Delhi High Court has ruled that no service tax can be levied in respect of the agreements entered into between buyers and builders for flats in an under-construction building in a housing project. A bench of Justices S Muralidhar and Vibhu Bakhru however noted that service tax could be levied on amount charged by the builders for preferential location of the flat, saying it was based on the preferences of customers and amounted to value addition.
The order came on petitions filed by several persons who had entered into separate agreements with M/s Sethi Buildwell Pvt ltd to buy flats in a multi-storeyed group housing project developed by the builder in sector 76 in Noida in Uttar Pradesh. The petitioners had moved the court against the levy of service tax on services in relation to construction of the complex as defined under the Finance Act 1994 as well as the levy of service tax on preferential location charges. The bench said the Government shall examine whether the builder in this case has collected any service tax from the petitioners andif such amount has been deposited with it, the money shall be refunded to them with 6 per cent interest.
“We accept the petitioners contention that no service tax under section 66 of the Act read with section 65 (105)(zzzh) of the Act could be charged in respect of composite contracts, such as the ones entered into by the petitioners with the builder,” the bench said. “The impugned explanation (inserted by virtue of Finance Act 2010) to the extent that it seeks to include composite contracts for purchaseof units in a complex within the scope of taxable service, is set aside,” it said.