Holiday Apartment Renting Contract

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Holiday Apartment Renting Contract Powered By Docstoc
					PUNEET AGRAWAL, Advocate
       B. Com(H), CA, LLB
 Renting   of immovable Property
  Service
 Works Contract Service
 Commercial or Industrial
  Construction Service
 Construction of Complex Service
 Erection, Commissioning and
  Installation Service
 Taxable w.e.f. 1.06.2007
 65(105)(zzzz) to any person, by any other
  person in relation to renting of
  immovable property for use in the course or
  furtherance of business or commerce
 Non commercial activities – not taxable
 Following are excluded:
  Renting by or to religious body
  Renting to an educational body
 Leasing, renting, licensing including
  permitting use of space without transfer of
  possession and control
 Renting to commercial coaching or training
  centre
 It includes renting for office, factory,
  godown, theatre, exhibition hall, etc.
 vacant  land solely used for agriculture,
  aquaculture, farming, forestry, animal
  husbandry, mining purposes;
 vacant land, whether or not having facilities
  clearly incidental to the use of such vacant
  land;
 land used for educational, sports, circus,
  entertainment and parking purposes; and
 building used solely for residential purposes
  and for accommodation, including hotels,
  hostels, boarding houses, holiday
  accommodation, tents, camping facilities.
 Explanation 2.—For  the purposes of this sub-
 clause, an immovable property partly for use
 in the course or furtherance of business or
 commerce and partly for residential or any
 other purposes shall be deemed to be
 immovable property for use in the
 course or furtherance of business or
 commerce;
 Meaning  of ‗in relation to‘
 May be wide or narrow – depends on context

 If the subject matter can be service, then
  includes the subject matter
 Real estate cannot be service

 Service tax is a value added tax
 There is no value addition in renting
 Other services such as air-conditioning can
  be service
      Home Solutions Retail 237 ELT 209 (Del)
 As per Delhi High Court order, there is no
  service tax on renting per se
 Binding in Delhi
 Since there is no contrary judgment, must be
  followed in other states
 SLP pending in SC, no stay granted
 If   SC upholds Delhi HC ruling – no tax
   Tax collected and paid – no refund
   Tax paid but not collected – shown as receivable
    – may be claimed as refund
   After payment of service tax, refund claim to be
    filed in each case
   Payment to be made under protest
 If   SC reverses Delhi HC
      Tax payable with interest
 Collecttax and keep in joint bank account
 Take indemnity
   F No. 336/10/2009 dated July 15 2009
   It is understood that consequent to the said
    judgement of the Honourable High Court of Delhi,
    many assessees have stopped paying service tax on
    the renting of immovable property for business or
    commerce.
   In this regard, all the service tax formations are
    informed that the Department has filed an appeal
    against the said order of the Delhi High Court, and
    the dispute has not reached finality. Given the
    situation, service tax formations throughout the
    country, are instructed to take necessary action to
    safeguard revenue by either pursuing the tax payer to
    pay up the service tax due or resort to means under
    law to protect the revenue.
 Circular 98/1/2008-ST dated 4.1.08
 Immovable property is neither any goods nor
  any service, thus no credit for construction
  service allowed
 Input definition allows

 Needs to be fought
 If not paying service tax because of Delhi
  High Court ruling, keep record of credit
65(105)(zzzza)
 To any person

 By any other person
 In relation to works contract
for the purposes of this sub-clause, “works contract” means
  a contract wherein,—
 transfer of property in goods involved in the execution of
  such contract is leviable to tax as sale of goods, and
 such contract is for the purposes of carrying out,—
     erection, commissioning or installation of plant, machinery,
      equipment or structures, ……..
     construction of a new building or a civil structure or a part
      thereof, or of a pipeline or conduit, primarily for the purposes of
      commerce or industry
     construction of a new residential complex or a part thereof; or
     completion and finishing services, repair, alteration, renovation or
      restoration of, or similar services, in relation to (b) and (c); or
     turnkey projects including EPC projects;
 Gannon Dunkerley I
 Gannon Dunkerley II
works contract in respect of:
 roads,

 airports,
 railways,
 transport terminals,

 bridges,
 tunnels, and

 dams
 Daelim  2003 (155) ELT 457
 L&T 2004 (174) ELT 322

 Blue Star
Section 65A(2)
 When for any reason, a taxable service is
  prima facie, classifiable under two or more
  sub-clauses of clause (105) of section 65,
  classification shall be effected as follows:-
  the sub-clause which provides the most specific
   description shall be preferred to sub-clauses
   providing a more general description;
  ………………
 “Various trades and industry associations have
  raised apprehension in respect of classification
  of a contract either under the newly introduced
  works contract service or under erection,
  commissioning or installation and commercial or
  residential construction services.
 Contracts which are treated as works contract
  for the purpose of levy of VAT/ Sales Tax shall
  also be treated as works contract for the
  purpose of levy of service tax. This is clear from
  the definition of works contract under section
  65(105)(zzzza)”
 Tax is on works contract service
 Rule 2A of Valuation Rules
Value = Gross value of works contract
(Less) value of transfer of property in goods
 Value does not include sales tax
 Value includes:
       labour charges
       Charges paid to sub contractor for labour and services
       Planning designing and architect‘s fee
       Charges for machinery and tolls used
       Cost of consumables such as water, electricity, fuel, etc
       Cost of establishment and other expenses relatable to
        supply of labour and services
       Profit earned by service provider relatable to supply of
        labour and services
Value of services = Labour and services + attributable indirect
expenses + attributable profit
 If actual value determined under sales tax
  law, then the same shall be used
 Issue
      Can value determined under proportionate
       reduction provided under state VAT acts, be used
       for calculating value of service?
 Can credit of goods and materials used in
  construction availed by the contractor
 Value of goods and
 Value of goods and materials excluded and
  therefore credit not available
 Refer Circular 98/1/2008-ST
 Alternativemethod
 Pay tax @ 4% of gross amount charged
―Explanation.-For the purposes of this sub-rule, gross amount
    charged for the works contract shall be the sum,-
(a) including-
(i) the value of all goods used in or in relation to the execution of
    the works contract, whether supplied under any other contract
    for a consideration or otherwise; and
(ii) the value of all the services that are required to be provided for
    the execution of the works contract;
(b) excluding-
(i) the value added tax or sales tax as the case may be paid on
    transfer of property in goods involved; and
(ii) the cost of machinery and tools used in the execution of the said
    works contract except for the charges for obtaining them on hire:
Provided that nothing contained in this Explanation shall apply to a
    works contract, where the execution under the said contract has
    commenced or where any payment, except by way of credit or
    debit to any account, has been made in relation to the said
    contract on or before the 7th day of July, 2009.‖;
 Declared  value of works contract should not
  be less than gross amount charged
 Contractor cannot avail credit of inputs
  (input services and capital goods credit
  admissible)
 Option for payment under composition
  scheme to be exercised prior to payment of
  service tax on the said contract
 Option once exercised not to be withdrawn
  till completion
 To any person
 by any other person

 In relation to commercial or industrial
  construction service
   construction of a new building or a civil structure or a part
    thereof; or
   construction of pipeline or conduit; or
   completion and finishing services such as glazing,
    plastering, painting, floor and wall tiling, ……carpentry,……
    etc; or
   repair, alteration, renovation or restoration services
   ….in relation to a building or civil structure, pipeline or
  conduit, which is —
Used for or occupied with or engaged in commerce or
  industry, or work intended for commerce or industry
but does not include such services provided in
  respect of
 roads
 airports

 railways

 transport terminals
 bridges
 tunnels and
 dams
 Option 1  – pay tax on gross value and take
  credit of inputs, input services and capital
  goods
 Option 2 – pay tax on value of services and
  reduce value of goods and materials property
  in which is transferred
 Option 3 – Abatement under 1/2006-ST (now
  may not be relevant)
 65(105)(zzzh)
 To any person
 By any other person
 In relation to construction of residential
  complex
   65(30a)   Construction      of   complex"
    means—
       construction of a new residential
        complex or a part thereof; or
       completion and finishing services in
        relation to residential complex such as
        glazing, plastering, painting… ; or
       repair,    alteration,     renovation or
        restoration of, or similar services in
        relation to, residential complex;
   Any complex comprising of—
      a building or buildings, having more than
         twelve residential units;
      a common area; and
      any one or more of facilities or services
         such as park, lift, parking space,
         community hall, common water supply or
         effluent treatment system, located
         within a premises and the layout of such
         premises is approved by an authority
         under any law for the time being in force
…but does not include a complex which is
constructed by a person directly engaging any
other person for designing or planning of the
layout, and the construction of such complex is
intended for personal use as residence by such
person
      "personal use" includes permitting the
         complex for use as residence by another
         person on rent or without consideration;
      "residential unit" means a single house or
         a single apartment intended for use as a
         place of residence;
 Option 1  – pay tax on gross value and take
  credit of inputs, input services and capital
  goods
 Option 2 – pay tax on value of services and
  reduce value of goods and materials property
  in which is transferred
 Option 3 – Abatement under 1/2006-ST (now
  may not be relevant)
 1/2006  – ST
 “Explanation - The gross amount charged
  shall include the value of goods and
  materials supplied or provided or used for
  providing the taxable service by the service
  provider.”
 Whether value of free supplies includible
 Delhi High Court – No (stay granted) New Era
  Developers
 Development  of townships
 Agreement to sell entered into with
  prospective customers
 If a real estate developer constructs a building
  under an agreement of sale with a prospective
  buyer and later on sells the building to the
  buyer, the transaction would amount to “works
  contract”
 If the agreement is entered into after the flat
  or unit is already constructed, then there would
  be no works contract
 Also important – Hare Krishna Developers
  [2008-TIOL-03-ARA-ST]
 Magus Construction (Gau) (2008) 17 VST 17
 L&T (SC) 2008 17 VST 460 doubted K Raheja
  and referred to larger bench
 65(105)  (zzd)
 To any person

 By any commissioning or installation agency
 In relation to erection, commissioning or
  installation
65(39a) any service provided by a commissioning and
installation agency, in relation to,—
(i) erection, commissioning or installation of plant,
―machinery, equipment or structures, whether pre-fabricated
or otherwise‖ or
(ii) installation of—
(a) electrical and electronic devices, including wirings or
fittings therefor; or
(b) plumbing, drain laying or other installations for transport
of fluids; or
(c) heating, ventilation or air-conditioning including related
pipe work, duct work and sheet metal work; or
(d) thermal insulation, sound insulation, fire proofing or
water proofing; or
(e) lift and escalator, fire escape staircases or travelators; or
(f) such other similar services;
 Option 1  – pay tax on gross value and take
  credit of inputs, input services and capital
  goods
 Option 2 – pay tax on value of services and
  reduce value of goods and materials property
  in which is transferred
 Option 3 – Abatement under 1/2006-ST (now
  may not be relevant)
        PUNEET AGRAWAL
            PARTNER
     ATHENA LAW ASSOCIATES
       +91 9891898911
puneet@athenalawassociates.com
puneetagrawal_srcc@yahoo.co.in

				
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