No service tax on renting premises for business: HC

NEW DELHI: Companies cannot be subjected to service tax for renting premises to run their businesses,the Delhi High Court has ruled while disposing of petitions filed by some retailers against a government directive.

The court struck down Centre’s notification, by which renting of immovable property for use in the course of business was brought within the ambit of service tax.

“We hold that law

does not in terms entail that renting out of immovable property for use in the course of furtherance of business or commerce would by itself constitute a taxable service and be eligible to service tax,” Justice B D Ahmed said.

Service Tax-India

Service Tax Circular No.108/02/2009 Dt. 29th January 2009
F. No. 137/12/2006-CX.4

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise and Customs

No service tax on booking, construction and sale of residential flats – CBEC clarifies Construction of residential complex was brought under service tax w.e.f. 01.06.2005.Doubts have arisen regarding the applicability of service tax in:

a. case where developer /builder/promoter enters into an agreement, with the ultimate owner for selling a dwelling’ unit in a residential complex at any stage of construction (or even prior to that) and who makes construction linked payment. The ‘Construction of

Complex’ service has been defined under Section 65 (105)(zzzh) of the Finance Act as “any service provided or to be provided to any person, by any other person, in relation to construction of a complex”. The ‘Construction of Complex’ includes construction of a ‘new residential complex’. For this purpose ‘residential complex’

means any complex of a building or buildings, having more than twelve residential units. A complex constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex intended for personal use as residence by such person has been excluded from the ambit of service tax.

2. A view has been expressed that once an agreement of sale is entered into with the buyer for a unit in. a residential complex, he becomes the owner of the residential unit and subsequent activity of a builder for construction of residential unit is a service of ‘construction of residential complex’ to the customer and hence service tax would be applicable to it. A contrary view has been expressed arguing that where a buyer makes construction linked payment after entering into agreement to sell, the nature of transaction is not a service but that of a sale. Where a buyer enters into an agreement to get a fully constructed residential unit, the transaction of sale is completed only after complete construction of the residential unit. Till, the completion of the construction activity the property belongs to the builder or promoter and any service provided by him towards construction is in the nature of

self service. It has also been argued that even if it is taken that service is provided to the customer, a single residential unit bought by the individual customer would not fall in the definition of ‘residential complex’ as defined for the purposes of levy of

service tax and hence construction of it would not attract service tax.

3. The matter has been examined by the Board. Generally, the initial agreement between the promoters / builders / developers and the ultimate owner is in the nature of ‘agreement to sell. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the

promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential

complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a. residential comp lex with a. promoter / builder /

developer, who himself provides service of design, planning and construction; and after such constitution the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case

would fall under the exclusion provided in the definition of ‘residential complex’. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax.

4. All pending cases may be disposed of accordingly. Any decision by the Advance Ruling Authority in a specific case, which is contrary to the foregoing views, would have limited application to that case only. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned.

(Gautam Bhattacharya)

Commissioner (Service Tax)

CBEC, New Delhi

Central Excise duty-India

In India Central Excise duty is levied on good produced or manufactured in the country.The Central Excise Act 1944 deals with this subject.

Who is responsible to pay such duty to the Government? What are the relevant enactments governing levy and collection of central excise duty?

Generally, manufacturer of goods is responsible to pay duty to the Government. This indirect taxation is administered through an enactment of the Central Government viz., The Central Excise Act, 1944 and connected Rules – which provide for levy, collection and connected procedures. The rates at which the excise duty is to be collected are stipulated in the Central Excise Tariff Act, 1985.

Who is responsible to pay such duty to the Government? What are the relevant enactments governing levy and collection of central excise duty?

Generally, manufacturer of goods is responsible to pay duty to the Government. This indirect taxation is administered through an enactment of the Central Government viz., The Central Excise Act, 1944 and connected Rules – which provide for levy, collection and connected procedures. The rates at which the excise duty is to be collected are stipulated in the Central Excise Tariff Act, 1985.

Is it mandatory to pay duty on all goods manufactured?

Yes, it is mandatory to pay duty on all goods manufactured, unless exempted. For example, duty is not payable on the goods exported out of India. Similarly exemption from payment of duty is available, based on conditions such as kind of raw materials used, value of turnover (clearances) in a financial year, type of process employed etc.

Which organ of the Central Government is entrusted with the collection of Central Excise Duty? What are the other responsibilities entrusted with the Central Government Department?

The Central Excise Department spread over the entire country administers and collects the central excise duty. The apex body that is responsible for the policy and formulation of connected rules is the Central Board of Excise and Customs which functions under the control of the Union Finance Ministry. There are about 60,000 staff and officers including 1500 officers in Group A level and 5,000 officers in Group B level in the Department. The Central Excise officers are also entrusted with the administration and collection of Service tax, Additional Excise Duty in lieu of sales tax on goods of special importance and Additional Excise Duty on textiles and articles of textiles, etc. and the Customs duty. The Central Excise officers are also armed with NDPS Act in the suppression of illicit trafficking in narcotic drugs and psychotropic substances. They are also entrusted with the task of enforcing various allied enactments like the Foreign Trade Regulation Act, the Foreign Exchange Regulation (now Management) Act, the COFEPOSA Act,