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HC grants interim stay on Service Tax
August, 17th 2010

The Maharashtra Chamber of Housing Industry (MCHI) has said it is hopeful of an early decision on the service tax issue.

The second hearing of the High Court writ petition filed by MCHI challenging Service Tax levy on buildings under construction has been deferred to September 8, 2010. Its a revenue related matter so we are hoping that early decision should come out, said Sunil Mantri, president, MCHI, who is also chairman of the Sunil Mantri Group.

The MCHI and others through their writ petition had 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.

The court has already given a major reprieve to 550 MCHI developers by granting an interim stay on the matter. We are happy that High Court has intervened in the matter because somehow we could not convince to the central government and they still have imposed this tax, he said. Mantris contention is that sale of property cannot be constituted as service because its clearly covered under Transfer of Property Act which draws stamp duty and registration.

MCHI says its other developer members will also be joining their petition so that they can get relief. This relief is for our parent association of 550 members.

We also have various associations at Thane, Vasai-Virar, Panvel and Kalyan-Dombivli who are also submitting undertakings to the court so that can they take response, said Mantri.

The MCHI in its petition had urged the 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.

The government had earlier announced that service tax would be levied on 25% of the total value of property as against the earlier 33%, besides increasing the abatement provided to the sector from 67% to 75%. The tax came into effect from July 1, 2010.

But the developers say this is unconstitutional and irrational to charge service tax which would cause sale price going up by 2.6%. 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, Mantri added.

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