Service tax queries

My son had booked a flat, which was under construction at Pune, six months ago. He is being asked to pay service tax, though there was no talk of service tax earlier. We hear that builders have gone for litigation which is pending. Please advise. – P V Krishna

I had purchased a one bedroom, hall and kitchen flat in Kharghar Sector 12. The registration of the property and the stamp duty was completed in May 2006. But, the builder refused to give me the keys till I wrote out an advance service tax cheque for Rs 35,000.00. The builder told me that the case was pending in the Supreme Court.and in case of a favourable decision, he would deposit this amount in the bank. The cheque is dated September 2006. He has not collected advance service tax cheques for flats purchased by others in the same building, but just an undertaking that as and when the service tax comes into force, the flat owners will pay the amount to him. Would you please go through the service tax rules as to how I can come out of this problem as I would like to get the cheque back from him at the earliest? I would be grateful if you can get me an order from the central excise/customs or from the court stating that the service tax is not payable by the flat owners and that it is to be paid by the builders only. – S Ramaswamy

The tax research unit of Union finance ministry’s department of revenue, vide its letter F.No. 332/35/2006 -TRU dated August 1 2006, has issued a clarification in respect of applicability of service tax on builders. This clarification should provide a sigh of relief to the builders and developers and in turn to the flat purchasers at large as it clarifies that service tax is not payable in respect of sale of under construction residential flats by the builder and developers. Service tax is payable by the contractors on construction services in respect of specified residential complexes comprising more than 12 units. This confirms the position of law which was accepted by the construction industry and the service tax department before the controversial stand was taken by the service tax department in lieu of the letter F.No.V/DGST/22/Audit/MIsc./1/2004/Mumbai dated February 16, 2006. It may be noted that flats in residential complexes comprising of 12 or less units were never liable to service tax, nor was sale of fully constructed flats liable to service tax. The controversy was only with regard to sale of under construction flats in residential complexes consisting of 12 or more units, which is also now resolved. Hence, there is no liability to pay service tax by any purchaser of residential flat to the builder and those who have paid the service tax to the builder will have to ask the builder to refund the amount of service tax collected.

mshethco@yahoo.co.in