Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit
***
Gautam Bhattacharya
Joint Secretary, Tax Research Unit
Telephone No.011-23093027
Fax No.011-23093037
E-mail: g.bhattacharya @ nic.in
D.O.F.No.334/03/2010-TRU
New Delhi, dated 1st
July 2010
Dear Madam/ Sir,
Subject:
Issuance of notifications after enactment of the Finance Act, 2010:
The
Finance Bill 2010 was enacted on 8th May 2010. Section 76 and 77 of
the Finance Act, 2010 (14 of 2010) pertain to service tax issues. Certain new
taxable services were introduced and certain changes in the scope of the
existing taxable services (under section 65, with consequential changes in
section 66 of the Finance Act, 1994) were made under section 76 of this Act.
The provisions of section 76 (A) & (B) (except retrospective provisions
relating to commercial coaching and training and renting of immovable property
services) were to come into effect from a date to be notified, which is also
known as appointed date. This date has been notified to be the 1st
day of July 2010 (Refer Notification No.24/2010-Service Tax dated the 22nd
June 2010).
" 2. Services provided
or payments made prior to the effective date;
2.1 Vide Finance Act, 2010,
eight new services were added to the list of taxable services while the scopes
of nine existing services were modified. As these changes become effective from
01.07.2010, activities that are covered under taxable service categories due to
above additions or modifications, would start attract service tax from this
date. It is however, possible that a part or full payment of the consideration
for such services provided after the appointed date has already been received
prior to that date, i.e. advance payments. The examples are: where a domestic
air journey performed after 1st July 2010, but the ticket is issued
on payment prior to such date or where a construction activity falls within the
taxable service only after the said date but the payment (full or in part) has
been made before this date. While legally tax is payable on such amounts
received, it has been decided to specifically exempt service tax on that
partial or full amount which is received by the service provider/ person liable
to pay the tax (and not by an agent, who in turn transfers such amount to such
person after this date) before 01.07.2010, pertain to a service which has
become taxable on account of the provisions of the Finance Act, 2010 and is
provided on or after 01.07.2010. Any amount received after 01.07.2010 by the
service provider/ person liable to pay the tax would be subjected to tax.
(Refer Notification No.36/2010-Service Tax dated the 28th June 2010
as corrected vide corrigendum dated 29th July, 2010).
6. Construction
services:
6.1 In the Finance
Act, changes have been made in the construction services, both commercial
construction and construction of residential complex, using ‘completion
certificate’ issued by ‘competent authority’. Before the issuance of completion
certificate if agreement is entered into or any payment is made for sale of
complex or apartment in residential complex, service tax will be leviable on
such transaction since the builder provides the construction service.
Completion certificate issued by a Government authority was prescribed as
demarcation by introducing an Explanation in the Finance Act. During the post
budget discussions, it was pointed that practice regarding issuance of
completion certificates varies from state to state. Considering the practical
difficulties, the scope of the phrase ‘authority competent’ to issue completion
certificate has been widened by issuing an order for removal of difficulty
(Refer M.F.(D.R) Order No.1/2010 dated 22nd June 2010). Completion
certificate issued by an architect or chartered engineer or licensed surveyor
can be now taken to determine the service tax liability.
6.2 After the
Budget was introduced views were expressed that the tax liability on
construction sector has been tightened at a time when the sector was recovering
after recession. After considering the issue, abatement available for
construction of industrial or commercial complex and also residential complex
has been prescribed as seventy five per cent. This means now tax incidence will
be the rate of service tax applied on twenty five per cent of gross value of
commercial or residential complex or unit, broadly representing the service
component in the construction, subject to conditions (Refer Notification
29/2010-Service Tax, dated 22nd June 2010). Importantly seventy five percent abatement
will be applicable only if the gross value of commercial or residential complex
or unit includes cost of land. Otherwise the existing rate of abatement of 67%
would continue to apply.
6.3 Exemption
has been provided for construction of residential complex service, when the
same is rendered as part of Jawaharlal Nehru national Urban Renewal Mission
(JNNURM) and Rajiv Awaas Yojana (Refer Notification No.28/2010- Service Tax,
dated 22nd June 2010). These are flagship schemes of the Government
of India to provide shelter for the poor and the disadvantaged and hence
taxable service of construction of complex in the context of these two
development schemes have been kept out of the ambit of service tax."
...xxx...
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