Getting Refund of Service Tax on Purchase of Your Apartment or House
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Getting Refund of Service Tax on Purchase of Your Apartment or House

Comments(47) Sub Category:Home loan,Service Tax Posted On: Oct 30, 2009

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.

281009_02

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.

 

47 Responses to “Getting Refund of Service Tax on Purchase of Your Apartment or House”

  1. Vivek says:

    Is this is the refund that we have got from Sobha or was that the reduction in the stamp duty? Do we know how much it should be? Can we get a calculation of it done?

  2. jak says:

    What is the relevant date mentioned here?

    Are there any known cases where it has been refunded to anyone when paid to the govt by the builder?

    How does it work when a builder involves a contractor for construction of the said apartment?

  3. VKV.RAVICHANDRAN says:

    The writeup on Refund of Service Tax has unambigously clarified on this major issue and provided a great relief to us.We must act at once “UNITEDLY” without further loss of time. I request our President and the committee members to initiate appropriate steps on war footing to recover the service tax unduly collected from us by M/S.Appasami, whether retained by them or paid to the Govt. This is a most urgent issue which demands immediate action by our committee.
    With Very Warm Regards,
    VKV.RAVICHANDRAN

  4. R.Mukhopadhyay says:

    If the builders, in our case Merlins, have collected Service Tax from us, they should immediately ask for refund after following the proper procedure. When they get the refund, they should refund the Service tax to the House owners , who have paid service tax.
    I am not aware of any Residents ‘ Association at Merlin Greens. If there is any, it should follow it up with the authorities of Merlins.

  5. K.Sanjeev Singh says:

    We had alsopaid the same for Mantri Flora and have asked the builder for the refund, in case he has not remitted the amount. In case he has then we need to apply individually for the refund before the Service Tax Commissionerate within 1 year of payment.

  6. R Shankar says:

    There is another interpretation by builders that even though service tax is not payable by flat owners buying for self-occupation/residence, builders are not continuing to pay service tax on the bills settled by them to various service providers like contractors, architects, designers etc. hence owners must bear the same where third parties are engaged by the builder.
    My personal view is builders must refrain from paying service tax on bills settled to third parties as ultimately the end-user of the construction activity would be the flat owner and since service tax is not payable by flat owner, the builder too must not pay service tax. For service tax already paid probably they could enquire and file requests for refund appropriately as per provisions of law.

  7. Prashanth says:

    I have taken around august 2007 & regisered my flat. can i also opt for this refund of service tax?

    Please let me know

  8. R.Mukhopadhyay says:

    Merely writing here will not do. Somebody from the Merlins should give a reply to the queries.
    There seems to be no participation from the Merlins.

  9. kalyani says:

    Please let me know the exact date month and year from when this service tax on construction is removed/ lifted by the govt. I had been paying service tax to puravankara projects ltd fron september 2006 till november 2008. But they are not charging service tax since then. kindly thro me some light on this.

    thanks

  10. R.Mukhopadhyay says:

    Dear Kalyani,
    Please go to the Web Site of Customs and Central Excise Deptt and search for the reply of your query. Better still, you can go to the Office of the Commissioner, Service Tax .As you are in Bangalore, you can search the Telephone Directory for their office. Please speak to the Commissioner directly. He may direct you to the proper officer. There is a time limit for applying for refund. So, sooner the better ! Good luck !

    • Murthy says:

      Hi,

      I have bought a apartment in Chennai in Sep 2009. At the time of agreement it was said Service tax is not charged. But now bulider is asking me to pay a service tax & builder is quoting a fresh circular No.IV/16/32/09 STC (TECH) dated 14.10.2009, which the builder has got from chennai service tax. I have not seen that circular & have asked to send the copy.

      In the meantime if you can help me to know about this latest development if any.. I have visited the service tax website apart from the 29th Jan circular (where they said NO service tax) i could not see any new circular. Thanx in advance

    • kalyani says:

      Dear Mr Mukhopadhyay

      thanks for your prompt reply. However I am currently put up in Chennai and I dont know how to get commissioners phone numbers. I shall try from the net and see what can be done.

      thanks once again
      kalyani

      • R.Mukhopadhyay says:

        Dear Kalyani,
        The Central Excise Deptt( of which Service tax Deptt was a part), used to be in the Numbakkam High Road. I do not know whether it is still there or Service Tax is housed in a separate building. However, if you go to the Numbakkam office ( incidentally, it also houses the Income Tax Deptt) ,I am sure they will be able to guide you to the proper place and the proper officer. Also, you can search in the Internet. There must be a Website for Service Tax, Deptt, Chennai.
        Best wishes,
        R.Mukhopadhyay

  11. Manik says:

    I paid service tax on my Apartment as part of the schedule for payment. The builder will finish the Apartment only on April 2009. Do you think i should ask for a refund on it? Check the news on Hindu Newspaper.

    http://www.thehindu.com/pp/2009/02/2…2850020100.htm

  12. Ballu says:

    Ta for your great news. I have no idea and will check with my builder. presently in the hands of two builders / developers and they didnt charge so far and in my contract it says Govt. Service tax 12.36% is not included in the payment schedule and will be charged as & when applicable.

    you better take up the issue with your builder and get it adjusted along with your final payment.

  13. Murthy says:

    In reply to my earlier post on this, I got the circular copy from the builder ‘On paying service tax’.

    It says ‘If the sale deed is executed for full cost & registered (UDS value + Flat Cost) then service tax is NOT charged to buyer’ but if only UDS value is executed in sale deed & registered, then 4.12% of service tax is applicable on the flat cost (excluding car park, EB/Water charges, CMDA development fee etc..)

    So right from 29th Jan 2009 circular to till date any builders who have NOT collected the service tax from buyers (i.e who got registered only to the UDS value), Service tax have asked them to collect the same.

    Based on the above builder is asking to pay service tax.

    If any one in this group can check on this & let me know..

  14. Prashanth says:

    Pls read this article sep 2007 onwards Tax is levied but why buidlers are collecting this.
    I checked with my Builder Sapthagiri Buidlers they said will verify
    http://ibnlive.in.com/news/no-service-tax-for-builders-says-chidambaram/47959-7.html

  15. This is informative. We residents in a complex where the builder collected and paid the amounts has not applied for service tax refund for whatever reason. Be that as it may, the buyers applied individually for refund in May 2009 and promptly got a notices to show cause why the refunds should not be rejected because (1) it is time barred; that is refund should have been applied within 1 year of relevant date; the Department conveniently has taken date of payment as ‘relevant date’ and (2) non-submission of whole lot of documents and certificates along with the application. Now all these documents and certificates are all actually service tax related compliance for the ‘developer’. Is there a possiblity that buyers of various developers’ properties in Bangalore, can come under one forum, engage a lawyer commonly (after all the issue is exactly the same and the department is just dillydallying even after Jan 2009 clarification)? This will make enormous sense legally, logically and financially.

  16. Prashanth says:

    We can also post in RTI Blogs which works!!
    http://www.rtiindia.org/forum/2463-service-tax-refund-builder.html
    i had got my PF/IT refund..etc via this RTI Site

  17. v.k.v .ravichandran says:

    As rightly pointed out by Mr.NK.Raveendran, various flat owners associations and society must form a confedaration and fight for the common cause unitedly. We must fight for our rightful dues from a single platform
    VKV.RAVICHANDRAN

    • kalyani says:

      yes we lll have to jointly fight it out. we booked a flat in purva highlands, puravankara projects. they collected service tax along with instlments unil oct 2008. Now they stopped collecting from this january 2009.
      I spoke with service dept at bangalore and I was told the refund will be for a year only ie,. from nov 2008-09. For this we need to submit the challan/ receipt from the builder if he has paid the tax to the govt. In our case puravankara, did not give proper reply when asked for the receipt instead askig me to come to the service tax offie and they will take it from there. I didnot quiet understood their motive. I have no idea how to extract the truth – whether they paid to the dept at all in order for us to take next step
      May I know if any of you in this group bought from this project please revert back to me.

  18. R.Mukhopadhyay says:

    There is undeniably a time limit for applying for refund under all the fiscal statutes. Even Supreme Court has agreed to this point. However, if Service Tax was not at all leviable, there is some point in arguing that time limit is not applicable .Whatever is not just due to of the Govt, it should not retain. It is unjust enrichment in the reverse. However, if at all you are contemplating to contest this levy, please consult a good lawyer .Otherwise both your money and time may be wasted.

    • Murthy says:

      Hello Mukhopadhyay,

      If you can help to clarify on my post which i had posted on November 4, 2009 at 12:39 am…

      Thanx, Murthy

      • R.Mukhopadhyay says:

        I am no longer in touch with Service Tax.I do not have the latest circulars on Service Tax with me.So, I am sorry, I cannot reply to your query.
        But my advice to me will be to contact service tax authorities and not to rely on the builder’s reply.It is always better to get the clarifications from the Deptt rather than getting it through a secondary source, in this case the builder.

      • Deepak says:

        Hi,

        Can you mail me personnaly, we need to talk !!!

        Regards,
        Deepak

  19. R.Mukhopadhyay says:

    Kalyani ,
    You have done the right thing in contacting the service tax deptt directly. Govt deptts are not always as bad as we think they are !
    Service Tax , being an Indirect Tax, is not payable to the payer .In this case, it has to be paid to the builder who paid the Tax to the Deptt.The Builder has to file for refund. When the builder gets the refund , he can give back to the payer ,i.e. the owner of the flat. Please pursue with the builder . As there is a time limit for the refund, delay means loss of the refund which is legitimately due to you.

  20. JAY SHRIVASTAVA says:

    dear,

    Please note that i purchased a residential premises on August 2008 (means taken possetion from builder) after final payment made. we paid him amount which is agreed while booking. Builder is taken money against service tax. please help me and let me know whether we are in supossed to pay the TAX or not and by which way we call builder to refund the same.

    regards,

  21. jaya kolli says:

    I purchased my flats form Prakasa builders, the guy who built and sold the Prakasa Pride. In 2005, I paid him service tax when I was registering my flats. That guy seems to have literally disappeared. I am sure there are many in Prakasa Pride in the same situation as me.Any ideas, if and how we can get the refund from him?

  22. Sanjay says:

    I have purchased a property in Vaswani Whispering palms and they are still asking for service tax. When I pointed them out to some news articles on this, they sent me an article from S. Sivakumar which was taken from servicetaxandvatadvisor.com. I am not able to attach that here.
    So I am not sure if it is applicable or not.

  23. Deepak says:

    Hi Murthy,

    I am too in the same case, my builder has also asked for service tax. Can you update on ur case?

    Regards,
    Mani

  24. Rockey says:

    Got below mail from Sobha developers. I request author of this article to clarify…..

    Dear Customer,

    Ref Govt Circular dated 29 Jan 09, on applicability of Service Tax.

    The above letter has been engaging the minds of all our customers since 29 Jan 09. This letter has been interpreted in different ways by consultants, customers, builders and mostly in their favour by the Service Tax Department. We have been interacting with the Service Tax Commissioner since Mar 09 trying to seek a clarification. In all our meetings, we were told that till a clarification comes from the CBEC (Central Board), they will not be in a position to give any firm directions.

    However based on the 29th Jan 09 Circular, we had conveyed to the customers that, Service Tax (ST) will not be collected in future and will be deferred till decision by the Supreme Court or a direction from the Central Board and those who want to apply for refund of S,T could go ahead & claim the amount, for which we would give them the details of ST collected from them. Though, we were clear that refund is not easy as advised by our consultants, we have provided the required information as promised. We also made it clear that the service tax will be demanded whenever the department clarifies the position that it is payable and also we will not be claiming refund of service tax on their behalf for the past periods.

    We have been informed now by our builder’s community that they have started receiving notice for non payment of service tax from 29th Jan 09 onwards. While it is only a matter of time we receive the notice, as a matter of information and compliance, we wish to inform you that the Service tax is applicable retrospectively from 29th Jan 09 onwards, on all the demand notes raised by us.

    The details of the amounts due from customers will be intimated shortly. In case if you wish to seek further clarification, you are most welcome to visit our office with a prior appointment.

    We will be more than happy to clarify all your doubts in this regard.

    Thanks & Regards,

  25. Shashi Ranjan says:

    Hi,

    I came to know about it recently. So I approached builder on 27th Jan 2010. He said that it will take at least 2 week to arrange that paper. So clearly the deadline will pass. What if the submitter submits after this date? Will there be a penalty or it will not be accepted at all?

    Thanks and Regards,
    Shashi.

  26. R.Mukhopadhyay says:

    As I have said earlier, please contact the Service Tax deptt .And get the correct picture. It seems they are waiting for clarification from the CBEC. In these days of Right to Information, you may even approach CBEC with your query and demand a reply.Please take care or ask your builder to take care to submit a claim for refund .There is a time limit for claiming refund.

  27. Madhavan says:

    Dear Mr. Mukhopadhay

    I have booked a flat in the month of July 2009 and supposed to be ready for occupation by October 2009. My builder sent a letter to me saying that the flat is ready for takeover and asked me to pay the balance amount( last installment which include around 1.25 lakhs as Service tax). After reading the above I have a doubt, if I have to pay this service tax( Builder insist for a separate cheque for the tax amount) and get a refund or I need not pay the tax itself.Please advise.

  28. R.Mukhopadhyay says:

    What I had said earlier, please contact the Service Tax authorities before paying the ST. It seems they are waiting for some clarifications from CBEC. Once you pay, it will be difficult, if not impossible, to get a refund.
    If you do not get a favorable reply, do not hesitate to contact the Chairman , CBEC. I know he is an efficient man and a man with the highest integrity. He will direct you to the proper authorities.

  29. kishan says:

    Service tax being an indirect levy, it has to be borne by the ultimate customers. Sevice tax levy on construction of residential complex service has been a subject of great controversy since June 2005 and none had claimed refund nor were there talks about it prior to the issue of Circular no 108/2/2009-ST dated 29.1.2009. Construction of residential complex service was part of the definition of ‘works contract service from 1.6.2007 and since the rate of service tax was 2% initially on works contract service’ for about 9 months in 2007-08 (under composition scheme) many builders claim that they opted for it to give the benefit of 2% to cusomers. This itself shows that we have accepted service tax levy(out of compulsions or otherwise). Further, builders who have collected and discharged their liability cannot claim refund for them selves( since they have not paid it)nor give refund to customers since the circular does not say anything about refund to be made. The issue is complex, if the builders have partially paid cash and partially paid thru. cenvat a/c(as they are permitted use cenvat a/c also as per lase, for payment of service tax), Presumably, Government also must have applied the amount so collected for public welfare. In that case from where it will give refund ? They may dodge the consumers by issuing show cause notice and asking them to bring so many impossible documents in order to claim refund. That being the case, refund by the gorvernment seemingly looks difficult and waste of time/energy. Only few advocates will make money in this process!

    Since the department is now issuing notices to builders this levy seems to be there on work contracts(cosntruction of residnetial complexes) notwithstanding issue of circular no 108/2/2009-ST.

    Further, Proposed GST also likely to levy tax on construction activities since there is some indication in public debates. Supreme Court decision in K Raheja case is now pending with Larger bench of Supreme Court. In earlier decision, SC has held that construction of residential complex is a works contract. If it is a works contract, then there are two parties and it cannot certainly be stated whether circualr is applicabel to such cases. Govt. circular which are not in accordance with law have been held invalid by Supreme Court in Ratan Melting case. Given all these points, it is expected that government may levy service tax on the said activity at any time, holding its own circular as invalid and therefore wasting time and money for refund issue may prove futile!!

    Be careful that two agreements will have implications of stamp duty and let states authorities who are rgistering the property shall not invoke special provisions to make customers pay stamp duty on entire cost, if too much noise is created about the bifurcation of cost in to UDS and Construction.

    Still if some people want to purse, good luck !!!

    I do not want to press for refund since i know that my builder is a law abiding coporate citizen and Service tax dept has confirmed to me on phone that they have discharged their service tax laibility.

    Kishan

    • Shivakumar says:

      Hi Kishan,

      Your property is related to which City? Can you advise so i can see if i can relate that to my property

  30. Nisha says:

    I registered my flat on feb 4th. My builder has asked me to pay a service tax, the calculation is as such.
    Cost of flat of this 33% = x
    x of this 10.3 = service tax.

    My builder states that a common govt slip will be given saying service tax paid and refuses to give a challan on my name.
    AM i supposed to be payin service tax, if yes what is the %???

  31. Ashok says:

    I booked an apartment in April 2008, and the builder charged me service tax at the new rate of around 4%.
    Construction of the apartment complex was delayed and completion will take place only in May 2010.
    Since service tax has been abolished, am I eligible for a refund?
    If so, what is the procedure?
    Please advise.

  32. Shivakumar says:

    Can anyone advise how does this service tax % works out in Chennai Flats. I have booked a Flat with Vishranthi Sabari ” MONDRIAN” in OMR. anyone having property in the same project can also join with me to discuss and throw some light on the service tax. The property is completed now and ready for handover in few days. Before i take possession i would like to know what % of service should i be paying.

  33. m.k.madaan says:

    Sir I get a contract in Dec 2004 , from housing board haryana panchkula for the construction of 75 nos single storey skelton type houses in HUDA sector 10 . A notice for Service Tax was received in Dec 2006 . Housing board Refused to pay Tax . Custom & Exice Departmet Impose tax Rs 6.00 Lacs+Penality 6.00 Lacs +Interest from Dec 2004 onward .Now what I Do.Please Help Me .

  34. Anonymous says:

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  35. I’m so
    love this blog, already bookmarked it! Thanks.

  36. kannan says:

    Hi,

    I purchased an apartment 6 months back and my builder insisted to pay service tax right now.

    Whether i need to pay and share with me if there is any amendment or update….

    Look forward to your insights.

    Thanks

    Kannan

  37. Artham Sree Ramulu says:

    I am purchasing a flat under construction at Kondapur, Hyderabad in a gated community from owners share, with UBI bank loan, and I am woring in central govt. organisation, whether service tax, VAT is applicable? the builder is insisting to pay the service tax, please give clarification….

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