Service Tax and Vat on Builders and Developers

Builders and Developers How the controversy arose

•         Supreme Court in case of K.Raheja Development Corporation (2005) 2 STT 178 SC which was a case on Karnataka General Sales Tax Act held that where developer was undertaking construction on behalf of prospective flat owners, it tantamounts to works contract and exigible to sales tax

•         In this case , the assessee had entered into development agreements with land owners. Developer to there after get the plan approved and after completion flats were to be handed over to those land owners who were to get undivided interest in the land also. There after owners to transfer flats to housing society. It was in this case that transaction was held to be works contract

•         On the basis of decision of K.Raheja Development Corporation , DG Service tax , Mumbai vide letter dated 16-02-2006 (withdrawn since 23-08-2007) sought to impose service tax on service part of transaction.

Service Tax on Works Contract

Service Portion in Works Contract

•         Work Contract vs. Works Contract

•         Works contract has been defined in section 65B(54) of the Act as a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, maintenance (substituting “improvement”), repair, renovation, alteration of any movable or immovable property (substituting “building or structure on land”) or for carrying out any other similar activity or a part thereof in relation to any movable or immovable property (substituting “building or structure on land”). (Substitution made in  Finance Bill 2012 by Lok Sabha)