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High court relief for MCHI members on service tax

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Since the final verdict is still to come out on the service tax issue, the Bombay High Court has allowed the MCHI members to deposit the service tax money collected from home buyers into the court. The relief came in response to MCHI’s petition in the court challenging the government’s decision to levy service tax on any commercial or industrial construction of residential complex done prior to obtaining completion certificate.

The service tax deposited in the High Court is subject to be refund to the members along with the accrued interest thereon, on the final disposal of the petition, if the order goes in favour of MCHI developers. The High Court modified the earlier rule of undertakings to be submitted by the developers with the court.
The MCHI in its writ petition had urged the honourable High Court to restrain the respondents (Union of India and others) from any manner taking steps against the members of MCHI in respect of the transactions for constructions, development and sale of immovable property under the various provisions of the Finance Act, 1994 and a new entry as amended by the Finance Act 2010 in any manner.
Sunil Mantri, President, MCHI, said 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,” he added.
Mantri said that the sale of a unit in the complex as per the settled law of transfer of property is not a service. Accordingly sale of the same 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.
“Such a levy will increase the cost of the flat and ultimate buyer will have to bear the cost. The National Housing and Habitat Policy 2007 envisage affordable housing for all. The proposal to levy service tax irrespective of any kind of house (even EWS or MIG) would run counter to the policy of the government,” he added.

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