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NO SERVICE TAX ON FLATS UNDER COMPOSITE CONTRACTS

Service Tax - By: - Dr. Sanjiv Agarwal - Dated:- 10-6-2016 Last Replied Date:- 30-12-1899 - 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 HIGH COURT] has held that Service Tax on flats can not be levied on composite contracts. The petitioners had entered into agreements to buy residential flats from builders. T .....

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hat 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 can be imposed. The court has observed tha .....

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omposite contracts such as the ones entered into by the petitioners with the builder. So far as charging Service Tax on preferential location is concerned, which was also one of the questions before the court, it 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 i .....

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e 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. Comments on Delhi High Court Judgment The issues in the Hon ble Delhi High Court judgment are two-fold - one whether Service T .....

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me for Payment of Service Tax) Rules, 2007 which provided for a composite rate of 2 or 4 percent of total value where service component was not segregable as a option to assessee. The valuation rules had been notified under section 67 of the Finance Act, 1994 only (Valuation provisions). Thus, to say that machinery provisions did not exist may not be correct. Even post 1st July, 2012, amended valuation rules are there and apply to such transactions. In the earlier regime, Notification No. 1/2006 .....

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