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Service Tax HC Relief For Home Buyers amp Developers

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Service Tax HC Relief For Home Buyers amp Developers

Last updated: May 31 2011
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  • Service Tax HC Relief For Home Buyers amp Developers

    MUMBAI: In a temporary relief to home buyers and developers, the Bombay high court has granted interim stay on service tax on under-construction buildings, which was challenged by the Maharashtra Chamber of Housing Industry (MCHI), an umbrella organisation of 500 developers. The matter is posted for hearing on August 3.

    Admitting the petition last week, a division bench of Justices V C Daga and S J Kathawala granted interim stay until further hearing. The MCHI and others challenged the constitutional validity of the Finance Act 2010, which sought to introduce the concept of service tax on under-construction buildings. But the MCHI contended that the sale of a unit, as per the settled laws dealing with transfer of property, could not be deemed a service.

    "Sale by the builder should not be treated as a service, as service tax is levied ultimately on the property," said the MCHI. Senior advocate Rafique Dada appeared on behalf of M/s Parimal K Shroff & Company for the MCHI in the court.

    In its interim order, the HC stated, "No coercive steps shall be taken against the petitioner for the recovery of service tax in relation to the provisions in question... but assessment may proceed in accordance with the law." This allows the government to carry on service-tax assessment.

    MCHI president Sunil Mantri expressed satisfaction over the court's ruling which he said was "in the interest of the common man". "Any such levy will increase the cost of the flat and ultimately the buyer will have to bear the brunt," Mantri said.

    Flat buyers now have to pay approximately 2.5% as service tax on the total value of their flat. "If the value of a flat is shown Rs 1 crore in the agreement, the home buyer will have to shell out an additional Rs 2.5 lakh as service tax," he said.
  • #2

    #2

    Re : Service Tax HC Relief For Home Buyers amp Developers

    So then the question that begs to be answered is what about builders who have already charged customers the service tax in the last month? Do they get it back??

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    • #3

      #3

      Re : Service Tax HC Relief For Home Buyers amp Developers

      It is a stay order and no more than that. If the government loses on all available petitions then the question of refund arises. However builder cannot charge ST till the stay order is in place.

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      • #4

        #4

        Re : Service Tax HC Relief For Home Buyers amp Developers

        Originally posted by jacobsassoon View Post
        So then the question that begs to be answered is what about builders who have already charged customers the service tax in the last month? Do they get it back??
        The matter is at interim stage. This is an interim Order. A lot depends upon the final order. If the Court rules in favour of association, the government cannot charge service tax and consequently the builders will have to repay the amount that they have collected as service tax from the customers.

        But in all probability, this will be escalated to the Supreme Court, I guess.

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        • #5

          #5

          Re : Service Tax HC Relief For Home Buyers amp Developers

          Originally posted by pankajlaws View Post
          The matter is at interim stage. This is an interim Order. A lot depends upon the final order. If the Court rules in favour of association, the government cannot charge service tax and consequently the builders will have to repay the amount that they have collected as service tax from the customers.

          But in all probability, this will be escalated to the Supreme Court, I guess.
          Then after 5 years when the government loses in Hight court it will bring an amendment to the service tax bill so the case will have to be reconsidered.

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          • #6

            #6

            Re : Service Tax HC Relief For Home Buyers amp Developers

            Originally posted by pankajlaws View Post
            The matter is at interim stage. This is an interim Order. A lot depends upon the final order. If the Court rules in favour of association, the government cannot charge service tax and consequently the builders will have to repay the amount that they have collected as service tax from the customers.

            But in all probability, this will be escalated to the Supreme Court, I guess.
            Then after 5 years when the government loses in Supreme court it will bring an amendment to the service tax bill so the case will have to be reconsidered.

            Comment

            • #7

              #7

              Re : Service Tax HC Relief For Home Buyers amp Developers

              Originally posted by jacobsassoon View Post
              So then the question that begs to be answered is what about builders who have already charged customers the service tax in the last month? Do they get it back??

              How can builder charge service tax as till today rules regarding it are not clear?,nobody can explain how much the tax and what will be the criteria for it?Then which customers paid service tax it to the builder??

              Today Itself I talk to Dosti once again and they said Even they dont know exactly what are the terms for it.They again added we will not have to pay the tax on the construction completed till 30th june 2010,(though u might have paid the amount in July).

              But he told about stay order also and mention they are doing there best to dissolve this matter as it would definately benificial for us and them also.

              So lets hope for the best !

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              • #8

                #8

                Re : Service Tax HC Relief For Home Buyers amp Developers

                Indeed a relief for common man...

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                • #9

                  #9

                  Re : Service Tax HC Relief For Home Buyers amp Developers

                  I think this is quite an irony. The builders association standing up for the common man. If MCHI is so concerned about the buyers and really think the Mumbai RE market is just about recovering from recession then why don't they stabilize the price levels. Wouldn't that help the common man even more? For every 100 rs rise in a 1000 sq ft home the cost appreciates by 1 lakh. MCHI cannot adopt a 'holier than thou' attitude and selective concern for common man by admonishing only the govt and the banks when they try to join the party. The message is clear MCHI- first get your own house in order. And finally for the common man (me included) why can we not form an association like the MCHI which will really represent the ground realities and resist arm twisting tactics by all stakeholders?

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                  • #10

                    #10

                    Re : Service Tax HC Relief For Home Buyers amp Developers

                    Service tax is good for end consumers!!!

                    I think the govt has done a good thing by imposing a service tax on under-construction buildings. The point here is that builders will find it difficult to get funds from investors. (an investor will be vary of doling out service tax as he wants the max out of his investment).
                    MCHI is fighting the case only 'coz they are finding it difficult to get fund. It's not at all out of their concern for the end consumers.
                    I think, service tax will help me and you... by taking the investors away... and by reducing the prices in the long run.

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