Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *   CBIC issues draft rules for Customs valuation *  Top Headlines: Threshold for Benami deals, green bond investors, and more *  Govt aims 1-hour clearance for goods at all ports *  Exporters Allowed To Use RoDTEP, RoSCTL Scrips To Pay Customs Duty, Transfer Them; Rules Amended *  Millions of labourers to be affected by brick producers’ strike over hike in GST, coal rates *  Inauguration of ‘kendriya GST parisar’ *  Transporter can seek Release of Conveyance alone, not Goods under GST Act: Madras HC *  GST: Quoting of DIN Mandatory for Responding to Notice, Govt Modifies Portal *  Firms can soon file claims for GST credits of ?400 cr *  CBIC issues modalities for filing transitional credit under GST. *  Mumbai: Man creates 36 fake GST firms, arrested for input tax credit fraud of Rs 23 cr *  Report to restructure Commerce Ministry under study; idea is to set up trade promotion body: Goyal *  Firms can soon file claims for GST credits of ?400 cr *  Gambling Alert! Govt May Levy Up To 28% GST; UP, Bengal Back Move *  EPFO backs raising retirement age to ease pressure on pension funds *  India Moving Up Power Scale, Set to Become Third Largest Economy By 2030 *  Airfares Get Expensive: What Changes for Flyers From Today? *  IRCTC Latest News: Passengers to Pay More For Cancelling Confirmed Rail Tickets Soon. *  IBC prevails over Customs Act, says Supreme Court. *  As GST enters sixth year, a time for evaluation and reassessment *  There’s GST on daily essentials as Centre needs money to buy MLAs: Arvind Kejriwal *  Now, GST on cancellation of confirmed train tickets, hotel bookings *  GST kitty for top States could rise 20% in FY23, says Crisil *  French customs officials seize another cargo vessel over Russia sanctions *  TradeLens builds on Asia momentum with Pakistan Customs deal *  Hike tax on tobacco, reduce affordability & increase revenue: Civil society organizations to GST council *  Bihar: ?10 crore tax evasion on tobacco products detected in raids *  Centre failed on GST, COVID; would it be anti-national? Rajan on Infosys row *  Service Tax not Chargeable on Income Tax TDS portion paid by recipient: CESTAT grants relief to TVS *  Foreign portfolio investors make net investment of Rs 7575cr in Sep so far
Subject News *  Run-up to Budget: Monetary threshold for GST offences may rise to Rs 25 cr *   GST (Tax) E-invoice Must For Businesses With Over Rs 5 Crore Annual Turnover *   Both Central GST and excise duty can be imposed on tobacco, rules Karnataka high court *   CBIC Issues Clarification On Extended Timelines For GST Compliance *   CBIC Issues Clarification On Extended Timelines For GST Compliance *  Budget 2023- 9.6 crore gas connections *  GST: Tamil Nadu Issues Instructions for Assessment and Adjudication Proceedings *  GST: CBIC Extends Last Date for filing of ITC *  GST collection in September surpasses Rs 1.4 lakh crore for straight seventh time *  Dollar smuggling case: Customs chargesheet names M Sivasankar as key conspirator. *  Hike in GST rates fuels inflation *  Assam: CBI arrests GST commissioner in Guwahati *  GST fraud worth ?824cr by 15 insurance Cos detected *  India proposes 15% customs duties on 22 items imported from UK *  Decriminalising certain offences under GST on cards *  Surge in GST collections more due to higher inflation: India Ratings *  MNRE Notifies BCD and Hike in GST Rates as ‘Change in Law’ Events But With a Condition | Mercom India *   Solar projects awarded before customs duty change allowed cost pass-through *  Rajasthan High Court Dismisses Writ Petitions Challenging Levy Of GST On Royalty *   GST revenue in September likely at Rs 1.45 lakh crore *  Govt working on decriminalising certain offences under GST, lower compounding charge *  Building an institution like GST Council takes time, trashing is easy: Sitharaman *  GST collections in Sept may touch ?1.5 lakh crore *  KTR asks Centre to withdraw GST on handlooms *  After Gameskraft, More Online Gaming Startups To Receive GST Tax Claims *  Madras HC: AAR Application Filed Under VAT Does Not Survive After GST Enactment *  Threshold for criminal offences under GST law may be raised *  Bengaluru: Gaming company faces biggest GST notice of Rs 21,000 crore *  CBIC clarifies Classification of Cranes for GST, Customs Duty *  Customs seize gold hidden in bicycle in Kerala airport  

Comments

Print   |    |  Comment

GST UPDATE No 185 ON GUJARAT HC DECLARES MANDATORY 1/3 DEDUCTION OF LAND AS ULTRA VIRES

GST UPDATE No 185 ON GUJARAT HC DECLARES MANDATORY 1/3 DEDUCTION OF LAND AS ULTRA VIRES
The leviability of services tax on the construction of complex services/works contract services have been a matter of dispute since inception as the said services are composite in nature involving goods and land on which no service tax can be levied. It is worth mentioning here that the Hon’ble Delhi High Court in the case of SURESH KUMAR BANSAL concluded that the levy of service tax on construction of complex services was ultra vires as there was no statutory mechanism to ascertain the value of services component because service tax could not be levied on value of undivided share of land acquired by the buyer. Consequently, the government removed the lacunae by retrospectively amending the Rule 2A of the Service Tax (Determination of Value Rules), 2006 wherein it was stated that where the amount charged for works contract includes the value of goods as well as land or undivided share of land, service tax shall be payable on 25% of the total amount charged for the works contract. Similar issue has been cropped in GST regime wherein the issue regarding mandatory 1/3 deduction as value of land was challenged before Gujarat High Court in the case of MUNJAAL MANISHBHAI BHATT VERSUS UNION OF INDIA. The outcome of this decision is the subject matter of discussion of our present update. The petitioner entered into an agreement with Navratna Organisers & Developers Pvt. Ltd. for the purchase of a plot of land and construction of bungalow on the said plot of land. Separate and distinct consideration was agreed upon between the parties to the agreement for sale of land and construction of bungalow on the land. Hence, the petitioner was of the view that he would be liable to pay GST on the construction of bungalow in as much as it would constitute supply of construction service under the GST Act. The departmental authorities on the contrary opined that GST is payable at the rate of 18% on the entire consideration including land after deducting 1/3 rd of the value towards the land in accordance with entry no. 3(if) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??5 The petitioner contended that sale of land is included in the entry no. 5 of the Schedule III to the GST Act. Thus, the sale of land is neither supply of goods nor services so imposition of tax on consideration received towards sale of land is therefore ultra vires section 7 and 9 of the GST Act. It was also contended by way of illustration that the GST liability by virtue of deeming fiction exceeded the tax liability computed on actual basis which is totally erroneous. It was submitted that delegated legislation cannot travel beyond the scope the parent legislation and reliance was placed on the following decisions rendered by the Apex Court:- • INDIAN EXPRESS NEWSPAPERS (BOMBAY) PRIVATE LIMITED V. UNION OF INDIA & ORS.; (1985) 1 SCC 641 • KERALA FINANCIAL CORPORATION V. COMMISSIONER OF INCOME TAX; (1994) 4 SCC 375 • ITW SIGNODE INDIA LTD. V. COLLECTOR OF CENTRAL EXCISE; (2004) 3 SCC 48 • DEPUTY COMMERCIAL TAX OFFICER V. SHA SUKRAJ PEERAJEE; AIR 1968 SC 67 Reliance was also placed on the decision given by Supreme Court in the case of Gannon Dunkerley’s case wherein it was held that tax is to be imposed on actual taxable value of the works contract and the government could prescribe fixed percentage only for cases where actual value was not ascertainable. Moreover, it was held that even the fixed percentage as prescribed should not appreciably differ from the actual value. The petitioner placed reliance on the judgment of Delhi High Court in the case of Suresh Kumar Bansal wherein it was clearly held that there need to be a specific statutory provision excluding the value of the land from the taxable value of the works contract and mere abatement by way of notification is not sufficient. Such dictum has even been complied with by the Government by way of retrospective amendment of the Service tax valuation rules so as to provide for specific deduction for consideration charged for land. It is only in the event of such actual value not being available that the alternative methods of fixed percentage deduction were to be adopted. The impugned notification under the GST Acts giving only fixed percentage of deduction for land by way of abatement is thus contrary to the judgement of the Delhi CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??6 High Court in the case of Suresh Kumar Bansal. It was urged that the deeming fiction is ex-facie discriminatory and violative of Article 14 of the Constitution of India 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 cost. The counsel for the revenue pleaded that government is empowered to levy tax by prescribing conditions/restrictions for which reliance was placed on following judicial pronouncements:- (A) UNION OF INDIA (UOI) AND ORS. VS. VKC FOOTSTEPS INDIA PVT. LTD. AIR 2021 SC 4407, 2021 [52] G.S.T.L. 513, (B) SPENCES HOTEL PVT. LTD. AND ORS. VS. STATE OF WEST BENGAL AND ORS. (1991) 2 SCC 154 (C) KHYERBARI TEA CO. LTD. AND ORS. VS.THE STATE OF ASSAM AIR 1964 SC 925. The revenue authorities contended 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 parties to the transaction. The revenue authorities relied on the decision given by the Apex Court in the case of UNION OF INDIA VERSUS VKC FOOTSTEPS INDIA PVT LTD. [AIR 2021 SC 4407] wherein it was held that merely because some inequities may result from practical effect of the CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??7 formula cannot be a ground to replace the wisdom of the legislature or its delegate. The formula cannot be held illegal or unconstitutional just because it may lead to certain inequities. The High Court held that the supply of land is covered by Schedule III to the CGST Act, 2017 which is neither treated as supply of goods nor supply of services. Consequently, there is significance of sale of developed land and undeveloped land. If a tripartite agreement is entered into after the land is already developed by the developer, then such development activity was not undertaken for the prospective buyer and therefore there is no question of imposition of GST on the developed land. 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. The High Court relied on the provisions contained in section 15 of the CGST Act, 2017 and held that when the statutory provision requires valuation in accordance with the actual price paid and payable for the service and where such actual price is available, then tax has to be imposed on such actual value. Deeming fiction can be applied only where actual value is not ascertainable. Reliance was placed on the decision given by the Apex Court in the case of 2nd Gannon Dunkerley’s case which concluded that deeming fiction is to be applied only when actual value is not ascertainable. Similarly, reference was made to the Supreme Court decision given in the case of Wipro Ltd. wherein it was held that where actual amount of loading/unloading charges are available, it was not permissible for the rule making authority to prescribe a flat rate of 1% addition to value. Thus, mandatory application of deeming fiction of 1/3rd of total agreement value towards land even though the actual value of land is ascertainable is clearly contrary to the provisions and scheme of the CGST Act and therefore ultra-vires the statutory provisions. The High Court also held that apart from being contrary to the statutory provisions contained in the CGST Act, 2017, one of the most glaring feature of the impugned deeming fiction is arbitrariness in as much as the same is uniformly applied irrespective of the size of the plot of land and construction CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??8 thereon. Such deeming fiction which leads to arbitrary and discriminatory consequences could be clearly said to be violative of Article 14 of the Constitution of India which guarantees equality to all and also frowns upon arbitrariness in law. Hence, it was held 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. The above decision is a landmark judgment which provides a sigh of relief to various builders due to the fact that deeming fiction created for mandatory 1/3rd deduction as value of land was discriminatory and arbitrary. It is often observed that the value of land is a variable factor which differs from region to region. The value of land is high in metro cities and so permitting standard deduction was having adverse impact on the builders. The decision to grant deduction on actual basis will definitely prove to be a boon for the real estate sector as far as leviability of GST is concerned.
Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com