The Delhi High Court has held that buyers are not liable to pay service tax for houses in a complex.
A Bench of Justices S. Murlidhar and Vibhu Bhakru held that no service tax could be charged with respect to composite contracts, while holding that the same can be levied for preferential location “as it in one sense embodies the value of the satisfaction derived by a customer from certain additional attributes of the property developed”.
The 43-page judgment came on a petition filed by Suresh Kumar Bansal and Anuj Goyal, who had entered into separate agreements with M/s Sethi Buildwell Pvt Ltd to buy flats in a multi-storey group housing project named Sethi Group-Max Royal, which is coming up in Sector 76, Noida.
The builder has, in addition to the consideration for the flats, recovered service tax from the petitioners, which is payable by him for services in relation to the construction of the complex and on preferential location charges.
According to the petitioners, their agreement with the builder is a composite contract for purchase of immovable property. They contended that in absence of specific provisions for ascertaining the service component of the said agreement, the levy would be beyond the legislative competence of the Parliament
“We accept the petitioners’ contention that no service tax could be charged in respect of composite contracts, such as the ones entered into by the petitioners with the builder,” the Bench said.
“The impugned explanation (inserted by virtue of Finance Act, 2010) 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,” it added.
