The Honorable High Court of Delhi has recently decided in the matter of Suresh Kumar Bansal and Ors. Vs. Union of India Ors regarding levy of service tax on the composite contracts entered with the builders or developers.
The petitioner has entered into the contract with a builder to buy residential flats in a multi-storey group housing project;
Builder has charged consideration for composite contract wherein value of undivided portion of land is also included;
Builder has also charged service tax from petitioner on services related to composite contract and preferential location charges;
The issue involved in this petition is whether the consideration paid by a petitioner to a builder for acquiring a flat in a complex (i.e. composite contract), which is under construction/development, could be subjected to levy of service tax.
According to Petitioner, the agreement entered with the builder is for purchase of flats and the Parliament do not have the legislative competence to levy service tax on immovable property. The Petitioners further claims that the Finance Act, 1994 and the rules made there under do not provide any machinery for computation of the value of services, if any, involved in the construction of a residential complex and, therefore, no such tax can be imposed.
THowever, the Hon’ble High Court agreed to the contention of Department of revenue for the levy of service tax on Preferential Location Charges (PLC) since such charges may be attributable to the preferences of the customers and hence service tax would continue to be levied on PLC.
The Department of Revenue may move an appeal before the Supreme Court for challenging the Hon’ble High Court Order. Accordingly, reaction of Department of Revenue is yet to be seen post which stakeholders should decide their levy or payment of service tax on Composite Contracts.
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