Bombay High Court granted interim stay on Service Tax

The Bombay High Court has granted an interim stay on service tax levied by the Union Government on buildings under construction. The interim stay was granted by Justice V C Daga and Justice S J Kathawala, who admitted a petition filed byMaharashtra Chamber of Housing Industry (MCHI). The MCHI challenged the constitutional validity of Finance Act 2010, seeking to amend the Finance Act 1994 by introducing the service tax and 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 complexes done prior to obtaining a completion certificate.
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.
Welcoming the interim order of the High Court, MCHI president Sunil Mantri said that the imposition of service tax will only increase the cost of the flat, and the buyer will ultimately have to bear the brunt. Deferring the matter to August 3, the judges ruled,“No coercive steps will be taken against developers for recovery of service tax in relation to the provisions in question.” However, they clarified that the assessment may proceed in accordance with the law.
MHCI pleaded that the sale of a unit in a complex, as per the settled law of transfer of property, is not a service. Accordingly, sale by the builder should not be treated as a service, it added. While the National Housing and Habitat Policy 2007 envisages affordable housing for all, the proposal to levy Service Tax — irrespective of any kind of house would run counter to the policy of the government, Mantri said.
MCHI is of the view that the sale of a unit in the complex, as per the settled law of transfer of property, is not a service. Accordingly, sale 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.
The writ petition has been moved by Maharashtra Chamber of Housing Industry (MCHI), an umbrella organization of more than 500 developers. Senior Advocate Rafique Dada appeared on Behalf of Parimal K Shroff & Company for the MCHI in the court.The honourable court had posted the next hearing in the case on August 3, 2010.