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Bombay High Court stays collection of Service Tax levied on buildings under construction

The Bombay High Court has granted an interim stay on collection of Service Tax levied on buildings under construction, following a writ petition filed by the Maharashtra Chamber of Housing Industry (MCHI). Mr Sunil Mantri, President, MCHI, said the chamber had urged the High Court to restrain the respondents (Union Government and others) from taking steps against the members of the Chamber in respect of transactions for construction,

The Bombay High Court has granted an interim stay on collection of Service Tax levied on buildings under construction, following a writ petition filed by the Maharashtra Chamber of Housing Industry (MCHI). Mr. Sunil Mantri, President, MCHI, said the chamber had urged the High Court to restrain the respondents (Union Government and others) from taking steps against the members of the Chamber in respect of transactions for construction, development, and sale of immovable property under the various provisions of the Finance Act, 1994 and a new entry as amended by the Finance Act of 2010 in any manner, besides challenging the constitutional validity of the amendment.

According to Mr Mantri, the court had said, “No coercive steps shall be taken against the petitioner for the recovery of Service Tax in relation to the provisions in question, but it is clarified that assessment may proceed in accordance with law.”

This is an interim order and the hearing has been posted to August 3, 2010.

The text of the decision is reproduced below:

IN THE HIGH COURT OF BOMBAY

Writ Petition No. 1456 of 2010

MAHARASHTRA CHAMBER OF HOUSING INDUSTRY

Vs

UNION OF INDIA

V C Daga And S J Kathawalla JJ.,

Dated: July 23, 2010

Appellant rep by: Mr.Rafique Dada, Senior Advocate i/b. Parimal Shroff & Co

Respondent rep by: Mr.R.V.Desai, Senior Advocate with Mr.R.B.Pardeshi

Service Tax – Construction Service – Constitutional Validity of Finance Act 2010 Amendment challenged – No coercive steps till next hearing: Notice issued to Attorney General of India

ORDER

P.C.

Heard.

Perused petition.

2. Arguable questions are raised in the petition with regard to the constitutional validity of Section 65(30a) read with Section 65(105)(zzp) and Section 65(105)(zzzh) read with Section 66 of the Finance Act,1994, as amended by the Finance Act, 2010 which needs consideration.

3. Rule.

4. Since the constitutional validity of the aforesaid provisions has been challenged, issue notice to the Attorney General of India along with respondent Nos.2 & 3, returnable on 3rd August,2010. In the meantime, until next date of hearing , no coercive steps shall be taken against the petitioners for the recovery of service tax in relation to the provisions in question, but it is clarified that assessments may proceed in accordance with law.

5. Mr.R.V. Desai, Learned Senior Counsel waives service on behalf of respondent Nos.4 to 6.

5. To be heard along with Writ Petition (L) No.1476 of 2010. Stand over to 3rd August, 2010.

Categories: Service Tax

View Comments (54)

  • All likeminded people who hv purchased property should join together to fight the imposition of VAT @5% by the Govt. This is really creating a big hole in our pockets. Although the imposition has been stayed by the Hon High court on the basis of the case filed by MCHI, we the common people are not aware on the developments with respect to this imposition. The builders are demanding 5% of the sale value as FD which may be refunded if the case is in favour of the builder. There is a lot of uncertainity in the decision and ambiguity in the imposition as such. I would recommend all customers who are suffering to network with each other and file a writ petition with the govt with proper legal recourse.

  • Can anyone confirm whether property service tax is applicable to flat which were purchased in year 2009.
    I think this pending court decision is for those flats which were purchased in year 2010 onwards.
    Please clarify.

  • In the decision on Monday, January 23, 2012, 9:26, it is mentioned that "imposed 2.5% service tax on construction of flats and shops with effect from July 1, 2010.” I want clarification whether this means that those who have registered their flat before July 1, 2010 do not have to pay this tax. Or they have to pay the tax on the amount which was given to builder after July 1, 2010.
    e.g. if only 10% (say Rs.1lac)amount of the flat cost (Rs.10lac ) is given after July 1, 2010 to the builder then we have to pay tax of 2.5% (Rs.2500 )on that 10% amount. We do not have to pay any tax on that 90% amount paid before July 1, 2010. Is this right?

  • The clarification is given at “https://taxguru.in/service-tax/service-tax-construction-services-cbec-clarification.html”.
    (i) For the period prior to 01/07/2010: construction service provided by the builder/developer will not be taxable, in terms of Board’s Circular No.108/02/2009-ST dated 29.01.2009.
    (ii) For the period after 01/07/2010, construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land was received by the builder/ developer before the issuance of completion certificate and the service tax would be required to be paid by builder/developers even for the flats given to the land owner.

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