The Union finance ministry has issued the much-awaited clarification exempting builders/developers, undertaking residential constructions, from the service tax net.
Thousands of property buyers who have paid service tax on the residential apartments/flats they have purchased now have something to cheer about.

Two Pune-based builders’ organisations — the Promoters and Builders Association of Poona (PBAP) and the Marathi Bandhkam Vyavasayik Sanghatana (MBVS) — had made a representation to the ministry over the issue, besides filing a case in the Bombay high court.

The organisations on Saturday received copies of the finance ministry circular, dated August 23, 2007.

The construction industry was included in the service tax net in the Union Budget 2005-06, but builders and central excise officials had been debating whether service tax can be imposed on residential properties with more than 12 tenements.

The finance ministry’s latest circular categorically exempts developers/builders from collecting service tax from property buyers, provided they had constructed the residential complex by employing direct labour.

Also, in all such cases where the developers had employed the services of a contractor, it is the contractor who will have to pay service tax and not the builder.

The finance ministry has also pointed out that the circular is based on the "comprehensive review" of all technical issues pertaining to service tax by a special committee headed by T.R. Rustagi, former chief commissioner of customs and central excise, and also the director general of inspection.

News Source: timesofindia.indiatimes.com
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