Construction companies evaded Rs710 crore service tax, says CAG

The comptroller and auditor general (CAG) of India has in its performance audit of service tax on construction services for 2008-09 pegged evasion at Rs710.24 crore.

The CAG has named Lanco Infratech and Larsen & Toubro for not discharging service tax liability worth Rs62.61 crore and Rs272.66 crore, respectively, received between July 2007 and March 2008 for canal irrigation contracts, treating the projects exempted.

Going forward, the CAG has recommended broad-basing the service tax net on the real estate sector, and setting up mechanisms for monitoring receipt and scrutiny of returns.

For the real estate sector, it recommended supplementing the single criterion of ‘more than 12’ units with additional criterion so that expensive constructions with les than 12 units are also brought under the service tax net.

According to the Finance Act 1994, service tax is leviable for construction of residential complexes comprising a building having more than 12 units.

“The condition that service tax is payable only when the construction involves more than 12 residential units ensures that small housing construction projects remain outside the tax net. We found instances where expensive flats were constructed with large plinth areas but were not liable to be taxed as they had less than 12 units,” the CAG said.

“Since these expensive projects are staying out of the tax net, we feel that the single criterion of 12 units is not enough and other criterion such as selling price or plinth area should be specified so that the expensive constructions come under net,” it added.