2016 (4) TMI 1036 - HC - Service Tax

Court upholds service tax on joint development agreement, dismisses challenge on tax obligations.

N. Bala Baskar Versus Union of India and Others

N. Bala Baskar Versus Union of India and Others - 2016 (43) S.T.R. 161 (Mad.) , [2016] 92 VST 458 (Mad) Issues:Challenge to circulars on service tax and VAT under the Finance Act, 1994.Analysis:1. Agreement for Joint Development: The petitioner entered into an agreement with the fifth respondent for developing a property, where the fifth respondent was to construct a super built-up area and hand over a portion to the petitioner and his siblings, in exchange for a share of the land. The dispute arose when the fifth respondent demanded service tax and VAT based on the agreement terms.2. Challenge to Circulars: The petitioner challenged the circulars issued by the Central Board of Excise and Customs and recommendations by the Tax Research Unit, claiming them to be unconstitutional and beyond the powers of Parliament. The petitioner contended that the agreement did not involve services attracting service tax.3. Locus Standi: The court examined the petitioner's locus standi to challenge the circulars. While citing precedents, the court emphasized that the petitioner, having agreed to the terms of the development agreement, could not now dispute the circulars imposing tax obligations on such agreements. The court distinguished cases where private individuals had the right to challenge tax liabilities from the present scenario.4. Interpretation of Service Tax Provisions: The court analyzed the definition of 'service' under Section 65B(44) of the Finance Act, 1994, to determine if the activities under the agreement fell within the ambit of taxable services. The petitioner argued that the exchange of property did not constitute a taxable service, falling under the exempted category as per the Act.5. Comparison with Precedents: The court compared the present case with a decision of the Gauhati High Court involving a dispute between flat purchasers and a promoter. It noted that the agreement in the present case involved a developer and the original landowner, leading to a different set of rights and obligations.6. Final Decision: After thorough consideration, the court dismissed the writ petition, stating that the petitioner lacked locus standi to challenge the circulars. The court upheld that the agreement between the parties involved services provided by the fifth respondent, making the challenge to the circulars invalid. The court also clarified that the service tax was applicable only on the value of construction, not on the land value.In conclusion, the court's judgment emphasized the importance of honoring contractual agreements and upheld the tax obligations as per the Finance Act, 1994, in the context of joint development agreements.