We have analyzed previously the Delhi HC order for service tax exemption on under construction property. The Delhi HC last Friday ordered refund of service tax for an under construction property along with 6% interest accrued on the same. Print media came up with news of how it will shoot up the sales. But how practical is it expecting a refund of service tax for an under construction property? We do a bit of analysis to find that out.
In year 2010, Finance Act made way for service tax in under construction projects. Coincidentally, it was year 2010 that saw peak sales in the region. Surveys pointed at around 80 thousand (80k) sales of under-construction property in Delhi NCR region itself in 2010. There was a marginal 10-15% decline in years following that and between 2012-2013, the sales remained static, again going down (this time drastically) by 40-50% since 2013 end. Hence, in Delhi NCR region itself, there have been about 3 lakh 50 thousand sales since 2010. Assuming an average of 1 lakh paid as service tax per flat (excluding service tax on PLC), the revenues from service tax in Delhi NCR region itself is around Rupees 3500 crores which is huge. With Navi Mumbai, Bangalore, Chennai, Hyderabad and Pune fast growing as other real estate destinations, the service tax on under construction property would well run into lakhs of crores since its inception. Is it practical to expect government to return that huge a sum? We guess not. We anticipate government coming up with an amendment to Finance Act and a revision petition would be filed in Supreme court soon. Like this judgment that took 5 years to materialize, the revision petition could also be painstakingly long. But, the outcome will be interesting and far reaching in other taxation matters that have revolved around backdated amendments.
While refund in near run may not look feasible, buyers from their end are still suggested to reach builder if they already don’t have the service tax receipt. They should ask the builder to channel refund. Builder may direct you to service tax authorities. In such a case, the buyers of a project can form a group and approach the central revenue’s service tax department for mass refund. (Although again, as already discussed previously, Revenue might have already got a stay on the order by then).
Update: For now, builders in the region are replying back stating that they are awaiting Service Tax department’s notification for extending this relief. Meanwhile, few builders have also replied back with service tax receipt details.
Comments/Feedback invited.Last updated: June 9, 2016 at 18:40 pm