 2008. The representation was regarding the fact that Departments of Service Tax in some of the states were insisting real estate developers undergo registration under the Service Tax Act and pay service tax in respect of residential complex having more than 12 residential units under 'construction of complex' service- Section 65 (105 zzzh).
CREDAI members argued that they were not liable to pay the tax because the act of developing the property was not a service. Following a decision in the Guwahati High Court which found the same, CREDAI forwarded the court findings to the Central Board of Excise and Customs which upheld the association's appeal against the tax. The Board found that the act of selling the property did not involve a service and therefore developers did not have to take up registration or pay service tax on property sales.
The Board, in its clarification via circular no. 108/02/2009-ST, states that "generally, the initial agreement between the promoters/builders/developers and the ultimate owner is in the nature of 'agreement to sell'. Such a case, 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. 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."
