Transcript SERVICE TAX SEMINAR

Services provided by a Developer/Contractors
(1) Services by way of Construction and Sale of flats/units in
a complex.
(2) Services by way of Works Contracts
(3) Services by way of Renting of Immovable Property
(4) Services by way of maintenance of a Complex/Building
Entries of Declared List governing
Construction/Builders Services (Section 66E)
(a) Renting of immovable property;
(b) 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 completioncertificate by the competent authority;
(h) service portion in the execution of a works contract;
Renting of Immovable Property Service:
Negative List of services (Section 66D):
(m) services by way of renting of residential dwelling for use as
residence;
EXEMPTIONS PROVIDED TO
BUILDER/CONTRACTOR UNDER
NOTIFICATION NO. 25/2012 DATED
20.06.2012
Construction Service: Various Exemptions
Services provided to Government/
Local Authority/ Governmental
Authority (Entry No 12)
Services provided to any Person
(Entry No 13)
Services by way of Construction,
Completion, Fitting out, repair,
maintenance,
renovation,
alteration in respect of:
Services by way of Construction,
Completion, Fitting out, repair,
maintenance, renovation, alteration
in respect of
 Civil Structure for Non-Commercial
Purpose.
 Historical Monument etc.
 Structure for use as clinical,
educational, or cultural
establishment
 Canal, Dam Etc.
 Pipeline, Conduit Etc.
 Residential Complex for self of
employees of above
Road, Bridge, Tunnel etc.
Civil Structure under Jawaharlal Nehru
National Urban Mission or Rajiv Awaas
Yojana
A building owned by entity registered
under Section 12AA of Income Tax Act,
1961
A pollution Control plant
Structure for burial, funeral etc.
Services provided to any person by way of construction, erection,
commissioning or installation pertaining to (Entry No 14):





Airport, port & railways (including monorail & metro)
Single residential unit otherwise as a part of residential complex
Low-cost houses up to a carpet area of 60 sq metres.
Post-harvest storage infrastructure for agriculture produce
Mechanised food grain handling system, machinery, or equipments for
units processing agricultural produce.
Services of Works Contract provided by a Sub-Contractor to
another contractor providing Works Contract services which are
Exempt from Service Tax [Entry No 29 (h)]
Exemptions available to Renting of Immovable Property
Service vide Notification No 25/2012 dated 20.06.2012
 Renting of precincts of a religious place meant for general
public (Entry No 5).
 Renting of a premises for the conduct of Religious Ceremony
(Entry No 5).
 Renting of Immovable Property to an Educational Institution
providing education which is exempted from Service Tax (Entry
No 9).
 Renting of a hotel, inn, guest house, club, campsite or other
commercial places meant for residential or lodging purposes,
having declared tariff of a room below rupees one thousand
per day or equivalent (Entry No 18).
Charges collected by Builders and rate of Service Tax
applicable on said charges
S.No
Charges
1.
Basic Charges
2.
Preferential Location
Charges
3.
Club Charges
Towards
cost
of
construction
For membership of club
Provision of Food/other
services
4.
Car Parking- open &
covered
Rate of Service tax
3.09%/3.708%
12.36%
3.09%/3.708%
12.36%
NIL/12.36%
3.09%/3.708%
S.No
Charges
Rate of Service tax
5.
EDC/IDC
On Actual Payment Basis
 On Adhoc basis without
disclosing actual charges
 Actual Charges plus own
service charge
6.
External Electrification charges/
Electrical Installation Charges
7.
Administrative
registration
8.
Interest Free Maintenance
Security (IFMS)
Refundable
Charges
Non Refundable
for
Not Taxable
Full amount is Taxable
Only own service charges are
taxable
3.09%/3.708%/4.944%
12.36%
Non Taxable
Taxable @12.36%
S.No
Charges
Rate of Service tax
9.
Firefighting Equipment
Installation charges
3.09%/3.708%/4.944%
10.
Power Backup Charges
(Towards cost of installation
of DG Sets and substations)
3.09%/3.708%4.944%
11.
Administrative/Transfer
Charges (In case of sale of
flat by original buyer, builder
charge said charged for
modifying its records i.e.
entering the name of new
buyer in its records)
12.36%
Maintenance Services provided by a
Developer/Builder
Apart from construction Services developers/Builders also provide the
services of maintenance of buildings/complexes constructed by it. For
providing such services developer charges maintenance charges
form the occupants of flats/offices. The nature of charges collected
by builders and Rate of Tax applicable on the same has been
summarised as under:
Charges
Description
Maintenance
Mai MaintenanceTowards
Charges maintenance
Charges
building/complex
Taxability
of
12.36%
Electricity Charges
For supplying electricity in
flats/shops
(Charged
on
actual basis)
Non
Taxable
Common Area
Electricity Charges
Towards cost of electricity
consumed in Common Area
12.36%
Impact of Negative List Regime
 Construction for NGO/ Charitable Institutions made taxable
 Renting for NGO/ Charitable Institutions made taxable
 Services in relation to development of plots provided by builders
made taxable
 Changes in the definition of Residential Complex
 Scope of entry no. 12 of Notification No. 25/2012 dated
20.06.2012
CASE STUDIES
Case Study-1
ABC ltd has entered into a contract for construction of road
meant for general public. ABC ltd sub contracts the aforesaid
work to three contractors namely:
 DEF Ltd , the work of site formation for construction of road
 XYZ Ltd , laying the surface of road
 GHI Ltd , other physical activities in respect of such roads.
What will be the Service tax implication on the aforesaid
transactions?
 Services provided by way of construction of road meant for use
by general public is Exempted from payment of Service Tax.
Thus, any service which is used in the construction of said road
shall be exempted from Service Tax as per Entry 13(a) of N/N
25/2012 dated 20.06.2012. Accordingly, all the aforesaid services
in respect of roads are not exigible to Service Tax.
 Further, as far as laying of surface is concerned same is also
covered under definition of Works Contract as engrafted under
Section 65B (54) of Finance Act, 1994. Since, main Contractor
enjoys exemption, the sub contractor also continue to enjoy the
exemption in respect of Works Contract Services - Entry 29(h) of
N/N 25/2012 dated 20.06.2012
Case Study-2
M/s ABC Pvt Ltd is engaged in construction of hospitals and
educational institutes. Whether M/s ABC Pvt Ltd. is required to pay
Service Tax on the same?
If M/s ABC Ltd is constructing such structures for the government, a
local authority or a governmental authority, in that case M/s ABC is
not required to pay Service Tax on the same as per Entry 12 (a) of
Notification No 25/2012.
However, if such structure are built for persons other than government,
a local authority, governmental authority, M/s ABC Ltd is required to
pay Service Tax on the same.
Case Study-3
M/s XYZ Pvt Ltd is engaged in maintenance & Repair of Ports.
Whether M/s ABC Pvt Ltd. is liable to pay Service Tax on the same?
Yes, M/s XYZ Pvt Ltd is required to pay Service Tax on the same as vide
Entry No 14 of Notification No 25/2012 dated 20.06.2012, exemption has
been provided only to services in respect of Construction of Ports.
Case Study-4
M/s XYZ Pvt Ltd is Renting out its Immovable Property to an NGO.
Whether M/s XYZ Pvt Ltd is required to pay Service Tax on the
same?
Yes, M/s XYZ Pvt Ltd is required to pay Service Tax on the same as
exemption has not been granted to such activity anywhere under
Finance Act, 1994.
Case Study-5
Mr. A has rented a house to Mr. B, consisting of two floors. one floor
of which is to be used as residence and the other for the purpose
of running of a office? What shall be the Service Tax implications on
the same?
Such renting for two different purposes is not naturally bundled in the
ordinary course of business. Therefore if a single rent deed is executed it
will be treated as a service comprising entirely of such service which
attracts highest liability of Service Tax. In this case renting for use as
residence is a Negative List Service while renting for non-residence use is
chargeable to tax. Since, the latter category attracts highest liability of
Service Tax amongst the two services bundled together, the entire
bundle would be treated as renting of commercial property.
Case Study-6
Mr. A has let out a house to Mr. B for Residential purposes. Further,
along with such house Mr. A has also provided various amenities
such as furniture, refrigerator, air conditioners etc. What shall be
Service tax implications of the same?
This will be a case of Bundled Services where a number of services have
been provided in lieu of a Single Consideration. Accordingly, taxability of
the same shall be determined as per Section 66F of Finance Act, 1994. As
per said Section, if services are considered Naturally Bundled in the
ordinary Course of business, it shall be considered as the provision of said
service which provide essential character to it. In this case, Renting of
Immovable Property is the essence of aforesaid activity. Further, Renting
of property for residential purposes is not exigible to Service Tax. Thus,
said activity of Renting by Mr. A shall not be exigible to Service Tax.
VALUATION ASPECTS IN RELATION TO
CONSTRUCTION SERVICES
Valuation in respect of Works Contract Services
SERVICE TAX (DETERMINATION OF VALUE), RULES, 2006:
RULE 2A, Determination of value of service portion in the
execution of a works contract :
Clause(i): Taxable Value shall be Gross Amount Charged [excluding
VAT/Sales Tax paid / payable on transfer of property in goods
involved in execution of works contract] for the works contract
service less the value of transfer of property in goods involved in the
execution of the said works contract.
As per said Rule labour charges, amount paid to sub-contractors,
charges for planning, designing etc, cost of consumables, cost of
establishment of the contractor, and other similar expenses in relation
to supply of labour are required to be included in the Gross Amount
Charged.
(ii) In case the value cannot be determined under clause (i) above,
then taxable value shall be determined as follows:
S.No.
PURPOSE OF WORK
CONTRACT
PROPORTION OF THE TOTAL
AMOUNT ON WHICH SEVICE
TAX IS PAYABLE
1.
For execution of original works
40%
2.
works
contracts,
including
maintenance, repair, completion
and finishing services of an
immovable property
60%
3.
Maintenance
or
repair
or
reconditioning or restoration or
servicing of any goods
70%
Valuation in respect of Builders’ Services
LABOUR CONTRACTS for Construction of a complex, building, civil
structure or a part thereof
Value of Service = Gross Amount Charged
(Rate of Service Tax : 12.36%)
 Contract for Construction of complex or building intended for sale to
a buyer, wherein consideration is received from buyer partly or wholly
prior to Issuance of Completion Certificate by a Competent Authority
Value of Service = Gross Amount Charged * 25%/30%
(Rate of Service Tax : 3.09% / 3.708%)
(N/N.- 26/2012 dated 20.06.2012 s amended vide N/N-2/2013 dated
01.03.2013 and N/N-9/2013 dated 08.05.2013)
Continued…….
Valuation in respect of Builders’ Services
Percentage and Conditions for abatements
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,
W.e.f 01.3.2013
Abatement of 75 %
(i) For residential unit having carpet area upto 2000 square feet and where
the amount charged is less than rupees one crore
Abatement of 70%
(ii) For other than (i) above
From 01.07.2012 to 28.02.2013
Abatement of 75 %
CONDITIONS: 1. Value of Land included in Gross Amount Charged
2. CENVAT Credit in respect of INPUTS NOT AVAILED
Case Study-7
Now the moot question arises whether a person providing
Works Contract Services is mandatorily required to discharge
its Service Tax Liability as per aforesaid Rule 2A or can avail
any other method of valuation?
Apart from adopting methods prescribed by Rule 2A, the person
providing Works Contac service provider has an option to
valued its service as per the provisions contained in Section 67
read with Rule 5 of Service Tax (Determination of Value) Rules,
2006
Case Study- 8
A builder engages three sub-contracts in order to execute the
construction work (including material) of a new building. The said
Sub-Contractors have been awarded the work as follows:
Civil work has been given to Mr. A
Electrification work has been given to Mr. B
Plumbing & Fire fighting work has been given to Mr. C
Whether all aforesaid contracts fall under the ambit of term
original works as defined under Rule 2A of Service Tax
(Determination of Value) Rules, 2006?
The scope of term “Construction” can not be restricted to merely
putting up walls, roof and floor etc. In different words, completion
and finishing services [such as glazing, plastering, floor and wall
tiling, installation of electrical fittings, plumbing works etc.] also fall
within the ambit of term “Construction” which itself gets covered
under the definition of term “Original Works”.
Therefore, all above contracts are eligible to discharge service tax
liability on the 40% of the total amount charged for the works
contract.
Case Study- 9
What are the options available to a Builder for discharging
its Service Tax Liability?
In addition to discharging Service Tax liability after availing
abatement as per Notification No 26/2012 dated 20.06.2012, the
builder can also discharge its Service Tax Liability as per Rule 2A
of Service Tax (Determination of Value), Rules, 2006 provided it
entered into a separate agreement with the allottee for the sale
of land. The same has been explained with the help of following
illustration.
A builder ABC Ltd. construct and sold the building. Costs incurred
by him for constructing the building & other relevant details are
as under:
S.No
Particulars
1.
Total Gross Amount Charged
2.
3.
4.
5.
Cost of Land
Value of Material used
Cost of Labour Services
CENVAT Credit on Input
6.
CENVAT Credit on Inputs services
7.
CENVAT Credit on Capital Goods (Total
CENVAT is RS. 400. 50% of the has been
availed)
Amount(Rs.)
1,00,000
60,000
22,000
4,000
1200
412
200
PARTICULARS
Valuation Methods
Option A
Option B
Option C
Option D
Separate Land Agreement is required to be made
Relevant Notification/provision
No. 26/2012
Rule 2A (i)
Rule 2A (ii)
Rs. 1,00,000
Rs. 1,00,000
Rs. 1,00,000
(Rs. 75,000)
NIL
NIL
NIL
Less :- Cost of Land
NIL
(Rs. 60,000)
(Rs. 60,000)
(Rs. 60,000)
Less :- Value of Material
NIL
(Rs. 22,000)
NIL
NIL
Rs. 25,000
Rs. 18,000
Rs. 40,000
Rs.40,000
Rs. 3,090
Rs. 2,225
Rs. 1978
(@4.944%)
Rs. 4,944
NIL
NIL
1200
Gross Amount Charged
Less : - Exemption of 75%
Taxable Value
Service Tax thereon (12.36%)
Less :- CENVAT Credit on Input
NIL
Section 67
Rs. 1,00,000
Less :- CENVAT Credit on Input
Services
412
412
412
412
Less :- CENVAT Credit on Capital
Goods
200
200
200
200
Rs. 1,366
Rs. 3,132
Service Tax to be paid in cash
Rs. 2,478
Rs. 1,613
Value for Reversal under Rule 6 (3) of
CENVAT Credit Rules, 2004
Case Study-10
For Instance:
Value of flats sold by M/s ABC Ltd = Rs 1,00,00,000/(Taxable Service)
Service Tax discharged = As per Rule 2A(ii) of Service Tax
(determination of Value) Rules, 2006, i.e. on 40% of aforesaid
value.
Gross Amount Charged for construction of Road = Rs 1,00,00,000
(Exempted Service Entry No 13 of Notification No 25/2012 dated
20.06.2012).
Further, ABC Ltd has availed CENVAT Credit of Rs 40,00,000 in
respect of aforesaid services.
What will be the amount which ABC Pvt Ltd is liable to pay
as per Rule 6 (3) of CENVAT Credit Rules, 2004?
Amount required to be paid as per Rule 6 (3) (i) of CENVAT
Credit Rules, 2004 = 6% of Exempted Services
= 6% of Rs 1,00,00,000
=
Rs 6,00,000
Amount required to be paid as per Rule 6 (3) (ii) of CENVAT
Credit Rules, 2004 =
40,00,000 * 1,00,00,000
2,00,00,000
= Rs 20,00,000
To Conclude: The value should be taken for the purpose of
aforesaid Rule shall be Gross Amount Charged not the
amount on which Service Tax has been paid.
POINT OF TAXATION FOR CERTAIN RELEVANT TRANSACTIONS
1. Maintenance services
2. Services provided by builders/developers to land owners under
collaboration agreements
The said services are treated as Continuous Supply of Services as
per Rule 2(c) of Point of Taxation Rules, 2011.
Proviso to Rule 3 of Point of Taxation Rules, 2011 provides for
determination of point of taxation in such type of services
3. Sale of buildings (shops/offices) of land owner by builders
• Services provided by Land owner to buyers: Point of taxation
shall be determined as per proviso to Rule 3 of Point of Taxation
Rules, 2011.
• Services Provided by Builder to Landowner: Point of taxation shall
be determined as per Rule 3 of Point of Taxation Rules, 2011
Thank You you