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Isaac Saha
in Criminal Law Tax and Accounting Law Civil Law
Asked May 18, 2017

Service tax wrongly charged by the builder

  • 1 Answer

Sir/Madam, I have purchased a ready flat in Kolkata 700079 under dumdum municipality against SUPER BUILT AREA 620 SQ FT. I have paid Rs. 5000.00 for booking charge at first. The set forth money has been settled for Rs. 1350000.00. At the time of Agreement for sale between me and the builder I found that the builder has charged Rs. 60750.00 as service Tax @4.5% of set forth value. That time before putting my signature I asked about SERVICE TAX and the builder told me that he has to deposit the amount to service tax authority as per Govt. rule. On 8.3.2017 the flat has been registered at Cossipore ADSR office and I got the key of the flat. Now I have personally enquired in the internet about the Govt rule about service tax. I found some information about service tax payable for UNDER CONSTRUCTION building. A Delhi High Court verdict is also given in this matter. My flat was not UNDER CONSTRUCTION so I was not interested about it. After repeated searching I came to know that: 1) The building/apartment has the COMPLEATION CERTIFICATE from the municipality and if the flat is sold after getting the CC the builder cannot charge any service tax. 2) If the CARPET AREA of the flat is not above 60 sq.Meter service Tax could not be charged. Hence my flat is 465 sqft. Carpet area (620 super built – 25% less = 465 sq ft) is 43.1999 sq meter. A friend working at LIC informed me after my query with the consultation of his colleague’s deals with HOUSE BUILDING LOAN that Builder cannot charge any SERVICE TAX from me in this case. I have no knowledge about the rule/clause of Service Tax in this regard. But keeping in view of the above stated conditions in relation to the Service Tax amount claimed and has been deducted from me for acquiring the said ready built flat. Legal support and opinion is required which may kindly be accorded. A legal document in my support can be accepted by the court. If such rules is in my support I will claim the amount otherwise take necessary action.My Email ID: My Mobile No: 9433133670

Answer 1




Dear Sir/madam,

Service tax is levied by the Central Government on the construction services offered by the developers to buyers at the rate of 15 % since june 2016. In the case of an under construction property, the developer is deemed to be the provider of construction services to the home buyer, and hence service tax is charged on the service portion included in the cost of construction. Now, As per The Delhi High Court judgement – service tax cannot be charged on under construction property in a complex, which includes builder flats, group housing flats and builder floors. The primary reason for this is that there is no clear cut mechanism for arriving at a value of service element involved in such transaction.[1]

The provision regarding levying service tax on the Preferential Location Charges was held valid as it was a ‘service’ as per the court- Sec 65(105)(zzzzu) of Finance Act, 1994. But the court struck down the provision which provides for levying of service tax on buying of an under-construction immovable property- Explanation to Sec 65(105) (zzzh) for the reason that there was no valuation mechanism available in the legal provision for arriving at the value of service for payment of service tax.[2]

“The logic behind this is when a purchaser buys an under-construction apartment and an agreement for sale is entered between the developer and buyer, then the buyer technically becomes the owner of the property and the developer becomes the service provider for the buyer, in terms of completing the construction of the property. Thus the applicability of the service tax comes into existence”.[3]

Ready to move in properties do not attract any service tax as the developer is selling a completed property and not rendering any services to the buyer.







Agree Comment 0 Agrees almost 4 years ago

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