The Central Government has notified 1st July 2010 to effectuate the provisions of the Finance Act, 2010 (NN. 24/2010-ST dtd. 22nd June, 2010). It has also issued Notification Numbering from 25 – ST to 43 – ST between 22nd June, 2010 and 30th June, 2010. A Ministry of Finance order No. 1/2010 dated 22nd June, 2010 and a clarificatory circular D.O.F No. 334/3/2010 – TRU 03 dated 1st July, 2010 explaining the amendments are also issued. The writer has attempted to explain these amendments in this article:

At the outset it is important to note that attempt to levy service tax on sale of Residential, Commercial or Industrial under-construction units (under which sale price of such units is subject to tax) is open to serious constitution and legal challenge. As per information Writ Petitions are filed in various courts against the levy. However, without going into legal aspects, an attempt is made to summarize the effect as under:

• The Finance Bill, 2010 introduced an Explanation under Commercial or Industrial Construction and Construction of Complex Services by introducing a deeming provision that a builder or his authorized representative selling an under construction unit will be subject to tax if any payment towards consideration is received before the grant of completion certificate by a competent authority. By the Ministry of Finance Order (supra) an Architect, a Chartered Engineer or a Licensed Surveyor who is authorized to issue such certificate as pre condition for its occupation may also issue such certificate.

• By NN 36/2010 – ST dated 28-6-2010 exemption is granted to any advance payment received up to 30-6-2010 towards consideration in respect of such sale. Further under the law, 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. In other words, payment received up to 30th June, 2010 or work done up to that date cannot be liable to service tax.

• The builders/developers should therefore obtain a certificate from the competent authority of extent of completion of work up to 30th June, 2010. Such certificate should also be backed by a certificate of Chartered Accountant, preferably the auditor for work completed in financial terms. Service tax may therefore be paid on the amounts received after 30th June, 2010 in respect of service provided from that date.

• Entries 7(a) and 10(a) are inserted in NN. 1/2006 – ST (NN.29/2010 – ST dtd. 22-6-2010 refers) to provide abatement of 75% if the cost of land is not recovered separately (subject to other normal conditions prescribed in the said notification). It therefore follows the effective rate of service tax on such services is 2.575% as per the prevailing rates today.

• The existing entry Nos. 7 and 10 in NN. 1/2006 – ST granting abatement of 67% in case the value of goods and material provided or supplied or used in such construction, continuous to remain. It may therefore be possible to argue that 67% of abatement can still be available after deduction of value of land from the contracted price. This is on the basis of the fact that transfer of land or a portion in land cannot be subjected to service tax. The value of land can be arrived on the basis of ready reckoner value. However, practicality of this view may be examined from the point of view of a builder who sale different under-construction units in building/buildings on regular basis and each sale is a separate taxable event.

• From this levy various situations may arise which needs our attention:

• Situation 1:
  
  A residential flat booked prior to 1-7-2010 for which entire payment is also received prior to that date. However, completion certificate is not received.

• Situation 2:
  
  A buyer has entered into agreement towards purchase of office premises prior to 1-7-2010 and the project is completed prior to that date. Some payment is to be made upon receipt of completion certificate which is not yet received.

• Situation 3:
  
  A buyer has booked a flat in an under – construction project and the agreement has been executed prior to 1-7-2010. Certain payments have already been made by the buyer which is in addition to progressive completion of work in terms of the agreement prior to 1-7-2010.

• Situation 4:
  
  A buyer, who has booked a flat in an under construction project, has made some payments to the builder. However, a part of payment is delayed in terms of the agreement executed prior to 1-7-2010 as per the progressive completion of work.

• Situation 5:
  
  A buyer has purchased an under construction flat in May 2010. He resells the flat to a new buyer on 1-7-2010. All payments due after 1-7-2010 is to be made by the purchaser. Examine the liability the original buyer and the subsequent buyer.
  
  In the same case as scenario 5, the original buyer surrenders the flat to the builder who sells the same to a new purchaser on 1-7-2010.

NN. 28/2010 – ST dated 22-6-2010 provides for exemption to Residential Construction service provided to Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojna. The said notification has created unnecessary confusion as service provided to JNNURM and RAY is sought to be exempt, whereas actually there is no such entity to whom such service can be provided. In fact the service is provided to a nodal agency like Bombay Municipal Corporation whish is funded under such schemes. As an exemption notification is to be strictly construed, it is necessary that notification is amended suitably to carry out the objectives of the schemes. Further, it is to be noted that the sub-contractors providing service to main contractors are not eligible for exemption under the present notification.

As per NN. 36/2010 – ST dtd 28-6-2010 read with Corrigendum issued on 29-6-2010 any advance received for new services or changes in existing services to be provided after the notified date is exempt. However, in case of Commercial Coaching & Training services and Renting of Immovable Property Service the liability is cast from retrospective date and hence this exemption is not applicable. It has some benevolent effect, say in case of CHA service provided wholly in a port, which will now be classified as port service, any advance received up to 30-6-2010 for such services to be provided is not liable to tax if not collected from the service recipient.

Any service provided wholly within a port or other port or airport is to be classified under Port, Other Port or Airport Service, as the case may be. The nature of service in these categories is no more decisive criteria, but the place of service is relevant. The classification rules (S. 65A) is given Go-Bye. For example, a construction service provider constructing an office building outside a port is covered under Construction or Industrial Service, however, the same service in respect of an office building within a port is covered under Port Service.

Therefore, all such service providers providing a taxable service wholly within a port, other port or airport will now be required to register themselves within such categories.

Exemptions in Port, Other Port or Airport Service:

1. Construction, repair, alteration and renovation of wharves, quays, docks, stages, jetties, piers and railways under Port or Other Port service. (NN. 38/2010- ST dtd. 28-6-2010).

2. Cargo handling in relation to agricultural produce or goods to be stored in cold storage; storage and warehousing of agricultural produce or any service of storage by a cold storage; transport of export goods in an aircraft by an aircraft operator and site formation, clearance, excavation, earth moving, demolition and such other services under Port or Other Port or Airport service. (NN. 41/2010 – ST dtd. 28-6-2010).

3. Repairs of ships or boats or vessels belonging to Government of India including Navy, Coast Guard or Custom but not Govt owned Public Sector Undertakings.

• Repair to ship, boat or vessels where the process of repair amounts to manufacture under S. 2(f) of CE Act.

• Supply of water, electricity

• Medical treatment except cosmetic or plastic surgery.

• Education provided by a school or a centre other than Commercial Coaching or Training Centre.

• Fire and Pollution Control Services.

(NN.31/2010 – ST dtd 26-2-2010)

4. Commercial or industrial construction is exempt within Airport Service. (NN. 42/2010 – ST dtd.28-6-2010).

5. In relation to Rent-a-Cab service, Erection, Commissioning or Installation service, Commercial or Industrial Construction, Construction of Complex service, Transport of Goods by Rail service and GTA service provided wholly within the port, other port or airport will enjoy the same abatement as provided in respective categories under NN 1/2006 – ST and NN 13/2008 –ST. (NN. 40/2010 – ST dtd. 28-6-2010 read with Corrigendum dtd. 30-6-2010).

6. On account new categorization, the following exemptions are not available from 1-7-2010:

• All Works Contract Service provided wholly within port, airport or other port.

• Commercial Construction within the port or other port.

• Residential Construction with the Port, other port or airport.

• In respect of export cargo under cargo handling service wholly carried out within the Port.

• The issue of exemption in relation to construction of new port, other port or airport under Commercial or Industrial Construction and Works Contract Service has arisen that whether such new construction can be regarded as within the port, other port or airport even before such construction.

1. Service tax in excess of 10% of ticket value or Rs. 100/- whichever is lower, in case of domestic journey in any class.

2. Service tax in excess of 10% of ticket value or
   Rs. 500/- whichever is lower, in case of international journey in economy class.

3. The Economy class is defined as the class having lowest standard fare if there is more than one class of travel; or if there is only one class of travel that class. (NN. 26/2010 – ST dtd. 22-6-2010)

4. Journey originating or terminating in specified areas mainly north east sector including Baghdogra located in West Bengal. (NN. 27/2010 – ST dtd. 22-6-2010)

5. In - transit passengers not passing through immigration and not leaving customs area but continuing international journey to a place outside India.

6. Persons employed or engaged by air – craft operator in any capacity on board the air craft. (NN. 25/2010 – ST dtd. 22-6-2010)

It may be noted that service tax on passengers embarking in India for an International Journey in higher class (other than economic class) continues as before.

6. Sponsorship Service: Exemptions granted to certain tournaments or championships of national importance.

7. Transmission of Electricity: Exemption granted to taxable service provided by a distribution licensee, a distribution franchisee or any other person authorized to distribute power under Electricity Act, 2003 for distribution of electricity (NN. 32/ 2010 – ST dtd. 22.6.2010).

8. Transport of Goods by Govt Rail:- The Govt. has already extended the effective date from 1-9-2009 to 1-4-2010 to 1-7-2010 and now to 1-1-2011. The consequential amendments as to exemptions to specified goods and abatement under NN 1/2006 – ST is also made. (NN. 33/2010 – ST, 34/2010 – ST & 35/2010 – ST all dtd. 22-6-2010)

9. Cenvat credit allowed on dumpers or tippers falling under Ch. of CE Tariff Act, 1985, used for providing taxable output service of Site Formation and Mining (NN 25/2010-CE (NT) dtd. 22-6-2010)

An Aircraft operator is not required to show registration number of service provider, classification of the service and the address of the service recipient in any invoice, bill, challans including ticket issued to a passenger for transportation by air. Rule 4A of Service Tax Rules is suitably amended (NN 39/2010 dtd. 28-6-2010 read with Corrigendum dtd 30-6-2010).