Builder not liable to service tax on booking, construction and sale of flats

Circular No. 108/02/2009- ST


F. No. 137/12/2006-CX.4
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs


New Delhi, Dated, 29th January 2009


Subject: Imposition of service tax on Builders-regarding


Construction of residential complex was brought under service tax w.e.f. 01.06.2005. Doubts have arisen regarding the applicability of service tax in a. case where developer /builder/promoter enters into an agreement, with the ultimate owner for selling a dwelling’ unit in a residential complex at any stage of construction (or even prior to that) and who makes construction linked payment. The ‘Construction of Complex’ service has been defined under Section 65 (105)(zzzh) of the Finance Act as “any service provided or to be provided to any person, by any other person, in relation to construction of a complex”. The ‘Construction of Complex’ includes construction of a ‘new residential complex’. For this purpose ‘residential complex’ means any complex of a building or buildings, having more than twelve residential units. A complex constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex intended for personal use as residence by such person has been excluded from the ambit of service tax.


2. A view has been expressed that once an agreement of sale is entered into with the buyer for a unit in. a residential complex, he becomes the owner of the residential unit and subsequent activity of a builder for construction of residential unit is a service of ‘construction of residential complex’ to the customer and hence service tax would be applicable to it. A contrary view has been expressed arguing that where a buyer makes construction linked payment after entering into agreement to sell, the nature of transaction is not a service but that of a sale. Where a buyer enters into an agreement to get a fully constructed residential unit, the transaction of sale is completed only after complete construction of the residential unit. Till, the completion of the construction activity the property belongs to the builder or promoter and any service provided by him towards construction is in the nature of self service. It has also been argued that even if it is taken that service is provided to the customer, a single residential unit bought by the individual customer would not fall in the definition of ‘residential complex’ as defined for the purposes of levy of service tax and hence construction of it would not attract service tax.


3. The matter has been examined by the Board. Generally, the initial agreement between the promoters / builders / developers and the ultimate owner is in the nature of ‘agreement to sell. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a. residential complex with a. promoter / builder / developer, who himself provides service of design, planning and construction; and. after such constitution the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of ‘residential complex’. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax.


4. All pending cases may be disposed of accordingly. Any decision by the Advance Ruling Authority in a specific case, which is contrary to the foregoing views, would have limited application to that case only. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned.


(Gautam Bhattacharya)
Commissioner (Service Tax)
CBEC, New Delhi

(Source: Allindiantaxes)



  1. GANESH said,

    February 6, 2009 at 7:39 am

    I have booked a flat in Trivandrum. My builder says before recceipt of the above circular, he has remitted service tax amounting Rs.135000/- to Govt. As per the above no service tax is required in respect of flat under construction. He says in future he will not deduct any service tax.

    I want to know whether the tax already remitted by the builder will be refunded by the Govt. Otherwise he will insist for payment from me. If so what is the procedure I should take. [flat under construction from 2007 and now under progress only]

    Kindly guide.

    • Ismayil said,

      April 30, 2009 at 2:22 pm

      I am also in the similar situation, Appreciate if you receive any reply please forward to me, My mail Id is

  2. Yadvinder Buttar said,

    February 8, 2009 at 8:40 am

    Hi All I am in Noida, I bought the flat Gr Noida from ELDECO in May-2005, At that time there is no concept of service tax. But after some time we receive the letter for the service tax is need to pay on the basis of the Rs. 50/Sq feet that is around Rs. 50,000/- . Most of the complex (Residential Complex) members pay this tax at the time of registration of the flat. After some time we ask to the builder to share the Govt. financial statement which says about the service tax need to be pay by the flat owner instead builder that is yet no happened. Is there any document provided by Govt. which clearly says that the service tax needs to be pay by the builder instead flat owner. They peoples are smart enough, how to play with customer.
    Is there any what how we can take this money back from builder.

    Kindly guide me,

    Yadvinder Singh

  3. Chintu Raju said,

    February 11, 2009 at 11:47 am

  4. March 10, 2009 at 6:18 am

    WEKwfn doors1.txt;25;55

  5. ASHOK JAIN said,

    April 4, 2009 at 7:36 am


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