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Levy of service tax on sale of residential complex not unconstitutional – Punjab and Haryana HC

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M/s G.S. Promoters (hereinafter referred to as the Petitioner) is engaged in development and sale of residential flats. The petitioner enter into agreement for construction of flats with the contractors. The flats are ultimately sold to the customers.

The petitioner filed the subject petition to seek declaration that the Explanation to Section 65(zzzh) of the Finance Act, 1994 (henceforth referred as the Finance Act) and CBEC circular No. 334/3/2010-TRU dated 1 July 2010 (henceforth referred as the Circular) are unconstitutional.

Contentions of the Petitioner:- The Petitioner put forth the following contentions:

• The explanation to Section 65(zzzh) of the Finance Act widens the scope of levy beyond the concept of service by including therein sale.

• Taxing of sale and purchase is beyond the legislative competence of the Union Legislature.

Contentions of the Respondents:- The respondents contended that the Explanation to Section 65(zzzh) of the Finance Act and the Circular are constitutionally valid.

Observations of the High Court:- The following observations were made by the High Court of Punjab and Haryana

• The Central Government derives its authority from Entry 92C and the residuary Entry 97 of the Union List of the Constitution of India for levying tax on services.

• The scope of legislative entry cannot be taken to be limited by narrow interpretation. The entries in the lists being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The words and expressions employed in drafting the entries must be given the widest-possible interpretation. A power to legislate as to the principal matter specifically mentioned in the entry shall also include within its expanse the legislations touching incidental and ancillary matters.

• Activity sought to be subjected to tax has to be as per the statutory scheme and unless there is any encroachment in the field of the State Legislature, the competence of the Union Legislature cannot be questioned. What has been subjected to levy, in the present case, is the element of service of construction. Accordingly, in this view of the matter, the impugned levy cannot be held to be beyond the legislative competence of the Central Government. Taxation power of the Union Legislature extends to any matters not covered by taxing entries in List II and is not limited by specified entries.

• Whether or not service is involved has to be seen not only from the point of view of the builder but also from the point of view of the service recipient. What is sought to be taxed, in the present case, is the service in relation to construction which is certainly involved even when construction is carried out or got carried out before construction and before flat is sold. Taxing of such transaction is not outside the purview of the Union Legislature as the same does not fall in any of the taxing entries of State list.

Conclusion:- The writ petition was dismissed as no ground was found by the High Court of Punjab and Haryana to declare the levy by virtue of Explanation to Section 65(zzzh) of the Finance Act and the Circular as unconstitutional.

Order of the Punjab and Haryana High Court dismissing the Writ Petition filed by M/s G. S. Promoters (C. W.P. no. 21427 of 2010)

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0 Comments
  1. IF ADVANCE PAID TO A CONTRACTOR RS. 50000 FOR FURNITURE WORK OF OFFICE IN A SINGLE DAY THROUGH CASH. THIS WILL ALLOWED OR DISALLOWED .

  2. sir,
    My question is if we are a Pvt.Ltd.company engaged in manufacturing of edible non taxable items. we sales the goods to differenet party and they give cash payment to us of the said bill.The amount may be in lakh also whether this transaction is allowed by I.T.law or not .if no please so the section reference no.

    thanks
    DIPAK JAIN
    09836525687

  3. i have trading bussines in chennai and i sale the matrial in cash and as such i use to purchase the material in cash and if the amount goes more than rs.20000.00 pls give advise.

  4. Sir. form dated 01.07.2010 new ammendmemd that cash payment form 20000 to 30000 single payment can be paid form not deducted tds. but i want to know if payment 25000 cash for advane to sundry creditors or debtors or some loan for reveived or payemt . aallow?

  5. Applicability of Rule 6DD in case where bill is of Rs. 15000/- Rs.10000/-and Rs.18000/- in a day and payment made by cash Rs. 43000/- on same day i.e. 15/10/2007 and 15/10/2009

  6. Sir, If a Charitable regd Instn holds a charity show and has to pay the artiste a sum of Rs 50000 by cash will Rs 30000 be treated as profits and not allowed for deduction ? Is it possible to split this amount on different dates on the voucher but to same person ?

  7. If we purchase assets and paid more than 20000/- say for ex: 60000/- furniture purchase then payment made in lumsum by cash whether it allowable

  8. whether amount paid to employees as reimbursement of expenses incurred during official tour will get disallowed if exceeds Rs.20,000/-

  9. Plz tell me , if payment made in cash to contractor more than Rs.20000/- in a day is alloweds as expense.
    and more than Rs.500000/- in ayear, in cash payment is allowed as expense.

  10. If individual GR’s of a transporter are of 50000/- and payment made at a time Rs. 50000/-in a single day, will it apply?

  11. a company is paid Rs. 65000/- to a contractor. But it showed that there are 4 bill, each less than Rs. 20000/-, of different dates. Will this payment is disallowed u/s 40A(3)?

  12. salary advace paid to employee an amount of Rs.50000 is it allowed in income tax act

  13. More than Rs.2000 paid to customers in Construction & paddy brokerss & Ricc Millers. Is it correct or not?

    please reply te me

    P.Srinivasa Rao
    Tadepalligudem

  14. IF A COMPANY PAID EXCEED RS.20000/- FOR 13-14 DAYS WORKS THROUGH ONE ACOUNT PAYEE CHEQUE. IS IT DISALLOWED U/S 40(A) (I) says:

    IF A COMPANY PAID EXCEED RS.20000/- FOR 13-14 DAYS WORKS THROUGH ONE ACOUNT PAYEE CHEQUE. IS IT DISALLOWED U/S 40(A)(I)

  15. If individual GR’s of a transporter are of less than 20000/- and payment made at different times exceeds 35000/- in a single day, will it apply?

  16. I have received payment against sale of product in cash more than Rs. 20000/- and at the time of settlement I need to pay tham more than rs. 20,000/- will it allawable

  17. do the capital expenditure incurred in violation of section 40A(3) will be added to income. since no deduction of capital expenditure is taken from income can it be disallowed in such way to result in addition of income.

  18. i have paid cash for property tax of Rs-40000 is it disallowable

  19. what if bill nos.are different but payment is made on the same date to same person..all at different time during the day

  20. If an “advance” of Rs. 1,50,000 for court fee is paid in cash, does it result in violation of rule 6DD of the Income Tax Act,1961.

  21. what about expenses paid to different people on the seame day. will that make section 40A(3) applicable? says:

    what about expenses paid to different people on the same day but the aggregate expenses increase 20000/- will section 40A(3)apply?

  22. If a company made advance payment to hos emloyee in cash for Rs.2 Lacs, Employee deposited this sum in his personal account and made payment for expenditure on behalf of company through account payee cheque from his personal account.

    Whether Provision of section 40A(3) shall apply to company? or expenditure will allow to co.?

    Please comment……..

  23. If any company make payment exceeding Rs.20000 to their employee as a tour advance in that case also 40A(3) applied or not?

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