High Courts orders for Refund of Service tax on immovable property including value of land
Relevant extract of Order is given below:
31. We are of the opinion that Rule 2A of 2006 Rules deals only with determination of the value of the service portion in execution of a works contract referred to clause(h) of Section 66E of the Act; and even as of date, no rule has been enacted by the Central Government dealing with determination of value of service portion in a composite contract of sale involving not only a service component but also sale of built up area along with undivided share of land involving also sale of goods included in the total consideration paid for their purchase falling in clause
(b) of Sec.66 E, as in the instant case.
32. This aspect has been dealt with by the Delhi High Court in Suresh Kumar Bansal’s case (1 supra) and it explained that the contract between a buyer and the builder/promoter/developer in development and sale of a complex is of a composite one; that arrangement between the buyer and the developer is not for procurement of services simplicitor; that agreement between a flat buyer and a builder/developer of a complex, who is developing the complex for sale is, essentially, one of purchase and sale of developed property; that the arrangement between the buyer and the builder is a composite one which involves not only the element of services but also goods and immovable property; while the legislative competence of the parliament to tax the element of service involved cannot be disputed but the levy itself would fail, if it does not provide for a mechanism to ascertain the value of the services component which is the subject of the levy. The Delhi High Court was of the view that the service tax cannot be levied on the value of undivided share of land acquired by a buyer of a dwelling unit or on the value of goods which are incorporated in the project by a developer and that levying a tax on the constituent goods or the land would clearly intrude into the legislative field reserved for the States under List II of the Seventh Schedule of the Constitution of India. The Bench observed that there is no machinery provision for ascertaining the service element involved in the composite contract and in order to sustain the levy of service tax from the services, it is essential that the machinery provisions provide a mechanism for ascertaining the measure of tax, i.e., the value of services which are charged to service tax. It referred to the Service Tax (Determination of Value) Rules, 2006 and observed that none of the rules provides for any machinery for ascertaining the value of services involved in relation to construction of a complex. Referring to Rule 2A, Division Bench stated that it provides for mechanism to ascertain the value of services in a composite works contract involving services and goods, but it does not cater to determination of value of services in case of a composite contract which also involves sale of land. According to the Division Bench, the gross consideration charged by a builder/promoter of a project from a buyer would not only include an element of goods and services but also the value of undivided share of land which would be acquired by the buyer and since neither the Act nor the Rules framed therein provide for a machinery provision for excluding all components other than service components from ascertaining the measure of service tax, the same cannot be levied.
33. We are in complete agreement with the above view.
34. Though Sri Swaroop, counsel for respondents sought to contend that construction of the complex is also a ‘works contract’ and falls under Section 66E(h), we do not accept the said interpretation because if such an interpretation was to be correct, the Legislature would not have created a separate category of services relating to construction of a complex in clause(b) of Section 66E, and the same cannot be rendered otiose by the Court.
35. Though a plea was also raised by the respondents about the maintainability of the Writ Petition, we are of the opinion that the claim in the Writ Petition is for refund of the amount collected as service tax without authority of law. Article 265 of the Constitution of India states that ‘no tax shall be levied or collected except by authority of law’.
36. In Corporation Bank v. Sarawati Abharawsala6, the Supreme Court interpreted this constitutional provision and held that all acts relating to the imposition of tax providing, inter alia, for the point at which the tax is to be collected, the rate of tax as also its recovery must be carried out strictly in accordance with law. In that case, the assessee had paid excess amount of tax to the State, which the State had refused to refund and the Supreme Court held that the Writ Petition to recover the excess amount paid by the assessee, was maintainable.
37. In the instant case also, there are no disputed questions of fact, which need to be gone into for deciding the claim for refund and since the claim for refund is based on the decision of the Delhi High Court in Suresh Kumar Bansal’s case (1 supra) which was decided on 03.06.2016, and since the application for refund was filed on 19.08.2016, barely two months after the decision of the Delhi High Court in Suresh Kumar Bansal’s case (1 supra), it cannot be said that there is any inordinate delay in the petitioners seeking refund of the tax paid by them to the 4th respondent.
38. For all these reasons, this Writ Petition is allowed and the 1st respondent is directed to refund a sum of Rs. 33,77,539/- to the petitioners with interest @ 9% per annum from the date of payment of the same by the petitioners to the 4th respondent i.e., 19.06.2014 till the date of payment to the petitioners. No costs.
39. Pending miscellaneous petitions, if any, shall stand closed. No order as to costs.