Pradeep Jain - Chartered Accountant

Dear Editor and team members, The query relates to service tax applicability for builders cum developer for constructing villas. The developer enters into JDA with the owner of the property and he develops the the area and divided the same to 44 sites and agrees to construct 20 houses for the owner and balance for the individual buyers. The individual buyer registers the land in his name and gets approval for construction in the individual buyer's name. Now developer builder is constructing individual villas for single occupancy (one kitchen). He fixes Rs.75 lacs for construction cost including developing charges. Now what is the service tax liability for the builder for 25 independent villas and for construction of 19 villas for the owner in consideration. Kindly clarify.

In order to be able to answer the question as regards service tax leviability for the construction of 25 independent villas, we need to study in detail. This is for the reason that it is not clear whether the developer develops 25 individual villas according to individual requirements or constructs it as a residential complex with symmetry in design. If the 25 villas are constructed according to individual requirements then no service tax is payable but it the 25 villas are constructed as a residential complex then service tax will be payable. According to the facts, as development cost is included in the construction cost, it appears that it is construction of residential complex. Hence, service tax leviability on 25 villas needs to be examined. Further, with respect to construction of 20 villas for the owner, there are views that service tax is leviable as it is sort of barter system wherein owner provides land to builder and builder constructs villas in consideration. Moreover, there is ambiguity as regards valuation. No doubt, service tax is payable but the value to be taken is not clear. However, the valuation may be done as per clarification given in 2.1 (B) of the Circular no. 151/2/2012-ST dated 10.02.2012. {Query replied by: CA Neetu Sukhwani}

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