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applicability of service tax

biren (Accountant) (68 Points)

29 March 2011

a company engaged in business of land development. company purchase a land from farmers, make non agriculture and develop the same and sell by making small plots.

whether service tax applicable or not to the said company?

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8 Replies

Pankaj Arora (Learner) (3134 Points)
Replied 29 March 2011

service tax will not applicable in your case…

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M. N. JHA (CA) (8316 Points)
Replied 29 March 2011

service tax not applicable to the said company

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 31 March 2011

93. SITE FORMATION AND CLEARANCE, EXCAVATION AND

EARTHMOVING AND DEMOLITION SERVICES

A. Date of introduction: 16.06.2005 vide Notification No.15/2005-ST

dt.07.06.2005.

B. Definition and scope of service:

“Site formation and clearance, excavation and earthmoving and

demolition” includes,-

(i) Drilling, boring and core extraction services for construction,

geophysical, geological or similar purposes; or

(ii) Soil stabilization; or

(iii) Horizontal drilling for the passage of cables or drain pipes; or

(iv) Land reclamation work; or

(v) Contaminated top soil stripping work; or

(vi) Demolition and wrecking of building, structure or road,

but does not include such services provided in relation to agriculture,

irrigation, watershed development and drilling, digging, repairing,

renovating or restoring of water sources or water bodies.

(Section 65(97 a) of Finance Act, 1994 as amended)

“Taxable service” means any service provided or to be provided to any person,

by any person, in relation to site formation and clearance, excavation and

earthmoving and demolition and such other similar activities.

(Section 65(105)(zzza) of Finance Act, 1994 as amended)

C. Rate of Tax & Accounting Code:

Rate of Tax Accounting

Code

Service Tax 10% of the value of services 00440306

Education Cess 2% of the service tax payable 00440298

Secondary and H.

Education Cess

1% of the service tax payable. 00440426

Other –

Penalty/interest

As levied or applicable 00440307

(Rate of tax is effective from 24.02.2009.)

D. Classification of Taxable Services:

(1) The classification of taxable services shall be determined according to the

terms of the sub-clauses (105) of section 65;

(2) When for any reason , a taxable service is prima facie, classifiable under

two or more sub-clauses of clause (105) of section 65, classification shall be

effected as follows :-

(a) the sub-clause which provides the most specific descripttion shall

be preferred to sub-clauses providing a more general descripttion;

(b) composite services consisting of a combination of different services which

cannot be classified in the manner specified in clause (a), shall be

classified as if they consisted of a service which gives them their essential

character, in so far as this criterion is applicable;

or clause (b), it shall be classified under the sub-clause which occurs

first among the sub-clauses which equally merits consideration.

(Sec.65A of Finance Act, 1994)

E. Valuation of taxable services for charging Service tax

(1) Service tax chargeable on any taxable service with reference to its value

shall,—

(i) in a case where the provision of service is for a consideration in money,

be the gross amount charged by the service provider for such service

provided or to be provided by him;

(ii) in a case where the provision of service is for a consideration not wholly

or partly consisting of money, be such amount in money, with the addition

of service tax charged, is equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration which is

not ascertainable, be the amount as may be determined in the prescribed

manner.

(2) Where the gross amount charged by a service provider, for the service

provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is

equal to the gross amount charged.

(3) The gross amount charged for the taxable service shall include any amount

received towards the taxable service before, during or after provision of such

service.

(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be

determined in such manner as may be prescribed.

Explanation.—For the purposes of this section,—

(a) “consideration” includes any amount that is payable for the taxable

services provided or to be provided;

(b) “money” includes any currency, cheque, promissory note, letter of credit,

draft, pay order, travellers cheque, money order, postal remittance and

other similar instruments but does not include currency that is held for its

numismatic value;

deduction from account and any form of payment by issue of credit notes or

debit notes and ‘book adjustment, and any amount credited or debited, as

the case may be, to any account, whether called “Suspense account” or by

any other name, in the books of account of a person liable to pay service

tax, where the transaction of taxable service is with any associated

enterprise.

(Sec.67 of Finance Act, 1994)

Inclusion in or Exclusion from value of certain expenditure or cost:

(1) Where any expenditure or costs are incurred by the service provider in

the course of providing taxable service, all such expenditure or costs shall be

treated as consideration for the taxable service provided or to be provided and

shall be included in the value for the purpose of charging service tax on the

said service.

[Rule 5(1) of Service Tax (Determination of Value) Rules, 2006]

(2) The expenditure or costs incurred by the service provider as a pure agent

of the recipient of service shall be excluded from the value of the taxable service

if all the following conditions are satisfied, namely:- (i) the service provider acts as a pure agent of the recipient of service

when he makes payment to third party for the goods or services

procured;

(ii) the recipient of service receives and uses the goods or services so

procured by the service provider in his capacity as pure agent of the

recipient of service;

(iii) the recipient of service is liable to make payment to the third party;

(iv) the recipient of service authorizes the service provider to make

payment on his behalf;

(v) the recipient of service knows that the goods and services for which

payment has been made by the service provider shall be provided by

the third party;

(vi) the payment made by the service provider on behalf of the recipient of

service has been separately indicated in the invoice issued by the

service provider to the recipient of service;

(vii) the service provider recovers from the recipient of service only such

amount as has been paid by him to the third party; and

(viii) the goods or services procured by the service provider from the third

party as a pure agent of the recipient of service are in addition to the

services he provides on his own account.

[Rule 5(2) of Service Tax (Determination of Value) Rules, 2006)]

F. Clarifications issued by Board/Ministry:

The definition of site formation and clearance, excavation and earthmoving and

demolition is an inclusive definition and the activities specifically mentioned

are indicative and not exhaustive. Prior to construction of buildings, factory or

any civil structure, activity of mining or laying of cables or pipes, preparation

services of site formation and clearance, excavation and earth moving or

leveling are normally undertaken for a consideration who make the land

suitable for such activities. Such services include blasting and a rock removal

work, clearance of under growth, drilling and boring, overburden remover and

other development and preparation services of mineral properties and sites,

and other similar excavating and earthmoving services. Demolition of

structures, buildings, street or highways is also undertaken for a consideration

as a preparatory activity for subsequent construction activity or for clearing

the site for any other purpose. All such activities all under the scope of this

service.

However, site formation and clearance, excavation and earthmoving and

demolition services when provided in relation to agriculture, irrigation,

watershed development and drilling, digging, repairing, renovating or restoring

of water sources or water bodies are specifically excluded and not within the

scope of this service.

Notification No.17/2005-ST dated 07.06.2005 exempts this service provided in

the course of construction of roads, airports, railways, transport terminals,

bridges, tunnels, dams major and minor ports.

{Please refer M.F.(D.R.) letter F.No.B1/6/2005-TRU dated 27.07.2005}

G. Exemption & Exclusion:

1. Exemption to Small Scale Service Providers:

In exercise of the powers conferred by sub-section (1) of section 93 of the

Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Finance Act),

the Central Government, on being satisfied that it is necessary in the public

interest so to do, hereby exempts taxable services of aggregate value not

exceeding Ten lakh* rupees in any financial year from the whole of the service

tax leviable thereon under section 66 of the said Finance Act:

Provided that nothing contained in this notification shall apply to,-

(i) taxable services provided by a person under a brand name or trade

name, whether registered or not, of another person; or

(ii) such value of taxable services in respect of which service tax shall be

paid by such person and in such manner as specified under sub-section (2)

of section 68 of the said Finance Act read with Service Tax Rules,1994.

2. The exemption contained in this notification shall apply subject to the

following conditions, namely:-

(i) the provider of taxable service has the option not to avail the exemption

contained in this notification and pay service tax on the taxable services

provided by him and such option, once exercised in a financial year, shall

not be withdrawn during the remaining part of such financial year;

(ii) the provider of taxable service shall not avail the CENVAT credit of

service tax paid on any input services, under rule 3 or rule 13 of the

CENVAT Credit Rules, 2004 (herein after referred to as the said rules), used

for providing the said taxable service, for which exemption from payment of

service tax under this notification is availed of;

(iii) the provider of taxable service shall not avail the CENVAT credit under

rule 3 of the said rules, on capital goods received in the premises of provider

of such taxable service during the period in which the service provider avails

exemption from payment of service tax under this notification;

(iv) the provider of taxable service shall avail the CENVAT credit only on

such inputs or input services received, on or after the date on which the

service provider starts paying service tax, and used for the provision of

taxable services for which service tax is payable;

(v) the provider of taxable service who starts availing exemption under this

notification shall be required to pay an amount equivalent to the CENVAT

credit taken by him, if any, in respect of such inputs lying in stock or in

process on the date on which the provider of taxable service starts availing

exemption under this notification;

(vi) the balance of CENVAT credit lying unutilised in the account of the

taxable service provider after deducting the amount referred to in subparagraph (v), if any, shall not be utilised in terms of provision under subrule (4) of rule 3 of the said rules and shall lapse on the day such service

provider starts availing the exemption under this notification;

(vii) where a taxable service provider provides one or more taxable services

from one or more premises, the exemption under this notification shall

apply to the aggregate value of all such taxable services and from all such

premises and not separately for each premises or each services; and

(viii) the aggregate value of taxable services rendered by a provider of taxable

service from one or more premises, does not exceed rupees *ten lakhs in

the preceding financial year.

3. For the purposes of determining aggregate value not exceeding ten*lakh

rupees, to avail exemption under this notification, in relation to taxable service

provided by a goods transport agency, the payment received towards the gross

amount charged by such goods transport agency under section 67 for which

the person liable for paying service tax is as specified under subsection (2) of

section 68 of the said Finance Act read with Service Tax Rules, 1994, shall not

be taken into account.

Explanation.- For the purposes of this notification,-

(A) “brand name” or “trade name” means a brand name or a trade name,

whether registered or not, that is to say, a name or a mark, such as symbol,

monogram, logo, label, signature, or invented word or writing which is used

in relation to such specified services for the purpose of indicating, or so as

to indicate a connection in the course of trade between such specified services and some person using such name or mark with or without any

indication of the identity of that person;

(B) “aggregate value not exceeding *ten lakh rupees means the sum total of

first consecutive payments received during a financial year towards the

gross amount, as prescribed under section 67 of the said Finance Act,

charged by the service provider towards taxable services till the aggregate

amount of such payments is equal to ten lakh rupees but does not include

payments received towards such gross amount which are exempt from

whole of service tax leviable thereon under section 66 of the said Finance

Act under any other notification.

4. This notification shall come into force on the 1st day of April, 2005.

[Notification No. 6/2005-ST, dated 1-3-2005. *Amended by Notfn.No.

8/2008-ST dated 01.03.2008]

2. Services to UN Agencies

Services provided to United Nations or an International Organizations are

exempt.

[Notification No. 16/2002-ST, dated 2-8-2002]

3. Export of service: Any service which is taxable under clause 105 of

Section 65 may be exported without payment of service tax.

(Rule 4 of Export of Services Rules,2005)

4. Exemption to services provided to a developer of SEZ or a unit of SEZ:

Exempts the taxable services specified in clause (105) of section 65 of the said

Finance Act, which are provided in relation to the authorized operations in a

Special Economic Zone, and received by a developer or units of a Special

Economic Zone, whether or not the said taxable services are provided inside

the Special Economic Zone, from the whole of the service tax leviable thereon

under section 66 of the said Finance Act subject to certain conditions. ( Refer

notification for details)

{ Notification No. 09/2009ST dated 03.03.2009 (Prior to 03.03.2009

Notfn.No4/2004-ST dated 31.03.2004)}

5. Exemption to value of goods & material sold by service provider: In

exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of

1994), the Central Government, being satisfied that it is necessary in the

public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service

provider to the recipient of service, from the service tax leviable thereon under

section (66) of the said Act, subject to condition that there is documentary

proof specifically indicating the value of the said goods and materials.

(Notification No. 12/2003-ST dated 20.06.2003 effective from 01.07.2003)

6. Exemption to taxable services provided by TBI and STEP: All taxable

services, provided by a Technology Business Incubator (TBI) or a Science and

Technology Entrepreneurship Park (STEP) recognized by the National Science

and technology Entrepreneurship Development Board (NSTEDB) of the

Department of Science and Technology, Govt. of India from the whole of the

service tax leviable thereon subject to certain conditions and procedures. (

Refer notification for details)

(Notification No.09/2007 ST dated 01.03.2007)

7. Exemption to taxable services provided by entrepreneurs located

within the premises of TBI or STEP: All taxable services, provided by an

entrepreneur located within the premises of a Technology Business Incubator

(TBI) or a Science and Technology Entrepreneurship Park (STEP) recognized by

the National Science and technology Entrepreneurship Development Board

(NSTEDB) of the Department of Science and Technology, Govt. of India from

the whole of the service tax leviable thereon subject to certain conditions and

procedures. ( Refer notification for details)

(Notification No.10/2007 ST dated 01.03.2007)

8. Exemption to services provided to Foreign Diplomatic Missions or

Consular Post in India: All services provided by any person, for the official

use of a Foreign Diplomatic Mission or Consular Post in India are exempted

from service tax subject to certain conditions and procedures. (Refer

notification for details)

(Notification No. 33/2007-ST dated 23.05.2007)

9. Exemption to services provided for personal use of a family member of

Diplomatic Agent or Career Consular Officers posted in Foreign

Diplomatic Mission/Consular Post in India: All services provided by any

person, for personal use of family member of Diplomatic Agents or Career

Consular officers posted in a Foreign Diplomatic Mission or Consular Post in

India are exempted from service tax subject to certain conditions and

procedures. (Refer notification for details)

(Notification No. 34/2007-ST dated 23.05.2007) 10. Exemption to site formation and clearance, excavation and

demolition etc. when provided in the course of construction of Roads,

airports, railways, transport terminals, bridges, tunnels, dams and ports

(w.e.f.16.06.2005): exempts the site formation and clearance, excavation and

earthmoving and demolition and such other similar activities, referred to in

sub-clause (zzza) of clause (105) of section 65 of the Finance Act, provided to

any person by any other person in the course of construction of roads, airports,

railways, transport terminals, bridges, tunnels, dams, ports or other ports,

from the whole of service tax leviable thereon under section 66 of the said

Finance Act.

(Notification No. 17/2005-ST dated 07.06.2005)

********************

CA Saiyum khan (Practicing CA) (690 Points)
Replied 01 April 2011

As per above notification Land Development is taxable services.

SACHIN (Accountant) (30 Points)
Replied 12 April 2011

Dear madam,

please help. X party work as contract base on denting and painting department and earn labour income. service tax applicable in this case ?? when x generate the bill with service tax / without tax ??

Thanks

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Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 12 April 2011

If the plots are sold then only stamp duty is chargeable. No service tax. However if there is an agrement to develop the land and form sites then such part owuld be liable under site formation...

Durga prasad Ambati (Taxation, Pursuing CA) (737 Points)
Replied 13 April 2011

Dear biren,

Im agree with U S SHARMA JI,, As per above notification

SITE FORMATION AND CLEARANCE, EXCAVATION AND

EARTHMOVING AND DEMOLITION SERVICES

A. Date of introduction: 16.06.2005 vide Notification No.15/2005-ST

dt.07.06.2005. is taxable service. If Your company engaged new business and diversified into new business Your company must be registered for the above taxable service. thank you..

Lalit Kumar Gupta (Service) (609 Points)
Replied 15 April 2011

Dear Biren,

In your case you are not providing any service while you are selling plots, therefore no Service Tax is required to charge from your customes.

I think there is some confusion to some of my frnd.

In this case SITE FORMATION AND CLEARANCE, EXCAVATION AND EARTHMOVING AND DEMOLITION activities have done by seller for himself and there is no relation of service provider and service recipient, therefore no Service Tax Liability.

Further, it is stated that if seller apoint any other party to develop the afore said land, seller have to pay service tax to the said apointed other party. Even in this case Service Tax can not be charged to the plots buyers.

Thanks

Lalit