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Service tax on construction and developers including land

Shraddha Jani (student CA final) (77 Points)

13 July 2012

Hello Friends,

I have 1 query about Service TAx and Abatement.

Suppose There is case where Contract is that Seller sell the particular land say like at a price of 10,00,000 and here condition with the contract is that Purchaser has to make construction of plot on this land from Seller of Land only....And now seller put price of construction of proprty at 10000 Rs. per sqr. yard so suppose 300 sqr. yard then cost will be 30,00,000 (300*10000).

So here my question is that How abatement wil apply on this and at what rate and also levy of service tax at which rate?

Please Friends make some healthy discussion !!!!!!

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9 Replies

CA Ashish Jain (chartered Accountants) (64 Points)
Replied 13 July 2012

dear shraddha,

ur problem is clear. tell me whether seller is devloper of residential complex, if yes then refer the defination of particular service which involve that the abatement shall be given for 67% if value does not inculded land or 75% if value included land.

Regards

Ashish Jain

09911338447

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Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 13 July 2012

Mr. Ashish, I hope you are not providing the new rates of abatement which are effective from 01-07-2012.

RENGARAJ R.K (ADVOCATE) (7557 Points)
Replied 13 July 2012

Abatement is 60% for original works of works contract w.e.f 01.07.2012.

67% is gone and the composition scheme is also gone.

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 13 July 2012

I agree with RENGARAJ R.K.

Shraddha Jani (student CA final) (77 Points)
Replied 13 July 2012

Thanks to all respected Sir to give immediate answer for my question.But more question is Service Tax would be levy on only Construction Of Building and as per my opinion it wil be levy at 12.36% as per new Rate.

Am I Right?

Please answer.

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Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 14 July 2012

No since you are chargeable to service tax after providing for a standard deduction of 60% of the value of the bill, the cost of the land will not be excluded from the total contract value per se. Also as per my understanding mostly the cost of the land are included in the contract price only so the question of exclusion will not arise itself.

Shraddha Jani (student CA final) (77 Points)
Replied 14 July 2012

Thanks to Mr. Ajitkumar Dubey...........Thanks a lot sir.

Shraddha Jani (student CA final) (77 Points)
Replied 17 July 2012

Now the different dimention of the q is that the land price is prefixed by the developer. Even the agreement of allotment also does include the price of land seperately stated. It makes it mendatory for the allotee to get the superstructure for residence constructed from the developer only. But it does not specifically contain the cost of that construction. It is subsequently decided. Accordingly the allotte has to make payment for the construction seperately. Now my understanding is that when price of land and price of construction both are seperately fixed and stated then this could not be treated as a composite contract. Pl. let me know am I right?

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 17 July 2012

Principally one cannot break a single transaction into two separate contracts. In the present case since you are providing an exclusivity clause in the main agreement, whereby it is mandatory for the allotee to get the superstructure for residence constructed from the developer only, it is to be concluded that both the agreements are mutually dependent on each other. Hence, it would not be correct to break the contract into two separate contracts. In any case, under Rule 2A sub clause II, service portion or a new construction is only @ 40% of the contract price, which is fair enough. There is no need to break the transaction into two separate contracts as neither it is cost saving nor free from litigation.