Need Help: Service tax demand by builder

[anupam333]

Hello Dr. Kushal Pathak,

Hope you are doing well.
I am in a big fuss because of unjustified demand by the builder for paying the service tax. I booked an apartment in December 2005 and now builder is demanding service tax on it.
I asked him to give me the details of the tax paid but he said he can't as they have paid a consolidated amount.

Could you please tell me if I have to the service tax even after the ruling?
I asked where has he paid the tax and when but he did not reply.

I also received the following email from him earlier:
-------------------------------------------------------------------------
Dear Sir,

>As on today the advance ruling is the latest and the department will stand according to the same. The applicability of Service Tax is with effect from 16.06.2005. The Finance Ministry has clarified that there is no service tax on builders on 01.08.2006. The finance Ministry has not given any clarification after that. In the present ruling the Advance Ruling Authority has clearly mentioned that Clarification is for Builder who book the apartment or enter into agreement for sale after completion of building. If the booking is made before completion of apartment then Service Tax is applicable. This is as per the Advance Ruling.

>In our case we have already discharged the amount in favour of the Service TAx department.

>If the Service tax is charged after 16.06.2005 than what you have collected is correct. This case will take a long time and always the latest decision will be taken for any case. At this point of time since the matter is in various court, only the decision from various courts and finally a bench from Suprement Court will give the final decision. Hence what is paid to the department cannot be taken back at this point of time. As on today the Service Tax is applicable on Builders.

>There is also news that the department has already started demanding Service Tax from Builders and i Have attached the copy for your reference.
>
> Email | Print



> Service Tax Demands of Rs 30,000 Crores to be issued to Builders
>
> AIT News Network
>
> NEW DELHI. Builders and Real Estate Developers who have not been paying service tax under notified taxable service of "construction of residential complex" are in for big trouble and are shortly going to be slapped service tax demands in the range of Rs 30000 Crore after the issue has been settled by High Power Authority for Advance Rulings. Top Builders have already been issued notices by service tax department calling for the figures so that the service tax liability may be worked out based on such figures. Since the service tax on construction of residential complex was levied with effect from June 2005; the liability of Builders to pay service tax is also from the date of levy.
>
> The landmark ruling AIT-2008-127-AAR has been given Justice PV Reddy Chairman of the Authority for Advance Rulings. Justice Reddy is ex-Justice of Supreme Court of India and ex-Chief Justice of High Court.
>
> According to the ruling an Agreement for sale of a constructed residential unit is liable to service tax when booking of the unit is done before or during the construction activity. The applicant had submitted a draft agreement before the Authority wherein the payment terms were as under:
>
> "AGREEMENT OF BOOKING/SALE OF RESIDENTIAL UNIT IN THE SELF-DEVELOPED HOUSING PROJECT-----
>
> 3. The BOOKER has agreed to pay/deposit to the BUILDER/PROMOTER OR DEVELOPER the sum of Rs. __________ (Rupees __________ only) against the said constructed residential unit . (hereinafter referred to as "THE CONTRACT AMOUNT"). Such amount shall be paid/deposited by the BOOKER to the BUILDER/PROMOTER OR DEVELOPER as follows: -
>
> Rs. __________ (Rupees __________ only) paid as commitment to purchase the said residential unit.
>
> (ii) Rs. ________________ on--- (iii) Rs. ________________ on---
>
> (iv) Rs. ________________ (v) Rs. ________________
>
> (vi) Rs. ________________ (vii) Rs. ________________
>
> (viii) Rs. ________________ (ix) Rs. ________________
>
> (x) Rs. ________________ (xi) Rs. ________________
>
> (xii) Rs. ________________ (xiii) Rs. ________________
>
> (Against Possession)"
>
> Thus in above situation the payment is not at all linked to stages of construction but even then there is liability to pay service tax.
>
> Though the Ruling has no revenue impact on the applicant as he can recover service tax from his customers as it is his proposed activity; the Developers who have already sold the flats cannot recover service tax from their customers and will be required to pay service tax from their own pocket. Several Consultants who advised their clients against payment of service tax have already reversed their opinion and have now asked them to pay service tax to avoid liability.

> Some Consultants who have no exposure and experience of litigation before Supreme Court and Authority for Advance Ruling are criticizing the Applicant. They are more worried about their opinion going wrong and if the logic of the ruling is applied by the Department; the demands will also be confirmed. Such Consultants, whose job is confined to only giving opinion and burying the issues below the carpet, are much more worried about their clients going in the hands of Advocates who will handle the matters up to Supreme Court as the litigation in such matter will obviously go up to Supreme Court.
================================================== ==

Could you please tell if the things mentioned above apply to me as well and do I compulsorily need to pay the service tax. Can I apply for RTI?

Waiting for your reply.

Regards,
Anupam

[Prakash_Deval]

Builders were brought under service tax wef 2005. it is applicable only on buildings with more than certain minimum number of flats in it you may check on this from any service tax consultant (I think it is 9 flats) the tax is not on entire cost but deductions are allowed for construction cost. (It means it is on the profit earned) If there was no mention in the agreement you may ask the builder to bear it

[anupam333]

There are 88 apartments in all and builder is asking to pay around Rs 1 Lakh and moreover, he is not telling if he would be showing the receipt for the payment made by him.
Need some more replies from you intelligent people.

Regards,
Anupam Mongia

[Prakash_Deval]

It appears that yes the builder was under service tax. Secondly as per service tax (Finance Act 94) service provider (Builder) is allowed to pass on the service tax to service receiver (Apartment owners). Ask the builder to give you separate receipt for service tax. Every service tax payer is registered with Central Excise Department and files returns. Ask him to show the copy of return filed.

[anupam333]

Thanks Prakash,

Builder is telling me to contact his auditor for any tax related query and he is not helping at all.
I requested for the receipts but there is no positive response from him. Can I approach RTI without knowing the Central excise dept?
What are my other options?
Regards,
Anupam Mongia

[karira]

Anupam,

Your basic objective is to find out:

1. If the builder is correct in charging you the service tax
2. If he has charged you the correct amount
3. Get proof that the builder has indeed paid this amount to the Central Excise authorities

Frankly, I don't think RTI can help you anywhere except the 3rd query. Even for that, if the builder has claimed that he has paid consolidated service tax.....there is little you can do to get the right information.

Best would be to consult a Service Tax expert who can guide you regarding the correctness of the demand. If the amount demanded and paid is correct than there is no point in proceeding to query 2 and 3.