Realty prices in the city and surrounding urban areas are likely to be further escalated with the Bombay high court on Friday holding that service tax is liable to be paid on constructed premises such as flats, shops, etc. The central government has amended the Finance Act of 2009 and has
 
imposed 2.5% service tax on builders effective from July 1, 2010. A division bench of justice DY Chandrachud and justice Amjad Sayed on Friday upheld the decision holding that levying of service tax was valid and constitutional.
Maharashtra Chamber of Housing Industries (MCHI) had approached the high court challenging the decision primarily on the ground that levying of service tax on land and landed properties was within the purview of the state government. And therefore, according to the petitioner body, the central government could not have levied the service tax on real estate industry and the decision was illegal and unconstitutional.

In response, additional solicitor general Darius Khambata argued that construction activity was a service and the central government was empowered by the Constitution of India to levy service tax.

Khambata cited number of apex court judgments and also provisions of the Maharashtra Ownership of Flats Act, which allows registration of a flat or a shop even before construction work is complete and the premises is ready for occupation.

The court accepted his submissions saying there nothing was legally wrong with the decision of levying service tax on construction activity