Service Tax on Construction of Residential Complex under JnNURM Yojana and RAY before July 2010

Service Tax on Construction industry faced a major reform from Budget 2010-11 wherein the said services were defined as deemed services. There were plenty of amendments made in this regard in the budget 2010-11. One such Notification No. 28/2010 dated 22-06-2010 was as follows:

“G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of construction of complex referred to in sub-clause (zzzh) of clause (105) of section 65 of the Finance Act, when provided to Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana, from the whole of the service tax leviable thereon under section 66 of the Finance Act

(2). This notification shall come into force on 1st day of July, 2010.”

The notification was introduced to give exemption to the residential complex schemes constructed under Jawaharlal Nehru National Urban Renewal Mission (JnNURM) and Rajiv Awaas Yojana (RAY). It looks so clear that the exemption is applicable from 01-07-2010. However, doubt may arise what would be the implications on services provided under JnNURM and RAY before July 2010?

The need arises to read the whole budget 2010-11 instead of just one single notification i.e. 28/2010 to know the correct implications on services provided under JnNURM and RAY before July 2010.

Here are other changes implemented under Budget 2010-11 relevant for this subject matter:

1. Notification No. 36/2010 – ST dated 28-06-2010: Exemption is granted to any advance payment received up to 30-06-2010 towards consideration in respect of sale of construction of any residential complex.

2. Further under the law, service of construction of residential complex itself was chargeable as deemed service from 01-07-2010 so service prior to the notified date cannot be subjected to service tax. Therefore, it can be said that work done on or after 1-7-2010 is only liable to tax.

3. 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. – Circular No. 334/03/2010-TRU New Delhi, dated 1^st July 2010

These three changes are applicable to all construction projects and not just to JnNURM Yojana or RAY. Therefore, before July 2010 if the harmonize interpretation of above three changes is constructed then service tax will not be applicable on construction of residential complex under JnNURM Yojana and RAY before July 2010. The reason behind that are:

– Receipts before July 2010 from construction of residential complex under JnNURM Yojana and RAY if received in advance for work done after July 2010 are exempt as per Notification No. 36/2010 – ST dated 28-06-2010.

– Projects wherein agreement to sales are entered in to but sales deeds are not prepared and completion certificate is not issued by the competent authority, the question of deemed service tax applicability does not arise as the same is introduced from 01-07-2010 by changing the definition of construction services.

In other words, till 30-06-2010 the general exemption benefit can be taken in case of JnNURM Yojana and RAY like that applicable to whole construction industry by harmonize construction of law. It would lead to payment received up to 30th June, 2010 or construction work done up to that date cannot be liable to service tax.

Further, there is a specific exemption notification from July 2010 in case of construction work under JnNURM Yojana and RAY so that specific exemption benefit can be taken.

CA GAUTAM JOSHI