Munjaal Manishbhai Bhatt Vs Union of India (Gujarat High Court)
HC held that impugned Paragpragh 2 of the Notification No. 11/2017-Central Tax (Rate) dated 28.6.2017 and identical notification under the Gujarat Goods and Services Tax Act, 2017, which provide for a mandatory fixed rate of deduction of 1/3rd of total consideration towards the value of land is ultra-vires the provisions as well as the scheme of the GST Acts. Application of such mandatory uniform rate of deduction is discriminatory, arbitrary and violative of Article 14 of the Constitution of India.
While we so conclude, the question is whether the impugned paragraph 2 needs to be struck down or the same can be saved by reading it down. In our considered view, while maintaining the mandatory deduction of 1/3rd for value of land is not sustainable in cases where the value of land is clearly ascertainable or where the value of construction service can be derived with the aid of valuation rules, such deduction can be permitted at the option of a taxable person particularly in cases where the value of land or undivided share of land is not ascertainable.
The impugned paragraph 2 of Notification No. 11/2017-Central Tax (Rate) dated 28.6.2017 and the parallel State tax Notification is read down to the effect that the deeming fiction of 1/3rd will not be mandatory in nature. It will only be available at the option of the taxable person in cases where the actual value of land or undivided share in land is not ascertainable.
In so far as the writ applicant of the Special Civil Application No.1350 of 2021 is concerned, the value of land is available in the agreement to sale and the same is not challenged by the Respondents in the affidavit in reply. The writ applicant had deposited the amount of tax charged under the GST Acts by the supplier i.e. respondent No.4 under protest and it was clearly observed in the interim order passed by this Court that such payment would be subject to the final outcome of this writ application. Since we have declared the impugned deeming fiction to be ultra-vires and we have read it down to be inapplicable in cases where the actual value of land is unavailable, consequently we direct the concerned GST authority to refund the excess amount of tax under the GST Acts to the writ applicant which has been collected by the respondent No.4 and deposited with the Government treasury. Such refund shall be calculated by determining the actual GST liability on the basis of actual construction value as stipulated in the agreement and such actual liability will be deducted from the total tax charged from the writ applicant and paid into the Government treasury. Refund is to be granted along with the statutory interest at the rate of 6% per annum which is to be calculated from the date of excess payment of tax till the date of refund. The entire exercise of calculation of refund and disbursement of the same with interest shall be completed within 12 weeks from the date of receipt of this order.
We are conscious of the fact the writ applicant of the Special Civil Application No.1350 of 2021 is the recipient of service and not the supplier and that the tax has been collected by the supplier from the writ applicant and deposited with the Government treasury. However since the writ applicant has actually borne the burden of tax and such tax was paid under protest by virtue of interim order of this Court, we are directing refund of such tax directly to the writ applicant. It will not be out of place to mention that in fact Section 54 of the CGST Act also envisages claim of refund directly by the recipient if he has borne the burden of tax. It has been so held by the Supreme Court in the case of Mafatlal Industries Ltd. v/s Union of India (1997) 5 SCC 536.
In so far as the other two writ applications numbered Special Civil Application No.6840 of 2021 and Special Civil Application No.5052 of 2022 resply are concerned, since the advance ruling appellate orders are based on the impugned notification providing for mandatory deeming fiction for deduction of value of land, the said orders are hereby quashed and set aside. The objection with regard to maintainability of writ applications against the advance ruling appellate orders is summarily overruled considering the fact that the challenge to such orders is incidental to the challenge of the impugned Notification. If at all during adjudication of such writ applications it is found that there is an element of supply of goods or services in the transactions undertaken by the writ applicants, then it is always open for the authority to adjudicate such liability in accordance with law.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Since the issues raised in all the captioned writ applications are the same, those were taken up for hearing analogously and are being disposed of by this common judgement and order.
2 For the sake of convenience, the Special Civil Application No.1350 of 2021 is treated as the lead matter.
3 By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs:
“A. This Hon’ble Court may be pleased to strike down and declare Entry 3(if) of Notification No. 11/2017-Central Tax (Rate) dated 28.6.2017 as well as Entry 3(if) of Notification No. 11/2017 – State Tax (Rate) along with paragraph no. 2 of both the notifications as being ultra-vires Section 7(2) of the GST Acts read with Entry No. 5 of Schedule III to the GST Acts as well as ultra-vires Section 9(1) and Section 15 of the GST acts;
B. In any case this Hon’ble Court may be pleased to strike down and declare Entry 3(if) of Notification No. 11/2017-Central Tax (Rate) as well as Entry 3(if) of Notification No. 11/2017 – State Tax (Rate) along with paragraph no. 2 of both the notifications as being manifestly arbitrary, grossly discriminatory and violating Article 14 of the Constitution of India as well as ultra-vires Article 246A of the Constitution of India;
C. Without prejudice to the above and in the alternative this Hon’ble Court may be pleased to declare that impugned paragraph no. 2 of Notification No. 11/2017-Central Tax (Rate) dated 28.6.2017 and Notification No. 11/2017 – State Tax (Rate) is applicable only qua sale of flats/building units wherein undivided share in land is transferred along with constructed flats/units without separate consideration being fixed towards sale of land;
D. This Hon’ble Court may be please to declare that tax under the GST Acts cannot be imposed on consideration expressly receivable/payable towards sale/purchase of land;
E. This Hon’ble Court may be pleased to issue writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order directing the 4th Respondent not to collect tax under the GST Acts on consideration fixed for sale of land;
F. Pending notice, admission and final hearing of this petition, this Hon’ble Court may be pleased to allow the Petitioner to deposit the tax amount under the GST Acts qua purchase of land under protest with the 4th Respondent and such deposit may please be treated as refundable to the Petitioner subject to the outcome of the present Petition;
G. Ex parte ad interim relief in terms of prayer F may kindly be granted;
H. Such further relief(s) as deemed fit in the facts and circumstances of the case may kindly be granted in the interest of justice for which act of kindness your petitioner shall forever pray.
4 The facts giving rise to this writ application may be summarized as under:
4.1 The writ applicant is a practicing advocate in this High Court. The writ applicant entered into an agreement dated 29th September 2020 with the Navratna Organisers & Developers Pvt. Ltd., i.e. the respondent No.4 herein, for the purchase of a plot of land admeasuring about 1021 square metres located at the Unit No. 937, “Kalhar Blues and Greens”, Bopal-Sanand Bypass Road, Ahmedabad. The said agreement also encompassed construction of bungalow on the said plot of land by the respondent No.4 for the writ applicant.
4.2 It appears that separate and distinct consideration was agreed upon between the parties to the agreement for (i) the sale of land and (ii) construction of a bungalow on the land.
4.3 Further, as per the said agreement, the writ applicant was liable to pay all taxes including the Goods and Services Tax (for short “GST”). The writ applicant bona fide believed that by virtue of such clause he would be liable to pay tax under the Central/Gujarat Goods and Services Tax Act, 2017 (for short “the GST Acts”) on the consideration payable for construction of bungalow in as much as it would constitute supply of construction service under the GST Acts.
4.4 The respondent No.4 however, relying upon the impugned entry no. 3(if) of the Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017 read with para 2 of the said notification informed the writ applicant that he would be liable to pay tax at the rate of 9% CGST + 9% SGST under the GST Acts on the entire consideration payable for land as well as construction of bungalow after deducting 1/3rd of the value towards the land in accordance with the impugned paragraph 2 of the said notification. The respondent No.4 raised an invoice on the writ applicant to collect such tax from the writ applicant.
4.5 Thus it appears that, because of the impugned notification, the entire consideration towards the sale of land has not been excluded for the purpose of computing tax liability under the GST Acts. 1/3rd of the total consideration has been deemed to be land value as per paragraph 2 of the impugned notification.
5 In such circumstances referred to above, the writ applicant is here before this Court with the present writ application.
