Updation of service tax in case of notification no. 26/2012

Girish Chand Rajput (Assistant Manager) (32 Points)

05 July 2012  

Dear Professional Colleague,

 

Service tax on activity of builders of selling the Residential flats in the building to be constructed on advance payment (usually construction linked plans) was made subject to service tax under the category of “Commercial or Industrial Construction Services” and “Complex Construction Services” w. e. f. 01.07.2010.


Now, w. e. f. 01.07.2012, in negative list regime, activity undertaken by builders have been included as declared service in clause (b) of section 66E of Finance Act, 1994. Relevant abatement scheme as given in Sr. 12 of table given in Notification No. 26/2012 dated 20.06.2012 is as under:

 

Sl. No.

Descripttion of taxable service                    

Percentage of Taxable portion

Conditions

12

Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

25%
  1. CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004.
  2. The value of land is included in the amount charged from the service receiver.

                       


Huge Benefit in the form of CENVAT Credit: Prior to 01.07.2012 also, rate of abatement was same i.e. 75% and taxable portion was 25% of gross amount (including land cost). However, earlier there was absolute bar on availment of CENVAT Credit. However, now, CENVAT Credit in respect of capital goods and input services (as defined under rule 2 of CENVAT Credit Rules, 2004) has been allowed w. e. f. 01.07.2012. (CENVAT credit in respect of inputs shall not be allowed). Usually, developers get the construction done from a construction contractor who charges service tax from developers in respect of construction services provided to developers.


Now, CENVAT Credit in respect of capital goods and input services (including construction service received which is a substantial expenditure) shall be allowed. Now, developer shall continue to charge service tax from their customers, however, they will now avail CENVAT Credit and deposit lesser amount of service tax in cash after availment of CENVAT Credit. In other words, amount equivalent to CENAVT credit availed by developers will be net saving for developers. Thus, developers discharging service tax must place a system for availing the CENVAT Credit as per the provisions of CENVAT Credit Rules, 2004.

 

Hope you will find the above useful. Best Regards,

 

CA. Girish Rajput