REAL ESTATE TRANSACTIONS PURUSHOTHAMAN.J

REAL ESTATE TRANSACTIONS PURUSHOTHAMAN.J 25-01-2017

PROVISION AND RULES RELATING TO REAL ESTATE TRANSACTIONS CA PURUSHOTHAMAN J 1/30/17 2

Categories of Services covered Construction of complex services Preferential location services Renting of immovable property services Real estate Agent s services Works contract services Hotel,Inn,Club and guest house services Site Formation and clearance excavation and earth moving and demolotion services CA PURUSHOTHAMAN J 1/30/17 3

CA PURUSHOTHAMAN J 1/30/17 4 RENTING OF IMMOVABLE PROPERTY SERVICES

CA PURUSHOTHAMAN J 1/30/17 5 Levy of tax -w.e.f.1-06-2007 Notification No.23/2007-ST,dated 22-05-2007 Taxable service any service provided or to be provided to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business of commerce

CA PURUSHOTHAMAN J 1/30/17 6 Case Law-Home Solution Retail India Ltd. vs. UOI (Delhi High Court) Held that the renting of immovable property for use in the course of furtherance of business or commerce by itself does not entail any value addition therefore, could not be regarded as a service eligible to service tax.

CA PURUSHOTHAMAN J 1/30/17 7 With retrospective effect from 1/06/2007, Finance Act, 2010 to provide that taxable service means any service provided or to be provided to any person,by any other person, by renting immovable property or any other service in relation to such renting for use in the course of or for furtherance of, business or commerce.

Renting of godowns by State warehousing Corporations. Case Law:M/s. Punjab State Warehousing Corporation (PSWC) regarding godowns let out on rental basis to private parties/other organisations for storage of their goods CBEC vide circular no.137/26/cx4, Dated 05/12/2008- Renting of Immovable Property and Storage or Warehousing Services are CA PURUSHOTHAMAN J 1/30/17 8

CA PURUSHOTHAMAN Construction for Jfurtherance of 1/30/17 business or commerce 9 Renting of vacant land is not taxable if it is used for Agriculture,farming, forestry, animal husbandry, mining, Sports,circus,entertainment Vacant Land -whether or not having facilities clearly incidental to the use excluded from the tax net. Rent of a vacant land is taxable if there is an agreement or contract between the lessor and lessee

CA PURUSHOTHAMAN J 1/30/17 10 Residential property which is partially used for business or commerce or partially used for residence, will be considered as used in the course of furtherance of business or commerce. If the business is carried out from residential area, the whole property will be considered as immovable property for use in the course of furtherance of commerce

Abatement of property tax-clarifications Notification No.24/2007-Service Tax, dated 22.05.07 exempts taxable services service tax is payable on the rental amount received less the actual amount of property tax paid any amount such as interest, penalty paid to the local authority by the service provider on account of delayed payment of property tax any other reasons cannot be treated as property tax and should not be deducted from the gross amount charged CA PURUSHOTHAMAN J 1/30/17 11

If property tax is paid for a period which is different from the rental period, property tax proportionate to the rental period shall be calculated To be excluded from the rental amount received for the purpose of levy of service tax If property tax is paid after the payment of service tax on rental. Property tax can not be deducted from rental at the time of payment of service tax. In such cases, Rule 4c of the Service Tax Rules, 1994 provides self-adjustments of excess service tax paid without any limit CA PURUSHOTHAMAN J 1/30/17 12

CA PURUSHOTHAMAN J 1/30/17 13 Renting of Immovable Property service No.334/1/2008-TRU, dated 29.02.2008. Use of immovable property is allowed for placing vending/dispensing machines in malls and other commercial premises and erection of communication towers on buildings. There may or may not be transfer of right of possession or control of the immovable property in favour of the person using such property.

CA PURUSHOTHAMAN J 1/30/17 14 Taxability of the Service after 01/07/2012 The renting of immovable property has been made taxable as a declared service under section 66E of the Finance Act 1994 as amended by the Finance Act 2012.

Renting is defined in section 65B(41) of the Finance Act 1994 as amended, as under renting means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of immovable property includes letting, leasing, licensing or other similar CA PURUSHOTHAMAN arrangements Jin respect of immovable 1/30/17 property 15

CA PURUSHOTHAMAN J 1/30/17 16 Immovable properties excluded from the scope of this service: Renting of vacant land, with or without a structure incidental to use, relating to agriculture Renting of residential dwelling for use as residence Renting out of any property by RBI Renting out of any property by a Government or a local authority to all nonbusiness entity

CA PURUSHOTHAMAN J 1/30/17 17 eligible for exemption, the following conditions are to be satisfied: The income should be earned by way of renting Renting should be of precincts of religious place Such religious place shall be meant for general public Services of conduct of religious ceremony Activity shall be renting

CA PURUSHOTHAMAN J 1/30/17 18 exemptions in respect of renting of immovable property Threshold level exemption up to Rs. 10Lakh. Renting of precincts of a religious place meant for general public.

CA PURUSHOTHAMAN J 1/30/17 19 Issue Commercial or industrial construction service [Section 65(105) (zzq)] or works contract service [Section 65(150)(zzzza)] is used for construction of an immovable property. Renting of immovable property is liable to service tax [Section 65(105) (zzzz)] Whether or not, commercial or Industrial construction service or works contract service are used for construction of an immovable property, could be treated as input service for the output service namely renting of immovable property service under the CENVAT Credit Rules,2004 Clarification by CBEC Right to use immovable property is leviable to service tax under renting of immovable property service. Commercial or Industrial construction or works contract services is an Input services for the output namely immovable property. An immovable property is neither subjected to the central excise duty not to service tax. Input credit of service tax can be taken on if the output is a Service liable to excise duty. since immovable property is neither service or goods as referred.

CA PURUSHOTHAMAN J 1/30/17 20 REAL ESTATE AGENT S SERVICES

Scope of service Service provided in relation to sale, purchase, leasing or renting of real estate and includes a real estate consultant Levy of tax - w.e.f. 16-10-1998 vide Notification No. 53/98 ST, dated 7-10- 1998 CA PURUSHOTHAMAN J 1/30/17 21

CA PURUSHOTHAMAN J 1/30/17 22 real estate The definition of the real estate is not defined under the act - the dictionary meaning

CA PURUSHOTHAMAN J 1/30/17 23 Real Estate Consultant (Before 01/07/2012) As per section 65(89) of Finance Act, 1994 as amended, Real estate consultant means a person who renders in any manner, either directly or indirectly, advice consultancy or technical assistants, in relation to evaluation, conception, design, development, construction, implementation, supervision, maintenance, marketing, acquisition or management of real estate.

CA PURUSHOTHAMAN J 1/30/17 24 Taxability of the Service after 1/07/2012 With effect from 01.07.2012 taxability/non-taxability of Real estate agents service are as follows: All the services other than that specified in the negative list or included in the mega exemption Notification No. 25/2012 ST, dated 20/06/2012 are taxable.

CA PURUSHOTHAMAN J 1/30/17 25 The list of services under section 66D and entries the Mega-exemption Notification No. 25/1012, dated 20-6-2012 do not provide any specific exemption real estate agents service. Hence it is a taxable service under the Finance Act, 1994 as amended by the Finance Act, 2012 with effect from 1/07/2012 also.

CA PURUSHOTHAMAN J 1/30/17 26 CONSTRUCTION SERVICES Construction of complex service Section 66(E)(b) Works Contract Service Section 66(E)(i)

CA PURUSHOTHAMAN J 1/30/17 27 From 01/07/2012 the following services are covered 1. Construction of Complex, Building etc. under section 66(E)(b) 2. Works contract Service Section 66(E)(i)

VARIOUS PROVISIONS AND RULES Section 66D: Negative list 66E: Declared services Service Tax Rules, 1994 Cenvat Credit Rules, 2004 Service Tax ( Determination of Value ) Rules, 2006 Place of Provision of service Rules,2012 Point of Taxation Rules, 2011 Notification No. 25/2012 dated20/06/2012 CA Mega PURUSHOTHAMAN Exemption J Notification 1/30/17 28

CA PURUSHOTHAMAN J 1/30/17 29 Construction of complex Nature of activities covered: construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.

CA PURUSHOTHAMAN J 1/30/17 30 the expression "construction" includes additions, alterations, replacements or remodeling of any existing civil structure;

(C) licensed surveyor of the respective local body of CA PURUSHOTHAMAN J 1/30/17 31 "competent authority" means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non requirementof such certificate from such authority, from any of the following, : (A) architect registered with the Council of Architecture constituted under the Architects Act, 1972; or (B) chartered engineer registered with the Institution of Engineers (India); or

There are various types of arrangements under which builders or developers sell buildings, flats, office space etc. to buyers where entire consideration is received before completion certificate is issued including tripartite model redevelopment model investment model reconversion model BOT projects and joint development agreement model. CA PURUSHOTHAMAN J 1/30/17 32

CA PURUSHOTHAMAN J 1/30/17 33 Abatement: Sl No 12 of Notification No. 26/2012

CA PURUSHOTHAMAN J 1/30/17 34 Sl N0 Description of taxable service % Taxabl e % Abat e ment 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. (i) (ii) CENVAT credit on inputs not allowed The value of land is included in the amount charged from the service receiver (i) for residential unit having carpet area upto 2000 square feet or where the amount charged is less than rupees one crore; (ii) for other than the (i) above. 25% 30% 75% 70%

CA PURUSHOTHAMAN J 1/30/17 35 WORKS CONTRACT SERVICE Section 66(E) (h) (h) service portion in the execution of a works contract;

What is works contract Supreme Court -- Sentinel Rolling Shutters and Engineering Co Vs. Commissioner of Sales Tax (1979) 42 STC 409 (S.C) - has identified 3 types of contract in which both material and labour is involved. The Contract may be for work to be done for remuneration and also for supply of materials used in the execution of the works for a composite price. It may be contract for works in which the use of material is necessary or incidental to the execution of work. It may be the contract for supply of goods where some CA PURUSHOTHAMAN work is to be done J as incidental 1/30/17 to the sale. 36

CA PURUSHOTHAMAN J 1/30/17 37 The supreme court has opined that the type of contract mentioned in a is contract for works for sale of goods and labour; the second type of contract is clearly a contract of labour not involving sale of goods ; and the third type is contract for sale of goods

Works contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, CA PURUSHOTHAMAN J 1/30/17 38

CA PURUSHOTHAMAN J 1/30/17 39 Every works contract involves an element of sale of goods and provision of service. Pure Labour Contracts do not fall in the definition of works contract.

CA PURUSHOTHAMAN J 1/30/17 40 VALUATION OF SERVICE PORTION IN THE EXECUTION OF WORKS CONTRACT Service Tax (Determination of Value) Rules, 2006 RULE 2A

CA PURUSHOTHAMAN J 1/30/17 41 specifies two methods of computation of the value of service portion in the execution of works contract.

CA PURUSHOTHAMAN J 1/30/17 42 FIRST METHOD

CA PURUSHOTHAMAN J 1/30/17 43 First ascertain the gross amount charged for works contract. From the gross amount reduce the value of the property in the goods transferred in the execution of works contract. This will give the value of service portion in the execution of works contract.

the value of works contract service shall include the following: (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect s fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel used in the execution of the works contract; (vi) cost of establishment of the contractor relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the service provider relatable to supply of labour and services; CA PURUSHOTHAMAN J 1/30/17 44

CA PURUSHOTHAMAN J 1/30/17 45 Exclude VAT/sales tax if any paid Where VAT/ sales tax has been paid on the actual value of property in goods transferred in the execution of the works contract, such value adopted for the purposes of payment of VAT/ sales tax, shall be taken as the value of property in goods transferred in the execution of the said works Contract.

CA PURUSHOTHAMAN J 1/30/17 46 Section 5 of TN VAT ACT Rule 8(d) of TN VAT Rules

CA PURUSHOTHAMAN J 1/30/17 47 SECOND METHOD

CA PURUSHOTHAMAN J 1/30/17 48 where the value cannot be determined as above. the assessee might have opted for compounding scheme under local VAT law, where the value of the property in goods transferred in the execution of works contract is not independently determined. Under such circumstances the Rule provide for the following method:

CA PURUSHOTHAMAN J 1/30/17 49 For the purpose of this method the works contract is divided into Two categories and each of the category is discussed below:

CA PURUSHOTHAMAN J 1/30/17 50 Where works contract is for Value of the service portion shall be (A.) execution of original works (B) in case of works contract, not covered under sub-clause (A), including works contract entered into for,- forty percent of the total amount charged for the works contract Seventy percent of the total amount charged for the works contract

CA PURUSHOTHAMAN J 1/30/17 51 original works has been defined to mean all new constructions; all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

CA PURUSHOTHAMAN J 1/30/17 52 total amount referred to above would be the sum total of gross amount and the value of all goods and services supplied free of cost for use in or in relation to the execution of works contract, under the same contract or any other contract

CA PURUSHOTHAMAN J 1/30/17 53 Determination of the value of goods or services supplied free of cost If the value of goods and services supplied free of cost for use is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have close resemblance to goods made available.

CA PURUSHOTHAMAN J 1/30/17 54 Under both the methods No Cenvat credit of duties or cess paid on any inputs, Input credit on capital goods and services are not specifically denied

SERVICE TAX RULES AND CONSTRUCTION CONTRACTS CA PURUSHOTHAMAN J 1/30/17 55

CA PURUSHOTHAMAN which requires J the service 1/30/17 receiver to make 56 any 4A.Taxable service to be provided or credit to be distributed on invoice, bill or challan Third Provisio to subrule 1. Provided also that in case of continuous supply of service, every person providing such taxable service shall issue an invoice, within [thirty days] of the date when each event specified in the contract,

CA PURUSHOTHAMAN J 1/30/17 57 continuous supply of service any service which is provided continuously or on recurrent basis, under a contract, for a period exceeding three months with the obligation for payment periodically the Central Government, can prescribe provision of a particular service to be a continuous supply of service

CENVAT CREDIT RULES AND CONSTRUCTION CONTRACTS CA PURUSHOTHAMAN J 1/30/17 58

CA PURUSHOTHAMAN (B) any goods Jused for 1/30/17 59 "input" means (i) All goods used in the factory by thenmanufactuirer of Final Products --------- (iv) all goods used for providing any output service; -------------------------------------- but excludes-..

CA PURUSHOTHAMAN J 1/30/17 60 A = Factory Owner Supplies Steel and Cement B = Main Contractor C = subcontractor

"input service" means any service, (i) used by a provider of output service for providing an output service;.. and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, CA PURUSHOTHAMAN J 1/30/17 61

CA PURUSHOTHAMAN J 1/30/17 62 (A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for - (a) construction or execution of works contract of a building or a civil thereof; or structure or a part (b) laying of foundatio or making of structures for support of capital goods,

CA PURUSHOTHAMAN J 1/30/17 63 A : Factory Owner B C : Main Contractor : Subcontractor

EXEMPTIONS CA PURUSHOTHAMAN J 1/30/17 64

CA PURUSHOTHAMAN J 1/30/17 65 EXEMPTIONS Sl No 12, 13, 14, 29 and 39 of exemption Notification

CA PURUSHOTHAMAN J 1/30/17 66 12. Services provided to the Government or local authority or a governmental authority by way of erection, construction, commissioning, installation, completion, fitting, maintenance, repair, alteration renovation of 13. Erection, construction, commissioning, installation, completion, fitting out, maintenance, repair, alteration, renovation of

EXEMPTIONS 12. Services provided to the Government or local authority or a governmental authority by way of erection, construction, commissioning, installation, completion, fitting, maintenance, repair, alteration renovation of (a) a civil structure - for a non-industrial or non-commercial use; (b) a historical monument, archaeological site or remains of national importance, archaeological excavation or antiquity CA (c) PURUSHOTHAMAN a structure J meant predominantly 1/30/17 for 67 use as

CA PURUSHOTHAMAN J 1/30/17 68 The omitted clause a,c and f- If the contract entered into before1.03.2015 shall continue to be exempt till 31.03.2020 In respect of taxes paid from 01.04.2015 to 28.02.2016 to be claimed by way of refund

EXEMPTIONS 13. Erection, construction, commissioning, installation, completion, fitting out, maintenance, repair, alteration, renovation of,- (a) road, bridge, tunnel, or terminal for road transportation for use by general public; (b) Civil Structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana (c) building owned by an entity registered under CA PURUSHOTHAMAN section 12 AA Jof the Income 1/30/17 tax Act, 1961(43 69 of

14. Erection or construction, commissioning or installation of original works pertaining to,- (a) airport, port or railways excluding monorail and metro (w.e.f.01.03.2016) (b) single residential unit otherwise as a part of a residential complex; (c) low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by a competent authority (d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or CA PURUSHOTHAMAN J 1/30/17 70

CA PURUSHOTHAMAN J 1/30/17 71 The exemption in respect of airport and port in respect of the contract entered into before1.03.2015 shall continue to be exempt till 31.03.2020 Inrespect of taxes paid from 01.04.2015 to 28.02.2016 to be claimed by way of refund

CA PURUSHOTHAMAN J 1/30/17 72 ORIGINAL WORK MEANS Original work means has the meaning assigned to it in Rule 2A of the Service Tax (Determination of Value) Rules, 2006 original works has been defined to mean all new constructions; all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; erection, commissioning or installation of plant, machinery or equipment or structures, whether pre- fabricated or otherwise;

CA PURUSHOTHAMAN J 1/30/17 73 29. Services by the following persons in respective capacities (h) subcontractor providing services by way of works contract to another contractor providing works contract services which are exempt

Place of Provision of service Rules,2012 and construction contracts CA PURUSHOTHAMAN J 1/30/17 74

CA PURUSHOTHAMAN Certain specified J services: 1/30/17 ( Rule No. 9) 75 Rule Numbers 3 to 12 divides services into 10 types for the purpose of determining the place of provision of service. General Rule (Rule No 3) Performance based services.(rule No. 4) Services relating to immovable property.(rule No5) Services relating to events (Rule No.6) Services provided at more than one location(rule No. 7) services where provider and recipient are located in taxable territory(rule No.8)

CA PURUSHOTHAMAN J 1/30/17 76 Rule 5- Place of provision of services relating to immovable property.- The place of provision of services provided directly in relation to an immovable property, including services provided in this regard by experts and estate agents, provision of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work,

Point of Taxation Rules, 2011 and Construction contracts CA PURUSHOTHAMAN J 1/30/17 77

CA PURUSHOTHAMAN J 1/30/17 78 (c) continuous supply of service any service which is provided continuously or on recurrent basis, under a contract, for a period exceeding three months with the obligation for payment periodically the Central Government, can prescribe provision of a particular service to be a continuous supply of service

CA PURUSHOTHAMAN J 1/30/17 79 THE NOTIFIED SERVICES:- Notification No.28/2011-ST, dated 1-4-2011, as amended by Notification No.38/2012 dated 20/06/2012 the following taxable services covered by section 65(105) of the Act were notified as continuous supply of services n Telecommunication service Service portion in the execution of works contract Commercial or industrial construction Construction of complex

Rule 3 Determination of point of taxation The time when the invoice for the service is issued shall be the point of taxation. If the invoice is not issued within the prescribed time (Rule 4A of the service tax Rules), the point of taxation shall be the date of completion of provision of the service Service provider is required to issue the invoice within 30 days from the date of CA PURUSHOTHAMAN J 1/30/17 80

CA PURUSHOTHAMAN J 1/30/17 81 Proviso to Rule 3 In case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service;

CA PURUSHOTHAMAN J 1/30/17 82 Where taxable service is provided continuously for successive period of time and as per the contract the value of such taxable service is determined / payable periodically then the invoice / bill / challan shall be issued within 30 days from the last date of the said each period.

CA PURUSHOTHAMAN J 1/30/17 83 Reverse Charge and Joint Charge Mechanism and construction contracts NOTIFICATION No. 30/2012

CA PURUSHOTHAMAN J 1/30/17 84 Sl No Description of service %of Service tax Payable by the Service provider %of Service tax Payable by the Service receiver 10 Service portion in Works contract provided by individual, Hindu Undivided Family partnership firm, including association of persons located in the taxable territory to a business entity registered as body corporate located in the taxable territory where both service provider and service recipient is the persons liable to pay tax, the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service. 50% 50%

the description and value of taxable service CA PURUSHOTHAMAN J 1/30/17 85 Issue of Invoice in Joint charged mechanism: The service provider shall issue an invoice complying with Rule 4A of the Service Tax Rules 1994. The invoice shall indicate the name, address and the registration number of the service provider; The name and address of the person receiving taxable service;

CA PURUSHOTHAMAN J 1/30/17 86 Value of work done 100000 Taxable Value 40000 Total Service Service provider receiver Service tax payable 4800 2400 2400 Education cess 172 86 86 2486 1002486

ISSUES CA PURUSHOTHAMAN J 1/30/17 87

CA PURUSHOTHAMAN J 1/30/17 88 PREFERENTIAL LOCATION CHARGES W.E.F -01.07.2010

CA PURUSHOTHAMAN J 1/30/17 89 This facility includes Prime / preferential location charges for allotting a flat / commercial space according to the choice of the buyer i.e. Direction sea facing, park facing, corner flat; Floor first floor, top floor, Vastu having the bed room in a particular direction; Number lucky numbers);

CA PURUSHOTHAMAN J 1/30/17 90 Preferential location and development of complex Service 65(105)(zzzzu)-w.e.f. 01.07.2010

CA PURUSHOTHAMAN J 1/30/17 91 No separate consideration If consideration in respect of these charges is is not charged separately. exemption of 60%/70% of the gross amount charged will be available Consideration is charged seperately The whole amount charged on account of PLC is taxable at the full rate Without any abatement There is no transfer of material Abatement in Service Tax is granted only where there is transfer of materials.

ISSUE OF CANCELLATION / SURRENDER / TRANSFER / BUY-BACK OF FLAT BEFORE ITS COMPLETION CA PURUSHOTHAMAN J 1/30/17 92

CA PURUSHOTHAMAN J 1/30/17 93 The builder refunds either the entire amount along with Service Tax or he deducts stipulated amount in the name of Cancellation Charges and refunds the remaining amount along with Service Tax.

CA PURUSHOTHAMAN J 1/30/17 94 Rule 6(3) of Service Tax Rules, Where an assessee has issued an invoice or received any payment, against a service to be provided which is not so provided by him either wholly or partially for any reason, or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in a contract, the assessee may take the credit of such excess service tax paid by him, if the assessee:-

CA PURUSHOTHAMAN J 1/30/17 95 TAXABILITY OF CANCELLATION CHARGES Cancellation is an activity Further Cancellation Charges do not figure either in Negative List of Services or in exemption Notification No25/2012 dated 20.06.2012 Cancellation Charges fall within the ambit of Section 66E (e) of Finance Act, 1994, Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act, these charges will attract Service Tax at the full rate at full value.

TRANSFER OF FLAT BY A BUYER BEFORE COMPLETION CA PURUSHOTHAMAN J 1/30/17 96

The Buyer has entered into a contract with the Builder Payments are to be made in 12 installments The buyer transfers his interest in the flat to another person after paying 6 installments Such transfer does not fall in this declared service entry as the said person is not providing any construction service. In any case transfer of such an interest would be transfer of a benefit to arise out of land As per the definition of immovable property given in the General Clauses Act, 1897 this right is part of immovable property. CA PURUSHOTHAMAN J 1/30/17 97

BUY BACK OF FLAT BEFORE COMPLETION CA PURUSHOTHAMAN J 1/30/17 98

CA PURUSHOTHAMAN J 1/30/17 99 The builder can make adjustment of excess service tax paid by it in terms of Rule 6(3) of Service Tax Rules, 1994 because it has not provided any taxable service After buy-back the above Flat, the builder may sell the same to another person. Here, there can be following two possibilities:

ISSUE OF ADMINISTRATIVE CHARGES / TRANSFER CHARGES / RESTORATION CHARGES CA PURUSHOTHAMAN J 1/30/17 100

CA PURUSHOTHAMAN J 1/30/17 101 The builder in his books of account, deletes the name of the first allottee and record the name of the last transferee. For providing the above services the builder charges some amount under the caption of Administrative charges / Transfer Charges. Restoration charges are levied as penalty on the allottee in the case of restoring allotment which got cancelled due to default in his payment schedule.

CA PURUSHOTHAMAN J 1/30/17 102 This is an activity carried out by a person for another for consideration falls within the ambit of term Service. Further Cancellation Charges do not figure either in Negative List of Services or in exemption Notification No25/2012 dated 20.06.2012

COMPLETION AND FINISHING SERVICES CA PURUSHOTHAMAN J 1/30/17 103

in the context of works contracts relating to an immovable property, Service Tax is required to be paid either on 40% or 70% of the total amount charged for the works contract. CA PURUSHOTHAMAN J 1/30/17 104

CA PURUSHOTHAMAN J 1/30/17 105 Completion and finishing services By the builder at the time of original construction By a subcontractor to builder at the time of original construction By service provider on an existing building.

CA PURUSHOTHAMAN all types of additions J and 1/30/17 alterations 106 to When completion and finishing services are provided these become part and parcel of new construction which, in turn, fall within the definition of term original works. Term original works has been defined to mean all new constructions;

CA PURUSHOTHAMAN J 1/30/17 107 If completion and finishing services are provided in respect of an existing building, then Service Tax shall be payable at the rate of seventy per cent of the total amount charged for the works contract. On the contrary, if completion and finishing services are provided in respect of a new building, then uniformity of opinion is not there among subject professionals.

CA PURUSHOTHAMAN J 1/30/17 108 Issue of allotment of flats etc., to the land owner

CA PURUSHOTHAMAN J 1/30/17 109 Here two important transactions are identifiable: (a) sale of land by the landowner which is not a taxable service; and (b) construction service provided by the builder The builder receives consideration for the construction service provided by him, from two categories of service receivers: a) from land owner: in the form of land / development rights; and (b) from other buyers: normally in cash.

Value: In the case of flats given to first category of service receiver will be the value of the land when the same is transferred and the point of taxation will also be determined accordingly. Rule 3 (a) of valuation Rules Subject to Sec. 67 The value of such taxable services shall be equivalent to the gross amount charged by the service provider to provide similar service to any CA PURUSHOTHAMAN other person in J the ordinary 1/30/17 course of trade 110 and

CA PURUSHOTHAMAN J 1/30/17 111 Section 67 (ii) Where the provision of service is for consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charge, is equivalant to the consideration

CA PURUSHOTHAMAN J 1/30/17 112 Point of taxation at the time of entering into the agreement? At the time of registration undivided share? At the time of handing over the flat?

ISSUE OF SERVICE TAX LEVIABILITY IN RESPECT OF REDEVELOPMENT OF EXISTING BUILDING CA PURUSHOTHAMAN J 1/30/17 113

Position from 01.07.2012 onwards Explanation II to Section 66E(b) of Finance Act, 1994, the term Construction includes additions, alterations, replacements or remodeling of any existing civil structure. The definition of term Residential Complex has also been changed with effect from 01.07.2012 Residential Complex means any complex CA PURUSHOTHAMAN J 1/30/17 114

Reconstruction Services provided by the builder / developer who is engaged directly by the concerned building society [which consists of several members and each member is entitled to his share by way of an apartments] are taxable with effect from 01.07.2012 because, as explained above, the definition of term Residential Complex has been changed. The specific exclusion for the personal use of residence is no longer available with effect from 01.07.2012. CA PURUSHOTHAMAN J 1/30/17 115

BOT PROJECTS Essentials: To build a required infrastructural project To operate the so built infractural project To ultimately transfer the built infractural project to the Govt. at the end of the agreed period. No. of Parties: CA PURUSHOTHAMAN J 1/30/17 116

CA PURUSHOTHAMAN J 1/30/17 117 No. of Contracts: Government and concessionaire Concessionaire and the contractor Concessionaire and actual users

The construction activity carried by the CA PURUSHOTHAMAN J 1/30/17 118 Service Tax Implications: Government and concessionaire Concessionaire pays a lump sum or annual charges to the Govt. This is generally a right to the land and hence liable for service tax as renting of immovable property to business entity by government

CA PURUSHOTHAMAN J 1/30/17 119 Concessionaire and the contractor Service tax is payable on construction service. However if the construction service is in respect of construction/repair of a road /bridge/ tunnel/terminal for use by general public the same shall be exempt by entry No. 13(a) of Notification No. 25/2012 dated 20/06/2012 Concessionaire and actual users Taxable subject to exemption notification

CA PURUSHOTHAMAN J 1/30/17 120 HOTEL, INN, CLUB AND GUEST HOUSE SERVICE

CA PURUSHOTHAMAN J 1/30/17 121 Levy of tax w.e.f. 1/05/2011 Notification No. Notification No. 29/2011-ST, dated 25.04.2011. Taxability of service after 1/07/2012 All the services other than that specification in the negative list or included in the mega exemption Notification No. 25/2012-ST, dated 20/06/2012 are taxable. The list of services under section 66D does not provide any specification exemption to provision of short time accommodation service. Hence it is a taxable service under the Finance Act, 1994 as amended by the Finance Act, 2012 with effect from 1/07/2012 also.

CA PURUSHOTHAMAN J 1/30/17 122 Entry No.18 of mega Exemption Notification No.25/2012-ST, dated 20/06/2012 exempted services by way of renting of a hotel, inn, guest house,club, campsite or other commercial places meant for residential or lodging purpose, having declares tariff of a unit of accommodation below Rs 1000 per day or equivalent from the a Payment of Service tax with effect from 01/07/2012.

CA PURUSHOTHAMAN J 1/30/17 123 declared tariff includes charges for all amenities provided in the unit of accommodation like furniture, air- conditioner, refrigerators etc., This notification shall come into force on the 1st day of May,2011.

CA PURUSHOTHAMAN J 1/30/17 124 Queries What is the relevance of declared tariff? Is the tax required to be paid on declare tariff or actual amount charged? Clarification Declared tariff includes charges for all amenities provides in the unit of accommodation like furniture, airconditioner, refrigerators etc., but does not include any discount offered on the published charged for such unit. The relevance of declared tariff is in determining the liability to pay services tax as far as short term accommodation is concerned.however, the actual tax will be liable to paid on the amount charged i.e. declared tariff minus any discount offered. Thus if the declared tariff is Rs.1100/-, but actual room rent charged is Rs.800/-. Tax will be required to paid @ 5% on Rs.800/-.

CA PURUSHOTHAMAN J 1/30/17 125 Queries Is it possible to levy separate tariff for the same accommodation in respect of corporate/privileged customers and other normal customers? Is the declared tariff supposed to include cost of meals or beverages? Clarification Ti is possible to levy separate accommodation in respect of a class of customers which can be recognized as a distinct class in an intelligible criterion. However, it is not applicable for a single or few corporate entries. Where the declared tariff includes the cost of food or beverages, Services Tax will be charged on the total value of declares tariff. But where the bill is separately raised for food or beverages, and the amount is charged in the bill, such amount is not considered as part of declared tariff.

CA PURUSHOTHAMAN J 1/30/17 126 Queries What is the position relating to offseason prices? Will they be considered as declared tariff? Is the luxury tax imposed by stated required to be included for the purpose of determining either the declared tariff or actual room rent? Clarification When the declared tariff is revised as per the tourist season, the liability to pay Service Tax be only on the declared tariff for the accommodation where the published/ printed tariff is above Rupees 1000/-. However, the revision in tariff should be made uniformly application to all customers and declared where such change take place. For the purpose of service tax luxury tax has to be excluded from the taxable value.

THANK YOU CA PURUSHOTHAMAN J 1/30/17 127