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June 27, 2006 10:50 IST
The revenue department's clarification regarding imposition of service tax on contractors constructing buildings for the army and government servants may not be in consonance with law, says service tax expert J K Mittal.
"The law specifically states 'layout of premises is approved by an authority under any law in force for the time being', but for flats for armymen layouts are not approved by the MCD or DDA or any authority," he said.
Residential complex used for personal use was excluded from tax. 'Personal use' includes permitting a complex for use as residence by another person on rent or without consideration, Mittal added.
Therefore, when flats are being constructed for personal use of army staff, these cannot be subjected to service tax as per the present provisions of the law," he said.
The finance ministry had recently clarified that costs of residential apartments built by contractors for the armed forces and government servants would be liable to service tax.
The issue was examined by the Central Board of Excise and Customs following a representation from the Army. It had sought to know if contractors who construct residential complexes under 'married accommodation' project for army personnel should be charged service tax.
It had also sought to know whether the tax was leviable on residential complexes which are for personal use of the service personnel.
The CBEC concluded that in the absence of any exemption to government organisations, the service tax at applicable rates would be chargeable on such construction.
Officials said the CBEC felt that the exclusion from service tax, provided under the definition of residential complex in the Finance Act 1994 for complexes constructed by a person directly engaging any other person and where the construction of such a complex is intended for personal use as a residence of such person, would not be applicable in
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