HIGH COURT OF DELHI
Suresh Kumar Bansal
vs.
Union of India
S. MURALIDHAR AND VIBHU BAKHRU, JJ.
W.P.(C) NOS. 2235 & 2971 OF 2011
3rd June, 2016
Facts of the case: Assessee
purchased flat in a residential complex for charges inclusive of value of land.
Assessee challenged levy of service tax on ground that composite contract
(inclusive of value of land) cannot be charged to service tax in absence of any
machinery provision for determination of value of service portion. Further,
preferential location charges do not amount to service and cannot be charged to
service tax
HELD :
1.
Rule 2A
of Valuation Rules, does not apply when price is inclusive of value of land
Whilst Rule 2A
of Service Tax (Determination of Value) Rules, 2006 provides for mechanism to
ascertain the value of services in a composite works contract involving
services and goods, the said Rule does not cater to determination of value of
services in case of a composite contract which also involves sale of land. The
gross consideration charged by a builder/promoter of a project from a buyer
would not only include an element of goods and services but also the value of
undivided share of land which would be acquired by the buyer.
2. No machinery provision to segregate value
of land - Mere abatement or circular not sufficient
Neither the Act
nor the Rules framed therein provide for a machinery provision for excluding
all components other than service components for ascertaining the measure of
service tax. The abatement to the extent of 75% by a notification or a circular
cannot substitute the lack of statutory machinery provisions to ascertain the
value of services involved in a composite contract.
3.
Preferential
charges amount to service
Insofar as
service tax on taxable services as defined under Section 65(105) (zzzzu)
[Preferential Location or Development of Complex Services] is concerned,
there is element of service involved in the preferential location charges
levied by a builder. Such charges do not relate solely to the location of land.
Thus, preferential location charges are charged by the builder based on the
preferences of its customers. They are in one sense a measure of additional
value that a customer derives from acquiring a particular unit. Such charges
may be attributable to the preferences of a customer in relation to the
directions in which a flat is constructed; the floor on which it is located;
the views from the unit; accessibility to other facilities provide in the
complex etc. Service tax is a tax on value addition and charges for
preferential location in one sense embody the value of the satisfaction derived
by a customer from certain additional attributes of the property developed.
Such charges cannot be traced directly to the value of any goods or value of
land but are as a result of the development of the complex as a whole and the
position of a particular unit in the context of the complex.
4.
No
service tax on composite contracts, where price is inclusive of land
Hence, no service
tax under section 66 read with Section 65(105)(zzzh) of the Act [Construction
of Complex Services] and Explanation to section 65(105)(zzzh) could be charged
in respect of composite contracts. The impugned explanation to the extent that
it seeks to include composite contracts for purchase of units in a complex
within the scope of taxable service is set aside.
Disclaimer: The
information provided in this update is intended for informational purposes only
and does not constitute legal opinion or advice. Readers are requested to seek
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herein. This update is not intended to address the circumstances of any
particular individual or corporate body. There can be no assurance that the
judicial/quasi judicial authorities may not take a position contrary to the
views mentioned herein.
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