MCHI to take legal recourse challenging service tax

Mumbai, July 08, 2010: Maharashtra Chamber of Housing Industry is considering to file Writ petition in the court to challenge the service tax levied on buildings under construction.

President of MCHI Mr. Sunil Mantri has stated that the centre and the state have separate domains in respect of its taxing powers under the constitution.

The state has the exclusive power to levy taxes on land and buildings in terms of Entry 49 of List ii to the seventh schedule of the constitution, by amending the provision to levy service tax on transaction of sale of immovable property is seem to be unconstitutional.

Mr. Mantri stated that the sale of an 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.

Mr. Mantri expressed his views that such levy will increase the cost of the flat and ultimate buyer will have to bear such cost on the one side national housing and habitate policy 2007 envisages for affordable housing for all, the proposal to levy of service tax irrespective of any kind of house (even EWS or MIG) would run counter to the policy of the government.

Further earlier by circular no. 108/2009 union of India clarify that only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property get transferred to the ultimate owner therefore any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of SELF SERVICE and consequently would not attract service tax.

Contrary to above circular vide finance act 2010 an explanation clause has been inserted in definition of taxable services of commercial or industrial construction service and construction of complex service which provides that unless the entire consideration for the property is paid after the completion of construction i.e. after issuance of completion certificate by a competent authority the activity of construction would be deemed to be a taxable service provided by builder/ developer/ promoter to the prospective buyer and service tax would be charged accordingly.

Mr. Mantri stated that some relief has been provided on levy of service tax but still he feels that housing sector should be free from such type of levy in the interest of Aam Aadmi (common man).