Delhi high court gives home buyers a service-tax break
NEW DELHI: In a significant verdict, the Delhi High Court has struck down certain provisions of Finance Act 2010 for charging service tax from home buyers.
The verdict will benefit those who bought their flats before July 1, 2012 as the high court has not struck down the subsequent amendment to the Finance Act in 2012.
“People who had bought flats before July 1, 2012 can go and file a refund claim with the jurisdictional service tax authority,” advocate Puneet Agrawal, who represented the flat buyers in the case, told HT.
Agrawal said the verdict has opened a window for even people who have paid service tax after the amendment came into effect on July 1, 2012.
In their ruling last week, a bench of Justices S Murlidhar and Vibhu Bakhru said the contract between a flat buyer and a builder is a composite one that involves not only the element of service, but also goods and immovable property.
Parliament has the legislative competence to tax the element of service, but the tax cannot be levied if the law does not give a formula to calculate the value of the service component of the transaction.
“Clearly service tax cannot be levied on the value of undivided share of land acquired by a buyer of a dwelling unit or on the value of goods which are incorporated in the project by a developer,” the court felt.
However, if the buyer commissions the builder in the first place, the exception will not hold. Additional payment for the buyer’s preferred location will also not be exempt from the service tax component, the court said.
The court directed that the government determine whether the builder had collected any service tax from the petitioners and deposited it with the tax authorities. “Any such amount deposited shall be refunded with interest at the rate of 6% from the date of deposit till the date of refund,” the court ruled.