Gujarat High Court
V Square Project Through Ashaben V Patel vs Union Of India Through Standing Counsel on 8 October, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 11294 of 2010
With
R/SPECIAL CIVIL APPLICATION NO. 1287 of 2011
With
R/SPECIAL CIVIL APPLICATION NO. 4362 of 2011
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
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Approved for Reporting Yes No
✓
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V SQUARE PROJECT THROUGH ASHABEN V PATEL & ORS.
Versus
UNION OF INDIA THROUGH STANDING COUNSEL & ORS.
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Appearance:
MR MAHESH BHAVSAR(1781) for the Petitioner(s) No. 1,2,3
ADVOCATE NOTICE SERVED for the Respondent(s) No. 1,2,3
MR ANKIT SHAH(6371) for the Respondent(s) No. 4,5,6
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 08/10/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. Mahesh Page 1 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined Bhavsar for the petitioners and learned advocate Mr. Parth Mehta for learned advocate Mr. Ankit Shah for the respondents.
2. These petitions are filed challenging the levy of service tax under section 65(105)(zzq), section 65(105)(zzzh) and new Entry (zzzzu) in section 65(105) of the Finance Act, 1994 with the following prayers:
"a). Your Lordships may be pleased to declare (i) that the provisions of Finance Act, 1994 as amended by Finance Act, 2010 introducing an explanation to Section 65(105) (zzq) and Section 65(105)(zzzh) and a new entry (zzzzu) in Section 65(105) of the Finance Act 1994 are unconstitutional, void and ultra virus they (a) being beyond the legislative competence of Parliament, (b) being violative of Articles 14, 19(1)(g), 246(1) and 300A of the Constitution of India.Page 2 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025
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(b). Your Lordships may be pleased to issue a writ of mandamus or any other appropriate writ, order or direction in the like nature of mandamus thereby directing the Respondents to forego and refrain from levying any service tax under an explanation to Section 65(105) (zzq) and 65(105) (zzzh) and a new entry 65(105) (zzzzu) of the Finance Act 1994 as amended by Finance Act 2010 in respect of any construction activity undertaken by the Petitioners including sale of immovable property in any manner whatsoever.
(c). Your Lordships may be pleased to restrain the Respondents by themselves or through their servants, agents or anybody authorized to act on their behalf from in any manner taking any steps against the Petitioners in respect of the transactions for construction, development and sale of immovable property under the provision of the Finance Act, 1994 under an explanation to section 65(105)(zzq) and 65(105)(zzzh) and a new entry 65(105)(zzzzu) as amended by Finance Act, 2010 in any manner whatsoever, pending the admission, hearing and final disposal of this writ petition.
(d). Interim and ad-interim relief Page 3 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined in terms of prayer clause (c) above be granted.
(e). Pass such further and other relies as the nature and circumstances of the case may require."
3. As the issues raised in these petitions are similar, same were heard analogously and are being disposed of by this common judgment.
4. For the sake of convenience, Special Civil Application No.11294 of 2010 is treated as a lead matter.
5. Brief facts of the case are that the petitioners are registered partnership firms and are engaged in the business of real estate, development and allied activities.
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6. It is the case of the petitioners that with introduction of Explanation under clauses (zzq) and (zzzh) of section 65(105)of the Finance Act,1994 purporting to bring the activity of any commercial or industrial construction or construction of residential complex done prior to obtaining the completion certificate under the caption of "deemed service" by the Finance Act, 2010 is constitutionally invalid and new entry inserted by way of clause (zzzzu) to section 65(105) of the Finance Act,1994 to levy service tax on special services provided by the builders to the prospective buyers providing preferential location etc. is also ultra vires the Act.
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7. It is the case of the petitioners that the provisions relating to levy of tax on commercial or industrial construction services came into force with effect from 10th September, 2004 and service tax on the construction of residential complex came into force with effect from 16th June, 2005.
8. As per clause 13 of the Circular No.79/09/2004-ST dated 17th September, 2004, it was clarified that any person who constructs buildings for his own use or renting or for selling it subsequently, will not be subjected to service tax as levy of service tax primarily depends upon the rendering of service by a person called service provider and rendering of service to another person by service Page 6 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined provider i.e. service receiver.
9. Circular No.B1/6/2005-TRU dated 27th July, 2005 issued by the Ministry of Finance to all Service Tax Authorities provided the services covered for construction of residential complexes and commercial or industrial construction services.
10. By Notification No.1/2006-ST dated 1st March, 2006, certain rebates on payment of service tax leviable in respect of two entries being Entry (zzq) and (zzzh) were provided.
11. Being aggrieved by the aforesaid amendment and notification, Writ Petition No.845 of 2006 and allied matters were Page 7 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined filed before the Hon'ble Bombay High Court challenging levy of service tax in respect of aforesaid two entries and constitutional validity of Entry 65(25b) and Entry 65(30a) of the Finance Act, 1994 in respect of service tax on commercial or industrial services and construction of complex services were also challenged wherein Hon'ble Bombay High Court recorded the statement made by the Counsel appearing on behalf of the respondent on 26th April, 2006 to the effect that the department would not take the coercive process against the Maharashtra Chamber of Housing Industry and others carrying on the business as developers/promoters in construction of immovable properties for the recovery and collection of service tax.
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12. Circular No.108/02/2009-ST dated 29th January, 2009 provided imposition of service tax on buildings wherein it was stipulated that till the completion of the construction activity and the same is handed over to the prospective flat purchaser or buyer, no services can be said to have been rendered to the flat purchaser and that it is a transaction in respect of sale of immovable property. It was also provided to dispose of all the pending cases as per the circular.
13. Thereafter, Union Budget was presented on 26th February, 2010 for the year 2010- 2011 which introduced clauses 75 and 76 in the Finance Act, 2010 which provided changes in Chapter V of the Finance Act, 1994 by inserting additional entries for levy of service tax being section 65(105) Page 9 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined (zzq), section 65(105)(zzzh) and new Entry 65(105)(zzzzu) on the commercial and industrial construction and construction of residential complex before obtaining the completion certificate from the competent authority and special services provided by the builder to prospective buyers such as providing preferential location or external or internal development of the complexes.
14. Circular No.334/1/2010-TRU dated 26th February, 2010 was also issued elaborating the perception of the Ministry of the amendment brought on statute whereby scope and background of such services were elaborated in clause 8 of Annexure-A describing the service component which is sought to be charged for service tax.
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15. Notification No.24/2010-ST dated 22nd June, 2010 was issued notifying that the provisions of the Finance Act, 2010 would come into force on 1st July, 2010.
16. Order No.1/2010-ST dated 22nd June, 2010 was issued on Service Tax (Removal of Defect) Order 2010 which also came into force with effect from 1st July, 2010 for the purposes of clauses (zzq) and (zzzh) wherein it is provided that the competent authority to include the registered architect, registered chartered engineer and licensed surveyor.
17. Another Notification No.29/2010-ST dated 22nd June, 2010 was issued amending the Notification dated 1st March, 2006 notifying the rebate granted from service tax payment in respect of certain Page 11 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined services.
18. On 28th June, 2010, the Ministry of Finance issued Notification No.36/2010-ST in respect of service tax and a corrigendum was issued to that notification on 29th June, 2010.
19. The newly inserted earlier clauses (zzq) and (zzzh) of sub-clause (105) of section 65 and newly inserted entry (zzzzu) to sub-clause (105) of section 65 read as under:
"Section 65(105)(zzq)-
"Taxable Service" in relation to commercial or industrial construction means any service provided or to be provided to any person, by any other person, in relation to commercial or industrial construction.
Explanation- For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or Page 12 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorized by the builder before grant of completion certificate by the authority to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer;
Section 65 (105) (zzzh) "Taxable Service" in relation to Commercial or industrial construction means Construction of Residential Complexes to any in relation to person, by any other person, construction of complex.
Explanation- For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorized by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be Page 13 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined deemed to be service provided by the builder to the buyer;
Section 65 (105) (zzzzu) Preferential Location or Development of Complex.
(zzzzu) to a buyer, by a builder of a residential complex, or a commercial complex, or any other person authorized by such builder, for providing preferential location or development of such complex but does not include services covered under sub clauses (zzg), (zzq), (zzzh) and in relation to parking place.
Explanation For the purpose of this sub clause, "preferential location" means any location having extra advantage which attracts extra payment over and above the basic sale price"."
20. The petitioners, therefore, have preferred these petitions with the aforesaid prayers challenging the validity of the aforesaid clauses of section 65(105) of the Finance Act, 1994 for levy of service tax on special services provided for any commercial or industrial Page 14 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined construction or construction of residential complex.
21. Learned advocate Mr. Mahesh Bhavsar for the petitioners submitted that there is no authority of law under Article 265 of the Constitution of India to levy service tax in absence of any service provided by the service provider to the service receiver which requires three elements namely, (i) rendering of service
(ii) rendering of service by a person called service provider and (iii) rendering of service to another person by service provider i.e. service receiver.
It was submitted that as per the newly inserted clauses all the three elements are not present for the purpose of levy of service tax as special provision for providing preferential location or Page 15 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined external or internal development of the building construction does not involve any rendering of service and as such, there is no element of service on which the service tax can be levied.
22. It was submitted that similar matter was filed before the Hon'ble Bombay High Court, however, it was candidly submitted that Hon'ble Bombay High Court in case of Maharashtra Chamber of Housing Industry and another v. Union of India and others has dismissed the Writ Petition No.845 of 2006 and other allied matters by judgment and order dated January 19/20, 2012 against which the petitioners have preferred SLP before the Hon'ble Apex Court which is pending for adjudication.
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23. Learned advocate Mr. Bhavsar has also placed on record the details of all pending matters before the Hon'ble Apex Court arising out of judgment and order passed by the Bombay High Court.
24. The Hon'ble Bombay High Court [Coram :
Hon'ble Mr. Justice D.Y. Chandrachud(As His Lordship was then) and Hon'ble Mr. Justice A.A. Sayed (As His Lordship was then)] in similar challenge after considering the submissions made by both the sides held as under:
"24. Now it is in this background that it is necessary for the Court to address itself to the challenge on the grounds of legislative competence. The submission of the Petitioners is that the tax in question is a tax on land and buildings within the meaning of Entry 49 of List II to the Seventh Schedule and would therefore fall within the exclusive legislative competence of the State legislatures Page 17 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined under Article 246(3) of the Constitution.
25. The Supreme Court has dealt with the ambit of Entry 49 of List II in the context of diverse challenges to laws enacted by Parliament. The judgment of the Constitution Bench in Sudhir Chandra Nawn v. Wealth Tax Officer [AIR 1969 SC 59] negatived a challenge to the constitutional validity of the Wealth Tax Act of 1957 on the ground that Entry 49 of List II contemplates the levy of a tax on land and buildings as units and is a tax which is directly imposed on land and buildings. A tax on the capital value of assets was held not to bear a definable relationship to lands and buildings which may form a component of the total assets of an assessee. In Second Gift Tax Officer v. D.H. Nazareth [AIR 1970 SC 999] a challenge to the constitutional validity of the Gift Tax Act 1958 was similarly dismissed, overruling an objection that it trenched upon Entry 49 of List II. The principles in these decisions were reiterated by a Bench of seven judges of the Supreme Court in Union of India v. H.S. Dhillon [AIR 1972 SC 1061]. In India Cement Limited v. State of Tamil Nadu [AIR 1990 SC 85] the Supreme Court once again reiterated the principles which were laid down in the earlier cases and observed that Entry 49 of List II is Page 18 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined confined to a tax that is directly levied on land as a unit. A tax which is imposed not directly on land but on a particular user would not fall within the ambit of Entry 49 of List II.
26. The principles which emerge from the decisions of the Supreme Court expounding Entry 49 of List II are as follows :
i) A tax on land and buildings is a tax which is imposed on land and buildings as units;
ii) In order to be a tax on land and buildings, the tax must be directly imposed on land and buildings;
iii) A tax on a particular use of land or of a building or an activity in connection with land or buildings is not a tax on land and buildings;
iv) A tax on a contract or arrangement in relation to land or buildings is not a tax on land and buildings;
v) A tax on income which arises from land or buildings is not a tax on land and buildings; and
vi) A tax on a transaction involving a transmission of title to or a transfer of land and buildings is not a tax on land and buildings under Entry 49 List II.Page 19 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025
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27. A precise elaboration of these principles is contained in the judgment of the Constitution bench in D.H. Nazareh (supra) :
"The pith and 'substance of Gift Tax Act is to place the "tax on the gift of property which may include land and buildings. It is not a tax imposed directly upon lands and buildings but is a tax upon the value of the total gifts made, in a year which is above the exempted limit. There is no tax upon lands or buildings as units of taxation. Indeed the lands and buildings are valued to find out the total amount of the gift and what is taxed is the gift. The value of the lands and buildings is only the measure of the value of the gift. A gift tax is thus not a tax on lands and buildings as such (which is a tax resting upon general ownership of lands and buildings) but is a levy upon a particular use, which is transmission of title by gift. The two are not the same thing and the incidence of the tax is not the same. Since entry 49 of the State List contemplates a tax directly levied by reason of the general ownership of lands and buildings, it cannot include the gift tax as levied by Parliament."Page 20 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025
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28. The principles which have been enunciated in the judgments of the Constitution bench of the Supreme Court in Sudhir Chandra Nawn and Nazareth and subsequently have been consistently followed. Reference may be made in this context to paragraph 23 of the judgment of the Supreme Court in India Cement. In the decision in State of Bihar v. Indian Aluminium Company [AIR 1997 SC 3592] the Supreme Court held that a tax which was levied on the activity of the removal or excavation of land was not a tax on land itself and would therefore fall outside the ambit of Entry 49 of List II. Reliance has also been placed by the Learned Additional Solicitor General on the judgment of a Division Bench of the Gujarat High Court in Ambalal Maganlal v. Union of India [1975 ITR237] and on a judgment of a Division Bench of this Court Manubhai A. Sheth v. N.D. Nirgudkar, 2nd Income Tax Officer [1981 (128) ITR 237] in support of the proposition that a tax on capital gains has been held to be a tax which arises from gains from the transfer of a capital asset and is therefore not a tax within the meaning of Entry 49 of List II. The decision in Godfrey Phillips does not mark any departure from the earlier decisions. Godfrey Phillips as a matter of fact did not construe Entry 49 of List II.
29. The charge of tax under Section 66 of the Finance Act is on the taxable Page 21 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined services defined in clause (105) of Section 65. The charge of tax is on the rendering of a taxable service. The taxable event is the rendering of a service which falls within the description set out in subclauses (zzq), (zzzh) and (zzzzu). The object of the tax is a levy on services which are made taxable. The fact that a taxable service is rendered in relation to an activity which occurs on land does not render the charging provision as imposing a tax on land and buildings. The charge continues to be a charge on taxable services. The charge is not a charge on land or buildings as a unit. The tax is not on the general ownership of land. The tax is not a tax which is directly imposed on land and buildings. The fact that land is subject to an activity involving construction of a building or a complex does not determine the legislative competence of Parliament. The fact that the activity in question is an activity which is rendered on land does not make the tax a tax on land. The charge is on rendering a taxable service and the fact that the service is rendered in relation to land does not alter the nature or character of the levy. The legislature has expanded the notion of taxable service by incorporating within the ambit of clause (zzq) and clause (zzzh) services rendered by a builder to the buyer in the course of an intended sale whether before, during Page 22 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined or after construction. There is a legislative assessment underlying the imposition of the tax which is that during the course of a construction related activity, a service is rendered by the builder to the buyer. Whether that assessment can be challenged in assailing constitutional validity is a separate issue which would be considered a little later. At this stage, what merits emphasis is that the charge which has been imposed by the legislature is on the activity involving the provision of a service by a builder to the buyer in the course of the execution of a contract involving the intended sale of immovable property.
30. Parliament, in bringing about the amendment in question has made a legislative assessment to the effect that a service is rendered by builders to buyers during the course of construction activities. In our view, that legislative assessment does not impinge upon the constitutional validity of the tax once, the true nature and character of the tax is held not to fall within the scope of Entry 49 of List II. So long as the tax does not fall within any head of legislative power reserved to the States, the tax must of necessity fall within the legislative competence of Parliament. This is a settled principle of law, since the residuary Page 23 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined power to legislate on a field of legislation which does not fall within the exclusive domain of the States is vested in Parliament under Article 248 read with Entry 97 of List I. However, it would be necessary for the Court to advert to the reply which has been filed on behalf of the Union of India in these proceedings. In paragraph 4 of the affidavit in reply it has been stated that service tax has been levied on account of the activity involving a value addition such as activities undertaken by an architect in designing a building, by civil contractors and engineers in constructing the building and in the provision of other utility services. A sample flat on site is normally made to enable prospective purchasers to envisage the final product. Choices are offered to buyers in respect of flat designs, internal shifting of walls, flooring patterns, wall colours, types of materials used for interior decoration, electrical and plumbing etc. These are also modified and personalized to suit the requirements of the buyer. Value additions and services are provided by developers to buyers when a prospective purchaser purchases a flat or unit before a completion certificate is obtained. The attention of the Court has also been drawn to the United Nations classification of products and services in which construction services are specifically Page 24 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined delineated in Section 5. There is no traverse on the part of the Petitioners of the statements which are contained in the affidavit in reply in which there is a reference to the nature of services rendered by builders to buyers. Be that as it may, we are firmly of the view that the legislative assessment on the basis of which a service tax is levied on the value addition which builders provide to buyers in the form of service rendered in the course of construction and construction related activities can by no stretch of imagination be regarded as so manifestly absurd so as to impinge on the constitutional validity of the provision. It would also be necessary to record that on 1 March 2006 a notification was issued by the Union Ministry of Finance in exercise of powers conferred by Section 93(1) of the Finance Act 1994 to provide for an exemption to the extent of 67% of the gross value of construction. By a subsequent notification dated 22 June 2010, the extent of the exemption has been enhanced to 75% of the gross value. What is taxed therefore is the value addition involved in the rendering of the service.
31. The submission that the explanation brings in two fictions and is ultra vires the provisions of Sections 67 and 68 of the Finance Act is completely lacking in substance.
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32. The provisions of clause (zzzzu) which were introduced by the Finance Act of 2010 in the provisions of Section 65(105) are also sought to be challenged. The challenge is on the ground that firstly there is no element of service involved and the addition attaches to a location. Secondly, it has been submitted that there is no voluntary act of rendering a service. Thirdly, it has been urged that the tax is a tax on land per se, since it is a tax on location. Fourthly, it has been submitted that the provision is vague and therefore arbitrary since what constitutes a preferential location, an extra advantage or the basic sale price has not been defined.
33. Now what clause (zzzzu) of Section 65(105) brings in are services provided to a buyer by a builder of a residential complex or a commercial complex for providing a preferential location or development of such complex, but to the exclusion of services covered under sub clauses (zzg), (zzq) and (zzzh) and those in relation to parking places. A preferential location is defined to Page 26 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined mean any location having extra advantages which attracts extra payment over and above the basic sale price. The circular which was issued by the Central Board of Excise and Customs on 26 February 2010 takes note of the fact that in addition to activities involving construction, completion and furnishing repair, alteration, renovation or restoration builders of residential or commercial complexes provide other facilities and charge separately for them. These charges do not form part of the taxable value for charging of tax. These facilities include (i) Prime / preferential location charges for allotting a plot or- commercial space according to the choice of the buyer;
(ii) Internal or external development charges which are collected for developing and maintaining parks, laying of sewage water pipelines, providing access roads and common lighting and other like charges. Since these charges are in the nature of service provided by the builder to the buyer over and above the construction service, they were brought within the purview of clause (zzzzu). In the affidavit in reply that has been filed in these proceedings reference has been made to the fact that builders as a matter of fact charge separately under diverse heads. A special value addition service includes the provision of a flat on a preferred floor to a prospective buyer, a flat Page 27 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined facing a particular direction or a particular room in a particular direction. This involves a locational choice of a prospective buyer having an extra advantage for which additional payment is made by the buyer to the builder over and above the basic sale price. These according to the Revenue involve value additions and services when the prospective purchaser purchases a flat or a unit before the completion certificate is obtained. We find merit in the contention which has been urged on behalf of the Revenue that if no charge is levied for a preferential location or development, no service tax would be attracted in the first place. Builders, however, follow the practice of levying charges under diverse heads including preferred development of the property intended to be sold or in terms of a preferred location which is made available to the buyer. Clause (zzzzu) only intends to obviate a leakage of revenue and plugs a loophole which would have otherwise resulted. To reiterate, if no separate charge is levied, the liability to pay service tax does not arise and it is only where a particular service is separately charged for that the liability to pay service tax arises. The fact that the service is rendered in the context of a location, does not make it a tax on land within the meaning of Entry 49 of List II. The tax continues to be a tax Page 28 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined on the rendering of a service by the builder to the buyer. There is no vagueness and uncertainty. The legislative prescription is clear. Hence, there is no excessive delegation.
34. Before concluding, we may also refer to the decision rendered by this Court in Retailers Association of India v. Union of India (Writ Petition 2238 of 2010 and connected petitions decided on 4 August 2011). A Division Bench of this Court rejected a challenge to the levy of service tax in connection with the provision of a service in relation to the renting of immovable property for use in the course of or furtherance of business or commerce. This Court construed the ambit of Entry 49 of List II of the Seventh Schedule in that context. A similar view has also been taken by a Full Bench of the Delhi High Court in Home Solutions Retails (India) Ltd. v. Union of India on 23 September 2011 in Writ Petition (Civil) 3398 of 2010 and connected matters.
35. For these reasons we do not find any merit in the constitutional challenges raised in the Petitions. No other submissions, other than those which we have recorded, were urged. The Petitions shall accordingly stand dismissed."
25. The Hon'ble Bombay High Court in case Page 29 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined of Maharashtra Chamber of Housing Industry and another (supra) has held that there is no merit in the Constitutional challenge raised in the petition as the tax continues to be a tax on rendering of a service by the builder to the buyer and there is no vagueness and uncertainty as the legislative prescription is clear. The Hon'ble Bombay High Court after analysing the provisions in detail together with the parameters prescribed in law in case of Godfrey Phillips India Limited v. State of Uttar Pradesh reported in (2005) 2 SCC 515 and in case of Gujarat Ambuja Cements Ltd.
v. Union of India reported in AIR 2005 SC 3020 has succinctly analysed the principles to be kept in mind by the Court in determining the issue of constitutional validity which arises in facts of the Page 30 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined case.
26. The Hon'ble Bombay High Court has considered the history of the provisions of Finance Act, 1994 which has been amended from time to time for levy of service tax by introducing clause (zzq) in Section 65(105) by Finance Act 2004, clause (zzzh) in the said section by Finance Act,2005 to bring the construction of complex within the ambit of taxable services by simultaneously, providing definitions of the expressions "commercial or industrial construction service" in clause (25b) and the expression "construction of complex" in clause (30a) and of "residential complex"
in clause (91a) of section 65 of the Finance Act,1994.Page 31 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025
NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined
27. The Hon'ble Bombay High Court has also considered the provisions of Finance Act, 2010 which brought within the field of service tax, the cases which may have passed out of the net of value added tax merely on account of the timing of the execution of the agreement and by the amendment, an explanation was inserted in clause (zzq) and clause (zzzh) of Section 65(105) and after considering the introduction of explanation and circular issued by the Central Board of Excise and Customs dated 26th February, 2010, the Hon'ble Bombay High Court has referred to the Notes on clauses annexed to the Finance Bill of 2010 and referred to decisions of Hon'ble Supreme Court in case of Dattatraya Govind Mahajan v. The State of Maharashtra reported in AIR 1977 SC 915 Page 32 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined wherein Hon'ble Apex Court emphasised that while a traditional function of an explanation is to expound the meaning and effect of the provision which it explains ultimately and in case of Hiralal Ratan Lal v. The Sales Tax Officer reported in AIR 1973 SC 1034 the Hon'ble Apex Court held that if on a true reading of an expression it appears to have widened the scope of the main section, effect must be given to the legislative intent notwithstanding the fact that the legislature labelled it as an explanation.
28. Considering the above dictum of law, the Hon'ble Bombay Court has assigned above reasons for rejecting the constitutional validity of the explanation as well as clauses inserted by the Finance Act of 2010.
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29. We are in respectful agreement with the reasons assigned by Hon'ble Bombay High Court and therefore, adopting the same, these petitions are also dismissed on the ground that there is no merit in the constitutional challenge raised in these petitions.
30. Before concluding, we may note that as the matters are pending before this Court since 2010-2011 and the issue is also pending before Hon'ble Supreme Court, we have thought it fit to dispose of these petitions following the decision of Hon'ble Bombay High Court so as to enable the petitioners, if desirous, to challenge the validity of the amendment brought by the Finance Act, 2010 before the Apex Court by joining in the pending appeals, more particularly in view of the changed Page 34 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025 NEUTRAL CITATION C/SCA/11294/2010 JUDGMENT DATED: 08/10/2025 undefined circumstances after introduction of the GST Act with effect from 01.07.2017.
31. Petitions are accordingly dismissed.
Rule is discharged.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) RAGHUNATH R NAIR Page 35 of 35 Uploaded by RAGHUNATH R NAIR(HC00196) on Wed Oct 15 2025 Downloaded on : Wed Oct 15 21:36:20 IST 2025