Service Tax is Stayed for now

The service tax came into force from 1st July 2010. Accordingly the flat buyers were required to pay approximately 2.5 per cent more as service tax on the total value. The service tax increases the cost of living spaces in the State and will deter buyers. The cost of property in Mumbai is already sky high. This new service tax is bound to make the purchase of property a costly proposition.

The sale of a unit in a Complex, as per the settled law of transfer of property is not a service, thus the said levy of Service tax on buildings was challenged in the Bombay High Court.

The Bombay High Court has to stay the writ petition challenging an earlier order by the Union of India to levy service tax on Buildings under construction. The writ petition was filed by the Maharashtra Chamber of Housing on 23 July, 2010. The interim stay on the matter was ordered by a joint bench of Justice V C Daga and Justice S J Kathawala of the Bombay High Court.

The main matter that the writ petition challenges is the amendment of the Finance Act 1994 by the Finance Act 2010. The new act seeks to introduce a service tax, or Deemed Tax on those commercial construction or residential complexes constructed before obtaining a certificate of completion. The writ challenges the constitutional validity of such an amendment. The petitioners also requested the Bombay High Court to prevent members of the Union of India from penalizing members of the Maharashtra Chamber of Housing for undertaking transactions concerned with the various constructions, sale of these constructions or its development previously allowed under the Finance Act 1994. The Bombay High Court ruled that the assessment of the situation will follow the due course of Law, but for the present, no coercive advances will be made by the respondents against the petitioners in matters relating to the collection of service Tax.

The text of the decision is reproduced below:

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

WRIT PETITION NO.1456 OF 2010

Maharashtra Chamber of Housing Industry & Anr. ..Petitioners
                          Vs.
Union of India & Ors. ..Respondents


Mr.Rafique Dada, Senior Advocate i/b. Parimal Shroff & Co. for petitioners.


Mr.R.V.Desai, Senior Advocate with Mr.R.B.Pardeshi for respondent Nos.4 to 6.

CORAM: V. C.DAGA & S.J.KATHAWALLA,JJ.

DATE: 23rd JULY, 2010

P.C.
Heard.
Perused petition.

2. Arguable questions are raised in the petition with regard to the constitutional validity of Section 65(30a) read with Section 65(105)(zzp) and Section 65(105)(zzzh) read with Section 66 of the Finance Act,1994, as amended by the Finance Act, 2010 which needs consideration.

3. Rule.

4. Since the constitutional validity of the aforesaid provisions has been challenged, issue notice to the Attorney General of India along with respondent Nos.2 & 3, returnable on 3rd August,2010. In the meantime, until next date of hearing, no coercive steps shall be taken against the petitioners for the recovery of service tax in relation to the provisions in question, but it is clarified that assessments may proceed in accordance with law.

5. Mr. R.V. Desai, Learned Senior Counsel waives service on behalf of respondent Nos.4 to 6.

5. To be heard along with Writ Petition (L) No.1476 of 2010. Stand over to 3rd August, 2010.

(S. J. KATHAWALLA, J.) (V. C. DAGA, J.)