Service Tax is a tax levied on service providers in India. All service providers in India, except those in the state of Jammu and Kashmir, are required to pay Service Tax. The objective behind levying service tax is to reduce the degree of intensity of taxation on manufacturing and trade without forcing the government to compromise on the revenue needs. On February 24, 2009 in order to give relief to the industry reeling under the impact of economic recession, the rate of Service Tax was reduced from 12 per cent to 10 per cent.

No service tax for residential complexes

Earlier property buyer had to pay service tax to the builder who provides service or construct the apartment complex. The builders also argued that construction of building is not service but the nature of sale and hence requested to avoid service charge on construction activities. In recent circular, government came to the conclusion that 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.

The circular has reference to only Construction of Residential Complex Service. However this circular would apply equally for both residential and commercial service. The personal user cannot be applied to commercial or industrial construction as the definition does not have such exclusion of personal use.

Refund of Service Tax collected in installment

Some builders have collected Service Tax in installments and not yet remitted to government. If builders have collected service tax from buyer and such amounts are not remitted to the Government, the buyer can claim refund from the Builder. The Board or government has clarified that based on the existing provisions of the law the builder need not charge Service Tax on the sale of flats.

As per the circular dated January 29 2009, the builder cannot ask for Service Tax even on car parking space. Service Tax is not applicable for any residential complex, even if it contains more than 12 units. If you are constructing your own house, the service tax is applicable to the various service providers connected with construction.

Refund of Service Tax in case remitted to government

In case a builder has remitted Service tax collected from the buyer to government, refund is possible under the provision of Section 11B Claim for refund of duty of the Central Excise Act made applicable to Service Tax u/s 83 of the Finance Act. The refund of service tax paid to the Government can be claimed only by the person who has paid the service tax i.e. builder. Alternatively the builder can return the monies separately to each buyer (keep evidence of the same) and then claim the refund.

Procedure for claiming the refund

The refund of service tax paid to the Government can be claimed only by the person who has paid the service tax. The assessee or builder claiming refund can follow the below procedure:

• Submission of application in prescribed Form-R in triplicate to the jurisdictional Assistant Commissioner ACCE or DCCE before the expiry of one year from the relevant date. (Date of Circular- 29th January 2009)
• It should be signed and pre-receipted with revenue stamp.
• The application in Form R shall have valid grounds for refund.
• The applicant should seek a personal hearing.
• Proof should be submitted that refund would not result in unjust enrichment. Invitation for authorities to verify the accounts maybe attached. A Charted Accountant (CA) certificate that the Service Tax has not been passed on may also be obtained and submitted where the CA clearly specifies the books, records, payments received verified.

Update:

For more clarity, we have enclosed herewith a notification dated January 29, 2009, issued by Central Board of Customs and Excise clarifying that service tax is not applicable to residential complexes.

1. The Board has clarified that based on the existing provisions of the Law the builder need not charge Service Tax on the sale of flats. Since this is only a clarification it is applicable retrospectively. Your attention is invited to the last paragraph of the Circular No 108/02/2009-ST dated 29th January 2009 which clearly says ‘that all the pending cases may be disposed off accordingly’. Hence this clarification is effective retrospectively.

2. The buyer of the apartment cannot claim the refund from the builder, if the builder has already deposited the money with the Government.

3. The buyer can claim refund from the builder, if the Builder has not yet remitted the service tax collected to the Government.

4. The Service Tax was not applicable right from the beginning of construction, but was to be collected and paid at the time of completion of the project. As such there was no need not collect the same from buyers. Some builders, if they have collected in installments and if such amounts are not remitted to the Government, the buyer can now claim refund from the Builder.

5. The builder cannot ask for Service Tax on car parking space, as per the circular.

7. The service was considered applicable where there were more than 12 units in one project. The number of units was decided on total number of units on one project that may include few blocks, few independent units, few apartments etc. As per the new circular, Service Tax is not applicable for any residential complex, even if it contains more than 12 units.

8. The clarification of non applicability of service tax, as per the above referred circular is only connected with ‘residential complex’. And if you are constructing your own house, the service tax is applicable to the various service providers connected with construction.

9. Service tax as applicable to Association of Apartment owners continues to be applicable.

Useful Link:

http://ibnlive.in.com/news/no-service-tax-for-builders-says-chidambaram/47959-7.html

Disclaimer: The article  contains data collected from various sources and the use of same is at readers discretion. Although we have taken utmost care to provide the updated and correct information, we will not be responsible for any mistakes/omissions/incorrect information. The readers are further requested to consult Chartered Accountants for their specific requirements.