Landmark Service Tax Judgment - Construction of Residential Complex Services

According to Section 65 (105) (zzzh), any service provided or to be provided to any person, by any other person, in relation to construction of complex is a ‘taxable service’

Explanation.—For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorised by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer;

According to Section 65 (30a) “construction of complex” means —

construction of a new residential complex or a 

(a) part thereof; or completion and finishing services in relation 

(b) to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or repair, alteration, renovation or restoration 

(c) of, or similar services in relation to, residential complex;

According to Section 65 (91a) “residential complex” means any complex comprising of—

(i) a building or buildings, having more than twelve residential units;

(ii) a common area; and

(iii) 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.

Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this clause, —

(a) “personal use” includes permitting the complex for use as residence by another person on rent or without consideration;

(b) “residential unit” means a single house or a single apartment intended for use as a place of residence;

This service would generally cover construction services in respect of residential complexes developed by builders, promoters or developers. Such residential complexes are normally constructed after obtaining approval of the statutory authority for their layout. For the purpose of this levy, residential complex means,

­(i) a building or buildings located within a premises;

(ii) total number of residential units within the said premises are more than twelve;

(iii) having common area;

(iv) having common facilities or services; and

(v) layout of the premises has been approved by the appropriate authority.

Common area would include roads, staircases and other similar areas where residents of the residential complex have easement rights. The list of facilities prescribed is merely illustrative and not exhaustive. Some residential complexes may also contain other facilities such as market or shopping complex, schools, security, banks, gymnasium, health club, sports facilities, power back up and the like.

Repair, alteration, renovation or restoration of residential complexes would also be liable to service tax. Such services provided in relation to residential complexes which are in existence before the levy has come into force and are not new, would also be taxed.

Residential complex constructed by an individual, which is intended for  personal use as residence and  is constructed by directly availing services of a construction service provider, is also not covered under the scope of the service tax and not taxable.

(a) Small service providers whose aggregate value of taxable services rendered in the previous year has not exceeded the limit of Rs. 10,00,000/- (Service Tax Notification No. 8/2008-ST dated 01.03.2008)

(b) Services provided to the United Nations or International Organisations

(c) Services provided to Special Economic Zones (SEZ) units (including unit under construction) and SEZ developers

(d) Services which are exported as per ‘Export of Services’ Rules

(e) Services provided for official or personal use of foreign diplomatic missions and family members of diplomatic missions.

(f) Services provided to Reserve Bank of India

(g) Out of total value of service provided proportionate value of goods and material provided by the Service Provider

Construction of complex consisting of 12 or less than 12 residential units shall not be considered as construction of residential complex and service tax is not levied

Taxable value of Construction of Residential Complex Service shall be exempt in excess of 33%. In other words abatement of 67% is available.

ISSUE 1: Whether service tax is liable under construction of complex service [section 65(105)(zzzh)] on builder, promoter, developer or any such person,-

(a) who gets the complex built by engaging the services of a separate contractor, and

(b) who builds the residential complex on his own by employing direct labour?

ANSWER 1:

(a) In a case where the builder, promoter, developer or any such person builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of the said residential complex, the contractor in his capacity as a taxable service provider (to the builder / promoter / developer / any such person) shall be liable to pay service tax on the gross amount charged for the construction services under ‘construction of complex’ service [section 65(105)(zzzh)].

(b) If no other person is engaged for construction work and the builder / promoter / developer / any such person undertakes construction work on his own without engaging the services of any other person, then in such cases,-

(i) service provider and service recipient relationship does not exist,

(ii) services provided are in the nature of self-supply of services.
Hence, in the absence of service provider and service recipient relationship and the services provided are in the nature of self-supply of services, the question of providing taxable service to any person by any other person does not arise.