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SERVICE TAX ON FLATS UNDER COMPOSITE CONTRACTS NOT TENABLE

Service Tax - By: - Dr. Sanjiv Agarwal - Dated:- 29-6-2016 Last Replied Date:- 16-7-2016 - 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 .....

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. 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 t .....

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e 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, .....

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ed upon Karnataka High Court judgment in case of Confederation of Real Estate Developers Association v. Union of India (W.P. 24050-51 -2010) [[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 to section 65(105) (zzzh) and zzzzu) was rejected. It was contended that development of a project results in the substantial value addition on bare land .....

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t charged by a developer is for value addition and, therefore, the gross amount charged for such services is chargeable to service tax under Section 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 lac .....

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es 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 charge .....

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all 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 .....

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