Taxability of Construction Services

Taxability of Construction Services“Commercial or Industrial Construction” states-

a)      Construction of new building or civil structure or a part thereto;

b)     Construction of pipeline or conduit;

c)      Repair, alteration, renovation, restoration of, or similar services in relation to, building or civil structure, pipeline or conduit;

d)     Completion and finishing services such as glazing, plastering, painting, floor and carpentry, fencing and railing, construction of swimming pools, acoustic applicants or fittings and other similar services, in relation to building or civil structure,

And this is –

  • Used, or to be used, primarily for; or
  • Occupied, or to be occupied, primarily with; or
  • Engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.

1)      Date from which such service is taxable – 10th September, 2004

2)      Service Provider  – Any person

3)      Service Receiver – Any person

4)      Scope of taxable services – Any service provided or to be provided to any person, by any other person, in relation to commercial or industrial construction.

Activity of construction deemed to be taxable service unless the entire payment for the property paid by the buyer after completion of construction.

The construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction is deemed to be service provided by such builder to the buyer.

Exceptions – In cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorized by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force.

5)      Exemptions and Exclusions – Various exemptions and exclusions have been provided in respect of construction services –

a)      Exemption under Notification No. 1/2006 ST dated 1/3/2006

  • Abatement of 67 % / 75% of the gross amount charged – In case of commercial or industrial construction services, even the abatement available service tax shall be levied on 33 %/25%  of the gross charges( If gross amount does not includes value of land then 33% and if it includes value of land then 25% of the gross amount).

Here, “Gross amount charged” means the value of goods & materials supplied or provided or used by the provider of the construction service for providing such service.

 Case Where This Exemption Does Not Apply –

Where the taxable services provided are only completion and finishing services in relation to building or civil structure.

b)     Exemption to construction of major or minor port

  • Commercial or industrial construction services and works contract services provided to any person by any other person in relation to construction of port or other port are exempt from whole of the service tax leviable thereon.

Case Where This Exemption Does Not Apply –

To the services of completion & finishing, repair, alteration, renovation, restoration, maintenance or repair provided in relation to existing port or other port.

c)      Exemption to all commercial or industrial construction service provided within airport

  • This exemption seems to be redundant, since if commercial or industrial construction services is provided wholly within airport, the service will be classified as airport service and hence cannot fall in this clause.

d)     Exemption to construction service provided to JNNURM and Rajeev Awass Yojana

  • Construction of Residential Complex service provided to Jawaharlal Nehru National Urban Renewal Mission and Rajeev Awass Yojana is fully exempt from service tax.

Note:  If works contract tax payable on these construction activities, these services would get covered under “works contract services”.

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