Supply of some flats/shop/commercial unit free of cost to the landowner :
It is normal practice to give some flat/commercial unit/industrial gala/shop free to the land-owner, who has given the land for construction.
Really, the flats/shops are not given free but are in lieu of land cost.
In my view, service tax should be payable in respect of free flats/shops given to the land owner. See also CBE&C circular dated 10-2-2012 and Para 6.2.1 of CBE&C’s ‘Taxation of Services : An Education Guide’ published on 20-6-2012, where the same view has been expressed.
In LCS City Makers P Ltd. v. CST (2012) 36 STT 228 = 23169 = 68 VST 318 (CESTAT) it has been held that service tax is payable even when consideration is received in form of land – same view in Direktorna Direktsia Obzhalvane I Upravlenienaizpalnenieto v. Orfey Balgaria EOOD (2013) 38 STT 289 (ECJ) * Southern Properties v. CCE (2015) 52 GST 413 = 61423 (Mad HC DB).
Valuation of flats given free to land owner – Value of service in respect of flats given free to land owner will have to be found out on basis of value of service of identical or similar flat/shop or on basis of cost of construction plus reasonable profit.
In Southern Properties v. CCE (2015) 49 GST 695 = 54 116 (CESTAT), a prima facie view has been held that valuation should on basis of value of similar flats and not on basis of value of land.
As per CBE&C circular dated 10-2-2012, the first method i.e. value of similar service should be used.
CBE&C had issued a 150 page booklet titled ‘Taxation of Services : An Education Guide’ on 20-6-2012, explaining salient aspects of the new provisions relating to negative list of service tax. In para 6.2.1 of the Education Guide, valuation of flats given to land owner shall be on basis of value of land.
Thus, there was conflict in views expressed in circular dated 10-2-2012 and the Education Guide released on 20-6-2012.
The issue was discussed by High Level Committee set up by Ministry of Finance. On basis of their opinion, it has been clarified that valuation of flats given to land owner should be on basis of value of similar/identical flats or on basis of cost plus profit, as stated in circular dated 10-2-2012 – CBE&C Instruction No. 354/311/2015-TRU dated 20-1-2016.
This principle should apply under GST also.