MCHI challenges constitutional validity of the Finance Act 2010 Service Tax

By Pallavii Pitale 

Maharashtra Chamber of Housing Industry through their Writ Petition have challenged the constitutional validity of the Finance Act 2010.

In a press conference,  President Mr. Sunil Mantri said that the government is trying to impose various taxes which is finally leading to the increase in the prices of the real estate stock. Finally the end user, the owner of the premises has to bare maximum of all these taxes and other duties. About 20-25% of the total value of the premises, are the taxes which are to be paid to the government.

Similar to selling of goods,  selling of a flat or a premises is also an activity of selling and not a service so the government cannot charge service tax on the sale of any premises. MCHI has taken a proactive stand that the service tax must be removed.

The organization is strictly of the opinion that the high rise committee should be abolished with immediate effect.  In cities like Mumbai, where there is hardly any availability of open plots for development, redevelopment of existing structures have no other option but to go higher in order to meet the ever increasing demand for houses.

While admitting the petition on July 23, 2010, filed by MCHI against the Union of India and others in the matter of ‘Service Tax levied on building under construction, a division bench of the Bombay High Court comprising Justice V C Daga and Justice S J Kathawala have granted interim stay until further hearing along with other companion petitioners on August, the 3rd, 2010.

The MCHI and other members through their Writ Petition have challenged the constitutional validity of the Finance Act 2010 seeking to amend the Finance Act 1994 introducing and explanation to section 65 (105) (zzq) and 65 (105) (zzzh) to introduce the Service Tax concept of ‘Deemed Service” for any commercial or industrial construction of residential complex done prior to obtaining completion certificate. 

Various other issues were also discussed in the conference. The joint ventures of redevelopment by MHADA with  the developers ,Urban land sealing act , Charging of vat in the real estate transactions, ULC, amendments in MOFA, formation of a regulatory authority for consumer grievances at state level, more transparency for the customers while doing the agreement and other transactions, Affordable Housing options etc. were some of  them. MCHI has made a list of almost 100 such issues and are trying to find solutions for the same. 

The MCHI  has put up some important issues like Automatic N.A.,with the higher authorities of the State Government of Maharashtra. The suggestions are accepted and the final decisions  related the matter, are  pending.

Acceptance of such issues can help fasten the development process. MCHI is also stressing upon implementing single window concept as far as the permissions for developments are concerned which otherwise results in major delays in development of any project.

Mr. Mantri also spoke on the new redevelopment regulations by the State Government. He said with the latest ammendments in the same, the redevelopment process of the existing buildings shall be much easier and faster and more and more redevelopments shall take place, which has remained the only best option within city limits. In the peripheral regions like, Thane, Dombivali, Kalyan, Mira Rd./ Virar, Pen and Panvel, the opportunities of green field developments are many and must be taken care of in order to provide affordable housing for the common man.

With the efforts by MCHI on the service tax matter, the Bombay High Court now has stayed the Service Tax that came into force from July 1st 2010.

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2 thoughts on “MCHI challenges constitutional validity of the Finance Act 2010 Service Tax

  1. Thanks for the superb efforts of MCHI for obtaining stay. But, what is the progress of this decision? Whether the Court has decided the matter? I note from TV ads, the Govt is saying that service tax is to be levied on construction services and the tax payers should pay the same. Please reply.

  2. This is great news indeed. Since it is now clear that the High courts have issued a stay order on the Service tax then why are developers insisting we deposit the service tax due into their escrow accounts.

    Even issuing us with letters stating:
    “Failure do comply rendering us liable to heavy fines and or threats of failure to pay amounts herein shall constitute a event of default under the Application /Agreement” -is this legal . Can someone please shed some light on this ?

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