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.
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