Builders are all set to legally challenge the imposition of the service tax levied by the Centre on flats under construction. The Maharashtra Chamber of Housing Industry (MCHI), which has leading developers as its members, is considering filing a writ petition in the court against the service tax, which has been imposed since July 1.

The service tax will be charged on only those residential projects, which are still under construction or where a completed building has not received its occupation certificate. More than 80% apartments are booked when they are still under construction.

MCHI president Sunil Mantri said under the Constitution, the Centre and the state had separate domains in respect to its rights to impose taxes. “The state has the exclusive power to levy taxes on land and buildings in terms of Entry 49 of List ii to the Seventh Schedule of the Constitution. By amending the provision to levy service tax on transaction of sale of immovable property seems to be unconstitutional,” he said.

According to him, the sale of an unit in the complex as per the settled law of transfer of property is not a service and, accordingly, the sale by the builder should not be treated as a service. “This would be a tax on transfer of immovable property only,” he said.

Developers have complained that such a tax will increase the cost of the flat and the buyer will have to bear the burden. While National Housing and Habitat Policy 2007 envisages affordable housing for all, the proposal to levy service tax irrespective of any kind of house (even EWS or MIG) would be against government policy, developers said.

Already burdened by galloping property prices, flat buyers now have to pay 2.5% more as service tax on the total value of their flat. For example, if the value of a flat is shown Rs 1 crore in the agreement, the buyer will now have to shell out an additional Rs 2.5 lakh as service tax.

Despite strong representations made to the Centre by those in the construction industry, the finance ministry did not budge. As reported by TOI in its May 25 edition, many builders had started collecting this tax even before it was officially implemented by the Centre. Developers had even informed buyers that the possession of their apartments would be held up in case they failed to cough up the amount.

The service tax will be charged on only those residential projects, which are still under construction or where a completed building has not received its occupation certificate. More than 80% of apartments are booked when they are still under construction.

The Confederation of Real Estate Developers Associations of India (Credai) has also opposed the service tax imposition, saying it would make buying houses more difficult than at present. Credai has stated that such a move will lead to double taxation.

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0 responses to “Builders likely to challenge imposition of service tax on flats under construction in court”

  1. Tejas Shah says:

    The Present Congress Government is Not trust worthy it does not think about the common people at all. Public says the Congress govt would bring the developement and growth in indian economy. The development is of the ministers only and the growth is only in name of Taxes and variety of taxes and the lavishing expenses of ministers.
    Media should be banned for giving the price of various food and other necessaities of life instead should give the basic minimum price of all necessary things.
    No ministers or celebrities be allowed to give their opinion on price, shortage of the basic necessary items.
    The government should fix the minimum amount of revenue generated to be spent for the development of such states only from where it is collected by way of reducing the tax rates in such states.
    The move taken by the govt on increase in fuel price by Rs 2.5 in petrol has resulted in Increase in transportation cost of 15 to 20%.
    The levy of service tax on housing industry is again a policy averse decission of the ministry. Instead should only be laid on the complex used for commercial or investment purpose i.e. On 2nd house property of the person.

  2. Prashant Kumar says:

    Pranab Mukherjee has proven himself to be a worst finanace minister till now. instead of curtaining expeses done by ministers, he is making general public to suffer. Can he and Manmohan Singh look into expeses done by their ministers? Lot of fuel is wasted by their convoy in the name of security. wastage of resources. Government officials are corrupt to the core. Can you correct all these situations instead making masses to suffer. Please resign from the ministry as you can not control any inflation.

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