Service tax delhi high court decision
C.J.Sriram
(Querist) 27 June 2016
This query is : Resolved
In view of the decision of the Delhi High Court in June 2016 w.r.t WP(C)2235/2011, what is the position of collecting of service tax on under construction flats, or flats to be purchased.
If a person book a new flat with UDS registration for land and a separate construction agreement registration as it exist in TamilNadu, should he undergo still the service tax element OR is it that it is not applicable after the High court judgement as above. Pl advise
Siddharth Dev
(Expert) 01 July 2016
In Suresh Kumar Bansal vs UOI [W.P.(C) 2235/2011](Delhi High Court);
Hon’ble Court Observations
It was observed by Hon’ble Court that the imposition of Service Tax on such service is not a levy on transfer of immovable property as contended on behalf of the petitioner. The intention of the legislature is to levy Service Tax on the aspect of Services involved in construction of a complex, the benefit of which is available to a prospective buyer who enters into an arrangement – whether by way of an agreement of sale or otherwise – for acquiring a unit in a project prior to its completion/development.
Further, Hon’ble Court noted that it is essential to determine the measure of tax used for the levy as it must have nexus with the object of Tax and therefore it cannot be expanded to include elements such as value of goods because that would result in extending the levy of Service Tax beyond its object and would overlap with the fields reserved for State Legislatures.
It was further stated that undisputedly the arrangement between the buyer and the builder is a composite one which involves not only the element of Service involved but also goods and immovable property and therefore the levy of Tax on such activity would fail, if it does not provide for a mechanism to ascertain the value of Service component which is the subject of the levy.
The Hon’ble Court held that
“In the present case, we find that there is no machinery provision for ascertaining the service element involved in the composite contract. In order to sustain the levy of service tax on services, it is essential that the machinery provisions provide for a mechanism for ascertaining the measure of tax, that is, the value of services which are charged to service tax.”
Hon’ble Court noted that since Rule 2A of Valuation Rules provides mechanism to ascertain the value of service in case of composite work contract involving services and goods, but it does not cater to the determination of value of services in case of composite contract which also involves value of land. It was further stated by Hon’ble High Court that the abatement provided vide Notification which provides machinery for determination of value of service is insufficient inasmuch as the charging section as well as machinery for its computation must be provided in the statute itself or rules framed thereunder.
The Hon’ble Court struck down the levy of Service Tax on such construction service provided by builders where value of land is included in the consideration on the basis of following lacuna in the provisions of Finance Act, 1994 and rules framed thereunder
“The abatement to the extent of 75% by a notification or a circular cannot substitute the lack of statutory machinery provisions to ascertain the value of services involved in a composite contract.”
In view of this judgment I suggest that it don't difference in UDS of that property
Thank You;
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