Flat buyers need not pay service tax
As per a recent circular issued by the Central Board of Excise and Customs (CBEC), flat buyers, developers and builders are not liable to pay service tax. According to the circular (F.No.137/12/2006- CX.4), the initial agreement between the promoter/builder and the buyer is an “agreement to sell”, and as per the provisions of the Transfer of Property Act, this does not “create any interest in or charge on such property”.
It is only after the construction is completed and the agreed sum is paid that a sale deed is executed, transferring the ownership of the property from the builder/developer to the buyer. Any service provided by the developer during the construction of a residential complex, but before the execution of the sale deed, would be “self-service” and, consequently, not attract service tax.
If a buyer enters into a contract for construction of a residential complex for personal use with a developer who provides design, planning and construction, then such an arrangement would also not invite service tax. However, if services of a contractor, designer or a similar service provider are taken, then such persons would be liable to pay service tax.
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