Professional Documents
Culture Documents
GST no definitive time-line for introduction Negative list approach to tax services introduced 17 categories of services covered in the negative list Provision of Service Rules / Place of Supply Rules introduced Harmonization of Service Tax and Excise Duty regimes Common Tax Code proposed GST Network to be operational from August, 2012
Settlement Commission provisions extended to Service Tax
cases Ordinary limitation period under Service Tax law increased to 18 months No change in the rate of CST
2
Contents
Constitutional framework Applicability of VAT VAT on sale of flat, liable?
Judicial Precedents
Bombay High
Court Order in case of MCHI Circular issued basis decision of the High Court in MCHI
Payment
of VAT
For the
Applicability of Service tax Scheme of taxation prior to 1 July, 2012 Taxation under the Negative List Regime
Constitutional Framework...
Taxes levied by Central Government and State Government(s) Authority to levy a tax is derived from the Constitution of India Which allocates power to levy various taxes between the Centre and State Article 265 of the Constitution which states that "No tax shall be levied or collected except by the authority of law Article 246 of the Indian Constitution, distributes legislative
powers including taxation, between the Parliament of India and the State Legislature Schedule VII enumerates use of three lists;
List
- I Where the parliament is competent to make laws List - II Where only the state legislature can make laws List - III Where both the Parliament and the State Legislature can make laws upon concurrently
4
...Constitutional Framework
Union List
Income Tax Custom Duty Excise Duty Corporation Tax Service tax Central Sales Tax Stamp duty in respect
State List
Taxes on lands and
Concurrent List
Stamp duties other
buildings Excise duty on alcoholic liquor etc Entry tax Sales Tax Tolls Luxury Tax Stamp duty in respect of documents other than those specified in the provisions of List I
than duties or fees collected by means of judicial stamps, but not including rates of stamp duty
The constant blurring of taxing jurisdiction between the Centre and the States has necessitated multiple Constitutional challenges
5
Lines between the taxation of Goods & Services is constantly blurring Duality of Charge
Activity Customs duty Central / State Excise duty Service tax VAT / CST
Sr. No. 1.
Intellectual Property Services Import of Designs, Technical Know etc.. Works Contract Construction Services Manufacture of Products liable to State Excise
2. 3. 4. 5.
term sale to mean a sale of goods made within the State for cash or deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge; and the words "sell, "buy" and "purchase", with all their grammatical variations and cognate expressions, shall be construed accordingly.
Clause (b)(ii) of the Explanation to the above Section, while setting out transactions
Prior to 20.6.2006:
(ii) the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.
W.e.f. 20.6.2006:
(ii) the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract including, an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property; 9
20.6.2006, the building and construction of an immovable property was brought within the ambit of MVAT.
On 7.02.2007, basis the decision of the Supreme Court on M/s. K. Raheja
Development Corporation [141STC 298 (SC)], a Trade Circular was issued by the Commissioner of Sales Tax to clarify that:
Any transfer of property after 20.6.2006, irrespective of whether an agreement was signed prior to that date, would be governed by the amended definition of sale. Tri-partite agreements between land-owners, developers and prospective buyers would be covered by the amended definition of sale. If the agreement is entered into after the flat or unit is already constructed, then there would be no works contract, but so long as an agreement is entered into before the construction is complete, it would constitute a works contract.
applicable to registered dealers who undertake construction of flats, dwellings, buildings or premises and transfer them in pursuance of an agreement along with land or interest underlying the land.
Composition amount prescribed at 1% of the agreement amount or the value specified for the purpose of Stamp Duty under the Bombay Stamp Act, 1958, whichever is higher. 10
Arrangement
Specific arrangement to sell an undivided fractional share, right, title & interest in the land to the intended buyer Two separate contracts entered (i) sale of right in land (ii) construction of building the developer , not being the owners of the land, had lien over the land and building until the intended buyers pay the full consideration with regard to both land as well as construction activity
Held that,
the Appellants are undertaking to build as developers for the prospective purchaser on payment of a price. Therefore, it remains works contract as defined under the Act.
Also, if the agreement is entered into after the flat or unit is already constructed, then there would be no works contract, but so long as agreement is entered into before the construction is complete, it would be a Works Contract
Arrangement
Developer issued allotment letter, specifying that terms and conditions of allotment are subject to sale deed to be signed by parties in future Under the said terms, the allottee agreed that no right will accrue in his favour until the sale deed is executed Further agreed, the petitioner shall remain the owner and the construction thereon and no rights shall devolve upon the allottee by way of allotment even though any all payment has been received by petitioner
Held:
Developer continues to remain the owner of apartments including all construction till execution of the sale deed of such apartment, hence no works contract for construction The petitioner not carrying out construction activity for and on behalf of the allottee as the right ,title and interest in construction remained with petitioner at all times till execution of sale deed of apartment as a whole No liability to VAT 12
Distinguished K Raheja decision as the agreement in K Raheja provided that the developer will
construct for and on behalf of the person who agreed to purchase the flat.
GJX-2195-(SC)]
Held:
If the ratio of K. Rahejss case is accepted then there would be no difference between the works contract and a contract for sale of chattel as a chattel The case of K. Raheja Development needs re-consideration. Matter referred to Larger Bench
13
dated 7.02.2007 and the 1% Composition Scheme introduced w.e.f. 9.07.2010, was challenged in a spate of writ petitions.
On behalf of the petitioners, it was contended as under:
The amendment was beyond the scope of the States power to tax under Sl. No. 54 of List II of the Seventh Schedule to the Constitution.
In order to attract the application of Article 366(29A)(b), a contract would have to inter alia involve a transfer of property in goods and immovable property does not constitute goods.
Consequent to the 46th Amendment to the Constitution, only a transfer of property in goods involved in the execution of a works contract is taxable and a contract for the sale of immovable property is not a works contract. A works contract involves only two elements viz. (i) the transfer of property in goods; and (ii) supply of labour and services. If a third element, the sale of immovable property, is involved in the contract it does not constitute a works contract and hence to such a contract, the legal fiction which is created by Article 366(29A) would not apply. 14
Agreements contemplated to be brought within the purview of the amended definition of sale, per the Circular dated 07.02.2007, are simplicitor agreements for the sale of immovable property. Contracts governed by the Maharashtra Ownership Flats (Regulations of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOFA) cannot be regarded as a works contract, being agreements for the purchase of immovable property. The MVAT ignores the concept of plurality of deemed sales. Where the developer is the owner of the land, the promoter is both the owner and developer. Alternately, a developer may enter into a development agreement with the owner of the land. When a promoter appoints a sub contractor and gets a building constructed, that contract is a works contract under Article 366(29A) and a transfer of the property in the goods involved in the execution of the works contract takes place to the developer. That would be the first deemed sale. When the developer enters into an agreement with a purchaser under the MOFA, a sale of goods is not involved since that would amount to a second deemed sale of the same goods which cannot be brought to tax. Once a promoter has appointed a sub contractor the property passes to him as a promoter owner or to the owner, as the case may be, where there is only a developer. Property has already passed on accretion and the same transaction of deemed sale cannot be taxed twice. An executory contract does not fit into the conception of a sale of goods within the meaning of Entry 54 of the State List to the Seventh Schedule. The amended definition of sale was beyond the scope of the States power to tax under Sl. No. 54 of List II of the Seventh Schedule to the Constitution. 15
An unduly restrictive or contrived meaning should not be given to the provisions of Article 366(29A) otherwise the object underlying the Constitutional amendment would be defeated. The purpose underlying the enactment of the deeming fiction in Article 366(29A) was to override the limited definition of the expression sale in the Sale of Goods Act, 1930 and to isolate the sale of goods element involved, inter alia, in a contract which is a works contract. The amended definition of sale falls within the compass of Article 366(29A). A works contract is a contract to execute works and encompasses a wide range of contracts; it is not restricted to building contracts having only two elements viz. the sale of material and goods and the supply of labour and services. The well settled connotation of the expression works contract is that a building contract may also involve in certain situations a sale of land. A works contract does not cease to be such merely because any other obligation exists. In an agreement which is governed by the MOFA, a conveyance of the interest in the flat or at any rate an interest therein is created at the stage of the execution of an agreement. The doctrine of accretion is always subject to a contract to the contrary. The provisions of the MOFA contain a statutory stipulation to the contrary where the accretion to the property enures to the benefit of the flat purchaser; and The Trade Circular and the deduction schemes are only clarificatory in nature. 16
Works contracts have numerous variations and it is not possible to accept the contention either as a matter of first principle or as a matter of interpretation that a contract for work in the course of which title is transferred to the flat purchaser would cease to be a works contract. The effect of the amendment to Section 2(24) is to clarify the legislative intent that a transfer of property in goods involved in the execution of works contract including an agreement for building and construction of immovable property would fall within the description of a sale of goods within the meaning of the provision. The constitutional validity of the provisions of the MVAT Act, 2002, as amended, is not contingent upon any other statutory regulation of apartments under cognate legislation in the State of Maharashtra.
Having regard to this statutory scheme, it is not possible to accept the submission that a contract involving an agreement to sell a flat within the purview of the MOFA is an agreement for sale of immovable property simplicitor.
The Constitutional validity of the amended definition of sale, the Trade Circular dated 7.02.2007 etc. upheld. Held Liable to VAT
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Position as on date
Trade circular No. 14T of 2012 dated 06.08.2012, issued by the
pursuant to the Decision of Honble Bom. High Court in MCHI case States that developers are liable to pay tax under the MVAT Act, w.e.f. 20.06. 2006 Provides for certain facilitation for obtaining registration, grant administrative relief for unregistered period, and filing of returns for the period from 20.06.2006 Issued FAQs on taxation of developers
18
Position as on date
For the period 20.06.2006 to 31.3.2010 For payment of VAT, three options available
VAT payable @ 5% tax on the agreement value Land deduction is not available Input tax credit is available subject to the reduction of 4 per cent.
Set-off available subject to the condition u/r 53 and 54 Deduction of land cost will be allowed
Thereafter 30% standard deduction from remaining amount as per proviso to sub-rule1 Set-off available subject to the condition u/r 53 and 54
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Position as on date
For the period after 01.04.2010 In addition to the three option discussed in the earlier slide the developer has one more option under Section 42(2A) read with Notification No. VAT 1510/CR-65/Taxation-1 dated 09.07.2010
All
agreements registered on or after 01.04.2010 covered VAT payable @ 1% tax on agreement value. No land deduction available No input tax credit is available.
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FAQs
Questions Answers
Whether Credit available of input tax paid Yes, input tax credit available, if the taxes u/r 58 on purchases of materials like cement, iron, or u/s 42 (3) i.e. except 1% scheme steel etc. what point of time the VAT would be Taxability arises on agreement. Tax is levied as payable and when the instalments become due and payable or are received, whichever is earlier.
The agreement to sell the flat was Yes. VAT will apply. It will be levied on value executed before 20.06.2006 and the received or receivable after 20th June, 2006 building was under construction and possession is given after 20.06.2006. Whether the VAT will apply in such case? If yes how the sale value will be determined for calculation of VAT? Whether the amount received prior to 20.06.2006 will be exempt from VAT The point of liability when advances are Tax will be levied from the date of the received and agreement is executed much agreement. The amount of advance, as and later. when it is adjusted towards the agreement amount, will be taxed. 21
FAQs
Questions Non-refundable deposits and other charges under the agreement such as electricity deposit, water charges, legal charges, development charges etc. will also form part of sale price for VAT? Whether VAT applicable be collected by raising a debit note or the same should be mentioned in the agreement itself? Whether VAT should be collected on each instalment or at one go upon execution of the agreement Answers No. The amounts which are received as deposits will be deducted to the extent such amounts are actually paid to other authorities.
Yes. It can be collected by raising a debit note. Specific mention in the agreement is a choice of the contracting parties. It should be collected as and when the instalment becomes due.
What will be VAT the implications where There is no tax liability. mere advances are received from buyers and agreement for sale is not executed with the buyer?
22
23
w.e.f. 10.09.2004
Taxable
means
any service provided or to be provided to any person by any person in relation to commercial or industrial construction
Explanation
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 to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer
24
of a new building or a civil structure or a part; or Construction of pipeline or conduit; or Completion and finishing services
such as
glazing, plastering, painting, floor and wall tiling., construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or
Repair,
alteration, renovation or restoration of, in relation to, building or civil structure, pipeline or conduit, Which is Used /
occupied / engaged, primarily in; Commerce or industry, or work intended for commerce or industry but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams
25
any service provided or to be provided to any person, by any other person, in relation to construction of complex
Explanation
The
construction of a complex 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 to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer
26
16.6.2005
Construction
of a new residential complex or a part thereof; or Completion and finishing services in relation to a residential complex
such as
glazing, plastering, painting, .,construction of swimming pools, acoustic applications or fittings and other similar services; or
Repair,
building or buildings, having more than twelve residential units; A common area; and
27
such as
park, lift, parking space, community hall, common water supply or effluent treatment system,
Located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person
Explanation
personal use includes permitting the
complex for use as residence by another person on rent or without consideration residential unit means a single house or a single apartment intended for use as a place of residence
28
Means any service provided or to be provided to any person, by any other person in relation to the execution of works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams and the term service provider shall be construed accordingly Explanation 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,
Erection, commissioning or installation of plant, machinery Construction of a new building or a civil structure or a part therefof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or Construction of a new residential complex or a part thereof; or Completion and finishing services, repair, alteration, renovation or restoration of, or similar services Turnkey projects including engineering, procurement and construction or commissioning (EPC) projects 29
(Gau.)]
when a builder, promoter or developer undertakes construction for its own self, in such cases, there would not be a question of providing taxable service by one person to another. The only transaction between the Petitioner and the prospective buyer is that on sale and purchase of flat. Any advance paid by the prospective buyer represents consideration received towards sale of flat to such prospective buyer and is not for obtaining service from the Petitioner Held Not liable to Service tax
M/s. G S Promoters vs. Union of India and another [2011 (21) S.T.R.
There is element of service involved in a transaction of builder selling a flat, whether or not service is involved has to be seen not only from the point of view of builder but also from the point of view of service recipient Constitutional validity of levy upheld Held Liable to Service tax
30
[2012-VIL-15-BOM-ST]
Upheld the constitutional validity of the Explanations added to the taxing entries for construction of complex service and commercial or industrial construction service by the Finance Act, 2010. These Explanations brought to tax consideration received by a builder from a buyer under an agreement of sale if any part of the consideration was received prior to the issuance of the completion certificate. Held Liable to Service tax
31
2.575% of the Gross 10.3% of Gross Amount charged Amount less (Not available if cost value of goods of land separately recovered) (tax on 25% of amount charged) No credit available Capital Goods & input service available
Rate of tax
33
34
New charging section 66B which levies taxes on all services other than those in the negative list, provided or agreed to be provided in the taxable territory by one person to another
Taxable
It
means the territory to which the provisions of Chapter V of the Finance Act, 1994 apply i.e. whole of India excluding the state of Jammu and Kashmir Non-taxable territory is defined in sub-section 35 ibid accordingly as the territory other than the taxable territory.
35
Taxation of services would be comprehensive, with some limited exceptions Comprehensive taxation
Exempt services
Taxable services
Taxable services
36
New Provisions under Finance Act Following provisions will come into force from a date to be notified
Section 65B - Definition Section 66B Charging Section Section 66C Place of Provision Section 66D Negative List Section 66E Declared Services
Section 68 Payment of Service tax Section 66A Charging Section in case of import of services
37
Charging Section
Old charging provision (Section New charging provision (Section
66) There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. of the value of taxable services referred to in subclauses [ ] of clause (105) of section 65 and collected in such manner as may be prescribed.
66B) There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.
38
Service
Means
- Any activity - Carried out by a person for another - For consideration
Includes
-Includes a declared service 1. Renting of immovable property 2. 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 consideration is received prior completion 3. Temporary transfer or permitting the use or enjoyment of any intellectual property right 4. Information technology software services 5. Obligation to refrain from an act, or to tolerate an act or a situation, or to do an act 6. Service in relation to lease or hire of goods and hire purchase transactions 7. Execution of Works Contracts 8. Service portion in the serving of foods or other article of human consumption
2 3 4
Construction of Complex
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 certificate of completion by a competent authority
Circular 51/2/2012-STdated 10.02.2012 bearing F.No.332/13/2011-
TRU as also the Education Guide issued by the Board clarified the taxability of the following arrangements in the context of existing taxable service:
1. 2. 3. 4. 5. 6.
Tripartite model, Redevelopment model, Investment model, Reconversion model, BOT projects and Joint development agreement model.
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a taxable service
Construction
Consideration received by
44
Valuation Consideration for providing services to landowners is value of land / developments rights
Value of land / development rights may not be ascertained Therefore, value of flats given to land owners shall be equal to those charged for similar flats by the builder/developer from other buyers Service tax payable by the builder / developer when possession or right in the property of the said flats is transferred to the landowner i.e. by entering into a conveyance deed or an allotment letter 45of In other cases viz sale to other buyers, value will be determined in terms Section 67
for sale to other buyers Arranging rental accommodation or rent payments for society members for stay during the period of reconstruction Payment of additional amount to the original owners of flats
of the society for land development rights including the permission for additional number of flats Consideration from other buyers in cash
46
No
No Yes
Valuation determined in accordance with Section 67(1)(i) Flats given to other buyers
47
Investment Model
Project is offered to investor before commencement by
earmarking a specified area of construction / flat of a specified area is allotted to the investors;
Investor
Options to investor Exit on receipt of the amount invested along with interest; or Re-sell the said allotment to another buyer; or Retain the flat for his own use Taxability Investment amount shall be treated as consideration paid in advance for construction services by builder / developer
Liable to service tax
48
Investment Model
If
Developer entitled to take credit under Rule 6(3) of the Service Tax Rules, 1994, to the extent it has refunded the original amount
If
the builder/developer resells the flat before the issuance of completion certificate
Liable to service tax
49
Conversion Model
Conversion of any hitherto untaxed construction / complex / part
thereof into a building or civil structure to be used for commerce or industry, after lapse of a period of time
Mere change in use of the building does not involve any taxable
service, unless conversion falls within the meaning of commercial or industrial construction service
50
a service provider since such construction has been undertaken by him on his own account and he remains the owner of the building during the concession period. No Service tax on the Concessioner
At
Service tax
At
third level, Concessionaire enters into agreement with several users for commercial exploitation of the building
Concessionaire is the service provider
providing taxable services Renting of immovable property service, business support service, management, maintenance or repair service etc Liable to service tax
52
Create a new entity / SPV; or Operate as an unincorporated association on partnership / joint / collaboration basis
Mutuality of interest Common risk / profit
builder / developer Circular 148/17/2011-ST dated 13/12/2011 shall apply mutatis mutandis, particularly paragraphs 7,8 and 9(Clarification on levy of service tax on distributors/sub-distributors of films & exhibitors of movie)
Where a distributor enters into an arrangement with an exhibitor to share revenue / profits and not provide the service on P2P basis, a new entity emerges, distinct from its constituents and therefore such activities would be taxable Service tax payable under the Joint Development arrangement 53
of completion certificate used as the dividing line between service and sale
Authority competent to issue completion certificate includes an
architect or chartered engineer or licensed surveyor Service Tax (Removal of Difficulty) Order, 2010, dated 22/06/2010
54
Conditions Prior to 01.07.2010 - Vide Board Circular No. 108/02/2009-ST dated 29.1.2009
If any part of the consideration is received before issuance of completion certificate
No
Reconstruction undertaken by society by directly engaging a builder / developer-Meant for personal use of the members Construction of additional flats undertaken as part of the reconstruction for non-members of society during the period prior to 01.07.2010 Construction service provided by the builder / developer for non-members of society for the period post 01.07.2010 If investment amount treated as consideration paid in advance If builder / developer resells the flat before the issuance of completion certificate
55
No
Yes
Investment Model
Yes Yes
Yes
Yes No
Yes
56
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority
(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii)The value of land is included in the amount charged from the service receiver.
57
Prior to 01.07.2010 Post 01.07.2010 - Payment Taxability x Comments Taxable event is the construction - Agreement to sell - Complete Construction - Completion certificate (certificate) received
- Certificate received - Payment before certificate received - Complete Construction - Certificate received - Payment after certificate - Complete Construction - Payment prior to receipt of certificate - Balance 40% construction - Payment for 40% construction prior to receipt of certificate
- -
Service tax would be payable on the payment for the balance 40% construction completed after 01.07.2010 58
Taxability x -
Comments
- Agreement to sell - 60% construction complete - Payment for 60% construction made
- Balance 40% construction - Payment for 40% construction after receipt of certificate
No clarity has been provided in circumstances where balance payment for construction post 01.07.2010 is made after certificate received.
59
Works Contract
In terms of Article 366 (29A) of the Constitution of India transfer of property
services
Works contract has been defined in section 65B of the Act as 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, improvement, repair, renovation, alteration of any building or structure on land or for carrying out any other similar activity or a part thereof in relation to any building or structure on land. Value of service portion in works contracts will be determined in terms of the Service Tax (Determination of Value) Rules, 2006 (Valuation Rules).
60
Works Contract
Gross amount includes Labour charges for execution of the works Amount paid to a sub-contractor for labour and services Charges for planning, designing and architects 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 and other similar expenses relatable to supply of labour and services
Gross amount does not include Value of transfer of property in goods involved in the execution of the said works contract. Note: Where Value Added Tax has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract.
Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract
Profit earned by the service provider relatable to supply of labour and services 61
Works Contract
Is there any simplified scheme for determining the value of
this scheme the value of the service portion, where value has not been determined in the manner as explained in earlier slide, shall be determined in the manner explained in the table below Value of the service portion shall be forty percent of the total amount charged for the works contract sixty percent of the total amount charged for the works contract
Where works contract is for (i) execution of original works (iii) works contracts, other than contracts for execution of original works, including contracts for completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings (iii) Works contract for maintenance or repair or reconditioning or restoration or servicing of any goods
seventy percent of the total amount charged for the works contract 62
Works Contract
total amount means the 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:
Original works means : all new constructions; all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
63
Works Contract
Person liable to pay Service tax
Vide Notification 30/2012-S.T. dated 20.06.2012 (applicable w.e.f. 01.07.2012), in respect of Works Contract service:
Both the service provider and service recipient are required to discharge 50% of the Service tax liability Applicable only where the service provider is individual or HUF or partnership firm or LLP or AOP and the service recipient is a body corporate In other cases, service provider is required to apply and recover tax
64
Works Contract
Issues Whether contracts for painting of a building, repair of a building, renovation of a building, wall tiling, flooring be covered under works contract?
if such contracts involve provision of materials as well How is the value of goods or services supplied free of cost be determined to arrive at the total amount charged for a works contract? If the value of goods and services supplied free of cost for use in or in relation to execution of a works contract is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have close resemblance to goods made available
Yes,
65
Works Contract
Is duty paid on any goods, property in which is transferred (whether
as goods or in some other form) in the execution of works contract, available as Cenvat Credit? No. Such Cenvat Credit is not available, irrespective of the fact that the value of service portion is determined in the manner explained above, since such goods are not inputs for the service provided. However, the goods not forming part of such transfer will be eligible for input tax credit subject to the provisions of the Cenvat Credit Rules, 2004 including the provisions relating to reversal of credits contained in rule 6 of the said rules.
66
Works Contract
Duality of taxes (Works Contract / Construction services) Differing schemes of abatements under VAT Laws and Service Tax law
Original Works, Contract value = Rs. 100/Service Tax @12.36% on Rs. 40/- (abatement of 60%) VAT @ 14.5% on Rs. 75/- (abatement of 25% under VAT Laws) Effective value of contract subjected to Indirect Taxes is Rs.115/- as against an actual realization of Rs. 100/Taxing impact further aggravated for other than Original Works on account of the Service tax abatement being only 40%, therefore effective value of contract subject to Indirect Taxes is Rs.135/Credits of Excise Duty paid on goods not available on account of conditions of the abatement scheme
Results in increasing the tax cost Manner of applying VAT - Levy of VAT on the Service tax portion in the transaction
Service tax paid or payable forms part of sale value and hence liable to Service tax - DDQ-11-2007/Adm-3/16/B-1 dated 20.10.2012 This position seems incorrect. The intention of legislature would not be to levy tax on tax 67
68
service provided or to be provided to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or, for furtherance of, business or commerce
Explanation
Building and
a part of a building, and the land appurtenant thereto; Land incidental to the use of such building or part of a building; The common or shared areas and facilities relating thereto; In case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate, and Vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce
69
Explanation
2 Immovable property partly for use in the course or furtherance of business or commerce and partly for residential or any other purposes shall be
deemed to be
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Explanation 1 for use in the course or furtherance of business or commerce includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings Explanation 2 renting of immovable property includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property
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The said amendment was challenged by a writ in Home Solutions Retail India Ltd. vs. UOI [2010 26 STT 418 (Delhi)]
Stay granted from recovery of Service tax To be decided after instructions from Supreme Court
Shubh Timb Steels Ltd. vs. UOI [2010 (20) S.T.R. 737 (P & H)] Upheld the constitutional validity and retrospective levy Very recently Delhi HC in Home Solution(2) continued the stay granted
earlier
Taxing entry contained the word services to be provided, whereas in Home solution(1) it has been concluded that renting does not constitute a service 72 Considered the P&H HC order
On the question of penalty due to non-payment of tax, it is open to the Government to examine whether any waiver or exemption can be granted Subsequently, in the matter of Retailers Assn. of India Vs Union of India, the Honble Apex court, had ruled on October 14, 2011, that litigants should pay 50% of the arrears within six months in three equated instalments
Proposed that penalty may be waived who pay the service tax due on
renting of immovable property service (as on the sixth day of March, 2012), in full along with interest within six months
Section 80A is being introduced for this purpose Those who fail to avail the benefit will be treated as if this section did not exist
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Exemptions in respect of renting of immovable property Threshold level exemption up to Rs. 10 lakh. Renting of precincts of a religious place meant for general public Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent is exempt
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5. 6.
Mumbai
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Delhi
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Pune
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