Abatement on Construction of Complex services – Made more Complex
THE Finance Ministry, considering that high-end constructions has greater component of `service' has reduced the abatement on homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of Rs 1 crore or more from 75 percent to 70 percent.
The fine print of the Notification 2/2013-ST dated 1 March 2013, bifurcates `high-end construction' and `normal construction' as under:
Categories
Value of taxable services (% of the amount charged)
Normal constructions: (i) for residential unit having carpet area upto 2000 square feet or where the amount charged is less than rupees one crore;
25%
High-end constructions: (ii) for other than the (i) above.
30%
The aforesaid bifurcation results in following scenarios:
Scenarios
Sq. ft criteria
Value criteria
Value of taxable service
1
= > 2000 sq ft
= > Rs 1 crore
30%
2
= > 2000 sq ft
< Rs 1 crore
25% or 30% ?
3
< 2000 sq ft
= > Rs 1 crore
25% or 30% ?
4
< 2000 sq ft
< Rs 1 crore
25%
The Notification 2/2013-ST (supra) is capable for following interpretations:
Alternate I: Flats which satisfies either of the conditions namely (a) carpet area is less than 2000 sq feet OR (b) value is less than Rs 1 crores, shall only be entitled to higher abatement of 75%
Alternate II: Flats which satisfies both the conditions namely (a) carpet area is less than 2000 sq feet AND (b) value is less than Rs 1 crores, shall only be entitled to higher abatement of 75%
The TRU letter issued by the Joint Secretary (Tax Research Unit) too provides emphasis on the words "or" used in the Notification 2/2013 –ST but does not clarify its impact under Scenario 2 and 3 tabulated above.
The Hon'ble Supreme Court on various occasions has pronounced that exemption notification should be given a `strict interpretation' for determining the eligibility criteria and once the tax payer qualifies to avail exemption, liberal interpretation should be provided to facilitate the tax payer to avail the benefit. Given this, Alternate I appears to be the legally tenable position.
However, considering the revenue bent of the Service tax department and that since developers have the option to recover the Service Tax component from its customers, Alternate II is more likely to be advocated/ adopted.
The end result is that the customers would be bearing the burden of extra service tax due to the complex drafting of the abatement notification issued for construction of complex services.
By Chirag Bhatt,
THE Finance Ministry, considering that high-end constructions has greater component of `service' has reduced the abatement on homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of Rs 1 crore or more from 75 percent to 70 percent.
The fine print of the Notification 2/2013-ST dated 1 March 2013, bifurcates `high-end construction' and `normal construction' as under:
Categories
Value of taxable services (% of the amount charged)
Normal constructions: (i) for residential unit having carpet area upto 2000 square feet or where the amount charged is less than rupees one crore;
25%
High-end constructions: (ii) for other than the (i) above.
30%
The aforesaid bifurcation results in following scenarios:
Scenarios
Sq. ft criteria
Value criteria
Value of taxable service
1
= > 2000 sq ft
= > Rs 1 crore
30%
2
= > 2000 sq ft
< Rs 1 crore
25% or 30% ?
3
< 2000 sq ft
= > Rs 1 crore
25% or 30% ?
4
< 2000 sq ft
< Rs 1 crore
25%
The Notification 2/2013-ST (supra) is capable for following interpretations:
Alternate I: Flats which satisfies either of the conditions namely (a) carpet area is less than 2000 sq feet OR (b) value is less than Rs 1 crores, shall only be entitled to higher abatement of 75%
Alternate II: Flats which satisfies both the conditions namely (a) carpet area is less than 2000 sq feet AND (b) value is less than Rs 1 crores, shall only be entitled to higher abatement of 75%
The TRU letter issued by the Joint Secretary (Tax Research Unit) too provides emphasis on the words "or" used in the Notification 2/2013 –ST but does not clarify its impact under Scenario 2 and 3 tabulated above.
The Hon'ble Supreme Court on various occasions has pronounced that exemption notification should be given a `strict interpretation' for determining the eligibility criteria and once the tax payer qualifies to avail exemption, liberal interpretation should be provided to facilitate the tax payer to avail the benefit. Given this, Alternate I appears to be the legally tenable position.
However, considering the revenue bent of the Service tax department and that since developers have the option to recover the Service Tax component from its customers, Alternate II is more likely to be advocated/ adopted.
The end result is that the customers would be bearing the burden of extra service tax due to the complex drafting of the abatement notification issued for construction of complex services.
By Chirag Bhatt,
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