{"id":62891,"date":"2016-08-23T13:28:29","date_gmt":"2016-08-23T07:58:29","guid":{"rendered":"http:\/\/www.scconline.com\/blog\/?p=62891"},"modified":"2016-09-17T16:24:32","modified_gmt":"2016-09-17T10:54:32","slug":"statutory-machinery-clearly-computing-all-components-of-the-levy-is-a-precondition-to-levying-of-tax","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2016\/08\/23\/statutory-machinery-clearly-computing-all-components-of-the-levy-is-a-precondition-to-levying-of-tax\/","title":{"rendered":"Statutory machinery clearly computing all components of the levy is a precondition to levying of tax"},"content":{"rendered":"

Delhi High Court:<\/strong> \u00a0A Division Bench of the Delhi High Court comprising of S.Muralidhar and Vibhu Bakhru, JJ. ruled on whether \u2018service tax\u2019 could be charged on a contract regarding \u2018construction of a complex\u2019. The petitioners had entered into an agreement with a builder to buy flats being developed in Noida, Uttar Pradesh. The dispute arose when the builder recovered \u2018service tax\u2019 from the petitioners in addition to the \u2018cost of construction of the complex\u2019.<\/p>\n

The issue in contention was apropos the impugned \u2018Explanation\u2019 to Section 65(105)(zzz-h) of the Finance Act, 1994. The provision created a legal fiction and expanded the scope of the taxable service by including the \u2018construction of the complex\u2019 as a service rendered by the builder to the future buyer.<\/p>\n

The petitioners contended that entries related to taxation are present only in Lists 1 and 2 of the Seventh\u00a0Schedule to the Constitution and, therefore, are mutually exclusive. The Centre is permitted to charge tax on the service component and the States are empowered to charge tax on the transfer of property. As a consequence, in the absence of a service recipient\/future buyer, the service rendered by the builder while he is the owner, in the construction of the complex would amount to service to self and cannot be taxed. The petitioners relied on Commissioner Central Excise and Customs, Kerala<\/em> v. Larsen and Toubro<\/em>, (2016) 1 SCC 170<\/a> to contend that in case \u2018construction of a complex\u2019 is a composite contract, the Centre is only authorized to levy tax on the service component of the contract. That being the case, neither the Act, nor the Rules provide for any machinery for ascertaining the service component of a composite contract of the \u2018construction of a complex\u2019.<\/p>\n

The respondents contended that that development of a project results in substantial value addition on bare land and services such as consulting services, engineering services, management services and architectural services are rendered. And further that only 25% of the base selling price is charged by the builder from the ultimate buyers as service tax.\u00a0 Therefore, the aforementioned services are subsumed in the composite contract of \u2018constructing a complex\u2019 and should be levied with sales tax because a fixed defined amount is levied uniformly on every buyer.<\/p>\n

The Court disagreed with the petitioners on the limited point that service tax cannot be charged in a transaction between a developer and a prospective buyer. The Court found that the logic for levying service tax on the prospective buyer of the flat was sound because the activity of construction would be deemed to be a taxable service if the prospective buyer had paid the builder for it in part or full before construction was completed. However, the Court agreed to there being an absence of a statutory mechanism to ascertain the value of the service component in the levy. Thus the challenge to that extent was successful and the impugned \u2018Explanation\u2019 to Section 65(105)(zzz-h) was set aside, which brought composite contracts for purchase of units in a building complex within the scope of a taxable service. [Suresh Kumar Bansal<\/em> v. Union of India<\/em>, 2016 SCC OnLine Del 3657<\/a>, decided on June 3, 2016]<\/p>\n","protected":false},"excerpt":{"rendered":"

Delhi High Court: \u00a0A Division Bench of the Delhi High Court comprising of S.Muralidhar and Vibhu Bakhru, JJ. ruled on whether \u2018service <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,10,4711],"tags":[8671,5711,3208,8661],"class_list":["post-62891","post","type-post","status-publish","format-standard","hentry","category-casebriefs","category-highcourts","category-taxation","tag-builder","tag-construction","tag-service_tax","tag-taxable-service"],"yoast_head":"\nStatutory machinery clearly computing all components of the levy is a precondition to levying of tax | SCC Times<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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