The service tax department is conducting surveys on nine leading developers and has found that Rs50 crore worth of (service) tax has not been deposited with it despite the sum being collected from buyers. The amount is due since five months.
Service tax has to be deposited with the department by the first week of the subsequent month of it being collected.
The surveys began on Friday and are still on. The firms have deposited Rs20 crore with the department so far after the surveys began. Sushil Solanki, commissioner, service tax-1, Mumbai, confirmed the action.
Service tax on construction activity (sale of flats, offices, shops and industrial units before the completion certificate is issued) is under dispute, with the Maharashtra Chamber of Housing Industry (MCHI) filing an appeal in the Bombay high court (HC) last year.
The HC has directed that until the disposal of the appeal, the department should not take action for recovery. However, the court has given builders the option to deposit the service tax in the court. There are around 700 builders who have become party to the petition and deposit service tax in the HC.
But authorities found that of the 200 builders who are not party to the petition and are collecting service tax from buyers, some are not depositing it with the department. A service tax official said that the department suspects there are more such builders and more surveys will add to the amount of tax collected but not deposited.
According to the rules, builders are required to pay service tax on the amount collected from prospective buyers. The service tax on construction is 2.6%.
Officials say builders are free not to collect the tax, but if they do, it should be deposited with the HC or the department. They say builders are collecting the tax since if the order goes against them, they will have to pay it from the time it was levied, which will go from their pockets if they don’t collect it from buyers.