GST AND THE PROPERTY PRICE AFTER 1-7-2017


PROPERTY PRICE RISE AND GST AFTER 1-7-2017

Earlier-There was VAT and alternatively Composite Tax and Service Tax on the construction industry

NOW BOTH ROLLED INTO ONE-CALLED GST

Under GST the Service tax is 12%.

It has been learnt that customers willing to buy a nearly-completed house/flat will have to pay 12 per cent service tax on the entire amount, which is almost 7 percent higher than the previous rate of 4.5 percent. In addition, if customers are paying for their house in instalments, they too, will have to pay to 12 per cent service tax from July 1 onwards.

There is almost a 7.5 percent increase in such taxation after the GST regime comes into effect, as they will not be able to claim any credit for the taxes paid on inputs bought before July 1.

The invoice issued by the builder after July 1 will surely attract a GST rate of 12 per cent, forcing developers to write letters to clients briefing them about the situation.  It is also true that many builders have not issued VAT Bills to the home buyers and many have not issued Invoices for the buildings or apartments sold.

Many home buyers are not aware of taxation issues like, earlier VAT and Service Tax and Now both combined is GST, rolled into one.

More clarification is required to remove the confusion among the builders as well as the home buyers and if required few sections might be Amended.

RERA NOTIFICATION IN KARNATAKA AND THE IMPLEMENTATION OF GST AND ITS EFFECTS ON THE REALTY SECTOR IN KARNATAKA


The Government of Karnataka was deliberating and discussing the important issues and points of RERA, which had been notified by the Center and other states, but, will be notifying it soon without much MODIFICATION/CHANGE/ALTERATION.

This notification has very significant effect on the REAL ESTATE market and will bring about transparency and stability in the business.

The most important aspect of this Bill, that the ILLEGAL AND UNAUTHORISED CONSTRUCTIONS will be STOPPED.  Already, the fly by night builders and some VIOLATORS are out of business.  The deviation and violation might be controlled.

The under construction or incomplete projects might also come under this Bill.  The common man will definitely be benefitted by this bill to a great extent.

BUT, AS INDIANS, WE HAVE TO WAIT AND WATCH TO PLUG ANY LOOPHOLES IN THE BILL.

On the otherhand, the half baked and untested GST bill is also implemented from 01-07-2017 and there are various versions of its advantages and disadvantages of this BILL being deliberated and discussed across the country.

But, over all, the GST includes both service tax and the (earlier) VAT.  There is confusion over the benefits and its procedures in the minds of the builders, similarly, AS INDIANS, WE HAVE WAIT AND WATCH.

DO NOT JUMP INTO CONCLUSIONS AND TAKE ANY DECISION NOW.

WAIT FOR SOMETIME, FEW MONTHS TO KNOW THE AFTER EFFECTS OF THESE BILLS.

SERVICE TAX GOES UP BY 0.5% WITH THE ADDITIONAL LEVY OF KRISHI KALYAN CESS


Service Tax Rate to be 15% from 01.06.2016 with the addition of Krishi Kalyan Cess

Enabling provision for levy of “Krishi Kalyan Cess”:

Krishi Kalyan Cess is proposed to be levied with effect from 1st June, 2016 on any or all the taxable services at the rate of 0.5% on the value of such taxable services. Credit of Krishi Kalyan Cess paid on input services shall be allowed to be used for payment of the proposed Cess on the service provided by a service provider.

Clause 158 of Finance Bill 2016

Krishi Kalyan Cess-  Clause 158 of the Bill seeks to insert new Chapter-VI so as to levy a cess to be called the Krishi Kalyan Cess, as service tax on all or any of the taxable services for the purposes of the Union for financing and promoting initiatives to improve agriculture or for any other purpose relating thereto.

Extract from Finance Bill 2016

  1. (1) This Chapter shall come into force on the 1st day of June, 2016. Krishi Kalyan Cess.

(2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Krishi Kalyan Cess, as service tax on all or any of the taxable services at the rate of 0.5 per cent. on the value of such services for the purposes of financing and promoting initiatives to improve agriculture or for any other purpose relating thereto.

(3) The Krishi Kalyan Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force.

(4) The proceeds of the Krishi Kalyan Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Krishi Kalyan Cess for such purposes specified in sub-section (2), as it may consider necessary.

(5) The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Krishi Kalyan Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under the said Chapter or the rules made there under, as the case may be.

 

PROPERTY GUIDANCE VALUE REVISED OR INCREASED IN BANGALORE URBAN AND RURAL DISTRICT WITH 15 DAYS NOTICE TO FILE OBJECTIONS


The State Government has increased the Guidance Value or the Circle Rates or the Market Price of the property in Bangalore Urban, Bangalore Rural District and Ramnagar District with 15 days notice to submit the objections, if any, with supporting documents or evidence.

In some areas, the increase is very steep and on an average the increase is around 10% only.  The consequent effect will be strain the buyers.  With this increase, the Income Tax, VAT, Service TAx and Capital Gains tax will also goes up, indirectly.

The Income Tax department is also scrutinising many transactions, wherein the buyers in collusion with the sellers/agents/builders have underquoted the property consideration below the guidance value.  The department may initiate penal action on such buyers and sellers soon. The Guidance Value is treated as the Fair Market Value.  The property value or consideration must not be less than the guidance value as per the Finance Act.

Service Tax – 14% will come into effect only from the date of notification


The Hon’ble President has given assent to the Finance Bill, 2015 on Thursday, May 14, 2015. Accordingly, the Finance Bill, 2015 now becomes Finance Act (No.20), 2015. However, it is to be noted here that increase in the rate of Service tax from 12.36% to flat 14% (Subsuming Education cess and Secondary & Higher Secondary Education cess) as was proposed in the Union Budget, 2015 will become effective only after the date to be notified and not effective from May 14, 2015.

Further pursuing with Mr. Narendra Modi’s Dream of Swachh Bharat, a new Chapter VI has been inserted in the Finance Bill, 2015 that contains a new levy of cess called the ‘Swachh Bharat Cess’ which may be levied on all or any of the taxable services at the rate of 2% of the value of such services. Hence, Service tax rate may increase from present 12.36% to 16% for specified services on which Swachh Bharat Cess is levied from a date notified later.

Therefore, it is to be noted that Higher rate of Service tax from 12.36% to 14% and Swachh Bharat Cess of 2% will become effective only from the date to be notified and not from May 14, 2015. Further, the changes in Negative List of services will also come into effect from the date notified later.

DID YOU CHECK AND VERIFY THE VAT TAX, SERVICE TAX, BESCOM DEPOSIT AND BWSSB DEPOSIT CHARGED BY THE SELLER/DEVELOPER ?


ONE OF OUR READER HAS DONE A CALCULATION OF VALUE ADDED TAX, SERVICE TAX, BESCOM DEPOSIT, BWSSB DEPOSIT, LEGAL CHARGES, GENERATOR CHARGES, STAMP DUTY AND REGISTRATION FEES, WHICH WORKS OUT AT OVER 20% OF THE STATED OR QUOTED PRICE OF THE PROPERTY, APART FROM THE CHARGES PAID OR PAYABLE FOR OBTAINING THE BANK LOAN, WHICH MAY BE ANOTHER 1/2% OR 1%.

IN SOME CASES, THESE CHARGES AMOUNTED TO OVER 25% AND 75% OF THE CASES, THE BUYERS DO NOT HAVE KATHA FROM BBMP, STILL HAVE TO REMIT THE BETTERMENT CHARGES AND PAY THE KATHA FEE, WHICH WORKS OUT AT APPROXIMATELY AT 1%.

Many of the buyers are under the wrong impression and notion that the approval or sanction of BANK LOAN will confer the best right, title and interest of the property.  IT IS WRONG. 

TAKE CARE. CHECK THE CHARGES. DEMAND THE BILLS. DEMAND THE RECEIPTS. 

FLAT/APARTMENT BUYERS/PURCHASERS – VAT AND SERVICE TAX PAID BY YOU HAS BEEN DEPOSITED WITH THE GOVT


THE HONEST AND GENUINE BUYERS OF APARTMENTS/FLATS WILL BE IN FOR ROYAL JOLT, IF THEY CHECK THE CREDENTIAL OF THE BUILDERS/DEVELOPERS REGARDING TAX COMPLIANCE.

MAJORITY ARE TAX EVADERS AND IF FOUND OUT, THEY WILL ELIMINATE THE OFFICER AS THEY DID TO LATE.D.K.RAVI.  IT IS THE LAND/BUILDERS MAFIA.

THEY MUST BE INVESTIGATED BY THE COMMERCIAL TAX DEPARTMENT, INCOME TAX DEPARTMENT, ENFORCEMENT DIRECTORATE, SERIOUS FRAUD INVESTIGATION OFFICE, BANGALORE METROPOLITAN TASK FORCE, COD AND THE CENTRAL BUREAU OF INVESTIGATION, JOINTLY AND ALL OF THEM WILL BE BEHIND BARS FOREVER FOR CHEATING, FRAUD, MISREPRESENTATION OF FACTS, TAX EVASION, FRAUDULENT MANIPULATION, FORCED OR COERCED PURCHASE OF LANDS FROM INNOCENTS.

IT IS SUSPECTED THAT BUILDERS (MAFIA) AND A SMUGGLER TURNED JEWELLER ALONG WITH A POWERFUL POLITICIAN BEHIND THE KILLING OF LATE.D.K.RAVI. 

HAVE YOU BOUGHT AN APARTMENT IN BANGALORE? DID YOU EVER BOTHER TO CHECK THE FOLLOWING STATUTORY TAX ISSUES?


THE APARTMENT OR FLAT BUYERS MAY NOT NECESSARILY BOTHER ABOUT THE TAX ISSUES OF THE PROPERTIES BOUGHT BY THEM, LIKE VALUE ADDED TAX AND SERVICE TAX.

IN MAJORITY OF THE CASES, THE SELLERS, HAVE COLLECTED THE VAT AND SERVICE TAX THROUGH EMI/INSTALMENTS OR ONE TIME PAYMENTS, HAVE NOT DEPOSITED THE SAME WITH THE CONCERNED DEPARTMENTS OR MISREPRESENTED THE FACTS AND HAVE DEPOSITED MUCH LESSER THAN WHAT THEY HAVE COLLECTED, INCLUDING ALL TOP CREDAI BUILDERS.

MAJORITY HAVE NOT FILED INCOME TAX RETURNS, IN MANY CASES, MISREPRESENTED AND MANIPULATED THE ACCOUNTS AND SUBMITTED WRONG RETURNS.

TAX EVADERS (LEADING CREDAI BUILDERS) IN THE NET


VAT TAX 

THE COMMERCIAL TAXES DEPARTMENT HAS WOKEN UP AND RAIDED SEVERAL BUILDERS LIKE MANTRI, DS MAX, EMBASSY AND NITESH AND COLLECTED OVER 140 CRORES IN THE ARREARS OF VAT COLLECTED BY THESE BUILDERS FROM THE BUYERS OF THE PROPERTY.

IT IS TO BE NOTED THAT THESE BUILDERS COLLECT THE VAT OR COMMERCIAL TAX FROM THE BUYERS, IN THE EMI AND NEVER PAID IT TO THE GOVERNMENT.

FURTHERMORE, THERE ARE MANY SMALL TIME DEVELOPERS WHO ARE ABSCONDING OR ADDRESS LESS NOW OR WILFUL AND DELIBERATE TAX EVADERS HAVE NOT BEEN BROUGHT INTO THE NET.

IF THE DEPARTMENT ACTS DILIGENTLY, IT CAN COLLECT OVER RS1000/- CRORE OF THE TAX PAID BY THE BUYERS OF THE PROPERTIES.

MAJORITY OF THESE LEADING TAX EVADERS HAVE NOT ISSUED VAT BILL-TAX BILL- TO THE BUYERS OF THE PROPERTY.

SERVICE TAX

ANOTHER GREY AREA WHERE SERVICE TAX PAID BY THE BUYERS OF THE PROPERTY HAS BEEN MANIPULATED AND TAXES COLLECTED HAD NOT BEEN DEPOSITED WITH THE DEPARTMENT.

SERVICE TAX – Service tax Changes on Construction of a complex, building, civil structure


NOTIFICATION NO 9/2013 – ST., Dated: May 8, 2013

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.26/2012-Service Tax, dated the 20th June, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 468 (E), dated the 20th June, 2012, namely:-

In the said notification, in the TABLE, for serial number 12 and the entries relating thereto, the following serial number and the entries shall be substituted, namely:-

“12.

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,-

 

(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004;

(a) for a residential unit satisfying both the following conditions, namely:–

25

(ii) The value of land is included in the amount charged from the service receiver.”.

(i) the carpet area of the unit is less than 2000 square feet; and

(ii) the amount charged for the unit is less than rupees one crore;

(b) for other than the (a) above.

30

[F. No. 334 /3/ 2013-TRU]

(Raj Kumar Digvijay)
Under Secretary to the Government of India

Note.- The principal notification was published in the Gazette of India, Extraordinary, vide notification No. 26/2012 – Service Tax , dated the 20 th June, 2012, vid e number G.S.R. 468 (E), dated the 20th June, 2012 and was last amended vide notification No.2/2013 – Service Tax, dated the 1st March, 2013, vide number G.S.R.152(E), dated the 1st March, 2013.

BUDGET – INTEREST BENEFIT FOR LOWER CATEGORY – TDS FOR HIGHER VALUE HOMES – SERVICE TAX ABATEMENT AT 70% FOR HIGH END APARTMENTS


First Home Buyer will get an additional benefit on Interest limit:

There is an additional deduction available on interest repaid on a loan for a first time house purchase. The benefit has been increased by an additional Rs 1 lakh and this will be over and above the Rs 1.5 lakh limit already available,provided, if the house property price is less than Rs 40 lakh and the loan(availed) is Rs 25 lakh or less. This benefit can be claimed or availed in the next year, if not availed in the first year.

Tax Deducted at Source:

The Finance Minister has proposed 1% TDS for all immovable properties valued over Rs50,00,000/-. The seller of the house property worth Rs 50 lakh or more, will have to ensure a 1% tax deduction at source on the amount of the sale and will have to deposit this with the government. The TDS amount has to be deposited as per the guidelines and obtain a certificate and must be attached or furnished or submitted to the sub-registrar at the time of registration.

Service Tax:

As per the new proposal, The Service Tax for the new apartments(high end) either 2000 Square feet of CARPET AREA or the VALUE IS ABOVE Rs1,00,00,000/-, the abatement is 70%, which was uniform at 75% in the preceding year.

It means that the high end apartments will have to pay additional service tax on 5%.

Details:

 

Tax Deduction at Source (TDS) on transfer of certain immovable properties (other than agricultural land)

This amendment will take effect from 1st June, 2013.

There is a statutory requirement under section 1 39A of the Income-tax Act read with rule 11 4B of the Income-tax Rules, 1962 to quote Permanent Account Number (PAN) in documents pertaining to purchase or sale of immovable property for value of Rs.5 lakh or more. However, the information furnished to the department in Annual Information Returns by the Registrar or Sub-Registrar indicate that a majority of the purchasers or sellers of immovable properties, valued at Rs.30 lakh or more, during the financial year 2011-12 did not quote or quoted invalid PAN in the documents relating to transfer of the property.

Under the existing provisions of the Income-tax Act, tax is required to be deducted at source on certain specified payments made to residents by way of salary, interest, commission, brokerage, professional services, etc. On transfer of immovable property by a non-resident, tax is required to be deducted at source by the transferee. However, there is no such requirement on transfer of immovable property by a resident except in the case of compulsory acquisition of certain immovable properties. In order to have a reporting mechanism of transactions in the real estate sector and also to collect tax at the earliest point of time, it is proposed to insert a new section 194-IA to provide that every transferee, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident transferor, shall deduct tax, at the rate of 1% of such sum.

In order to reduce the compliance burden on the small taxpayers, it is further proposed that no deduction of tax under this provision shall be made where the total amount of consideration for the transfer of an immovable property is less than fifty lakh rupees.

Changes in Service Tax – High end apartments

This will come into effect from March 1, 2013.

Subject: Union Budget 2013: Changes in Service Tax-reg.

The service tax changes in Budget 2013 are largely guided by the objectives to provide a stable tax regime and improve voluntary compliance. The important changes are as follows:

A. Legislative changes

Following changes are being made in the Finance Act, 1994:

C. Abatement

5. The abatement available under S. No 12 of notification 26/2012-ST dated June 20, 2012 for construction of a complex, building, civil structures etc. is being reduced from the existing 75% to 70% for construction other than residential properties having a carpet area up to 2000 sq ft or where the amount charged is less than Rs. 1 crore.

 

TAX BENEFITS OF INVESTMENT IN RESIDENTIAL UNIT

This amendment will take effect from 1st April, 2014

Income tax benefit

A new section 80EE, has been proposed in the Direct Tax, which provides an additional exemption of Up to Rs. 1 lakh against the interest payable.

The proposed new section 80EE seeks to provide that in computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section,

  • interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.
  • It is further provided that the deduction under the proposed section shall not exceed one lakh rupees
  • and shall be allowed in computing the total income of the individual for the assessment year beginning on 1st April, 2014
  • and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on 1st April, 2015.

It is also provided that the deduction shall be subject to the following conditions:-

(i)  the loan is sanctioned by the financial institution during the period beginning on 1st April, 2013 and ending on 31st March, 2014;

(ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees;

(iii)  the value of the residential house property does not exceed forty lakh rupees;

(iv)  the assesse  does not own any residential house property on the date of sanction of the loan.

It is also provided that where a deduction under this section is allowed for any assessment year, in respect of interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provisions of the Income-tax Act for the same or any other assessment year.

It is also proposed to define the term “financial institution”.

This amendment will take effect from 1st April, 2014 and accordingly apply in relation to the assessment year 2014-15 and subsequent assessment year.

 

Service tax on construction services-A clarification from the department


Circular No. 151/2/2012-ST F.No.332/13 /2011-TRU New Delhi, 10th February, 2012 Subject: Service tax on construction services — regarding. Many issues have been referred by the field formations, in the recent past, seeking clarification regarding the levy and collection of service tax on construction services [clauses (zzq),(zzzh) of section 65(105) of the Finance Act, 1994], in the light of varying business models. Across the country, divergent business models and practices are being followed in the construction sector. Some of these business models and practices could be region specific. 2. From the issues referred by the field formations, important ones have been identified model wise, examined and clarified as follows: 2.1. Tripartite Business Model (Parties in the model: (i) landowner; (ii) builder or developer; and (iii) contractor who undertakes construction): Issue involved is regarding the 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. Clarification: Here two important transactions are identifiable: (a) sale of land by the landowner which is not a taxable service; and (b) construction service provided by the builder/developer. The builder/developer receives consideration for the construction service provided by him, from two categories of service receivers: (a) from landowner: in the form of land/development rights; and (b) from other buyers: normally in cash. (A) Taxability of the construction service: (i) For the period prior to 01/07/2010: construction service provided by the builder/developer will not be taxable, in terms of Board’s Circular No.108/02/2009-ST dated 29.01.2009. (ii) 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. (B) Valuation: (i) Value, in the case of flats given to first category of service receiver, is determinable in terms of section 67(1)(iii) read with rule 3(a) of Service Tax (Determination of Value) Rules, 2006, as the consideration for these flats i.e., value of land / development rights in the land may not be ascertainable ordinarily. Accordingly, the value of these flats would be equal to the value of similar flats charged by the builder/developer from the second category of service receivers. In case the prices of flats/houses undergo a change over the period of sale (from the first sale of flat/house in the residential complex to the last sale of the flat/house), the value of similar flats as are sold nearer to the date on which land is being made available for construction should be used for arriving at the value for the purpose of tax. Service tax is liable to be paid by the builder/developer on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument(eg. allotment letter). (ii) Value, in the case of flats given to the second category of service receivers, shall be determined in terms of section 67 of the Finance Act, 1994. 2.2 Redevelopment including slum rehabilitation projects: Generally in this model, land is owned by a society, comprising members of the society with each member entitled to his share by way of an apartment. When it becomes necessary after the lapse of a certain period, society or its flat owners may engage a builder/developer for undertaking re-construction. Society /individual flat owners give ‘No Objection Certificate’ (NOC) or permission to the builder/developer, for 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. Clarification: Under this model, the builder/developer receives consideration for the construction service provided by him, from two categories of service receivers. First category is the society/members of the society, who transfer development rights over the land (including the permission for additional number of flats), to the builder/developer. The second category of service receivers consist of buyers of flats other than the society/members. Generally, they pay by cash. (A) Taxability: (i) 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. Construction of additional flats undertaken as part of the reconstruction, for sale to the second category of service receivers, will also not be a taxable service, during the period prior to 01/07/2010; (ii) For the period after 01/07/2010, construction service provided by the builder/developer to second category of service receivers is taxable in case any payment is made to the builder/ developer before the issuance of completion certificate. (B) Valuation: Value, in the case of flats given to second category of service receivers, shall be determined in terms of section 67(1)(i) of the Finance Act, 1994. 2.3 Investment model: In this model, before the commencement of the project, the same is on offer to investors. Either a specified area of construction is earmarked or a flat of a specified area is allotted to the investors and as it happens in some places, additionally the investor may also be promised a fixed rate of interest. After a certain specified period an investor has the option either to exit from the project on receipt of the amount invested alongwith interest or he can re-sell the said allotment to another buyer or retain the flat for his own use. Clarification: 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. 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). If the builder/developer resells the flat before the issuance of completion certificate, again tax liability would arise. 2.4 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. Clarification: 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. 2.5 Non requirement of completion certificate / where completion certificate is waived or not prescribed: In certain states, completion certificates have been waived or are considered as not required for certain specified types of buildings. Doubts have been raised, regarding levy of service tax on the construction service provided, in such situations. Clarification: 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. 2.6 Build- Operate – Transfer (BOT) Projects: Many variants of this model are being followed in different regions of the country, depending on the nature of the project. Build-Own-Operate-Transfer (BOOT) is a popular variant. 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. Clarification: Transactions involving taxable service take place usually at three different levels: firstly, between Government or its agency and the concessionaire; secondly, between concessionaire and the contractor and thirdly, between concessionaire and users, all in terms of specific agreements. At the first level, Government or its agency transfers the right to use and/or develop the land, to the concessionaire, for a specific period, for construction of a building for furtherance of business or commerce (partly or wholly). Consideration for this taxable service may be in the nature of upfront lease amount or annual charges paid by the concessionaire to the Government or its agency. Here the Government or its agency is providing ‘renting of immovable property service’ (renting of vacant land to be used for furtherance of business or commerce) and in such cases the concessionaire becomes the service receiver. In this model, though the concessionaire is undertaking construction of a building to be used wholly or partly for furtherance of business or commerce, on the land provided by the government or its agency for temporary use, he will not be treated as a service provider since such construction has been undertaken by him on his own account and he remains the owner of the building during the concession period. At the second level, transaction can take place between a concessionaire and the contractor. Where the concessionaire himself does not have exposure to construction sector, he may engage a contractor for undertaking construction of a building on the land, in respect of which right to use has been obtained in his favour, from the Government or its agency. If the concessionaire is himself a builder/developer, this level of transaction may not arise. Where an independent contractor is engaged by a concessionaire for undertaking construction for him, then service tax is payable on the construction service provided by the contractor to the concessionaire. At the third level, the concessionaire enters into agreement with several users for commercially exploiting the building developed/constructed by him, during the lease period. For example, the user may be paying a rent or premium on the sub-lease for temporary use of immovable property or part thereof, to the concessionaire. At this third level, concessionaire is the service provider and user of the building is the service receiver. The concessionaire may provide to the users, taxable services such as ‘renting of immovable property service’, ‘business support service’, ‘management, maintenance or repair service’, ‘sale of space for advertisement’, etc. Service tax is leviable on the taxable services provided by the concessionaire to the users. There could be many variants of the BOT model explained above and implications of tax may differ. For example, at times it is possible that the concessionaire may outsource the management or commercial exploitation of the building developed/constructed by him, to another person and may receive a pre-determined amount as commission. Taxable service here will be business auxiliary service and service tax is leviable on the commission. (A) Taxability: (i) the service provided by the Government or its agency to the concessionaire is liable to service tax; (ii) 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; (iii) the services provided by the concessionaire to the user of the facility are liable to service tax; (B) Persons liable to pay tax: Government or its agency and concessionaire are liable to pay tax on the services being provided by them. There could be several other persons liable to pay service tax, depending on the variant of the BOT model followed. 2.7 Joint Development Agreement Model: Under this model, land owner and builder/developer join hands and may either create a new entity or otherwise operate as an unincorporated association, on partnership /joint / collaboration basis, with mutuality of interest and to share common risk/profit together. The new entity undertakes construction on behalf of landowner and builder/developer. Clarification: Circular 148/17/2011-ST dated 13/12/2011, particularly paragraphs 7, 8, 9 apply mutandis mutandis in this regard.

3. This Circular may be communicated to the field formations and service tax assessees, through Trade Notice/ Public Notice. Hindi version to follow. (Samar Nanda) Under Secretary, TRU