ISSUES IN CONSTRUCTION AND

WORKS CONTRACT
UNDER SERVICE TAX

K.VAITHEESWARAN

ADVOCATE & TAX CONSULTANT

Mobile: 98400-96876
E-mails : vaithilegal@yahoo.co.in
vaithilegal@gmail.com
www.vaithilegal.com
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048

402, Front Wing,

House of Lords,
15/16, St. Marks Road,
Bangalore 560 001, India
Tel : 080 22244854/ 41120804

Section 65B(44) defines service to mean any activity

carried out by a person for another for consideration and
includes a declared service, but shall not include
(a) an activity which constitutes merely, (i) a transfer of title in goods or immovable property by
way of sale, gift or in any other manner;
(ii)such transfer, delivery or supply of any goods
which is deemed to be a sale within the meaning of
clause (29A) of article 366 of the Constitution; or

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Service includes a declared service but does not include an

activity of transfer of title in immovable property by way of
sale, gift or in any other manner.
Section 66E(b) while setting out declared services covers
construction of a complex, building, civil structure or part
thereof including a complex or building intended for sale to a
buyer wholly or partly, except where the entire consideration is
received after issuance of completion certificate by the
competent authority.
Sale of an immovable property is excluded
Construction of a complex where monies are received before
issue of completion certificate is a declared service.
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No more complex definition of construction of complex

Whether Macro Marvel decision is still relevant?
Notification No. 25/2012 dated 20.06.2012 w.e.f. 01.07.2012
exempts services by way of construction, erection,
commissioning or installation of original works pertaining
to a single residential unit other than as a part of a
residential complex (Entry 14 (b)).
Residential complex is defined to mean any complex
comprising of a building or buildings having more than one
single residential unit.
Single residential unit means a self contained residential unit
which is designed for use wholly or principally for residential
purposes for one family.
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Original works means:

(i) all new constructions;
(ii) All types of additions and alterations to abandoned or
damaged structures on land that are required to make
them workable.
(iii) Erection, commissioning or installation of plant,
machinery or equipment or structures whether prefabricated or otherwise.

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Activity

Taxability

Construction of a complex comprising of

more than one residential unit

Taxable

Construction of a single bungalow of a

size of 5000 sq. ft. meant for a family

Not taxable

Construction of a two unit building with

separate floor plans and paid for
separately by two brothers

Taxable?

Construction of 50 villas in a gated

community

Taxable?

Alteration and re-modeling of an existing

single residential unit

Taxable if not in the nature of original

works

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Earlier provision required a complex to have more than 12

residential units.
New provision creates a liability for any construction of
complex unless it is a single residential unit.
Construction of a complex comprising of 6 apartments has
started on 01.01.2012 and 30% of the monies have been
received under agreements.
Martin Lottery decision.
No tax position
Proportionate tax position
Can monies received earlier now be subjected to tax based
on Point of Taxation Rules ?
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DESCRIPTION OF TAXABLE
SERVICE
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.
(a)For a residential unit
satisfying both conditions
namely carpet area being less
than 2000 sft. and amount
charged being less than Rs.1
crore.
(b)
Other than (a)

PERCENTAGE

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

25

30

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(ii) The value of land is

included in the amount
charged from the service
receiver.

Joint Venture
Different models
Monetary share / share of constructed area
Is the contractor liable to pay service tax on
construction done for the land owner?

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An agreement between the owner of a land and a builder for construction

of apartments and sale of those apartments so as to share the profits may
be a joint venture, if the agreement discloses an intent that both parties
shall exercise joint control over the construction/development and be
accountable to each other for their respective acts with reference to the
project.
On facts there is a contract for construction of an apartment and there is
consideration for such construction flowing from the land owner to the
builder (in the form of sale of undivided share in the land and permission to
construct and own the upper floors).
The land owner is the consumer, builder is the service provider.

Tax on same rate as charged on other buyers

Tax on average rate
Tax on construction cost
Tax payable by adopting value of UDS transferred
Decision of the Supreme Court (Faqir Chand Gulati Vs.
Uppal Agencies Pvt. Ltd.) Consumer case.

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Chennai Tribunal in the case LCS City Makers Vs. CST (2012)
TIOL 618 has held that:
(a ) there is no infirmity in adopting value of the flats sold for
value of flats allotted to land owners.
(b) guideline value of land cannot be adopted.
(c) Contention that consideration received other than in the
form of money prior to 19.04.2006 not acceptable as
substantial part of service was provided after valuation rules
were notified.

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The Chennai Tribunal in the case of Aswini Apartments (unreported)

vide order dated 15.07.2013 on a similar issue remanded the matter back
to the adjudicating authority to give a ruling on the legal issues raised.
One of the legal issues raised was that in respect of land owner share the
consideration would be the notional value received for the value of
undivided share of land obtained from the land owner. This decision was
rendered after the decision of LCS.
The Commissioner (Appeals), Chennai in the case of Navin Housing and
Promoters Pvt. Ltd. in O-i-A No.209/2010 dated 10.12.2010 has held
that where the land owner is given any constructed area as part of the
joint venture, service tax is not applicable on landowner share.
Board Circular dated 151/2/2012 dated 10.02.2012 - the value of similar
flats as are sold nearer to the date on which land is being made available

Developer is likely to recover the service tax

in respect of the apartments allocated to the
landowner.
If landowner markets these apartments prior
to issue of completion certificate and receives
money in advance, service tax exposure.
If landowner executes a single sale deed for
the apartment and the land?

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Where the document that is executed is in the nature of an

agreement for transfer and possession is handed over as part
performance as contemplated in Section 53A of the Transfer
of Property Act, 1882 then there is a transfer and capital
gains would arise immediately. This would be evident in a
situation where the developer settles the consideration in
the form of money or monies worth on an outright basis and
the land owner has no relevance or say in the development
work.

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Bombay High Court in Chaturbhuj Dwarkadas Kapadia Vs. CIT (2003) 260 ITR
491, has in the context of development agreements held that the year of
taxability is the year in which the contract is executed. The Court held that in the
case of development agreement one cannot go by substantial performance of
the contract and the year of chargeability would the year of execution.
The decision of the Bombay High Court in the case of Chaturbhuj Dwarkadas
Kapadia was distinguished by the Bombay Tribunal in the case of ACIT Vs. Mrs.
Geetha Devi Pasari (104 TTJ 375)
The Pune Bench of the Tribunal in the case of Mahesh Nemichandra Vs. ITO
(2012) TIOL 408 has held that where the assessee forms a JV with a builder for
development of property and enters into an irrevocable agreement the date of
the Agreement would be the date of transfer .
The Mumbai Tribunal in the case of Hillside Construction Co. Vs. DCIT (2012)
TIOL 516 has held that where developments rights were parted the entire
amount became due on signing of the development agreement and handing over
of possession of the land. Postponement of payment does not stop accrual of
income.

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Chennai Tribunal in Mount Mettur Pharmaceutical (2008

TIOL 657) has held that when vacant possession of undivided
share of land Is handed over on 16.04.1996, the transfer took
place on 16.04.1996.
AAR in Jasbir Singh Sarkaria (294 ITR 196) has ruled that for
Section 2(47)(v) to apply there must be a transaction under
which the possession of immovable property is allowed to be
taken or allowed to be retained. What is contemplated is a
transaction which has a direct and immediate bearing on
allowing possession to be taken in part performance of the
contract of transfer. It is at that point of time the deemed
transfer takes place.

Hyderabad Bench of the Tribunal in the case of Akkineni

Nagarjuna Rao (2012) 52 SOT 23 has held that where a plot
of land was given for development to the developer under an
agreement with a promise by the developer to handover
35% of the built up area, it is a case of transfer since
possession of the land had been handed over.
Chennai Bench of the Tribunal in the case of Vijaya
Productions (2012) 134 ITD 19 has held that when
possession is not taken and the power is only to enable
contractual obligations in planning and development there is
no transfer.

(i) If possession is handed over to the developer on the date of signing the
development agreement then in the light of the various decisions
referred to above and in the absence of an alternative view emerging in a
higher forum, transfer would take place on the date of execution of the
development agreement.
(ii) If possession of property as well as the right to deal with the property in
any manner is granted through a power of attorney at a later point of
time and the agreement refers to this aspect as a specific future
transaction to be consummated on the happening of an event, then the
year of taxability would be the year in which the said transaction takes
place.
(iii)Where transfer takes place by virtue of any of the trigger points, the land
owner can take recourse to Section 50D and adopt the fair market value
as the consideration for the purpose of calculating capital gains.

Date of possession
Conflict between developer and landowner
Postponement of date of possession from a
capital gain perspective may result in higher
service tax liability.

Section 65B(54) of the Finance Act, 1994 defines works

contract as under: 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
purpose of carrying out construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance,
renovation, alteration of any moveable or immovable property
or for carrying out any other similar activity or a part thereof in
relation to such property.

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In the earlier regime only select works

contracts were covered under the service tax
levy.
In the new regime all works contracts are
taxable.
Repair and maintenance is also considered as
a works contract.

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Value of service portion = Gross amount charged for the works

contract Less the value of property in goods transferred in the
execution of the said works contract.
Gross amount shall not include VAT.
Value shall include labour, amount paid to sub-contractor for
labour and services, charges for planning, design, architect, hire,
cost of consumables, cost of establishment, similar expenses and
profit relatable to supply of labour and service.
Where VAT has been paid on the actual value of the property in
goods transferred in the course of execution of WCT then such
value adopted for VAT shall be taken as value of property in goods
for determination of value of services.
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CATEGORY
WCT for execution of original works

VALUE
40% of the total amount charged

WCT for maintenance or repair or

70% of the total amount charged
reconditioning or restoration or
servicing of any goods or
maintenance, repair, completion and
finishing services such as glazing,
plastering, floor and wall tile,
installation of electrical fittings of an
immovable property.
Cenvat credit is not available on
inputs.
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When Section 65B(44) excludes specifically

transfers referred to in Article 366(29A), can Rule 2A
create a higher liability including the goods portion.
For certain contracts under the VAT Law, 85% is
accepted as goods portion and 15% is accepted as
labour portion. For the same contract, under the
Service Tax Law, labour portion is 40%.
For maintenance contracts, 70% is adopted as
service value under service tax law and VAT law
adopts 70% as material value.
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The Supreme Court in the case of Raheja

Development Corporation had observed that an
agreement entered into by a developer before the
construction is complete is a works contract.
This decision was doubted by the Supreme Court and
the matter was referred to the Larger Bench in the
case of Larsen & Toubro Ltd. Vs. State of
Karnataka.
The Larger Bench vide decision dated 26.09.2013 has
rendered a landmark decision which will have far
reaching implications for the real estate industry.

Raheja Development entered into development agreements

with landowners.
Raheja Development entered into agreements of sale with
intended purchasers.
The agreements provided that on completion of
construction the residential apartments or commercial
complexes would be handed over to the purchasers who
would get an undivided interest in the land also.
The owners of the land would then transfer the ownership
directly to the society formed under the Karnataka
Ownership Flat (Regulation of the Promotion of
Construction, Sale, Management and Transfer) Act, 1972

The definition of works contract included any

agreement for carrying out for cash, deferred
payment or other valuable consideration, the
building, construction, manufacture,
processing, fabrication, erection, installation,
fitting out, improvement, modification, repair
or commissioning of any movable or
immovable property.

Three conditions must be satisfied for the levy

namely
(a) There must be a works contract
(b) The goods should have been involved in the
execution of the works contract
(c) The property in those goods must be transferred
to a third party either as goods or in some other
form.
If the developer has received or entitled to
consideration all the three conditions are fully met.

In the performance of the contract for construction,

the goods are intended to be incorporated in the
structure even though they lost their identity as
goods.
Where a contract comprises of both works
contract and transfer of immovable property such
contract does not alter the status of being a
works contract.
A contract may involve both a contract of work and
labour and a contract for sale.

Even if the dominant intention is not to

transfer the property in goods and rather it
is rendering of service or the ultimate
transaction is transfer of immovable
property, it is open to the States to levy
sales tax on the materials used in such
contract if such contract otherwise has
elements of works contracts.

Taxing the sale of goods element in WCT is

permissible even after incorporation of goods
provided the tax is directed on the value of goods
and does not purport to tax the transfer of
immovable property. The value of goods which
can constitute the measure for levy of tax has to
be the value of goods at the time of incorporation
of the goods in the works even though the
property passes as between the developer and
the flat purchaser after incorporation of goods.

It is not correct to say that the work is undertaken

by the developer for himself and for the owner
and the construction is not carried on for and on
behalf of the purchaser.
If at the time of construction and until construction
is completed there is no contract for construction of
the building with the flat purchaser, the goods used
in construction cannot be deemed to have been sold
by the builder since at that time there is no
purchaser.

The expression in any other form is of utmost significance.

Goods which have by incorporation become part of
immovable property are deemed as goods.
The ultimate transaction between the parties may be sale
of flat but it cannot be said that the characteristics of WCT
are not involved in that transaction. When the transaction
involves the activity of construction factors such as, the
flat purchaser has no control over the materials to be used
or he does not get a right to monitor construction or has a
say in design or layout are not of significance.

It cannot be said to be an absolute proposition in

law that ownership of the goods must pass by way
of accretion or exertion to the owner of the
immovable property to which they are affixed or on
which the building is built.

In the light of this decision, the argument that

the developer is providing only a self service
becomes questionable.
If the construction agreement between the
developer and the purchaser is a works
contract, what will happen to the disputes for
the period prior to 01.07.2010.
Prior to 01.07.2010, Department has issued
show cause notices under construction of
complex and not under works contract.

If agreement between developer and

purchaser is a WCT for VAT purposes based on
decision of L&T then it is also WCT for service
tax purposes.
Service tax at the rate of 12.36% on 40% of the
construction agreement?
Is there any difference between construction
of complex as a category and works contract
service since both categories are considered
as declared services in terms of Section 66E?

Assuming land value is Rs.50 lakhs and construction

consideration is Rs.1 crore, under construction of
complex service, service tax is payable at rate of
12.36% on 30% of Rs.1.5 crores that is Rs.5,56,200/-.
Under works contract service, service tax is payable
at the rate of 12.36% on 40% of Rs.1 crore that is
Rs.4,94,400/-.
Cenvat credit effect is neutral in both systems since
credit is available on capital goods and input
services and not available on inputs.

Composite contract for manufacture, supply

and installation of lifts in a building whether
it is a contract for sale of goods or a works
contract.

A Five Member Bench of the Supreme Court in the case of

Kone Elevator India Pvt. Ltd. Vs. State of Tamil Nadu
(2014) 34 STR 641 has held as under:Works contract is an indivisible contract but by legal fiction it
is divided into two parts, one for sale of goods and the other
for supply of labour and services.
The concept of dominant nature test for treating a contract
as a works contract is not applicable.
Works contract under Article 366(29A) takes within its
sweep all genre of works contract.
Once the characteristics of works contract are met in a
contract, any additional obligation in the contract would not
change the nature of the contract.

A lift is not a plant which is erected at site. Without

installation the lift cannot be mechanically functional.
Installation of lift in a building is a composite contract.
In L&T the Bench has held that the ultimate transaction
between the parties may be the sale of a flat but it cannot be
said that the characteristics of WCT are not involved in that
transaction.
If the contract is a composite contract falling within the
definition of WCT under Article 366(29A), the incidental part
as regards labour and service pales into total insignificance
for the purpose of determining the nature of the contract.

It is necessary to state that if there are two contracts namely

purchase of the components of the lift from the dealer, it
would be a contract for sale and similarly if separate contract
is entered into for installation that would be a contract for
labour and service. But a pregnant one, once there is a
composite contract for supply and installation it has to be
treated as a works contract for it is not a sale of goods /
chattel simpliciter.

Rationale of Kerala High Court decision in the case of Kerala

Classified Hotels
The Uttarakhand High Court in the case of Valley Hotel &
Resorts Vs. Commissioner (2014-TIOL-600) has held that
since a restaurant pays service tax on 40% of the value VAT
cannot be imposed on such value. The Court held that VAT
can be imposed only on sale of goods and not service. Since
the authority competent to impose service tax has also
assumed competent to declare what is a service and the
State has not challenged the same, no VAT can be imposed
on that amount.

The Mumbai Bench of the Tribunal in the case of ITO Vs. Mrs. Chetana H. Trivedi
(2012) TIOL526 has held that the right to construct building on the said plot of
land by consuming FSI and the right as a receiving plot owner to load TDR over
and above the normal FSI, are rights which accrue to the assessee by virtue of the
development control regulation for Greater Bombay. These are rights over
property, which are capital assets within the meaning of the definition of capital
assets under section 2(14). The consideration received by the assessee was for
transfer of rights over such asset and same would fall under Section 45.
The Mumbai Bench of the Tribunal in the case of ACIT vs. Ishverlal
Manmohandas Kanakia ITA No. 3053 & 2650/Mum/2010 has held that the
receipts on assignment of FSI including originating from theplot of
landand/ormarried toit and right to load consume and use FSI credit by way of
TDR which was the subject matter of transfer by the Assessee was a capital asset
in respect of which the cost of improvement could not be ascertained and
therefore the receipts of consideration for transfer of the said rights cannot
be brought to tax as the said receipts will be capital receipts and not capital
gain.

The Bombay High Court in the case of Chheda Housing Development

Corpn., a Partnership firm Vs. Bibijan Shaikh Farid & Ors. (2007) (3)
MHLJ 402 (Bom.) dealing with specific performance of Agreement for
use of TDR held that FSI/TDR are benefits arising from the land
consequently must be held as immovable property. The Court observed
that an immovable property under the General Clauses Act, 1897 under
section 3(26) has been defined as to include benefits arising out of land.
Therefore, if there is any benefit which arises out of the land, then it is
immovable property.
The Mumbai Bench of the Tribunal in the case of Jethalal D. Mehta Vs.
DCIT (2005) 2 SOT 422 (Mum.), following the judgment of Apex court in
CIT vs. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) held that TDR
granted by DCR, 1991 qualifying for equivalent F.S.I. having no cost of
acquisition, sale thereof gives no rise to capital gains.

The Mumbai Bench of the Tribunal in the case of ITO Vs. Lotia Court Cooperative Housing Society Ltd. (2008) TIOL 404, held that the assignment of the
TDRs to the developer and in turn the additional floors to be constructed and also
repairs/renovation of the building to be carried out, does not result in to accrual of
any income in the hands of the assessee society, who is not the owner of the plot.
Even in the case of flat owners who owned the individual flats in the respective
names, there is no question of taxability of receipt on account of sale of additional
floor space index received by the assessee by virtue of transfer of TDRs under the
Development Control Regulation for Greater Mumbai, 1991. Receipt on sale or
assignment of rights to receive TDRs is held not liable to tax.
The Mumbai Bench of the Tribunal in the case of New Shailaja CHS vs. ITO (ITA
NO 512/M/2007.BENCH B dated 2nd Dec., 2008 (Mumbai) wherein the assessee,
a Co-op. Housing Society became entitled, by virtue of the Development Control
Regulations, to Transferable Development Rights (TDR) and the same were sold
by it for a price to a builder, it was held that though the TDR was a capital
asset, as there was no cost of acquisition for the same, the consideration
could not be taxed as capital gains.

Can TDR be considered as goods?

The Supreme Court in the case of Yasha Overseas Vs. Commissioner of
Sales Tax (2008) TIOL 97 SC-CT has held that DEPB like REP license
clearly goods within the meaning of sales tax laws and it sale exigible to
tax.
The Commissioner under Section 85 of the Delhi VAT Act has issued a
Ruling to the effect that Certified Emission Reductions (CER) commonly
known as Carbon Credit are goods.
If TDR is considered as immovable property, there is no service tax.
If TDR is considered as goods there is no service tax but VAT / CST
applicability has to be addressed.

Stamp duty and registration

Service tax
VAT
VAT - TDS
TDS under Section 194-IA

Services provided to the Government, a local authority or a

governmental authority by way ofconstruction,erection,
commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of -

(a)
a civil structure orany other original works meant predominantly
foruse other than for commerce, industry, or any other business or
profession;
(b)
a historical monument, archaeological site or remains of national
importance, archaeological excavation, or antiquity specified under the
Ancient Monuments and Archaeological Sites and Remains Act, 1958;
(c) a structure meant predominantly for useas
(i) an educational,
(ii) a clinical, or
(iii) an art or cultural establishment;

(d) canal, dam or other irrigation works;

(e) pipeline, conduit or plant for
(i)
water supply
(ii)
water treatment, or
(iii)
sewerage treatment or disposal; or
(f)a residential complex predominantly meant for self-use or the use
of their employees or other persons specified in theExplanation1 to
clause 44 of section 65 B of the said Act.

Originalworks means
(i)
all new constructions;
(ii)
all types of additions and alterations to abandoned or
damaged structures on land that are required to make them
workable;
(iii)
erection, commissioning or installation of plant, machinery
or equipment or structures, whether pre-fabricated or otherwise;

Residentialcomplex means any complex comprising of a building or

buildings, having more than one single residential unit.
Governmental Authority means an authority or a board or any other body:
(a) set up by an Act of Parliament or a State Legislature; or
(b) established by Government;
with 90% or more participation by way of equity or control to carry out any
function entrusted to a municipality under Article 243W of the Constitution

Services provided by way ofconstruction,erection,

commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of,-

(a)a road, bridge, tunnel, or terminal for road transportation for use by
general public (general public is defined to mean body of public at large
sufficiently defined by some quality of public or impersonal nature);
(b) a civil structure orany other original works pertaining to a scheme under
Jawaharlal Nehru National Urban Renewal Mission or RajivAwaasYojana;
(c) a building owned by an entity registered under section 12 AA of the
Income tax Act, 1961 and meant predominantly for religious use by
general public;
(d) a pollution control or effluent treatment plant, except located as a
part of a factory; or
(e) astructure meant for funeral, burial or cremation of deceased;

Services by way of construction, erection, commissioning,

or installation of original works pertaining to,-

(a)
an airport, port or railways, including monorail or metro;
(b)
a single residential unit otherwise than as a part of a residential complex;
(c)
low- cost houses up to a carpet area of 60 squaremetresper house in a
housing project approved by competent authority empowered under the
Scheme of Affordable Housing in Partnership framed by the Ministry of Housing
and Urban Poverty Alleviation, Government of India;
(d)
post- harvest storage infrastructure for agricultural produce including a cold
storages for such purposes; or
(e)
mechanisedfood grain handling system, machinery or equipment for
unitsprocessingagricultural produce as food stuff excluding alcoholic beverages;

Single residential unit means a self-contained residential unit which is

designed for use, wholly or principally, for residential purposes for one
family.
Residentialcomplex means any complex comprising of a building or
buildings, having more than one single residential unit.

Section 68(2) provides that in respect of such taxable

services as may be notified the Government may
specify that the tax shall be paid by such person in
such manner at the rate specified in Section 66B and
all the provisions of this Chapter shall apply to such
person as if he is a person liable for paying service
tax.
The proviso provides that the Government may
notify the service and the extent of service tax
payable by such person and the remaining part shall
be paid by the service provider.

Nature of
Service

Service
portion in
execution of
works
contract.

Status of
Service Provider

Individual / HUF /
Partnership Firm
whether registered or
not, including AOP
located in the taxable
territory to a business
entity registered as a
corporate located in the
taxable territory.

Status of Service
Receiver

Business entity
registered as a body
corporate.

Percentage of Service Tax

Payable by
Service
Provider

Service
Receiver

50%

50%*
*The service
recipient has the
option of
choosing the
valuation
method as per
choice
independent of
the valuation
method adopted
by the provider.

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 purpose of carrying out
construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance,
renovation, alteration of any moveable or
immovable property or for carrying out any other
similar activity or a part thereof in relation to such
property.

Activity
Material + Labour
Position in VAT
Section 194C
Past period
VAT TDS

It is to be noted that the tax liability for the service provider and the service
receiver respectively are independent. This is not like a TDS mechanism
and would require discharging of the identified percentage of service tax.
Assuming, the reverse charge mechanism is applicable in respect of works
contract service provided by a non-corporate body (individual or AOP or
HUF or Partnership firm) and the bill is for Rs.1 lakh, the Company can
calculate value as 40% and the service tax liability of the Company under
reverse charge mechanism would be 50% of 12.36% calculated on 40% of
the WCT value.
Assuming, reverse charge mechanism is applicable in respect of manpower
services or security services provided by a non-corporate body and the bill
is for Rs.1 lakh the service tax liability of the Company under reverse
charge mechanism would be 75% of 12.36% on Rs.1 lakh.

10 Lakh exemption not available

Payment should be made only by cash and not through
cenvat
Amount paid can be taken as credit if otherwise eligible and
the challan is the cenvatable document
Payment by the provider in full may not insulate the receiver
from liability to the extent of the receivers portion of tax

If service tax due on transportation of a

consignment has been paid or is payable by a
person liable to pay service tax, service tax
should not be charged for the same amount
from any other person, to avoid double
taxation.

There is no dispute that service in question has suffered tax.

The only dispute is the person who shall pay the service tax.
When the treasury has not been affected by virtue of
collection of service tax from the service provider as is the
case of the Revenue and there is no legal infirmity in the
decision of the learned Commissioner (Appeals) there
cannot be double taxation of same service. But it is fact that
realization of the service tax has been made from the service
provider while the recipient of service of GTA has liability
under the law. Finding no loss of revenue, as has been held
by the learned Commissioner (Appeals), Revenues appeal is
dismissed.

The Mumbai Bench of the Tribunal has held

that once the amount of service tax is
accepted by the revenue from the provider of
GTA service it cannot be demanded again
from the recipient of the GTA service.

Free supply of materials to contractor.

The Larger Bench of the Tribunal in the case of Bhayana Builders Pvt.
Ltd. Vs. CST (2013) 32 STR 499 in the context of whether materials
supplied free of cost by the client should be included in the value for the
purpose of service tax has held as under:(i) In the context of Section 67, non-monetary consideration must
still be a consideration accruing to the benefit of the service provider
from the service recipient and for the services provided.
(ii) The value of goods and materials supplied free of cost by a service
recipient to the provider of the taxable construction service being neither
monetary or non-monetary consideration paid by or flowing from the
service recipient, accruing to the benefit of the service provider would be
outside the taxable value or the gross amount charged within the
meaning of the expression in Section 67.

Even under the new dispensation, the material supplied free by the
contractee cannot constitute consideration.
The Madras High Court in the context of income tax in the case of CIT Vs.
Guruswami Gounder (K.S) and Krishna Raju (KS) (1973) 92 ITR 90 has
held that the cost of the materials supplied to the contractor by the
contractee cannot be included in the total receipts for computing income
of the contractor.
The Supreme Court in the case of Brij Bhushan Lal Parduman Kumar Vs.
CIT (1978) 115 ITR 524 has held that in substance and reality the material
supplied by the contractee always remains with him and the contractor
merely had custody and fixed or incorporated them into the works. The
Supreme Court approved the decision of the Madras High Court in the
case of Guruswami Gounder cited supra.

The definition of service excludes transfer of title in

immovable property by way of sale, gift or in any other
manner.
Immovable property not defined.
Immovable property in terms of General Clauses Act
includes land, benefits to arise out of land, things attached
to the earth or permanently fastened to anything attached
to the earth.
Joint Development Landowner / Developer perspective
Can the transaction be seen as barter of land for constructed
apartments?
Can the transaction be seen as a transfer of title in
immovable property from both sides?

Section 118 of the Transfer of Property Act provides that when two
persons mutually transfers the ownership of one thing for the ownership of
the other, neither thing or both things being money only, the transaction is
called an exchange.
The Supreme Court in the case of CIT Vs. Motor & General Stores Pvt.
Ltd. has held that a transaction in which the consideration for the transfer
of certain properties are shares in a limited company is an exchange.
The Supreme Court in the case of CIT Vs. Rasiklal Maneklal (1989) 177 ITR
198 has held that an exchange involves the transfer of property by one
person to another and reciprocally the transfer of property by that other to
the first person. There must be a mutual transfer of ownership of one
thing for the ownership of another.
Whether the flats to be exchanged exist at the time of the land being
handed over?

Relinquishment of rights in immovable property.

Whether it can be considered as merely transfer of title in
immovable property by way of sale, gift or in any other
manner.
Scope of Section 66E(e) dealing with agreeing to the
obligation to refrain from an act, or to tolerate an act or a
situation or to do an act.

K.VAITHEESWARAN
ADVOCATE & TAX CONSULTANT

Mobile: 98400-96876
E-mails : vaithilegal@yahoo.co.in vaithilegal@gmail.com
www.vaithilegal.com

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