Bombay HC upholds service tax impost on construction of flats and shops

The Bombay High Court has upheld the decision of the union government to levy service tax on construction of flats and shops - a decision that would raise property prices for buyers in Mumbai and its suburbs.

A division bench of the high court comprising Justice D Y Chandrachud and Justice A A Sayed passed the order yesterday on a writ filed by the Maharashtra Chamber of Housing Industry (MCHI) challenging the constitutional validity of the central levy.

The petitioners argued that since the power to levy tax on the land and building rested with the state government, the center was not entitled to impose any tax on building construction.

The judges, however, agreed with the additional solicitor general Darius Khambata's argument that construction activity should be taken as a service activity and the central government has the power to levy tax on services.

He also cited Supreme Court judgments to show that construction activity is a service activity and that the central government has the power to levy service tax on construction activities.

His argument was that since flats can be registered much before actual construction of a flat or a building and the actual construction involves all types of fecilitations by the builder, such activity would qualify as a service.

According to Sushil Solanki, commissioner of service tax, the levy is on builders and it is payable irrespective of whether they pass on the burden to buyers of property.