In a reprieve to home buyers and real estate developers, Bombay High Court has granted an interim stay on Service Tax levied by the Union Government on buildings under construction.
The interim stay was granted by Justice V C Daga and Justice S J Kathawala who admitted a petition filed by Maharashtra Chamber of Housing Industry (MCHI), an umbrella of organisations of more than 500 developers, on July 23.
Deferring the matter to August 3, the judges ruled, "No coercive steps will be taken against developers for recovery of service tax in relation to the provisions in question".
However, they clarified that the assessment may proceed in accordance with law.
The service tax came into force from July 1 and the flat buyers were required to pay approximately 2.5 per cent more as service tax on the total value of their flat.
The MCHI challenged the constitutional validity of the Finance Act 2010 seeking to amend the Finance Act 1994 by introducing service tax concept of "deemed service" for any commercial or industrial construction of residential complex done prior to obtaining completion certificate.
MHCI pleaded that sale of a unit in a complex, as per the settled law of transfer of property, is not a service.
Accordingly, sale by the builder should not be treated as a service. Since service tax is ultimately levied on property this would be a tax on transfer of immovable property only.