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Service
Tax is made applicable to construction sector,
including residential and commercial construction
being taken by the Promoters/Builders. Builders
do not agree, and have filed number of Writ
Petitions (WP). Promoters and Builders Association
of Pune (PBAP) was the first to file WP,
which is coming for admission on 26th April
2006 at Mumbai HC.
Let one
understand as to what is real stand of Builders.
Builders agree that Service Tax is applicable
to them. And accordingly most of the Builders
have started paying service tax (ST) on
whatever services they take. They are paying
/ ready to pay ST on Architectural services,
services from Structural Engineers, on Contractor
(who actually carries out construction,
on Labour contractor's bills, if they are
doing construction work themselves. They
are also paying ST on transport bills, telephone
bills, and other services that they normally
take.
And Since Builders are not registered, they
are not entitled to get set-back on ST that
they themselves have paid.
Builders say that ST is not applicable to
sale of Flats. Selling Flats, or any constructed
property on ownership basis could not be
considered as a service. It is pure SALE.
Builders are not service providers. They
purchase or tie up Land from/with the Owner
of land. The document is registered. The
Owner, as per rules, pays taxes at this
stage. Direct sale of Property, and Development
agreements, both are considered as transfer
of property under I/Tax rules.
Builders then develop the land by constructing
Fencing / compound, level the land, plan
/ provide infrastructure like approach road,
water supply, drainage, communication etc
etc. They plan construction and get the
plans approved from the local authority
with help of their Architect. Get the structure
designed. And commence construction work.
They print Brochures and advertise for their
projects. Till this stage, they even do
not know as to who will be their buyer.
And Builders go on constructing irrespective
of whether they get buyer or not. For Service
Tax, there has to be service provider, and
service seeker. In this case where is the
service-seeker? And, even at latter stage,
the buyer has no say in construction. He
can not add column or remove column. He
can not for that matter change specifications
or amenities of the building. He can at
the most add accessory or two. That also
at extra cost, like one may add seat covers
while purchasing a car. If buyer is considered
as supreme, and Builder as a contractor,
then Buyer will definitely have the final
say, But the flat-buyer, does not have that
final say.
After completion of the project, builder
conveys (sales) the flat with land to the
individual buyer under "Deed of Apartments",
or conveys total property in the name of
the "Society". Stamp Duty is paid on total
amount of sale which includes cost of land
and cost of construction. Stamp Duty is
paid on instruments under "Transfer of Property"
Act.
Department is quoting ruling of SC on the
case of "Raheja Builders" at Karnataka.
In Raheja's case, they were selling land
by one agreement, and constructing as a
contractor under another agreement. It was
probably planning due to high stamp duty
in Karnataka. They, working as a contractor,
naturally are liable for works contract
/ service tax on the contract value.
In Maharashtra, Builders do not do jugglery
of (two or) multiple agreements. Sale of
flat therefore is a sale, and not a service.
Otherwise also, when two departments I/Tax
and registration department consider it
as transfer of property, then how can it
be called service tax?
PBAP is not fighting for its own taxes,
but is fighting for the Flat- purchaser's
right. If Builders register themselves with
the Excise Department, and they collect
ST from the flat-purchasers, then they will
be able to offset (get set-back) ST paid
by them. They will be gainers and not losers.
But poor flat-purchaser will suffer, and
be burdened more by about 4.5% of the cost
of flat.
Keeping the Sentiments apart, Builders sale
their commodity, and definitely is not a
service provider, by any simple common sense
logic.
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