If any payment is received before completion of the project, it is considered as a deemed construction service under section 66E and service tax is payable. Tax is payable on the service irrespective of the fact who is actually providing the service. In the present case as the landowner will take bookings against his portion of the flats to be constructed, service tax will be payable by him.
Rule 3 of Taxation Rules is that "wherever any advance by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance." Hence advance is consideration money in your case.
1. You have to pay the service tax to the owner who will inturn pay the same to the government
2. The service tax can be paid to the builder, you cannot pay it directly, to confirm payment of the service tax to government, you can obtain the service tax registration number fro the builder o cross verify the payment.
3. You can get it on his letterhead also.
4. The service tax is to be paid to the government by the service provider, so the penalty will depend on him.
5. He may demand interest on the applicable service tax along with the service tax.
6. You can browse in the internet you will get of links in this connection.