Service Tax is tax on value addition - No Service Tax when there are no statutory machinery provisions to ascertain value of services involved in composite contract - Big Blow to Revenue in Delhi HC
THIS is good news for the real estate. When you buy a flat, if you pay any money before the completion certificate is issued, the transaction is treated as a service and taxed. Many believe that this is a sale and not service and so the Central Government is not empowered to tax this. The Delhi High Court last week upheld the levy but quashed the tax as there was no statutory measure to ascertain the value of services involved in this composite contract which involved sale of undivided share of land.
The question before the High Court was whether the consideration paid by flat buyers to a builder/promoter/developer for acquiring a flat in a complex, which under construction/development, could be subjected to levy of service tax.
The High Court found no objection to the tax per se, but noted that, "In the present case, there is no machinery provision for ascertaining the service element involved in the composite contract. In order to sustain the levy of service tax on services, it is essential that the machinery provisions provide for a mechanism for ascertaining the measure of tax, that is, the value of services which are charged to service tax. 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."
This case is sure to have wide ramifications and the Government is sure to take it to the Supreme Court.
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