21/06/2016
DELHI HIGH COURT GIVES A SIGHT OF RELIEF TO FLAT BUYERS
Recently on 03rd June 2016, The High Court of Delhi, in case of Suresh Kumar Bansal vs Union of India & Ors. Gave an altogether different judgment, providing a sign of relief to the Buyers of Flat, by declaring no levy of Service Tax in respect of Sale of flats/homes/apartments under agreements entered into with builders or developers for purchase of apartments or flats under group housing schemes, projects etc. But, the Service Tax will be levied by the builder on preferential location charges (PLC) charged.
GIST
“Flats Constructed by Builde” :::: “ NO SERVICE TAX”
“Preferential Location Charges” :::: “ SERVICE TAX APPLICABLE”
CURRENT SCENARIO OF EXEMPTION
Exemption from Service Tax is only applicable, where the entire consideration is received after issuance of completion certificate by the competent authority.
FACTS OF THE CASE:
The Petitioner purchased flats from a builder, and the builder recovered tax from the Petitioner towards services provided in relation to construction of Complex and also on account of Preferential Location Charges.
The buyers challenged the levy of the service tax on the purchase of flat on the ground that it is a Composite Indivisible Contract for the purchase of Immovable property. There is no mechanism or statutory framework which provide for ascertainment of the value of element chargeable for service tax. Moreover, they raised question on the power of the Parliament to levy tax , that the levy tax would be limited to only on the service component after excluding the value of goods as well as the value of land from such contracts.
They relied on the SUPREME COURT JUDGEMENT of Commissioner Central Excise & Customs, Kerela and Ors. Vs. Larsen & Toubro Ltd. And Ors., which held that the Statute must specify three elements,
(i) The Subject of Tax
(ii) The person who is liable to tax; and
(iii) The rate and measure of Tax.
They contended that the Section 65(105)(zzzh) read with Section 66 did not restrict the levy of service tax only to the service element of Composite Contracts, the said provisions could be applied only for imposition of service tax on service contract simplicitor, and their application to composite contracts would render it unconstitutional.
COURTS JUDGEMENT
The High Court held that, no Service Tax shall be charged under Section 66 of the Act read with Section 65(105)(zzzh) of the Act (Construction of Complex Service), on in case of Composite Contracts for purchase of Units in a complex . Moreover, the Court found that neither the Act nor the rules framed therein provide any specific method to calculate the components attracting service tax. The Court held that levy of service tax at 25% of the gross value by issuing a notification cannot substitute the statutory machinery provisions to determine the measure of tax.
Moreover, the court also directed that the developer to refund the service tax already collected, if any, to the petitioners with interest @6%.
COMMENT
The implications of the judgment are far reaching and would surely give a great relief to public at large located in other states too. In my view, the Government would surely challenge it in the Supreme Court or might amend the Act or the Valuation Rules thereto. We should wait for the Judgment of the Supreme Court till then.
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