Abatement in case of construction of residential complex
This query is : Resolved
22 November 2013
We seek your valuable advise in respect of Sale of Residential Flat caliming 75% abatement under notification no. 26/2012 ST dated 20.06.2012 and as amended from time to time
AGREEMENT TO SELL
(A RESIDENTIAL FLAT)
1. Made between THE VENDOR (SELLER) and PURCHASER.
2. THE VENDOR hereby agrees to sell and THE PURCHASER hereby agrees to purchase the said RESIDENTIAL FLAT together with AN UNDIVIDED PROPORTIONATE SHARE, RIGHT, TITLE AND INTEREST IN THE LAND ON WHICH THE SAID PROPERTY IS STANDING and subject to the terms, conditions and covenants herein contained.
3. The PURCHASER shall have no claim upon the ROOF/TERRACE OF THE BUILDING. It will remain the property of the VENDOR.
4. The PURCHASER shall have no ownership right upon the amenities.
In the Schedule
A residential Flat having a super built-up area of 2226 sq.ft. togetherwith undivided proportionate impartible share/right in the freehold interest in the land underneath of the said R.C.C. Building situated at …………..(address of the property)
NOW SIR, OUR QUERY
The Enforcement Officer of Service Tax Department is telling that ‘since as per the different Clauses of the Agreement to Sale, the entire proportionate share of the super built up area is not going to be transferred in favour of the PURCHASER and the ROOF/TERRACE OF THE BUILDING and AMENITIES remain in the hands of the VENDOR’, we are not entitled to the 75% Abatement under Notification No.26/2012-ST dated 20.06.2012 (as amended from time to time) and have to pay Service Tax on full value realized from the PURHASER.
Please advise us (One or Two Agreements have already been registered).
1. Whether the officer is correct in his findings?
2. May we file rectification Agreement to Sale omitting all these objectionable clauses?
3. What should be the exact wordings of Agreement to claim Abatement?
Please advise us.
AGREEMENT TO SELL
(A RESIDENTIAL FLAT)
1. Made between THE VENDOR (SELLER) and PURCHASER.
2. THE VENDOR hereby agrees to sell and THE PURCHASER hereby agrees to purchase the said RESIDENTIAL FLAT together with AN UNDIVIDED PROPORTIONATE SHARE, RIGHT, TITLE AND INTEREST IN THE LAND ON WHICH THE SAID PROPERTY IS STANDING and subject to the terms, conditions and covenants herein contained.
3. The PURCHASER shall have no claim upon the ROOF/TERRACE OF THE BUILDING. It will remain the property of the VENDOR.
4. The PURCHASER shall have no ownership right upon the amenities.
In the Schedule
A residential Flat having a super built-up area of 2226 sq.ft. togetherwith undivided proportionate impartible share/right in the freehold interest in the land underneath of the said R.C.C. Building situated at …………..(address of the property)
NOW SIR, OUR QUERY
The Enforcement Officer of Service Tax Department is telling that ‘since as per the different Clauses of the Agreement to Sale, the entire proportionate share of the super built up area is not going to be transferred in favour of the PURCHASER and the ROOF/TERRACE OF THE BUILDING and AMENITIES remain in the hands of the VENDOR’, we are not entitled to the 75% Abatement under Notification No.26/2012-ST dated 20.06.2012 (as amended from time to time) and have to pay Service Tax on full value realized from the PURHASER.
Please advise us (One or Two Agreements have already been registered).
1. Whether the officer is correct in his findings?
2. May we file rectification Agreement to Sale omitting all these objectionable clauses?
3. What should be the exact wordings of Agreement to claim Abatement?
Please advise us.
22 November 2013
First of all to claim abatement of 75% .There is clearly written in notification construction of a complex,building,civil structure or a part thereof intended for a sale to a buyer wholly or partly,.
So claiming abatement conditions of Land is also complied with.
So officer is not correct here.
So claiming abatement conditions of Land is also complied with.
So officer is not correct here.
23 November 2013
Now, Supdt. of the Anti Evasion Unit of Service Tax has issued us a letter of investigation in respect of the above services as Construction of Residential Complex. The letter read as follows:
"From your submitted copy of 'Agreement to Sell' it appears that although you are selling Flats to the prospective purchasers together with undivided proportionate share in the land but as per Sl.No. 12g of said agreement it also appears that the purhaser shall have no claim uopn the roof/terrace of the building and the same will remain the property of the vendor. Hence, it implies that the vendor is also having an undivided proportionate right in the land and thus the value of such proportionate share of land has not been included in the amount charged from the purchasers. In the event you feel that valaue of such proportionate share of land of the vendor has been shifted to the amount charged from the purchasers, in that case, you are requested to produce all documentary evidence of your such claim to the undersigned within seven days of receipt of this letter. In the event you fail to submit the desired particulars, it will be presumed that value of such proportionate share of land of the vendor has not been shifted to the amount charged from the purchasers.
Moreover, it also appears from Sl.Nos. 12c,12e and 12f of the said agreement that the vendor is collecting some monthly and onetime fixed charges from the purchasers for maintenance of the flats or more precisely complex. You are requested to submit to the undersigned detailed month-wise particulars of such collection from the beginning to till last month."
The hidden strategy of the officer is to deny the 75% abatement on the basis of above referred clauses which he admits candidly.
Now, please enlighten us what should be our reply to the above investigation.
We are reproducing a letter which we intent to submit in reply to the above. Please go through the same and advise us suitably.
Here is our Draft Reply:
(1)"We assure you that the proportionate share of land of the vendor would be shifted in favour of the Purchaser as mentioned in clause no.1 of 'the Agreement to Sell'. Further it is not necessary that the entire portion of the complex must be shifted amongst the purchasers.
Sir, serial no.12 of notification no.26/2012 ST dated 20.06.2012 provides abatement of 75% from gross amount charged to the buyer for determining the value of taxable service. The said abatement is available when the following two conditons are complied with: (a) Cenvat Credit on input used for providing taxable service has not been taken under the provisions of Cenvat Credit Rules,2004, (b)The valaue of the land is included in the amount charged from the service receiver; And in the instant case, we have not taken Cenvat Credit on input and also the value of land is included in the amount charged from the service receiver.
(2)At present the vendor is not collecting any monthly and onetime fixed charge from the purchaser for maintenance of the flats or more precisely complex. The clause serial nos. 12c, 12e and 12f of the said Agreement are for future arrangements after full and final transfer of the respective flats to the purchasers. Who will maintain the amenities of the flats would pay the Service Tax at the prevailing rates.
We hope you would find the above clarifications satisfactory.
Please advise immediately and oblige.
With regards,
B.L. Kejariwal
Tinsukia, Assam
"From your submitted copy of 'Agreement to Sell' it appears that although you are selling Flats to the prospective purchasers together with undivided proportionate share in the land but as per Sl.No. 12g of said agreement it also appears that the purhaser shall have no claim uopn the roof/terrace of the building and the same will remain the property of the vendor. Hence, it implies that the vendor is also having an undivided proportionate right in the land and thus the value of such proportionate share of land has not been included in the amount charged from the purchasers. In the event you feel that valaue of such proportionate share of land of the vendor has been shifted to the amount charged from the purchasers, in that case, you are requested to produce all documentary evidence of your such claim to the undersigned within seven days of receipt of this letter. In the event you fail to submit the desired particulars, it will be presumed that value of such proportionate share of land of the vendor has not been shifted to the amount charged from the purchasers.
Moreover, it also appears from Sl.Nos. 12c,12e and 12f of the said agreement that the vendor is collecting some monthly and onetime fixed charges from the purchasers for maintenance of the flats or more precisely complex. You are requested to submit to the undersigned detailed month-wise particulars of such collection from the beginning to till last month."
The hidden strategy of the officer is to deny the 75% abatement on the basis of above referred clauses which he admits candidly.
Now, please enlighten us what should be our reply to the above investigation.
We are reproducing a letter which we intent to submit in reply to the above. Please go through the same and advise us suitably.
Here is our Draft Reply:
(1)"We assure you that the proportionate share of land of the vendor would be shifted in favour of the Purchaser as mentioned in clause no.1 of 'the Agreement to Sell'. Further it is not necessary that the entire portion of the complex must be shifted amongst the purchasers.
Sir, serial no.12 of notification no.26/2012 ST dated 20.06.2012 provides abatement of 75% from gross amount charged to the buyer for determining the value of taxable service. The said abatement is available when the following two conditons are complied with: (a) Cenvat Credit on input used for providing taxable service has not been taken under the provisions of Cenvat Credit Rules,2004, (b)The valaue of the land is included in the amount charged from the service receiver; And in the instant case, we have not taken Cenvat Credit on input and also the value of land is included in the amount charged from the service receiver.
(2)At present the vendor is not collecting any monthly and onetime fixed charge from the purchaser for maintenance of the flats or more precisely complex. The clause serial nos. 12c, 12e and 12f of the said Agreement are for future arrangements after full and final transfer of the respective flats to the purchasers. Who will maintain the amenities of the flats would pay the Service Tax at the prevailing rates.
We hope you would find the above clarifications satisfactory.
Please advise immediately and oblige.
With regards,
B.L. Kejariwal
Tinsukia, Assam
25 November 2013
Please try to give your valuable advices soon as we have to submit our reply to the Service Tax Department.
With regards,
B.L. Kejariwal
With regards,
B.L. Kejariwal
25 November 2013
Please try to give your valuable advices soon as we have to submit our reply to the Service Tax Department.
With regards,
B.L. Kejariwal
With regards,
B.L. Kejariwal
27 November 2013
Kind Attention: Mr. Hardik Shah,
Sub.: Service Tax on Construction of Residential Complex
Dear Sir,
Please refer to our query dated 25.11.2013 regarding draft reply prepared by us in response to the investigation letter issued by the Service Tax Department.
Sir, we have to submit the reply on 29.11.2013. Therefore, we shall highly appreciate if you would advise us soon.
Please see and help accordingly.
With regards,
B.L. Kejariwal,
Tinsukia, Assam
Sub.: Service Tax on Construction of Residential Complex
Dear Sir,
Please refer to our query dated 25.11.2013 regarding draft reply prepared by us in response to the investigation letter issued by the Service Tax Department.
Sir, we have to submit the reply on 29.11.2013. Therefore, we shall highly appreciate if you would advise us soon.
Please see and help accordingly.
With regards,
B.L. Kejariwal,
Tinsukia, Assam
28 November 2013
What happened Sir? You have kept 100% silence over our query. We are eagerly awaing your suggestion on the matter. We have prepared the reply of our own and seek your valuable advice/suggestion, please.
Please favour us soon and oblige.
With regards,
B.L. Kejariwal
Please favour us soon and oblige.
With regards,
B.L. Kejariwal
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