Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT RATES :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: VAT Audit :: empanelment :: due date for vat payment :: ACCOUNTING STANDARD :: ARTICLES ON INPUT TAX CREDIT IN VAT :: form 3cd :: cpt :: articles on VAT and GST in India :: TAX RATES - GOODS TAXABLE @ 4% :: TDS
 
 
« Service Tax »
 GST on a knife-edge as states act tough
 Parliament Winter Session: Govt keen on proper discussion on GST Bills
 Service Tax revision to make digital content expensive: Here’s how it will impact you
 GST Council may reduce tax slabs in future: CBEC chief
 Govt to waive service tax on card transactions up to Rs 2,000
 Recovery Of Tax Under Model Gst Law
 Income Tax officials hunt for Mumbai’s ‘ghost’ assessee
 GST delay to impact Budget
 If GST not rolled out by Sept, there won't be taxation in country, warns Jaitley
 India’s E-Service Tax Will Add To Foreign Content Providers’ Woes
 GST Council to discuss model laws, tax jurisdiction today

Service Tax On Flats Under Composite Contracts Not Tenable
July, 01st 2016

Presently, construction activities are taxed as declared services w.e.f. 1.7.2012 under section 66E(b) of the Finance Act, 1994. This includes construction activities which means construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.

Prior to 1.7.2012 (i.e. before negative list came into force), such activities were taxed to Service Tax under section 65(105) (zzzh) as construction of complex services, besides taxing preferential location charges under section 65(105) (zzzzu) of Finance Act, 1994.

In one of the recent judgments of Delhi High Court (Division Bench), the court while disposing the WP(C) No. 2235/2011 and WP(C)2971/2011 in the matter of Suresh Kumar Bansal and Anuj Goyal v. Union of India (2016) 6 TMI 192 (Delhi HC) has held that Service Tax on flats can not be levied on composite contracts.

The petitioners had entered into agreements to buy residential flats in a multi- storied project of group housing from builders. The builder has in addition to the consideration for the flats also recovered service tax from the Petitioners, which is payable by him for services in relation to construction of complex and on preferential location charges.  The issue involved in these petitions relate as to whether the consideration paid by flat buyers to a builder / promoter / developer for acquiring a flat in a complex, which under construction/development, could be subjected to levy of service tax.

The petitioner's contention was that the agreements with builders were for purchase of immovable property and the Parliament did not have legislative competence to levy Service Tax thereon. The entries relating to taxation in List-I and List-II of Seventh Schedule of the Constitution are mutually exclusive.

The  petitioners case was that  the agreements entered into by them with the builder were for purchase of immovable property and the Parliament does not have the legislative competence to levy service tax on such transaction. The petitioners further claimed that the Service Tax provisions in the Finance Act, 1994 and the rules made thereunder do not provide any machinery for computation of value of services, if any, involved in construction of a complex and, therefore, no such tax could be imposed. Petitioners also argued that their agreement with builders was a composite contract for purchase of immovable property and there being no specific provision to ascertain service element in said composite contract, Service Tax was beyond Union's competence. Further, there was no service involved against preferential location charges as these pertain only to location of property and had nothing to do with service.                                                                                                     

On the other hand, revenue heavily relied upon Karnataka High Court judgment in case of Confederation of [2013 (6) TMI 588 - KARNATAKA HIGH COURT]] and of Bombay High Court in Maharashtra Chamber of Housing Industry v. Union of India (WP No. 1456/2010) [ 2012 (1) TMI 98 - BOMBAY HIGH COURT] wherein challenge tosection 65(105) (zzzh) and zzzzu) was rejected. It was contended that development of a project results in the substantial value addition on bare land and includes various services such as consulting services, engineering services, management services, architectural services etc. These services are subsumed in the taxable service as contemplated under Section 65(105)(zzzh) of the Act. As the gross charges include value of land and construction material, only 25% of the Base Selling Price (BSP) charged by a builder from the ultimate consumer is subjected to levy of service tax. However, in case of preferential location charges, the entire amount charged by a developer is for value addition and, therefore, the gross amount charged for such services is chargeable to service tax underSection 66 read with Section 65(105)(zzzzu) of the Act.

The court has observed that neither the Act nor the Rules framed therein provide for a machinery provision for excluding all components other than service components for ascertaining the measure of service tax. 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. No service tax under section 66 of the Act read with Section 65(105)(zzzh) of the Act could be charged in respect of composite contracts such as the ones entered into by the petitioners with the builder.

So far as charging Service Tax on booking or allotting a preferential location is concerned, which was also one of the questions before the Court, it has held that preferential location charges are charged by the builder based on the preferences of its customers. They are in one sense a measure of additional value that a customer derives from acquiring a particular unit. Such charges may be attributable to the preferences of a customer in relation to the directions in which a flat is constructed; the floor on which it is located; the views from the unit; accessibility to other facilities provide in the complex etc. As stated earlier, service tax is a tax on value addition and charges for preferential location in one sense embody the value of the satisfaction derived by a customer from certain additional attributes of the property developed. Such charges cannot be traced directly to the value of any goods or value of land but are as a result of the development of the complex as a whole and the position of a particular unit in the context of the complex. Therefore, preferential location changes shall be liable to tax.

The court has also held that any Service Tax deposited shall be refunded to the petitioners with interest at the rate of 6 percent from the date of deposit till the date of refund.

It may be noted that the judgment is by high court and not Supreme Court and as such, certain quarters are also doubting the applicability of this judgment beyond the jurisdiction of Delhi High Court. It may be noted that Service Tax is a Central levy imposed by Union of India throughout the country except the state of Jammu and Kashmir. It is opined that in view of settled law, the judgment of one high court should be followed in other states in the absence of any other conflicting high court decision. This judgment is binding unless set aside or stayed by a Supreme Court, i.e. Supreme Court or by a larger bench of the same court.

However, in all probability, Union of India is likely to file an appeal before Apex Court and seek stay / quashing of this judgment which is likely to unsettle the existing settled proposition.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
E-catalogue online catalogue E-brochure online brochure online product catalogue online product catalogue e-catalogue Indi

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions