The Bombay high court has allowed the Maharashtra Chamber of Housing Industry (MCHI) builders to deposit service tax collected from buyers of under construction structures directly in the court instead of putting the same in an escrow account.

Hearing a petition filed by the apex body of real estate developers, the Bombay high court has allowed the builders to deposit service tax collected from buyers of under construction structures directly in the court instead of putting the same in an escrow account.

The service tax thus deposited in the high court would be refunded to the members of Maharashtra Chambers of Housing Industry (MCHI) along with accrued interest thereon if the decision goes in favour of the builders who have challenged the levy of service tax imposed by the union government.

The division bench comprising justice J P Devdhar and Justice Mridula Bhatkar ordered the relief in service tax case while hearing the writ petition field by the MCHI against the Union Government of India on February 18, 2011.

The MCHI and other builders’ bodies challenged the constitutional validity of the Finance Act 2010, seeking to amend the Finance Act 1994, introducing an explanation to section 65 (105) (zzq) and 65 (105) (zzzh) to introduce the Service Tax concept of ‘Deemed Service” for any commercial or industrial construction of residential complex done prior to obtaining completion certificate.

The division bench of the Bombay High Court comprising Justice V C Daga and Justice S J Kathawala admitted the petition filed by the MCHI and others on July 23 and had granted interim stay until further hearing.

The MCHI in its Writ Petition urged the honourable High Court to restrain the respondents (Union of India and others) from any manner taking steps against the members of MCHI in respect of the transactions for constructions, 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 2010 in any manner.

President of MCHI Mr. Sunil Mantri has stated that the centre and the state have separate domains in respect of its taxing powers under the constitution.

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 is seem to be unconstitutional. 

Mr. Mantri stated that the sale of an unit in the complex as per the settled law of transfer of property is not a service. Accordingly sale of the same by the builder should not be treated as a service since service tax is levied ultimately on the property. This would be a tax on transfer of immovable property only.

Mr. Mantri is of opinion that such a levy will increase the cost of the flat and ultimate buyer will have to bear the cost. The National Housing and Habitat Policy 2007 envisage affordable housing for all. The proposal to levy service tax irrespective of any kind of house (even EWS or MIG) would run counter to the policy of the government.  

MCHI president Sunil Mantri, in a statement, said the sale of a unit in a complex as per the settled law of transfer of property is not a service. Accordingly, sale of the same by the builder should not be treated as a service since service tax is levied ultimately on the property. This would be a tax on transfer of immovable property only.

Mantri opined that such a levy will increase the cost of the flat and ultimately the buyer will have to bear the cost. The 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 run counter to the policy of the government.

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