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)