Chapter 12

Construction Services – Services provided to the Government or local authority

 

Effective date:

(1st July, 2012)

Scope of Exempt Service –

Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of-

(a)  a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b)  a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

(c)  a structure meant predominantly for use as

(i) an educational,

(ii) a clinical, or

(iii) an art or cultural establishment;

(d)  canal, dam or other irrigation works;

(e)  pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or

(f)  a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;


Meanings and Definitions:

governmental authority” means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution;

original works” has the meaning assigned to it in Rule 2A of the Service Tax (Determination of Value) Rules, 2006

residential complex” means any complex comprising of a building or buildings, having more than one single residential unit.

single residential unit” means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family;

local authority” means-

(a)        a Panchayat as referred to in clause (d) of article 243 of the Constitution;

(b)        a Municipality as referred to in clause (e) of article 243P of the Constitution;

(c)            a Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund;

(d)        a Cantonment Board as defined in section 3 of the Cantonments Act, 2006; (41 of 2006.)

(e)        a regional council or a district council constituted under the Sixth Schedule to the Constitution;

(f)             a development board constituted under article 371 of the Constitution; or

(g)        a regional council constituted under article 371A of the Constitution;

 

(See Notification no. 25/2012 dated 20.06.2012, effective from 01.07.2012)

 

 Clarification by the Board

(Taxation Guide – Guidance Note – 7 – Exemptions dated 20.06.2012)

7.9.1 Which are the construction services exempted when provided to the Government, a local authority or a governmental authority?

Exemption is available to the services by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of:

A.  a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession

B.  a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and Remains Act, 1958

C.  a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment

D.  canal, dam or other irrigation works

E.  pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal

F.  a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the of a religious building

7.9.2 What is the significance of words predominantly for use other than for commerce, industry, or any other business or profession?

The exemption is available for a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession. The significance of the word predominantly is that benefit of exemption will not be denied if the building is also incidentally used for some other purposes if it is used primarily for commerce, industry, or any other business or profession.

7.9.4 I am engaged in construction of hospitals and educational institutes. Am I required to pay service tax?

If you are constructing such structures for the government, a local authority or a governmental authority, you are not required to pay service tax. If you are constructing for others, you are required to pay tax.

7.9.6 I am constructing a residential complex for my client. The houses are predominantly meant for self-use or the use of the employees. Am I required to pay service tax?

If your client is other than the Government, a local authority or a governmental authority, you are required to pay service tax. However, exemption is available for services provided to the Government, a local authority or a governmental authority by way of construction of a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act.”