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,