We are builders engaged in construction of residential complexes consisting of 12 or more flats. We undertake the construction work ourselves, without hiring contractors. After completing the construction, we sell the flats directly to customers. Please clarify whether the service tax is applicable on such sale of flats by us.
The relevant category of taxable service required to be examined in this case is 'Construction of Complex Services'. This category covers construction services in relation to residential complexes consisting of 12 or more flats. The moot point is that such construction services should have been rendered by the service provider (typically builders) to the service receiver (customers).
In the situation that is described, no such services are rendered since the transaction can only be termed to relate to the transfer of property in immovable goods, and no service tax can apply on such a transaction.
However, in terms of a particular departmental circular, a transaction of agreement to sell a residential unit which is entered into prior to the completion of construction would be chargeable to the service tax under the aforesaid category. This is a contentious view and is currently the subject matter of litigation.
Our company is providing equity research reports pertaining to performance analysis of select companies listed in the NSE to our clients abroad through e-mails from our Mumbai office. The clients use these reports for their investment decisions. We receive payment for our services in dollars. In the given circumstances, does our service attract service tax? Can we get refund of service tax paid on input services such as mobile charges /audit fees used in provision of above services?
It is true that if taxable services provided from India qualify as exports, they are exempt from service tax. Therefore, the services of equity research provided by your company would be exempt from tax, if such services constitute exports under the Export of Services Rules, 2005.
As the equity research may be appropriately covered under the taxable category of management consultancy services, it is relevant to examine the export criteria for this category of service.
As per the relevant criteria, management consultancy services would be considered as exported from India if such services are in relation to business or commerce, the payment for the services is received in convertible foreign exchange and the services are delivered outside India and used outside India.
All these conditions need to be met if such services are to qualify as exports. In the instant case, all these conditions are met. Accordingly, the services in question would be exempt from service tax.
As to the refund of service tax paid for input services used in the provision of services exported outside India, a rebate for the said amount can be claimed under the Export of Services Rules, 2005, or alternately, a refund for the said amount can be claimed under Rule 5 of the CENVAT Credit Rules, 2004 (CENVAT Rules). The principal condition
for availing such rebate/refund is that the input services should be eligible services as per the CENVAT Rules and should have been used for provision of export services. Accordingly, your company can claim rebate/refund of service tax paid on relevant input services.
We provide various services to fabric mills and exporters of garments. Our services include designing and development of garment samples and inspection of fabrics to ensure that they conform to the buyer's requirements. Are these services chargeable to service tax? If yes, under what taxable category would these be covered?
On the basis of the above description, your services appear to be chargeable to service tax under two separate heads - fashion designing services and technical inspection and certification services.
The taxable category of fashion designing services covers any activity relating to conceptualising, outlining and creation of designs and patterns of costumes. As the service of design and development of garment samples essentially involves all such activities, it would be taxable as fashion designing service.
The taxable category of technical inspection and certification services covers services in relation to inspection or examination of goods or process or material to certify that such goods or process or material conform to specified standards. As the purpose of the inspection of fabric is to certify its quality, it would be taxable as technical
inspection and certification services.
The writer is leader, indirect tax practice, PricewaterhouseCoopers.
