Service Contract I.T

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                          17-B, IAEA House, Indraparastha Estate
                                  NEW DELHI – 110002

C.No. IV (16)HQrs/Tech/230/ST/05                                            Dated: 11.01.2008


       M/s MES Builders Association of India (Regd)
       807-808, Sahyog 58, Nehru Place
       New Delhi -110019

Dear Sirs,

       Sub: Clarifications regarding issues pertaining to Service Tax in respect of
            Construction Service – reg.

        Please refer to your office letter reference No.MBA/ST/36/2007 dated 13.12.2007 seeking
clarification of various issues relating to construction services.

1.      With regards to your query that the construction of Residential Complex being carried out in
defence area where no sanction is required of any authority for construction of civil structure, no
service tax is payable. The position in respect of project of married accommodations was clarified
and you have sought similar clarification in respect of projects like roads, other than married
accommodation, technical accommodation and others, runways, messes, stadium, hospitals, storage
sheds, canteen, educational institutions, training centres swimming pools water and supply etc.

2.     The issue has been clarified by the Board vide its letter F. No. 137/26/2006-CX.4 dated
05.07.2006 (copy enclosed for ready reference) which is self explanatory.

        The construction of roads located within the premises of a residential complex constructed
after obtaining sanction from a statutory authority for their layout is subject to levy of service tax
(ref. para 13.3 of TRU’s letter F.No. BI/6/2005-TRU dated 27.7.2005). In para 14.4 and 14.5 it has
been averred that construction of roads is not subject to levy of service tax but when construction of
roads is done under a composite contract for construction of a commercial or industrial complex,
the same shall be subject to levy of service tax.

3.      Thus, it is clear that construction of roads per se is not taxable but when roads are
constructed under a composite contract for development of commercial or industrial complex or in a
residential complex having more than 12 tenements (not meant for the personal use of the person
getting it constructed by directly engaging the labour etc. for its construction), layout plan of which
requires sanction from a statutory authority, then construction of such road would qualify for levy
of service tax. Thus by implication roads constructed within a residential complex, the layout plan
of which does not require any sanction from a statutory authority would do not be appear to be
subject to levy of service tax.

4.      As regards the leviability of service tax on runway ( for aircrafts) is concerned the same is
not subject to levy of service tax under taxable service of commercial or industrial construction
services as airports have been excluded form the ambit of the said service. An airport sans runway
cannot be called an airport and also no distinction has been made between a civilian or military
airport under the Service Tax law.

5.      As regards your query regarding the leviability of service tax on messes, stadium, hospitals,
storage sheds, canteen educational institutions, training centres swimming pools water and supply
etc. the same shall have to be considered in the light of its usage i.e. to say whether the same are
meant primarily for commerce or industry or not { Refer section 65 (105) zzq read with section 65
(35b) of Finance Act, 1994}.

6.      As regards, your query whether the service tax liability in the case of ongoing contracts
which were being executed under their respective construction services prior to 01.06.2007 can be
discharged under category of taxable service of Work Contract Service under composition scheme
on that part of the contract which would be executed after 01.06.2007, it is stated that one of the
conditions for operation of the said scheme is that the service provider has to opt for the
composition scheme in respect of works contract prior to payment of service tax in respect of the
said works contract. Since the service tax would have been paid in respect of that portion of the
contract which stands executed, the service provider not being in a position to comply with rule 3
(3) of the Works Contract ( Composition scheme for payment of Service Tax) Rules, 2007 shall not
be in a position to opt for the said scheme. The Board has now issued a clarification on the issue
vide its circular No. 98/1/2008-St dated 04.01.2008 ( copy enclosed) which is self-explanatory.

7.     As regards the matter of inclusion of the cost of material supplied free of cost for execution
of works contract, the matter is being referred to the Board for clarification.

        “The above reply is based on the interpretation of the facts made available on the aforesaid
letter and their natural meaning. It is possible that some unreported facts may lead to revision of
the opinion provided. This opinion has been given by the office as a part of the department
emphasis on facilitation. For reason explained, it is not intended to be used as a legal defence
should a liability arise for any reasons, whatsoever.”

                                                                Yours sincerely,

                                                            ADDITIONAL COMMISSIONER

Encls: As above.
                                         F. No. 137/26/206-CX.4
                                            Government of India
                                            Ministry of Finance
                                          Department of Revenue
                                    Central Board of Excise & Customs.

                                                                  New Delhi, dated the 5th July, 2006

            The Commissioner of service Tax
            17-B, IAEA House, Mahatma Gandhi Marg
            I.P.Estate, New Delhi – 110002
            Sub: Applicability of service tax on construction of residential complexes for
                 army personnel. reg.

            Please refer to your letter C.No. IV (16) HQRS/TECH/230/ST/05 dated 25.1.2006 &
            13.3.2006 and this office reply F.No. 137/26/2006-CX.4 dated 7th June, 2006 on the above

       02      Subsequently, a news article (copy enclosed) appeared in Business Standard (New Delhi
               edition 26th June, 2006), referring to an expert opinion given by Shri J.K. Mittal,
               Advocate. Sh. Mittal appears to have questioned the correctness of the aforesaid
               clarification, inter alia, on the ground that the service tax is leviable on construction of
               only such residential complexes, where the layout of the premise requires approval by an
               authority under any law, for time being in force. As per Sh. Mittal in the instant case the
               Defence Services layout does not require approval of MCD/ DDA.
       03      The matter has been re-examined. It is true that service tax is leviable only on such
               complexes the layout of which is required to be approved by statutory authorities. The
               letter of this office dated 7th June 2006 did not touch upon this issue since the query
               raised by you or DGMAP did not seek clarification on this issue.
       04      In view of the above, it is now further clarified that service tax would not be leviable on
               construction of complexes under question if their layout does not require approval by an
               authority under any law for the time being in force.
       05      This issue with the approval of Member (ST).

                                                                       Yours faithfully,
                                                                     (Gautam Bhattacharya)
                                                                   Commissioner (Service Tax)
                                                                       CBEC, New Delhi
Encl: As above.

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