How practical is it expecting a refund of service tax for an under construction property?

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.

Suggested Read: http://go4reviews.in/2016/06/analysis-and-implication-of-high-court-order-of-service-tax-exemption-for-under-construction-property/

Comments/Feedback invited.

Last updated: June 9, 2016 at 18:40 pm

4 thoughts on “How practical is it expecting a refund of service tax for an under construction property?

  • June 9, 2016 at 2:18 pm
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    Thanks for a good write up, I agree with you that Government will certainly come up with a new law which will have retrospective effect.

    It may be remembered, a similar judgement from Guwahati High Court only made the lawyer in Shri. P. Chidambaram, the then FM to come up with a law to levy this S.Tax . At that that the present BJP was in the opposition and they did not raise any serious objections.

    The present FM is also a lawyer and not an economist. His ego will be hurt if he does not respond in the same way as his predecessor did. Therefore please be certain that a new law will be introduced in Parliament on this which will have retrospective effect.

    The fortunes of Indian middle class will improve only when India has an economist as FM. These lawyers when they become FMs use their oratorical skills to shut mouth of others (including their own Party people and leaders). Long live India ! Long liver Indian Middle class as Middle class only!

    Reply
    • June 9, 2016 at 3:30 pm
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      Thanks for sharing an excellent perspective to this.

      Reply
  • June 9, 2016 at 9:53 pm
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    The finance ministry should be asked a simple question here– what, if any service was provided by builder to buyer when the payment was made, but there is no sign of any service received by buyer. Buyer is paying presumptive service tax, hoping that the builder will provide the service at some time in future. Some unfortunate buyers, like in Sector 107, Noida may never get the service/ apartment at all.!!

    Reply
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