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2010 Supreme(P&H) 3193
PUNJAB & HARYANA HIGH COURT
Adarsh Kumar Goel and Ajay Kumar Mittal JJ.
G.S.Promoters
Versus
Union Of India
C.W.P. No. 21427 of 2010,
Decided On : DECEMBER 1, 2010
The main legal point established in the judgment is that the levy of service tax on construction activities, including sale of constructed flats, falls within the legislative competence of the Union Legislature and does not encroach on the State Legislature's power to tax sale and purchase of goods.
Headnote:
Finance Act - Construction of Complex - Section 65(zzzh), Section 65(30a), Section 65(91a), Explanation to Section 65(zzzh)
Fact of the Case:
The petitioner seeks declaration that certain provisions of the Finance Act and a circular are unconstitutional, arguing that the scope of levy of service tax on construction of complex includes sale, which is beyond the legislative competence of the Union Legislature.
Finding of the Court:
The court found that the impugned levy of service tax on construction activities, including sale of constructed flats, is within the legislative competence of the Union Legislature and does not encroach on the State Legislature's power to tax sale and purchase of goods.
Issues: The issues revolved around the constitutionality of the service tax levy on construction activities, particularly the inclusion of sale within the scope of the levy, and whether it falls within the legislative competence of the Union Legislature.
Ratio Decidendi: The court held that the levy of service tax on construction activities, including sale of constructed flats, is within the legislative competence of the Union Legislature and does not encroach on the State Legislature's power to tax sale and purchase of goods.
Final Decision: The petition seeking declaration of the impugned levy as unconstitutional was dismissed by the court.
1. This petition seeks declaration that explanation to Section 65(zzzh) of the Finance Act, 1994 (#24;the Act#25;) and CBEC Circular No. 334/3/2010-TRU, dated 1-7-2010 are unconstitutional.
2. Case of the petitioner is that it is engaged in development and sale of residential flats and enters into agreement for construction of flats with the contractors. The said flats are ultimately sold to the customers. Service tax is leviable as per the provisions of the Act on taxable services as defined under Section 65. Section 65(zzzh) includes service in relation to construction of a complex. Definition of construction of a complex under Section 65(30a) refers to construction of a new residential complex and other activities mentioned therein. Residential complex is defined under Section 65(91a) as comprising of buildings, common areas and other facilities. As per the impugned circular, service tax is leviable on the builders even when they enter into an agreement for sale and receive payment without issuance of completion certificate. As per explanation added to Section 65(zzzh), vide Finance Act, 2010 , construction of complex by a builder or any person authorized by the builder, is deemed to be service by the builder to buyer.
3. According to the petitioner, the explanation widens the scope of levy beyond the concept of service by including therein sale. Taxing of sale and purchase was beyond the legislative competence of the Union Legislature. If construction activity is not undertaken by a builder, then the builder cannot be considered to be a service provider in relation to service of construction activities.
4. We have heard learned counsel for the petitioner who reiterates the contentions raised in the petition and also submits that some matters have been admitted in Bombay High Court on the issue and interim orders have also been granted. He also relies upon judgment of Gauhati High Court in Magus Construction Pvt. Ltd. V. Union of India - 2008 (11) STR 225, wherein it was held that when a person provides service of construction by construction activities to himself, it could not be held that he was providing any service, in absence of service provider in relation to a service recipient.
5. Before considering the question raised, it will be appropriate to refer to the relevant statutory provisions which are as under :-
Section 65(zzzh) :
#28;any service provided or to be provided to any person, by any other person in relation to construction of complex.#29; Section 65(30a) : #28; Construction of complex means- (a) Construction of a new residential complex or a part thereof; or (b) Completion and finishing services in relation to residential complex such as glazing plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fitting and other similar service; or (c) Repair, alteration, renovation or restoration of or similar services in relation to #24;residential complex#25;. Section 65(91a) : #28;residential complex means any complex comprising of- (i) a building or buildings, having more than twelve residential units; (ii a common area; and (ii any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout and the said construction of such complex is intended for personal use as residence by such person#29;.
Explanation to Section 65 (zzzh) :
#28;Explanation - For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before,
