HC helds mandatory fixed rate deduction of 1/3rd of consideration towards value of land in GST as ultra virus

Honorable Gujarat High Court in the matter of Mujaal Manishbhai Bhatt Vs. Union of India has held that Paragraph 2 of the Notification No. 11/2017-Central Tax (Rate) dated 28.6.2017 and identical notification under the Gujarat Goods and Services Tax Act, 2017, which provide for a mandatory fixed rate of deduction of 1/3rd of total consideration towards the value of land is ultra-vires the provisions as well as the scheme of the GST Acts. Application of such mandatory uniform rate of deduction is discriminatory, arbitrary and violative of Article 14 of the Constitution of India.

Mandatory deduction of 1/3rd for value of land is not sustainable in cases where the value of land is clearly ascertainable

As per the High Court, mandatory deduction of 1/3rd for value of land is not sustainable in cases where the value of land is clearly ascertainable or where the value of construction service can be derived with the aid of valuation rules, such deduction can be permitted at the option of a taxable person particularly in cases where the value of land or undivided share of land is not ascertainable.

The bench of Judges J. B. Pardiwala and Nisha M. Thakore further said that the impugned paragraph 2 of Notification No. 11/2017- Central Tax (Rate) dated 28th June 2017 and the parallel State tax Notification is read down to the effect that the deeming fiction of 1/3rd will not be mandatory in nature. It will only be available at the option of the taxable person in cases where the actual value of land or undivided share in land is not ascertainable.

This matter was argued by Mr. Devang Vyas, Mr. Utkarsh Sharma & Mr. Priyank P Lodha on behalf of the Union of India and Mr. Uchit N Sheth on behalf of Mr. Mujaal Manishbhai Bhatt.