Regarding valuation of flats for levy of Service Tax
Valuation method for flats handed over to land owners by builders/ developers as recommended by Education Guide 2012 (Para 6.2.1) and the CBEC Circular No. 151/2/2012-ST dated 10.2.2012 are divergent in nature.
According to the CBEC Education Guide on Taxation of Services, 2012 value of construction service provided to land owner will be the value of the land when the same is transferred and the point of taxation will also be determined accordingly. However, Circular No. 151/2/2012-ST dated 10.2.2012states that value of land / development rights in the land may not be ascertainable ordinarily and therefore, value, in the case of flats given to the land owner, is determinable in terms of section 67(1)(iii) read with rule 3(a) of Service Tax (Determination of Value) Rules, 2006. Accordingly, the value of these flats would be equal to the value of similar flats charged by the builder/developer from the other of service receivers. Service tax is liable to be paid by the builder/developer on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument(e.g. allotment letter).
Thus CBEC vide Instruction F.No.354/311/2015-TRU Dated 20th January 2016 has clarified that in valuing the service of construction provided by a builder/developer to a landowner, who transfers his land/development rights to builder, for getting, in return, constructed flats/dwellings from builder/developer, the Service Tax assessing authorities should be guided by the said Board Circular dated 10.2.2012 and not the Education Guide.
[Instruction F.No.354/311/2015-TRU Dated 20th January 2016]