SERVICE TAX LIABILITY OF BUILDERS

In respect of Service Tax, the Builder shouldn't be liable to Service tax, because, the Builder is not providing any service to the flat purchasers individually. The Builder has taken up development on its own and subsequently selling the flats. Hence, there is no contractual relationship between the Builder and flat purchaser for providing service nor is the relationship developed down the line. It is just a sale and purchase and thus not liable to service tax.

If the Builders who enters into property development and sale agreement for some consideration with land owners, constructs & enters into agreement for sale of flat/units with buyer of flats/dwelling units (while doing construction)  are held  liable as "Works Contract"  under respective state VAT acts. Apart from the levy of concerned state VAT, his services are leviable to Service Tax under Works Contract Services, if the dwelling units are more than 12.  The Service Tax is leviable on the value of services relating to labour and other allied 8 categories which have been excluded in the respective state VAT.

The ratio pronounced in the case of Magus constructions by Guwahati High Court do not apply in the above referred case.  That ratio is applicable only to such properties which have been transferred to the buyer of flat or dwelling unit, after total completion of construction and not while under construction.

Hope this is clear.