Petitioner | Munjaal Manishbhai Bhatt |
Respondent | Union of India |
Decision by | Gujarat High Court |
Date of order or Judgement | 6-May-2022 |
Citation no. | 2022 (5) GSTPanacea 75 HC Gujarat R/Special Civil Application No. 1350 Of 2021 |
Hon’ble Judge | Justice J. B. Pardiwala Justice Nisha M. Thakore |
Decision | In Favour of Assessee |
Mandatory Deeming Provision for Value of Land-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.
Mandatory Deeming Provision for Value of Land-Facts of the Case
Separate and distinct consideration was agreed upon between the parties to the agreement for
(i) the sale of land and
(ii) construction of a bungalow on the land
Further, as per the said agreement, the petitioner was liable to pay all taxes including the GST.
The petitioner bona fide believed that by virtue of such clause he would be liable to pay tax under the Central/Gujarat GST Act, 2017 on the consideration payable for construction of bungalow in as much as it would constitute supply of construction service under the GST Acts.
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.
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.
Argument Before Court
Mandatory Deeming Provision for Value of Land-The petitioners submits that these impugned assessments orders have been passed either without proper service of Show Cause Notices or without giving adequate opportunity to reply to the Show Cause Notices. It is therefore submitted that the impugned orders have been passed in violation of principles of natural justice.
The writ petitioner submitted that Section 9 (1) of the GST Act is the charging Section which imposes tax on the “supply” of the goods and services. The scope of “supply” is defined in Section 7. By virtue of Section 7 (2) of the GST Act, the transactions as specified in the Schedule III to the GST Act are excluded from the purview of supply.
Sale of land is included in the Entry No. 5 of the Schedule III to the GST Acts. Thus, the sale of land is neither supply of goods nor services. The imposition of tax on consideration received towards the sale of land by virtue of delegated legislation is therefore ultra-vires Sections 7 and 9 reply of the GST Acts.
The booking agreement between the petitioner and the land owner/developer clearly indicates that the consideration towards land is separately fixed and agreed.
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.”
Gujarat High Court Held
Mandatory Deeming Provision for Value of Land-In the result, the impugned 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.
The question is whether the impugned paragraph 2 needs to be struck down or the same can be saved by reading it down. In our considered view, while maintaining the 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 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.
In our considered view, while maintaining the 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.
Since we have declared the impugned deeming fiction to be ultra-vires and we have read it down to be inapplicable in cases where the actual value of land is unavailable.
Consequently we direct the concerned GST authority to refund the excess amount of tax under the GST Acts to the writ applicant. Such refund shall be calculated by determining the actual GST liability on the basis of actual construction value as stipulated in the agreement. Refund is to be granted along with the statutory interest at the rate of 6% per annum which is to be calculated from the date of excess payment of tax till the date of refund.
The impugned notification providing for mandatory deeming fiction for deduction of value of land, the said orders are hereby quashed and set aside.
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Munjaal Manishbhai Bhatt
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