Service tax on construction services-clarification by CBEC

CBEC has issued clarification regarding service tax on construction services vide Circular 151/2/2012-ST dated 10.02.2012. Following is the summary of the circular.

Sl.No	Model/Projects	Situations	Clarifications
1	Tripartite Business Model Parties : i)            Landowner ii)           builder or developer iii)        contractor who undertakes construction	(a)             Liability to pay service tax on flats/houses agreed to be given by builder/developer to the land owner towards the land /development rights and to other buyers. (b)             Valuation	(a)    For the period prior to 01/07/2010 Service will not be taxable in terms of Board’s Circular No.108/02/2009-ST dated 29.01.2009. (b)     For the period after 01/07/2010 Construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land was received by the builder/ developer before the issuance of completion certificate and the service tax would be required to be paid by builder/developers even for the flats given to the land owner. 0    Value of flat given to landowner shall be equal to the value of similar flats charged by the builder/developer from the other buyers. 0    In case of change in price, value shall be value of similar flats as are sold nearer to the date on which land is being made available for construction
2	Redevelopment including slum rehabilitation projects	Land is owned by a society, comprising members of the society with each member entitled to his share by way of an apartment. Society or its flat owners engage a builder/developer for undertaking re-construction. The builder/developer makes new flats with same or different carpet area for   original owners of flats and additionally may also be involved in one or more of the following: (i)                  construct some additional flats for sale to others; (ii)             arrange for rental accommodation or rent payments for society members/original owners for stay during the period of re-construction; (iii)           pay an additional amount to the original owners of flats in the society.	0    Re-construction undertaken by a building society by directly engaging a builder/developer will not be chargeable to service tax as it is meant for the personal use of the society/its members. For the period prior to 01/07/2010 0    Construction of additional flats undertaken as part of the reconstruction, for sale to other buyers will not be taxable For the period after to 01/07/2010 0    Construction service provided by the builder/developer to other buyers is taxable in case any payment is made to the builder/ developer before the issuance of completion certificate. Valuation Value shall be determined in terms of section 67(1)(i) of the Finance Act, 1994.
3	Investment model	In this model, before the commencement of the project, the same is on offer to investors. After a certain specified period an investor has the option either to exit from the project on receipt of   the amount invested along with interest or he can re-sell the said allotment to another buyer or retain the flat for his own use.	0    In this model, after 01/07/2010, investment amount shall be treated as consideration paid in advance for the construction service to be provided by the builder/developer to the investor and the said amount would be subject to service tax. 0    If the investor decides to exit from the project at a later date, either before or after the issuance of completion certificate, the builder/developer would be entitled to take credit under rule 6(3) of the Service Tax Rules, 1994( to the extent he has refunded the original amount) 0    If the builder/developer resells the flat before the issuance of completion certificate, again tax liability would arise.
4	Conversion Model	Conversion of any hitherto untaxed construction /complex or part thereof into a building or civil structure to be used for commerce or industry, after lapse of a period of time.	0    Mere change in use of the building does not involve any taxable service, unless conversion falls within the meaning of commercial or industrial construction service.
5	Non requirement of completion certificate / where completion certificate is waived or not prescribed	Levy of service tax on the construction service provided in cases completion certificate are not required or are waived	0    Where completion certificate is waived or is not prescribed for a specified type of building, the equivalent of completion certificate by whatever name called should be used as the dividing line between service and sale. In terms of the Service Tax (Removal of Difficulty) Order, 2010, dated 22/06/2010, authority competent to issue completion certificate includes an architect or chartered engineer or licensed surveyor.
6	Build- Operate - Transfer (BOT) Projects	Generally under BOT model, Government or its agency, concessionaire (who may be a developer/builder himself or may be independent) and the users are the parties.  Risk taking and sharing ability of the parties concerned is the essence of a BOT project. Government or its agency by an agreement transfers the ‘right to use’ and/or ‘right to develop’ for a period specified, usually thirty years or near about, to the concessionaire.	0    the service provided by the Government or its agency to the concessionaire is liable to service tax; 0    the construction services provided by the contractor to the concessionaire would be examined from the point of taxability as to whether the activity is not otherwise excluded; 0 the services provided by the concessionaire to the user of the facility are liable to service tax