Transcript Document

WELCOME TO THE PRESENTATION
ON
SERVICE TAX APPLICABLE TO
REAL ESTATE AND CONSTRUCTION
INDUSTRY
K. Vaitheeswaran
K.VAITHEESWARAN & CO.
ADVOCATES & TAX CONSULTANTS
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017.
Mobile: 98400-96876
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001
E-mail : [email protected]
K.Vaitheeswaran& Co.
ISSUES IN CONSTRUCTION
Service tax on advance receipts. Section
challenged and matter pending in the Madras High
Court.
Materials supplied by client.
Scope of the explanation to Notification No.1/2006.
Notification challenged and matter pending.
K.Vaitheeswaran& Co.
ISSUES IN CONSTRUCTION
Demolition and site excavation.
More than twelve dwelling units.
Independent bungalows or villas in a campus.
Liability on developers.
Board Circular dated 01.08.2006 and 23.08.2007.
Decision of the Gauhati High Court in the case of
Magus Construction.
Raheja decision referred to Larger Bench by
K.Vaitheeswaran& Co.
Supreme Court.
WORKS CONTRACT
Service tax on Commercial construction was
imposed w.e.f 10.09.2004.
Service tax on Construction of Residential
Complex was imposed w.e.f. 16.06.2005.
Completion and Finishing Services were also
covered w.e.f 16.06.2005.
Notification 1/2006 and the problem of nonavailability of Cenvat credit.
K.Vaitheeswaran& Co.
WORKS CONTRACT
Works contracts are basically contracts, which
involve both material and services and are
indivisible contract in contrast to pure contract
of supply of materials.
The 46th amendment to the Constitution permits
a tax on the transfer of property involved in the
execution of works contracts.
Daelim Industrial Co. Ltd .
K.Vaitheeswaran& Co.
WORKS CONTRACT
Department’s SLP dismissed in 2004.
Rolls Royce Indus Power India Ltd.
Geo Miller & Co. Pvt. Ltd - lays down that the
meaning given in Article 366(29A) cannot be
imported into Entry 52.
Larsen and Toubro
Ircon International Ltd.
Flex Engineering.
K.Vaitheeswaran& Co.
WORKS CONTRACT
Works Contract clearly a new service
Decisions available to state that a works contract
cannot be vivisected for the purpose of service
tax
Works contract executed prior to 01.06.2007
Applicability of residential complex and
commercial construction categories for the
period prior to 01.06.2007 ?
K.Vaitheeswaran& Co.
WORKS CONTRACT
Board Circular dated 22.05.2007 provides that if it
involves transfer of property in goods then it falls under
the category of works contract and not the specified
services such as construction etc.
Decision of the Chennai Tribunal in Diebold.
Decision of Bangalore Tribunal in Blue Star.
Decision of Chennai Tribunal in Indian Hume Pipe and
Malar Constructions.
K.Vaitheeswaran& Co.
WORKS CONTRACT
Service provided to any person by any other
person in relation to execution of works
contract.
Excludes works contract in respect of roads
airports, railways, transport terminal, bridges,
tunnels and dams.
Ports exempted.
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WORKS CONTRACT
Roads
Airports
Dams
Restoration or repair of roads whether works
contracts or maintenance of immovable
property?
K.Vaitheeswaran& Co.
WORKS CONTRACT
Levy requires 2 conditions:
– There must be transfer of property in goods involved in
the execution of works contract and must be leviable to tax
as sale of goods;
– the contract must be for the purpose of carrying out:
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Erection, commissioning or installation of plant, machinery,
equipment or structure;
Construction of a new building or a civil structure or a part thereof
or pipeline primarily for the purpose of commerce or industry;
Construction of a new residential complex or a part thereof;
Completion and finishing services, repair, alteration, renovation or
restoration services;
Turnkey projects including engineering, procurement and
construction or commissioning projects
K.Vaitheeswaran& Co.
COMMERCE OR INDUSTRY ?
A 20 storey office complex and 200 sq.ft. medical
shop are both commercial ventures.
A number of small and medium unregistered and
unorganised players are there in the market.
K.Vaitheeswaran& Co.
COMMERCE OR INDUSTRY - ISSUES
Construction of hotels.
Construction of hospitals, diagnostic centres.
Construction of clubs, recreation centres.
Construction of temples.
Construction of Kalyana Mandapam.
Construction of Office building for Chambers of
Commerce and Industry.
Construction of Schools, Colleges (Government,
Private)
Construction of buildings for ICAI.
K.Vaitheeswaran& Co.
WORKS CONTRACT – ONGOING
PROJECTS
Is the new category applicable for pending projects
where some taxes have already been paid ?
Is the new category applicable when taxes have not
been paid under the old categories ?
Answer lies in the scope of contract
Board Circular dated 04.01.2008 states that the new
category will not apply to pending contracts.
Validity of circular ?
SC decision in Indian Dairy
K.Vaitheeswaran& Co.
WORKS CONTRACT –
Computation Method
Rule 2A of Valuation Rules.
Value of works contract = gross amount charged
for the said works contract minus value of transfer
of property in goods involved in the said works
contract.
VAT paid is excluded.
Enumerates list of items that fall within the value of
works contract service.
K.Vaitheeswaran& Co.
WORKS CONTRACT –
Computation Method
Value of works contract shall include the following:
– Labour charges;
– Amount paid to sub-contractor for labour and services;
– Charges for planning, designing and architect’s fees;
– Hire charges on machinery and tools;
– Cost of consumables viz. water, electricity, fuel etc.
– Cost of establishment of the contractor relatable to supply of labour
and services;
– Other similar expenses relatable to supply of labour and services;
– Profit earned by the service provider relatable to supply of labour
and services.
K.Vaitheeswaran& Co.
WORKS CONTRACT –
Computation Method
Value adopted for sales tax or VAT shall be
accepted for service tax.
There is nothing in the Valuation Rules or in the
Cenvat Credit Rules, which prohibits the
availment of cenvat credit on inputs or capital
goods or input services.
Board vide Circular dated 04.01.2008 has
clarified that credit is not available on inputs.
K.Vaitheeswaran& Co.
WORKS CONTRACT- Composition
Method
WCT (Composition Scheme for payment of Service Tax)
Rules, 2007.Optional Scheme.
2% of the gross amount charged for the works contract.
Compounding rate increased from 2% to 4% w.e.f.
01.03.2008.
Gross amount shall not include VAT or sales tax paid.
No Cenvat credit on inputs. Cenvat credit available on
input services and capital goods.
Option to be exercised prior to payment of service tax in
respect of the WCT.
K.Vaitheeswaran& Co.
WORKS CONTRACT- Composition
Method
Whether 2% can be continued till the completion of
the contract?
Board Circular dated 28.04.2008 stating that it is
not possible has been challenged before the
Madras High Court and Stayed.
Compounding Scheme is an alternative
mechanism.
Option valid till the completion of the contract.
K.Vaitheeswaran& Co.
LAND OWNER SHARE
Joint Venture
Is the contractor liable to pay service tax on construction
done for the land owner
No tax view
Contract executed and consideration has passed prior to
insertion of Valuation Rules view
Tax on same rate as charged on other buyers
Tax payable by adopting value of UDS transferred
Decision of the Supreme Court – (Faqir Chand Gulati Vs.
K.Vaitheeswaran&
Co.
Uppal Agencies Pvt. Ltd.)
Consumer
case.
RENTING OF IMMOVABLE PROPERTY
Where building is partly let out for
residential purposes and partly for business
or commerce it shall be deemed to be for
business or commerce.
Property tax paid excluded.
Stamp duty based on rent when document
is registered.
Whether Constitutionally valid ?
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RENTING OF IMMOVABLE PROPERTY
Entry 6, List III, Seventh Schedule covers transfer
of property other than agricultural land, registration
of deeds and documents.
Rent Control Laws are made by the State in
exercise of powers available in Entry 6, Concurrent
List.
Stamp duty is levied by the State on lease in terms
of Article 35 of the Indian Stamp Act.
The duty is on the amount payable or deliverable
under the lease.
Service tax is levied in terms of Entry 97, Union List
which empowers legislation on any other
matter not enumerated in the State List or
Concurrent List including any tax not
mentioned in either of those Lists.
K.Vaitheeswaran& Co.
RENTING OF IMMOVABLE PROPERTY Issues
Cost increase to companies which cannot avail cenvat.
Possibility of credit being questioned on companies, which avail
cenvat credit.
Board Circular dated 04.01.2008 states that service tax charged
by contractors cannot be availed as credit by the person paying
service tax on rentals
Deposits
Non-payment of rent
Disputed property where rent is deposited with the Court
Co-ownership
Property owned by NRIs.
Effective date and past transactions
K.Vaitheeswaran& Co.
RENTING OF IMMOVABLE PROPERTY Issues
Court enhanced rent
Scope of rent
Percentage of turnover
What is ‘use in the course or furtherance of business’??
Loan / Property transactions
Section 194I of the Income Tax Act
Co-sharing of office premises ?
Airport letting out stalls ?
K.Vaitheeswaran& Co.
RENTING OF IMMOVABLE
PROPERTY
Allowing, permitting the use of space in the
immovable property, even without the
transfer of possession or control property.
Vending machines in malls, cinema theatres;
Communication towers;
Vendor islands in shopping malls;
Hoardings in Govt. buildings;
K.Vaitheeswaran& Co.
RENTING OF IMMOVABLE
PROPERTY
Hoardings by political parties on payment of
charges to Corporation.
Private Sector, telecom junction boxes kept
on roads.
Flat owners allow a telecom company to use
their terrace for erecting communication tower
– Who is the service provider?
‘For the removal of doubts?’
K.Vaitheeswaran& Co.
BUILDER
Which takes priority in builder’s worry ?
Escalating material cost …
Non-availability of skilled labour…
Title disputes…
Whether Airport is going to come in that area…
Sky rocketing land prices…
Down trend in industry…
Lack of funds…
‘Sevai vari and value added vari…worry ?
K.Vaitheeswaran& Co.
Thank you
K. Vaitheeswaran
K. VAITHEESWARAN & CO.
Advocates & Tax Consultants
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017.
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001
Mobile: 98400-96876
E-mail : [email protected]
K.Vaitheeswaran& Co.