According to the service tax department, builders are liable for service, but builders rebut this.
We are builders / a developing company having operation in Navi Mumbai area. We request you to advise us on following points:
1] Is service tax applicable when selling a flat or shop? Who is liable to pay this tax – the builder or the developer or the customer?
2] Who is liable to pay service tax for carting of sand, metal, bricks, etc? At what rate is this leviable?
3] Who is liable to pay service tax for labour contractor and at what rate. If the service provider does not have a service tax registration, can developers pay the same on behalf of service provider?
4] What document and accounts do we have to submit when submitting the returns?
5] What is the penalty on defaulters? —R B Jadeja.
There is a lot of litigation going on at the moment in various courts regarding the applicability of service tax on builders. According to the service tax department, builders are liable for service, but builders rebut this. I will answer your queries based on the assumption that the department’s contention holds good in the court of law. Service tax is applicable on sale of flats if there are more than 13 flats in a building under construction, as well as shops under commercial or industrial construction service. Contractors will charge service tax to the developer on the gross charges billed by the contractor to the developer by availing an abatement of 67%, which means the contractor will charge service tax on 33% of his total bill including material and labour charges. The contractor can claim the benefit of the threshold limit of Rs 4 lakhs if applicable. The rate of service tax is 12.24%, so the effective rate will work out to 4.04% as service tax is charged on only 33% of the total bill amount. It is the responsibility of the service provider to charge, collect & pay service tax to the government. The builder will pay service tax on the gross value charged to the buyer of the flat. On the document to go with the returns, remember to pin the TR-6 challan with the return. On penalties, well, they are of different types. For instance, the penalty for failure to pay service tax under Section 76, where the position from 18-4-2006 is as follows: it is the higher of Rs 200 per day during which the failure continues and amount calculated @ 2% per month on the tax due. The maximum amount payable shall not exceed the service tax payable. Then there is penalty for contraventions in unspecified cases under Section 77 which shall not exceed Rs 1,000. Then there is penalty for suppressing the value of taxable service under Section 78 where the minimum penalty is prescribed as the amount of service tax so not levied or paid or short paid or short levied or erroneously refunded. The maximum penalty is twice the amount mentioned above.
The author is with M.Sheth & Co, a chartered accountancy firm in Mumbai. mshethco@yahoo.co.in
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