Hearing a petition filed by the apex body of real estate developers,
the Bombay high court has allowed the builders to deposit service tax
collected from buyers of under construction structures directly in the
court instead of putting the same in an escrow account.
The service tax thus deposited in the high court would be refunded to
the members of Maharashtra Chambers of Housing Industry (MCHI) along
with accrued interest thereon if the decision goes in favour of the
builders who have challenged the levy of service tax imposed by the
union government.
The
division bench comprising justice J P Devdhar and Justice Mridula
Bhatkar ordered the relief in service tax case while hearing the writ
petition field by the MCHI against the Union Government of India on
February 18, 2011.
The
MCHI and other builders’ bodies challenged the constitutional validity
of the Finance Act 2010, seeking to amend the Finance Act 1994,
introducing an 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.
The
division bench of the Bombay High Court comprising Justice V C Daga and
Justice S J Kathawala admitted the petition filed by the MCHI and
others on July 23 and had granted interim stay until further hearing.
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.
President
of MCHI Mr. Sunil Mantri has stated that the centre and the state have
separate domains in respect of its taxing powers under the constitution.
The
state has the exclusive power to levy taxes on land and buildings in
terms of Entry 49 of List ii to the seventh schedule of the
constitution, by amending the provision to levy service tax on
transaction of sale of immovable property is seem to be
unconstitutional.
Mr.
Mantri stated that the sale of an unit in the complex as per the
settled law of transfer of property is not a service. Accordingly sale
of the same 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.
Mr.
Mantri is of opinion that such a levy will increase the cost of the
flat and ultimate buyer will have to bear the cost. The National Housing
and Habitat Policy 2007 envisage affordable housing for all. The
proposal to levy service tax irrespective of any kind of house (even EWS
or MIG) would run counter to the policy of the government.
MCHI president Sunil
Mantri, in a statement, said the sale of a unit in a complex as per the
settled law of transfer of property is not a service. Accordingly, sale
of the same 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.
Mantri opined that such a
levy will increase the cost of the flat and ultimately the buyer will
have to bear the cost. The National Housing and Habitat Policy 2007
envisages affordable housing for all. The proposal to levy service tax
irrespective of any kind of house (even EWS or MIG) would run counter to
the policy of the government.