Building flats for sale not liable to service tax

THE Gauhati High Court has held that the activity of construction of flats by a builder for subsequent sale is not chargeable to service tax under construction of complex services. In the relevant case, the petitioners, in the business of development and sale of immovable property (residential flats), entered into agreements for sale of such flats with the prospective purchasers during the course of development/construction and also after completion of construction of such flats. Under these agreements, they accepted installments from the purchasers as advance against the sales price of such flats. At the time of sale, stamp duty was to be paid on the entire consideration for the sale of the flats, including the installment amounts. The petitioners argued that the sale of flats in such circumstances was a transaction of sale of immovable property and not a transaction of provision of residential complex construction services.

    The high court accepted the argument of the petitioners and held that the construction activities undertaken by the petitioners were in respect of the petitioners’ own behalf and it was only the completed constructed flats which were sold by the petitioners to their buyers. Further, the advances received from prospective buyers were as consideration for the sale of the flats to such prospective buyers and were not for the purpose of obtaining services from the petitioners. It thus held that service tax was not chargeable on such transactions.

Payment in Re in lieu of $ qualifies as exports

    THE Delhi Service-Tax Tribunal has held that the commission received by an Indian service provider in rupees in lieu of foreign exchange would amount to receipt of consideration in convertible foreign exchange under the Export of Services Rules, 2005. In the relevant case, the company in question was an agent of an overseas company and had provided the services of sourcing for its contracts from the Indian Railways. In consideration for these services, the company was entitled to receive a commission in foreign exchange. The overseas company paid this commission to the Indian company by routing it through the Indian Railways. The Indian Railways made payment of the commission amount in the Indian currency to the Indian company on behalf of overseas company and deducted the said amount from the invoices received from the overseas company. Thus, less foreign exchange was released by the Reserve Bank of India for payments to the overseas company. The issue was whether the services of the Indian company, for which they received commission in rupees in the circumstances described above, would qualify as exports.

    The tribunal observed that it was well settled law that the machinery of a statute should be interpreted so as to promote the object and purpose of the scheme and that once the legislative intention was properly understood, the case should be decided so as to ensure its fulfilment. The tribunal held that in the present case, it was revealed from an analysis of the contract that the Indian company would be paid rupees equivalence of dollars, at the rate of exchange prevailing on the date of the supply order. It was noted that as a result, the equivalent amount of foreign exchange was effectively not released for remittance abroad and hence resulted in a constructive receipt of convertible foreign exchange. Consequently, the services provided by the Indian company did qualify as exports.