Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2012 Supreme(Bom) 147

High Court of Judicature at Bombay
D.Y. CHANDRACHUD & A.A. SAYED
Maharashtra Chamber of Housing Industry & Others
Versus
Union of India & Others
WRIT PETITION NOS.1456 OF 2010, 845 OF 2006, 1230 OF 2010, 1407 OF 2010, 1473 OF 2010, 2674 OF 2010, 461 OF 2011, 1795 OF 2011, 2088 OF 2011, 2101 OF 2011, 2436 OF 2011, 2441 OF 2011, 2442 OF 2011, 10159 OF 2010, 10160 OF 2010, 10161 OF 2010, 4969 OF 2011, 6741 OF 2011, 9357 OF 2011 & WITH WRIT PETITION (LODG.) NOS.2584 OF 2011, 2585 OF 2011, 2586 OF 2011, 2876 OF 2011 & WITH APPELLATE SIDE WRIT PETITION NOS.8577 OF 2011, 1486 OF 2006
Decided on: 20-01-2012

Advocates Appeared:
For the Appearing Parties:J.J. Bhatt with Milind Sathe, Senior Advocates, P.K. Shroff, D.V. Deokar, Vismay Shroff, Medhavin Bhatt, Subodh Joshi, Ms. Shivani Bansal, Ms. Jay Gaud, Ms. Rashmi Jha i/b M/s. Parimal K. Shroff & Co, Y.E. Moomen, Vikram Nankani with Sushant Murthy, Monish Ponda i/b Madhur R. Baya, Pralhad Paranjape i/b M/s. Thakore Jariwala & Associates, V.S. Kapse with Shailesh Chavan i/b Rakesh G. Jain, U.L. Shah with Sanjay Kotak, V. Sridharan, Senior Advocate with Ms. Beena Pillai, M.H. Patil with Ms. Aparna Hirandagi, Sachin Chitnis, Simil Purohit with Avikshit Moral i/b India Law Aliance, Prakash Shah with Prasad Paranjape, Jas Sanghavi, Ms. Nehal Parekh i/b PDS Legal, Bharat Raichandani, Ms. Nupur Agarwal, Darius J. Khambata, Additional Solicitor General with Afroz Shah, Aditya N. Mehta, Gautam Ankhad, Dr. G.R. Sharma, Special counsel, A.S. Rao, Rajinder Kumar, Anurag Gokhale, R.V. Desai, Senior Advocate with R.B. Pardeshi, Darius J. Khambata, Additional Solicitor General, Pradeep S. Jetly, Ms. Suchitra Kamble, Mrs. V.S. Masurkar, S.P. Shinde, Jitendra B. Mishra, Ashokan, S.D. Bhosale, Advocates.

The main legal point established in the judgment is that the tax imposed by the amendments to the Finance Act 1994 was not on land and buildings as units, but on the rendering of taxable services, and therefore fell within the legislative competence of Parliament.

Headnote:
Finance Act 1994 - Constitutional Validity of Amendments to Section 65(105)(zzq), Section 65(105)(zzzh), and Section 65(105)(zzzzu) - The court upheld the constitutional validity of the amendments to the Finance Act 1994, which introduced explanations to Section 65(105)(zzq) and Section 65(105)(zzzh) and a new provision in the form of clause (zzzzu) in Section 65(105). The amendments expanded the concept of taxable services to include services provided by builders to buyers in the course of an intended sale of immovable property before, during, or after construction. The court held that the tax was not on land and buildings as units, but on the rendering of taxable services, and therefore fell within the legislative competence of Parliament.
Fact of the Case:

The Finance Act 1994 was amended to introduce explanations to Section 65(105)(zzq) and Section 65(105)(zzzh) and a new provision in the form of clause (zzzzu) in Section 65(105). The constitutional validity of these provisions was challenged on the grounds that they fell within the legislative power of the States under Entry 49 of List II to the Seventh Schedule of the Constitution.
Finding of the Court:

The court upheld the constitutional validity of the amendments, ruling that the tax was not on land and buildings as units, but on the rendering of taxable services, and therefore fell within the legislative competence of Parliament.
Ratio Decidendi: The court held that the tax was not on land and buildings as units, but on the rendering of taxable services, and therefore fell within the legislative competence of Parliament. The amendments expanded the concept of taxable services to include services provided by builders to buyers in the course of an intended sale of immovable property before, during, or after construction.
Final Decision: The Petitions challenging the constitutional validity of the amendments were dismissed by the court.

Judgment

DR. D.Y. CHANDRACHUD, J.

1. The Finance Act 1994 was amended by the Finance Act 2010 to introduce an explanation to Section 65(105)(zzq) and Section 65(105) (zzzh). Besides a new provision was introduced in the form of clause (zzzzu) in Section 65(105). In these proceedings there is a challenge to the constitutional validity of those provisions.

2. Service tax as an economic concept is a value added tax. Parliament legislated in the Finance Act of 1994 to impose a service on taxable services. Section 65 provides for a list of taxable services in clause (105). Section 66 provides for the levy of a tax on the value of taxable services. Section 67 stipulates that the value of any taxable service shall be the gross amount charged by a service provider of such service provided or to be provided by him. Under subsection (1) of Section 68 the obligation to pay service tax is cast on every person providing a taxable service.

3. In the Finance Act of 2004 clause (zzq) was introduced in Section 65(105) in order to bring within the fold of the expression taxable service any service provided or to be provided to any person, by a commercial concern, in relation to construction service. The expression ‘construction service’ was defined in clause (30a) to mean inter alia the construction of a new building or civil structure or repairs, alteration or restoration of a building or civil structure, used, occupied or engaged or to be used, occupied or engaged primarily in commerce or industry. By the Finance Act of 2005 clause (zzzh) was introduced into Section 65(105) so as to bring within the purview of the expression taxable ‘service’, a service provided or to be provided to any person by any other person “in relation to construction of complex”. Simultaneously, clause (25b) was introduced to provide for a definition of the expression “commercial or industrial construction service”. Clause (91a) provided for the definition of the expression ‘residential complex’.

4. By the Finance Act of 2010 an explanation has been inserted into clause (zzq) and clause (zzzh) of Section 65(105). Clause (zzq) relates to a service provided or to be provided to any person by any other person in relation to commercial or industrial construction and clause (zzzh), a service in relation to the construction of a complex. Both bear the following explanation:

“[Explanation – For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorised by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer.]”

5. Clause (zzzzu) has been introduced in Section 65(105) as a result of which a service provided or to be provided of the following nature is also brought in within the purview of a taxable service:

(zzzzu) to a buyer, by a builder of a residential “ complex, or a commercial complex, or any other person authorised by such builder, for providing preferential location or development of such complex but does not include services covered under sub-clauses (zzg), (zzq), (zzzh) and in relation to parking place.

Explanation – For the purposes of this sub-clause, “preferential location” means any location having extra advantage which attracts extra payment over and above the basic sale price.”

6. The expression ‘commercial or industrial construction’ is defined in clause (25b) as follows:

“(25b) “commercial or industrial construction” means-

(a) construction of a new building or a civil structure or a part thereof; or

(b) construction of pipeline or conduit; or

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Judicial Analysis

2012 Supreme(Bom) 147

The main legal point established in the judgment is that the tax imposed by the amendments to the Finance Act 1994 was not on land and buildings as units, but on the rendering of taxable services, and therefore fell within the legislative competence of Parliament.

Cases Referred (11)

Judicial Analysis