AI Drafter 
TaxTMI 
TaxTMI 
2022 (5) TMI 397
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....nder Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs: "A. This Hon'ble Court may be pleased to strike down and declare Entry 3(if) of Notification No. 11/2017-Central Tax (Rate) as well as Entry 3(if) of Notification No. 11/2017 - State Tax (Rate) along with paragraph no. 2 of both the notifications as being ultra-vires Section 7(2) of the GST Acts read with Entry No. 5 of Schedule III to the GST Acts as well as ultra-vires Section 9(1) and Section 15 of the GST acts; B. In any case this Hon'ble Court may be pleased to strike down and declare Entry 3(if) of Notification No. 11/2017-Central Tax (Rate) as well as Entry 3(if) of Notification No. 11/2017 - State Tax (Rate) along with paragraph no. 2 of both the notifications as being manifestly arbitrary, grossly discriminatory and violating Article 14 of the Constitution of India as well as ultra-vires Article 246A of the Constitution of India; C. Without prejudice to the above and in the alternative this Hon'ble Court may be pleased to declare that impugned paragraph no. 2 of Notification No. 11/2017-Central Tax (Rate) and Notification No. 11/2017 - State Ta....
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....ts") on the consideration payable for construction of bungalow in as much as it would constitute supply of construction service under the G ST A cts. 4.4 The respondent No.4 however, relying upon the impugned entry no. 3(if) of the Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017 read with para 2 of the said notification informed the writ applicant that he would be liable to pay tax at the rate of 9% CGST + 9% SGST under the GST Acts on the entire consideration payable for land as well as construction of bungalow after deducting 1/3rd of the value towards the land in accordance with the impugned paragraph 2 of the said notification. The respondent No.4 raised an invoice on the writ applicant to collect such tax from the writ applicant. 4.5 Thus it appears that, because of the impugned notification, the entire consideration towards the sale of land has not been excluded for the purpose of computing tax liability under the GST Acts. 1/3rd of the total consideration has been deemed to be land value as per paragraph 2 of the impugned notification. 5. In such circumstances referred to above, the writ applicant is here before this Court with the present writ appl....
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....en towards abatement. It is averred that the liability sought to be fixed by way of deeming fiction so as to presume only 1/3rd of total consideration towards land is ultra-vires the provisions of the GST Acts. 9. Mr. Bhatt gave the following illustrations to demonstrate how the impugned notification could be said to be ultra-vires the provisions of the GST Acts: "If the consideration for sale of land is Rs.85/- and for construction is Rs.15/- (approximately as in the present case); As per the provisions of the Act On Rs.85/- GST would not be applicable and on the consideration for construction of Rs.15/-, 18% GST would come to Rs.2.70/-. As per Notification Rs.85 + Rs.15 = Rs.100 Less Rs.33 (1/3rd treated as deemed value of land) = Rs.67 GST @ 18% = Rs.12.06." It was argued out that the tax liability by virtue of deeming fiction by way of delegated legislation far exceeds the tax liability as computed in accordance with the provisions of the statute which is otherwise impermissible. 10. It was submitted that it is a settled legal position that a delegated legislation cannot travel beyond the scope of the paren....
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....e tax on sale or purchase of goods. Under such entry, many state legislatures imposed tax on goods used in the course of execution of works contracts such as works contracts. The legislative competence of the State legislatures to impose tax on goods used in the course of execution of indivisible works contracts came up for scrutiny before the Supreme Court of India in the case of State of Madras v/s Gannon Dunkerley and Co. (Madras) Ltd. (1958) 9 STC 353 (herein after referred to as "the 1st Gannon Dunkerley's case"). The Supreme Court observed that in case of building construction contract the property in goods passes to the buyer by the theory of accretion as and when the goods are embedded into the earth. The property in goods does not pass as chattel pursuant to the agreement of sale and therefore it is not sale as per the Sale of Goods Act, 1930. Thus it was held that the State legislatures did not have the competence to impose sales tax on the goods element of a construction contract. (b) The 46th Constitutional Amendment was effected to overcome the judgement of the Supreme Court in the case of Gannon Dunkerley and Co. (supra). Article 366(29A) of the Constitution ....
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....However, as such mechanism was at the option of the dealer, its validity was upheld by the Supreme Court in the case of State of Kerala v/s Builders Association of India (1997) 2 SCC 183 as well as Mycon Construction Ltd. v/s State of Karnataka and Another (2003) 9 SCC 583. (f) Thereafter the question arose as to whether even a tripartite agreement between the landowner, developer and prospective buyer would constitute a works contract even though property in such agreement would subsequently pass by way of a registered sale deed. The Supreme Court held in the case of K. Raheja Development Corporation vs State of Karnataka (2005) 5 SCC 162 that even a tripartite agreement involving construction of flats for prospective buyer would constitute sale in the course of the execution of works contract. (g) The correctness of the decision of the Supreme Court in the case of K. Raheja Development Corporation (supra) was doubted and referred to a larger bench. The larger bench in the case of Larsen and Toubro Ltd. v/s State of Karnataka (2014) 1 SCC 708 (herein after referred to as "the 1st Larsen and Toubro case") affirmed the view taken in the case of K. Raheja Developmen....
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....with the supplier that the supply can commence. If the land has already been developed by the developer and thereafter if the contract for construction of bungalow is entered into with the prospective buyer, then the supply of goods or services is only to the extent of construction undertaken pursuant to contract with such a prospective buyer. For something done by the developer prior to execution of contract with prospective buyer, such activity is not a supply at all as defined under Section 7 of the GST Acts and thus there is no charge of tax on such activity. 16. According to Mr. Sheth, a collective reading of the provisions would indicate, that the sale of any land, whether developed or not, would not be exigible to tax under the GST Acts and the tax liability has to be restricted to construction undertaken pursuant to the contract with the prospective buyer. If that be so, then deduction of entire consideration charged towards land has to be granted and the same cannot be restricted to only 1/3rd of the total value as is sought to be done by the impugned notification. 17. Mr. Sheth further argued that it was held by the Supreme Court in the 2nd Gannon Dunkerley's case (....
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....y on pure services. (e) In the meantime, clause (zzzh) of Section 65(105) of the Finance Act, 1994 relating to construction service was amended by the Finance Act, 2010 and an Explanation was added whereby construction of a complex intended for sale was deemed to be service by builder to the buyer unless entire consideration was received after grant of completion certificate by the competent authority. (f) Such explanation and imposition of service tax on service by a builder was challenged before the Delhi High Court inter-alia on the ground that there was no mechanism for computing service tax in case of a transaction involving transfer of land. Such contention was accepted by the Delhi High Court in the case of Suresh Kumar Bansal v/s Union of India (2016) 92 VST 330 (Del.) wherein it was held that the valuation rules did not provide any mechanism for deriving value of services in case the transaction involved sale of land. It was therefore held that no service tax could be demanded in the absence of any computation mechanism. The argument of the revenue that there was an abatement notification to take care of deduction for land was rejected on the ground that ....
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.... clearly held that when the actual value can be ascertained then fictional value cannot be taken into consideration. Considering such aspects, the impugned notification is clearly contrary to the statutory provisions and therefore ultra-vires and illegal. 21. The learned counsel for the writ applicant further contended that the value of land is deemed to be 1/3rd of total consideration irrespective of the nature of the structure to be constructed on the land. In the case of the writ applicant the construction portion is only about 15-20% of the total agreement which is coterminous with the extent of construction to be made on the land. While the plot size is 1021 sq mts, the built up area is only 160 sq mts. Even then as per the notification the value of land is deemed to be 1/3rd of the total agreement value. 22. It was urged that the deeming fiction is ex-facie discriminatory in as much as persons like the writ applicant who are getting a bungalow constructed on the 10-20% of the land get the same deduction as a buyer of a flat unit in a multistoried building who merely gets an undivided share in the land and the major portion of the agreement value is towards construction ....
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....ovided in the Central Goods and Services Tax Rules, 2017 (for short "the GST Rules"). Rule 27 of the GST Rules provides for valuation for cases where consideration is not wholly in the form of money. Rule 28 of the GST Rules deals with transactions with related parties. Rule 29 of the GST rules deals with supplies between principal and agent. Rule 30 of the GST Rules provides for valuation by adding 10% profit margin to cost of production/manufacture/procurement. Rule 31 of the GST Rules, which is the residuary rule, provide for valuation using reasonable means which have to be consistent with the provisions of Section 15 as well as the valuation rules. Thus, detailed valuation mechanism is available in the statute which is primarily based on actual consideration and such provisions cannot be ignored by simply providing adhoc and arbitrary abatement for land by way of a notification. 26. It was further submitted that strong reliance is being placed on the affidavit in reply filed by the respondents on Section 15(5) of the GST Acts. However, according to the learned counsel for the writ applicant, such provision empowers fixing of value of supply of goods or services. The sale of....
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....ust have a nexus with the subject matter of tax. Reference was made to the judgement of the Supreme Court in the case of State of Rajasthan v/s Rajasthan Chemists Association (2006) 6 SCC 773 wherein it was observed that tax cannot be imposed on a value unconnected with the subject of tax. It was argued that the impugned notification leads to a consequence whereby tax is imposed on land which is never sought to be taxed by the statute. It was therefore contended that the impugned notification is ultra-vires the provisions of the GST Acts as well as arbitrary and violating Article 14 of the Constitution of India. • SPECIAL CIVIL APPLICATION NO. 6840 OF 2021 AND SPECIAL CIVIL APPLICATION NO. 5052 OF 2022 30. Mr. Tushar Hemani, the learned Senior Counsel assisted by Mr. Avinash Poddar, the learned advocate for the writ applicants submitted that the writ applicants are developers who have sold/intending to sell developed parcels of land. The advance ruling applications were filed seeking a ruling on the question whether there was any tax liability under the GST Acts on supply of developed land. The advance ruling authority held that the deduction for sale of land was ad....
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....d, and things attached to the earth or permanently fastened to anything attached to the earth." 34. In was then argued by Mr. Hemani that even if the impugned Notification is not to be struck down as ultra-vires, the same is required to be read down as inapplicable where separate value of land was ascertainable. In this regard the learned counsel relied upon the judgement of the Supreme Court in the case of Arun Kumar and Others v/s Union of India and Others (2007) 1 SCC 732. 35. In the last it was contended that since the advance ruling appellate order took the view that only 1/3rd deduction was available in respect of developed land because of the impugned notification, such orders were also required to be quashed and set aside. • SUBMISSIONS OF THE RESPONDENTS 36. Mr. Devang Vyas, the learned Additional Solicitor General of India assisted by Mr. Priyank Lodha, the learned Senior Standing Counsel, on the other hand, has vehemently opposed the writ applications. 37. Mr. Vyas pointed out that the writ applicant has filed the captioned petition, inter-alia, challenging the vires of entry 3 (if) of the Notification No. 11/2017 along with paragraph No. 2 read ....
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....going projects. Consequently, the Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019 (amending Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017) was issued by the Government on the recommendation of the GST Council. It provided for deemed valuation of the land as provided in the 2nd para of the notification. 40. Thus, according to Mr. Vyas, government has express power to determine the deemed value of such supply on recommendation of the GST Council. In pursuance of the above provisions, on recommendation of the Council, deemed value of land has been ascertained to be one third of the total amount charged for such supply. Thus, the contention that determination of value of the supply by subordinate legislation, even though, actual price paid / payable in respect of the construction service is available, is ultra vires Section 15 of the CGST act does not hold ground. Also, contention that deemed value of land to be deducted for the purpose of arriving at the value of the construction service is beyond the scope of delegation under Section 9(1) of the CGST Act, 2017 has no legal basis at all. 41. Reliance was placed by the learned Additional Solicitor Gene....
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....complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier." 44. On the basis of such statutory provisions it was submitted by Mr. Vyas that in case if a transaction is of sale and purchase of (1) Land, and (2) Land and Building (wherein entire consideration has been received after completion certificate is issued to such building), then such transaction shall be treated neither as supply of goods nor services under Schedule III and hence, the same would not be amenable to any tax under GST. However, in case of a transaction that involves construction of a building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, wherein the completion certificate with respect to such constructions has not been received, such transactions shall be treated as services under Paragraph 5(b) of Schedule II and therefore, shall be taxed as per the aforestated Notification....
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....he Buyer / purchaser shall be a consumer and consequently will have relief under the said act. The Apex Court concluded in the above matter that the sale of a Developed Plot is not sale of land only, it is a different transaction than a mere sale of land. 49. Mr. Vyas therefore contended that in view of the Schedules to the GST Act, the proposed transaction is not one of sale and purchase of Land, or, Land and Building (wherein completion certificate is procured) and therefore, it would not fall under the Schedule III. The present transaction is one of development and construction of a building, civil structure or part thereof, intended to be sold to the writ applicant and therefore, the present transaction falls squarely under Paragraph 5(b) of Schedule II. 50. Mr. Devang Vyas further contended that the impugned Notification has been issued in exercise of the powers conferred by subsections (1), (3) and (4) of section 9, sub-section (1) of section 11, subsection (5) of section 15, sub-section (1) of section 16 and section 148 reply, wherein Serial No. 3 - notifies the rate of tax on the intrastate supply of services with respect to construction services. 51. It was submit....
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.... benefits are available to the writ applicant and not otherwise. Hence, land includes these developments also and the value of such development cannot be ascertained as the same are to be enjoyed with all the occupants of the scheme. 55. Mr. Vyas submitted that in the event if the contention of the writ applicant is accepted that the value of the land must be taken as one being declared in the agreement, then it may lead to absurd results wherein in an attempt to save tax, the developer and buyer may mutually decide that 99% of the total consideration would be the value of land and the balance would be construction. This may lead to huge losses to the public exchequer and against the basic concept of tax. Even in the realm of Stamp Duty, the duty is applicable on the value of transaction, however, such value is not left to the parties to be decided, a minimum value is taken as deemed value of the transaction (jantri value) and in cases wherein the transaction value is less than the Jantri value then the jantri value is taken as deemed transaction value and the stamp duty is paid accordingly. Similarly, the value of developed land cannot be left to be decided / declared by the pa....
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....ion of the CGST Act is contained in Section 9 of the CGST Act. Section 9(1) reads thus: "9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person." 61. Thus the charge of tax is on the "supply" of goods or services. The scope of "supply" is defined under Section 7(1) of the CGST Act as under: "7. (1) For the purposes of this Act, the expression "supply" includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (aa) the activities or transactions, by a person other than an individual, to its members or constituents or vice versa,....
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....vices, namely:- Xxxx (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. Explanation.-For the purposes of this clause- (1) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:- (i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or (ii) a chartered engineer registered with the Institution of Engineers(India); or (iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority; (2) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structur....
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....rified that, supply by way of services specified at items (i), (ia), (ib), (ic), (id) and (ie) in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry. (Provisions of paragraph 2 of this notification shall apply for valuation of this service) 9 Provided that in case of ongoing project, the registered person shall exercise one time option in the Form at Annexure IV to pay central tax on construction of apartments in a project at the rates as specified for item (ie) or (if), as the case may be, by the 10th of May, 2019; 69. It has been mentioned at the end of the entry in a bracketed portion that the provision of paragraph 2 of the notification shall apply for valuation of this service. Paragraph 2 of the notification which is the epicentre of the entire controversy and the validity of which is under challenge reads as under: "2. In case of supply of service specified in column (3), in item (i), (ia), (ib), (ic), (id), (ie) and (if) against serial number 3 of the Table above, involving transfer of land or undivided sha....
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....me Court in the judgement. Relevant observations are as under: "27. The nature and incidents of works contracts have been the subject of consideration in numerous decisions of the English Courts, and there is a detailed consideration of the points now under discussion, insofar as building contracts, are concerned, in Hudson on Building Contracts, 7th Edn., pp. 386-89 and as regards chattels, in Benjamin on Sale, 8th Edn. pp. 156-68 and 352-55. It is therefore sufficient to refer to the more important of the cases cited before us. In Tripp v. Armitage [(1839) 4 M & W 687 : 150 ER 1597] one Bennett, a builder, had entered into an agreement with certain trustees to build a hotel. The agreement provided inter alia that the articles which were to be used for the structure had to be approved by the trustees. Subsequently, Bennett became bankrupt, and the dispute was between his assignees in bankruptcy, and the trustees as regards title to certain wooden sashframes which had been approved on behalf of the trustees but had not yet been fitted in the building. The trustees claimed them on the ground that property therein had passed to them when once they had approved the same. In n....
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....e principle quicquid plantatur solo, solo cedit, and it vests in the other party not as a result of the contract but as the owner of the land. Vide Hudson on Building Contracts, 7th Edn., p. 386. It is argued that the maxim, what is annexed to the soil goes with the soil, has not been accepted as a correct statement of the law of this country, and reliance is placed on the following observations in the Full Bench decision of the Calcutta High Court in Thakoor Chunder Poramanick v. Ramdhone Bhuttacharjee[(1866) 6 WR 228] : "We think it should be laid down as a general rule that, if he who makes the improvement is not a mere trespasser, but is in possession under any bona fide title or claim of title, he is entitled either to remove the materials, restoring the land to the state in which it was before the improvement was made, or to obtain compensation for the value of the building if it is allowed to remain for the benefit of the owner of the soil, - the option of taking the building, or allowing the removal of the material, remaining with the owner of the land in those cases in which the building is not taken down by the builder during the continuance of any estate he may ....
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....gislatures derived power to impose tax on the goods element of the works contract. Thereafter, a question arose as to how the value of the goods could be determined in case of indivisible works contract. The Supreme Court in the 2nd Gannon Dunkerley's case (supra) held that the expenses pertaining to labour element of the contract and profit thereon was required to be excluded for determining sale value of goods involved in the works contract. Certain observations were also made by the Supreme Court with regard to fixing of deemed value which will be referred to at a later stage. 80. Thus sales tax became payable on sale value of goods involved in the course of execution of works contract. However, it appears that such contracts were simplicitor construction contracts and not development agreements which would also involve an element of transfer of land. 81. In so far as tripartite development agreements involving transfer of land are concerned, it was held by the Supreme Court in the case of K. Raheja Development Corporation (supra) that even such agreements would constitute works contracts and they would involve deemed sales of goods. The correctness of such decision was do....
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.... of the works contract. The observation in the referral order that if the ratio in Raheja Development [K. Raheja Development Corpn. v. State of Karnataka, (2005) 5 SCC 162] is to be accepted then there would be no difference between works contract and a contract for sale of chattel as chattel overlooks the legal position which we have summarised above." 82. Thus it was held that even a tripartite agreement between the land owner, developer and buyer involved construction of flats at the behest of the buyer and hence it involved taxable deemed sale of goods. It is however important to note that the Supreme Court clarified in para 110 of the judgement as under: "110. It may, however, be clarified that activity of construction undertaken by the developer would be works contract only from the stage the developer enters into a contract with the flat purchaser. The value addition made to the goods transferred after the agreement is entered into with the flat purchaser can only be made chargeable to tax by the State Government." 83. Hence only the construction which was undertaken after agreement with the purchaser was held to involve works contract. The argument of the Sta....
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....be refunded. He stated that building materials would be mostly in the rate slab of 12% and due to benefit of ITC, the prices of flats should become cheaper. He stated that consumer education would be required on this subject. 23.3 The Hon'ble Minister from Telangana stated that two different schemes of taxation in construction sector could lead to confusion and suggested that sale of finished flats should also get ITC as otherwise there was a risk of builder selling finished flats under construction. The Hon'ble Deputy Chief Minister of Gujarat stated that this possibility had become remote after the enactment of the Real Estate (Development and Regulation) Act (RERA). The Hon'ble Minister from Maharashtra stated that abatement regarding value of land should be kept out of the current proposal as in his State, in 12 Corporations, the land value was about 50% of the value of the flat and abatement of 30% would lead to litigation. He suggested that abatement should be given as per ready reckoner of the land value or on the basis of the stamp duty value. He also referred to the Supreme Court Judgment in the case of M/s Larsen & Tourbro Limited, decided in September 26, (para ....
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....ations as flats would be of different sizes and common areas would also need to be allocated. He stated that if an option was given for abatement on the basis of ready reckoner of the land value, this would lead to exercise of discretion and could affect revenue. After discussion, the Council agreed to the proposal on the rate of tax on construction service proposed in Annexure VIII and also the other taxation proposals in Annexure VIII. 85. Hence, it is not as if the very base of the levy was sought to be changed under the CGST Act. While earlier VAT and service tax were imposed on tripartite agreements, such taxes were sought to be consolidated under the CGST Act with a specific exclusion of land element. In other words the construction which was carried out by the developer in accordance with the agreement with the prospective buyer, which was earlier taxable under the Vat/service tax law is now sought to be taxed under the CGST Act and therefore deduction is given for sale of land. 86. Even otherwise "supply" under Section 7 of the CGST Act includes supply of goods or services made or agreed to be made for a consideration. Thus the factum of supply would be initiated only....
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.... and it is such supply alone which can be taxed. Hence the fact that the land is not a plain parcel of land but a developed land cannot be a ground for imposing tax on the sale of such land. 91. In fact the argument of M r. Vyas is not supported by the impugned notification itself. It is not as if deduction is not granted if land is not developed. Deduction is granted for any transfer of land. Mr. Vyas has also not contended that the deduction of 1/3rd as stipulated in the notification is not available to the writ applicants. Thus "sale of land" under Schedule III to the GST Acts covers sale of developed land even as per the impugned notification. Hence the only question which is to be determined is whether such artificial deeming fiction of 1/3rd deduction is ultra-vires the provisions of the CGST Act or the Constitution. • MEASURE OF TAX: 92. Keeping the aforementioned background in mind, the validity of fixed deduction of 1/3rd for transfer of land or undivided share in land by the impugned notification needs to be decided. In other words when the tax is imposable under the charging section on the supply of construction service to the recipient, the question i....
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....to establish the expenses that were incurred under the aforesaid heads of deduction for labour and services. But there may be cases where the contractor has not maintained proper accounts or the accounts maintained by him are not found to be worthy of credence by the assessing authority. In that event, a question would arise as to how the deduction towards the aforesaid heads may be made. On behalf of the States, it has been urged that it would be permissible for the State to prescribe a formula on the basis of a fixed percentage of the value of the contract as expenses towards labour and services and the same may be deducted from the value of the works contract and that the said formula need not be uniform for all works contracts and may depend on the nature of the works contract. We find merit in this submission. In cases where the contractor does not maintain proper accounts or the accounts maintained by him are not found worthy of credence it would, in our view, be permissible for the State legislation to prescribe a formula for determining the charges for labour and services by fixing a particular percentage of the value of the works contract and to allow deduction of the amou....
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.... conveyed and the property involved in the execution of the construction contract is also transferred, it is the latter component which is brought to tax. The value of the goods at the time of transfer is to be calculated after making the deductions which are specified under sub-rule (1). The judgment in Gannon Dunkerley (2)[Gannon Dunkerley and Co. v. State of Rajasthan, (1993) 1 SCC 364] specifies the nature of such deductions which can be made from the entire value of the works contracts. This was permitted to the States as a convenient mode for determining the value of the goods in the execution of the works contract. Similarly, the cost of the land is required to be excluded from the total agreement value. Sub-rule (1-A) stipulates that the cost shall be determined in accordance with the guidelines appended to the Annual Statement of Rates prepared under the provisions of the Bombay Stamp (Determination of True Market Value of Property) Rules, 1995 as applicable on 1st January of the year in which the agreement to sell the property is registered. The proviso stipulates that deduction towards the cost of land under the sub-rule shall not exceed 70% of the agreement value. The p....
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....d admeasuring 5000 square yards and valued at say Rs. 2.5 crore. If suppose a buyer enters into an agreement with the developer for buying the plot of land along with getting bungalow constructed and the total area of the bungalow is say 500 square yards and the construction value is say Rs. 50 lakhs. Thus the total agreement value is Rs. 3 crores. Applying the impugned deeming fiction, deduction of 1/3rd i.e. Rs. 1 crores will be available towards land and the balance consideration of Rs. 2 crores will be taxable under the GST Acts. b) Suppose the same bungalow is constructed on a plot of land of 2000 square yards of which the value is Rs. 1 crore. The construction value being Rs. 50 lakhs, the total agreement value is Rs. 1.5 crores. Applying the impugned deeming fiction, deduction of 1/3rd i.e. Rs. 50 lakhs will be available towards land and the balance consideration of Rs. 1 crore will be taxable under the GST Acts. 102. Thus even though in both the above illustrations the actual bungalow remains the same and it is the construction of this bungalow which is taxable under the GST Acts, the taxable value in the first illustration is double the taxable value in the sec....
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....3. This Court in Govind Saran Ganga Saran v. CST [1985 Supp SCC 205 : 1985 SCC (Tax) 447 : AIR 1985 SC 1041] on analysing Article 265 noted as follows : (SCC pp. 209-10, para 6 : AIR p. 1044, para 6) "The components which entered into tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy. The second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax. The third is the rate at which the tax is imposed and the fourth is the measure or value to which the rate will be applied for computing the tax liability." Obviously, all the four components of a particular concept of tax have to be interrelated having nexus with each other. Having identified the taxable event, tax cannot be levied on a person unconnected with the event, nor the measure or value to which rate of the tax can be applied can be altogether unconnected with the subject of tax, though the contours of the same may not be identified." • SECTION 15(5) DOES NOT FURTHER THE CASE OF THE RESPONDENTS: 107. Strong reliance has been placed by the Respondents on Section ....
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....ted vide Notification dated 19-12-1989 might be justified. However, the impugned provision clearly fails the test." • WHAT IF THE SUPPLIER ARTIFICIALLY INFLATES THE PRICE OF LAND THEREBY DEFLATING THE VALUE OF CONSTRUCTION SERVICE ? 110. One of the contentions of the learned A.S.G., while defending the impugned Notification is that the valuation cannot be determined on the basis of the value fixed into agreement, which is decided inter-se between the parties as the parties may artificially fix a higher value for land so as to reduce tax the liability under the GST Acts. 111. The aforesaid contention is also required to be rejected. At the outset in the present case the values as mentioned in the agreement are not challenged in the affidavit in reply and therefore such contention is not applicable. We are supported in this regard by the judgement of the Supreme Court in the case of Mangalore Ganesh Beedi Works (supra). 112. Even otherwise, the possibility of obtaining indirect consideration cannot be ruled out for any supply transaction. If in a given case it is found that the value of construction service which is declared by the supplier is not the correct va....
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....the contract towards construction. If it is established that such value was not the sole consideration for the service, then resort can be had to the valuation rules and value can be derived by applying the cost plus profit method or a reasonable value consistent with the principles and provisions of the Statute. 116. When such detailed statutory mechanism for determination of value is available then the impugned deeming fiction cannot be justified on the basis that it is meant to curb avoidance of tax when in fact such fiction is leading to arbitrary consequences. • ALREADY SIMILAR MECHANISM EXISTED UNDER SERVICE TAX LAW WHICH IS NOT REQUIRED TO BE DEVIATED FROM : 117. When it was held by the Delhi High Court in the case of Suresh Kumar Bansal (supra) that since the valuation rules in service tax did not provide for deduction for land value, tax was not quantifiable and hence not leviable, the service tax valuation rules were retrospectively amended to provide for deduction of land. Deduction at fixed percentage was made applicable only where the actual value was not ascertainable. When such workable mechanism for deduction of land was already in force under the....
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....as valid, minor defects in the formula would not invalidate the rule itself and therefore the assessees were relegated to make representation before the GST Council. However, in the present case we find the impugned notification to be contrary to the provisions and scheme of the GST Acts as well as arbitrary and violative of Article 14 of the Constitution of India. • JUDGEMENT OF THE SUPREME COURT IN THE CASE OF NARNE CONSTRUCTION WHOLLY IRRELEVANT: 121. The reliance placed by the revenue on the decision of the Apex Court in the case of Narne Construction Pvt. Ltd (supra) is completely misplaced. The said judgement was in the context of the Consumer Protection Act, 1986 and is thus as such inapplicable while interpreting a taxing statute. In any case it was categorically observed by the Supreme Court that the development of land was assured to the buyers. We have already observed that in a given case there may be tax liability if the development of land is undertaken pursuant to contract with buyer. However, if the land is already developed and thereafter agreement is entered into with the buyer for sale of such developed land, then it would not involve any service.....