Building flats for sale not liable to service tax

Building flats for sale not liable to service tax

THE Gauhati High Court has held that the activity of construction of flats by a builder for subsequent sale is not chargeable to service tax under construction of complex services. In the relevant case, the petitioners, in the business of development and sale of immovable property (residential flats), entered into agreements for sale of such flats with the prospective purchasers during the course of development/construction and also after completion of construction of such flats. Under these agreements, they accepted installments from the purchasers as advance against the sales price of such flats. At the time of sale, stamp duty was to be paid on the entire consideration for the sale of the flats, including the installment amounts. The petitioners argued that the sale of flats in such circumstances was a transaction of sale of immovable property and not a transaction of provision of residential complex construction services. The high court accepted the argument of the petitioners and held that the construction activities undertaken by the petitioners were in respect of the petitioners’ own behalf and it was only the completed constructed flats which were sold by the petitioners to their buyers. Further, the advances received from prospective buyers were as consideration for the sale of the flats to such prospective buyers and were not for the purpose of obtaining services from the petitioners. It thus held that service tax was not chargeable on such transactions.