Bombay High Court grants interim stay on Service Tax on under construction properties

In a major reprieve to home buyers and developers, the Bombay High Court has granted an interim stay on writ petition challenging collection of service tax levied on buildings under construction until further hearing.

The writ petition has been moved by Maharashtra Chamber of Housing Industry, an umbrella organization of more than 500 developers.

While admitting the petition on July 23, 2010, filed by MCHI against the Union of India and others in the matter of Service Tax levied on building under construction, a division bench of the Bombay High Court comprising Justice V C Daga and Justice S J Kathawala have granted interim stay until further hearing.

The MCHI and others through their Writ Petition challenged the constitutional validity of the Finance Act 2010 seeking to amend the Finance Act 1994 introducing and explanation to section 65 (105) (zzq) and 65 (105) (zzzh) to introduce the Service Tax concept of 'Deemed Service' for any commercial or industrial construction of residential complex done prior to obtaining completion certificate.

Next hearing in the matter along with other companion petitioners is posted for August 3, 2010. The MCHI in its Writ Petition urged the honourable High Court to restrain the respondents (Union of India and others) from any manner taking steps against the members of MCHI in respect of the transactions for constructions, development and sale of immovable property under the various provisions of the Finance Act, 1994 and a new entry as amended by the Finance Act 2010 in any manner.

In an interim order, the High Court ruled, "No coercive steps shall be taken against the petitioner for the recovery of Service Tax in relation to the provisions in question, but it is clarified that assessment may proceed in accordance with law." The honourable court had posted the next hearing in the case on August 3, 2010.

"We are glad on the initial outcome on our legal recourse against the Service Tax levy which came into force from July 1, this year. We look forward further ruling by the honourable Bombay High Court in this regard, as it would finally in the interest of the common man," Sunil Mantri, President MCHI.

MCHI is of the view that the sale of a unit in the complex, as per the settled law of transfer of property, is not a service. Accordingly, sale by the builder should not be treated as a service, since Service Tax is levied ultimately on the property this would be a tax on transfer of immovable property only. "Any such a levy will increase the cost of the flat and ultimate buyer will have to bear such cost. On the one side National Housing and Habitate Policy 2007 envisages affordable housing for all, the proposal to levy of Service Tax irrespective of any kind of house would run counter to the policy of the government," Mr Mantri said.

"With the service tax in force from July 1, flat buyers now have to pay approximately 2.5% more as Service Tax on the total value of their flat. For example, if the value of a flat is shown Rs 1 crore in the agreement, the home buyer will have to shell out an additional Rs 2.5 lakh as Service Tax, which ultimately going against the interests of the common man," the MCHI president added. Senior Advocate Rafique Dada appeared on Behalf of M/s Parimal K Shroff & Company for the MCHI in the court.

constructionweekonline

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