Service Tax Refund for Apartment Owners

By Neeta Agarwal, Chartered Accountant, guest blogger of ApartmentAdda.

house-and-money

Construction of Residential Complex was brought under service tax w.e.f. 01.06.2005 and there was no ambiguity among the stake-holders at the operational level- “Any service provided or to be provided to any person, by any other person, in relation to construction of a complex is classified as Construction of Residential Service and is liable for appropriate Service Tax, as applicable.

But with the issue of the Circular 108/2009-ST dt. 29.01.2009, which states that construction of residential complex is in the nature of self-service and hence service tax is not applicable, all the stakeholders at the field level have started interpreting and giving different meaning, resulting in ambiguity, chaos & uncertainty.

However, in layman’s terms, the following points emerge on a detailed understanding & analysis of the said Circular:

1. Applicability of the Ciruclar: The Circular is applicable to all unit owners within a residential complex, who have paid service tax to their respective builders as part of the total cost of the unit.

2. Eligibility of Owners: Out of the above, only those owners are eligible for refund of service tax who have registered the property with the full value i.e. the construction cost plus share of undivided portion of land meaning that the owner did not have any rights in the unit until the execution of the Sale Deed.

3. Cut-off date for applying for Refund: The cut-off date for applying for service tax refund u/s 11B of the Central Excise Act,1944 is 1 year from the relevant date. Now, as per this section, the relevant date is the date of payment of service tax. Most of us must have paid this tax long back.Hence, it looks like our application would be time-barred.But, the Circular came only in 2009. The relevant date might be 1 year from the date of the circular as per another interpretation. So,to take the benefit of doubt,it makes sense to apply for refund within 29.01.2010 to stand a chance of getting it.

4. Two Refund options:

(i) If the builder has collected the service tax from the owners but not remitted to the Govt., then we have to take the refund from the builder itself.

(ii) If the builder has collected the service tax and remitted it to the Govt., then the question of applying to Govt. arises. The application should be in Form-R and accompanied by the following documents:

a.Copies of Agreement to Sell,Construction Agreement & the Sale Deed.

b.Certificate from the builder stating the amount of service tax paid for each unit owner as well as the proof of payment.Now, getting these is not as easy as it sounds. If one is unable to get these in the time frame, it makes sense to collect the client ledger copy showing the collection of service tax.Refund

While there is no absolute surety of refund, without applying there is no chance of refund. The law will take its own course and definitely, he Board would be seized of the matter and take appropriate action to dispel the doubts for the benefit of the common man and also to augment the legitimate Service Tax due to the exchequer from this major potential service.

Note: This article aims at providing an informed & qualified opinion on the topic. Please use it as a guidance for further discussion and relevant action. You may post your questions/inputs in the Comments section below. To avail Professional Services for your Service Tax Refund, please place your request here. It is recommended that the Service Tax Refund activity is undertaken by the Association rather than each individual owner.

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About the Author: San Banerjee

22 Comments

  1. Gopalan Enterprises claims that they have not collected Service Tax from us, however we have some sort of informal proof that they have charged 8.08% service tax…Gopalan claims now that this amount (8.08%) is Sales Tax / VAT they have collected not the “Service Tax”.
    How to address this prolonged issue?? any expert views on this pls ??

  2. to address this issue, first you will have to figure out what type of agreement/contract you had entered into with the builder/developer.If it was a works contract,i.e.the undivided share of land was alloted for a price and construction was carried thereon on behalf of you,then Sales Tax/VAT is leviable.But this is not normally the case.The normal procedure is that there is an agreement to sell with the builder and after construction,the ful value of the property(undivided share+construction cost) is registered with a Stamp duty.In this case,the payment of Sales Tax/VAT/Service tax does not arise.

  3. Hi Neeta…Thanks a lot for your quick response….In this case whatevere you said is totally correct as later part is applicable but Gopalan has collected this huge amount under the head “Services” so we do not have explicit receipt as a “Service Tax” but we have the xerox copy of the price list of Gopalan Enterprises wherein they have given the breakup of flat cost with the mention of 8.08% service Tax. How do we take this forward and take up this case…Please advice.

  4. Hi Anupam!
    Ya..very few apartment owners will have explicit receipt as service tax.The price list that you have mentioned is good enough to submit with the application for refund but that only would not suffice.You will have to ask your builder to issue certificate/declaration that so much was collected and remitted to the Govt.as service tax alongwith proof of such remittance.And then you should apply in Form R alongwith your agreement copies.

  5. Hi Neeta…Problem is that builder is saying now that they have not collected any service tax, as per builder Sales tax/VAT was collected and deposited to Govt so refund of Sales Tax/VAT is not possible as per the builder….Not sure if this process is feasible to get the desired refund if one can fight for such cases individually with buider as condition is contradictory here….a lot of time we have wasted with buider in such discussions but seems all in vain.

  6. Looks like your builder is not the least co-operative…In your case, you have a signed copy of the cost break-up where 8.08% service tax is mentioned and your sale deed where stamp duty is paid on the full value.what I would suggest is that on the basis of these available documents, atleast apply for refund & wait.Hopefully,you will be given a show cause notice & a chance of being heard.Then, you can put forward your arguments…
    Regards,
    Neeta.

  7. Neeta

    Have the authorities started issuing refunds? My papers were submitted by a consultant 7 months ago..have not heard any response.

  8. Hi, I purchased an apartment in Dec 2008 in Bangalore. The marketing company has charged 4.5% as VAT. Later I got to know that VAT in Karnataka is 4% and not 4.5% as charged on me. Can I ask for a refund? Also, isn’t the builder or the marketing company supposed to issue me an invoice for the tax collected? Please advise.

  9. Your attention is drawn to the Circular F.No.B1/6/2005-TRU,Dated 27/7/2005 where under Para 13.4 it has been clearly held that a residential complex constructed by an individual ,which is intended for personal use as residence and is constructed by directly availing services of a construction service provider,is also not covered under the scope of the service tax and not taxable.
    This position has not changed at all and has only been clarified by the Circular No 108/02/2009-ST Dt 29/1/2009.I don’t see why there is so much of confusion in the interpretation of the Act,and the Circulars,unless the confusion is purposely created.The fact of the matter is that the provisions of the law has always remained the same and if your transaction is of the type mentioned in the circulars,you were totally exempt from Service Tax.
    Some Builders have succumed to the arm twisting of the Department and having wrongly paid the service tax they are now extracting it from the helpless man who has got an apartment or house constructed using their services.I feel that the refund should be rightly obtaind from the builder,since it is a direct case of UNJUST ENRICHMENT since you were never involved in the transaction and if any amount was wrongly paid to the Department,they being the service provider should be trying to get the refund for themselves.
    An interesting thing to note is that after the issue of the Circular in Jan 2009,most of the Builders have stopped collecting service tax.Since there was no change in the law by this circular,they should never had collected any service tax at all.

  10. Hi Jose

    Please comment on the Advance Authority decision on Hare Krishna Developers case(where in it was held that construction of residential complex amount to service), Supreme Court decision on K Raheja’s case(where it washeld that construction of residential complex is a works contract), Supreme Court decision in Faquir Chand Gulathi’s case where it held that it is a service. Also your views on the Ratan Melting case decided by Supreme Court, where it is held that any circular which is agaisnt the law is not valid.

    Please comment
    1) what will happen if there are two agreements and buyers have been deliberately saving stamp duty on UDS Cost due to this arrangement and if registration authorities use their powers to demand more stampn duty due to the noise created by cuistomers that service tax is bot payable
    2)If it is a works contract can we say that there is a self supply service since works contract will obviously have material and labout component and also two parties.

  11. Hi Ravi,

    My main point is that in view of the definition of RESIDENTIAL COMPLEX in the charging section 65(91a) read with the definition of CONSTRUCTION OF COMPLEX in section 65(30a) which specifically excludes from tax A COMPLEX WHICH IS CONSTRUCTED BY A PERSON DIRECTLY ENGAGING ANY OTHER PERSON FOR DESIGNING OR PLANNINGOF THE LAYOUT,AND THE CONSTRUCTION OF THE COMPLEX IS INTENDED FOR PERSONAL USE OF SUCH PERSON, irrespective of the liability of the Builder or his sub contractor,the flat owner is totally insulated from the liability to service tax.

    This is only confirmed by the circulars and notification which are not contrary to the provisions of the Act or law but only sets at rest any doubt or ambuguity in the minds of the Department and the public at large.As the circular says such transactions are outside the perview and ambit of service tax under the Construction of Complex service. If it is assessed under Works Contract Service which came into the tax net w e f 1/6/2007 the provisions may be different.

    I am talking only of agreements prior to 1/6/2007 and in respect of which there was only one head under which it could be taxed ie. Construction of Complex service.

    The question of evasion or non evasion of stamp duty nor tax planning is the subje ct matter of the reference….but simply whether the flat owner is liable to pay service tax.

    I would appreciate your views on this.

    Regards.

    Jose.

  12. Hi Ravi,

    My main point is that in view of the definition of RESIDENTIAL COMPLEX in the charging section 65(91a) read with the definition of CONSTRUCTION OF COMPLEX in section 65(30a) which specifically excludes from tax A COMPLEX WHICH IS CONSTRUCTED BY A PERSON DIRECTLY ENGAGING ANY OTHER PERSON FOR DESIGNING OR PLANNINGOF THE LAYOUT,AND THE CONSTRUCTION OF THE COMPLEX IS INTENDED FOR PERSONAL USE OF SUCH PERSON, irrespective of the liability of the Builder or his sub contractor,the flat owner is totally insulated from the liability to service tax.

    This is only confirmed by the circulars and notification which are not contrary to the provisions of the Act or law but only sets at rest any doubt or ambuguity in the minds of the Department and the public at large.As the circular says such transactions are outside the perview and ambit of service tax under the Construction of Complex service. If it is assessed under Works Contract Service which came into the tax net w e f 1/6/2007 the provisions may be different.

    I am talking only of agreements prior to 1/6/2007 and in respect of which there was only one head under which it could be taxed ie. Construction of Complex service.

    The question of evasion or non evasion of stamp duty nor tax planning is the subje ct matter of the reference….but simply whether the flat owner is liable to pay service tax.

    I would appreciate your views on this.

    Regards.

    Jose.

  13. Hi,

    I got my falt registered on 23rd Oct 2008. The builder collected the service tax from me and has finally deposited it on 26th March 2010.

    I have done a lot of study on the topic and am convinced that he should not have deposited the service tax and should have refunded the same to me.

    Kindly help me understand the provisions and also if I should get the Tax Refund – How should I get the same from Govt? Plz reply to me mail ID – anand.jha@relianceada.com

    Thanks.

    Regards,

    Anand Jha
    Platinum City
    Bangalore
    anand.jha@relianceada.com

  14. Hi;
    I booked one flat in 2008 in whitefield bangalore and paid 1lac as service tax to builder. But due to some rule and all again i got refund that amont from builder in Mar-2009 . Still my registry is not done and probably it will happen in Apr-2010. Many people are telling that this sales tax is again can be added if registry will go above closing date of this year as 31st Mar-2010. My request you to please advice me on the same because i dont have this access amont which i needs to arrange if this will happen.

    Regards
    Ganesh

  15. You will have to ask your builder to issue certificate/declaration that so much was collected and remitted to the Govt.as service tax alongwith proof of such remittance.And then you should apply in Form R alongwith your agreement copies.

  16. sir we are builder and developer if Contract receipt is refund to cleinft after one year and we entered cancell agreement if so we refund als tax and we sold the same flat to other person whether we can reverse the tax which paid in earlier or we claim same tax out output tax liablity

  17. hi,

    I booked an apartment in a 1000 apartment project in 2004 @ Bangalore.
    Last year, I paid the complete amount to the builder in order to make sure that he completes the work and hands over my apartment (which builder is doing on case to case basis if all the money is paid).
    Now builder is asking about 2 lacs more towards the sale tax, VAT and service tax mentioning that I have to pay to them for the possession letter.

    When I asked builder to give me the receipts of the payments, they are not giving. They mention that it’s paid for the complete project and they can provide the TIN number.

    From the read above, I understand that Service tax is not applicable. Pls let me know if sales tax and VAT is applicable & at what percentage? Should this be paid by builder or by the purchaser? Pls also suggest the way how I can get this TIN number validated (if it needs to).

    Thanks.

  18. i have made an agreement on 13th aug. 2008 at that time builder has not given idea about service tax and vat. agreement is of Rs. 55 lakh and now he is demanding Rs. 2.75 as vat and service tax. i am consfused , possession is in july or aug.2010 . i my case what is applicable.please guide me. My residential property is in mumbai.
    Thanking you,

  19. Hi,

    I have purchased a flat in July. I did the agrrement with the builder and paid the registration and stamp duty. I ahve already paid 80% of the amoun in July and yet to get the possession. Now builder is asking me to pay VAT and Service Tax which comes to app. Rs. 1,25,000/- by saying that your payment is received in July and hence need to pay these taxes. Earlier he dosent mentioned the taxation part anywhere in the quote.
    Please let me know is this valid and should I need to pay this tax.

  20. iam planning to buy apartment in white field . builder is charging service tax and VAT .what if builder did not pay that amount to govt on time .Can anybody help me whether individual has to pay or builder collects and then pay .

  21. Sir/Madam

    I have booked a flat in Bangalore in 2009. Still the construction is not over. Builder is telling it will be over by April-2011. Now he is preesurizing us to pay service Tax & VAT before registartion. do we need to pay service Tax & VAT for apartments? If so what % is applicable in Bangalore?

    Regards

    Ramesh

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