Mandatory deduction of 1/3rd of total consideration towards the value of land is arbitrary: Guj. HC

 

Munjaal Manishbhai Bhatt v. Union of India – [2022] 138 taxmann.com 117 (Gujarat)

 Short Overview of the case:

Here is an interesting outcome on the real estate sector.

The writ applicant was a practicing advocate and he entered into an agreement to purchase bungalow.

A separate and distinct consideration was agreed upon between the parties to the agreement for the sale of land and construction of a bungalow on the land.

 He received an invoice levying tax at the rate of 9% CGST and 9% SGST on the entire consideration payable for land as well as construction of bungalow after deducting 1/3rd of the value towards the land.

 It filed writ petition to challenge the mandatory deduction of 1/3rd of total consideration towards the value of land as sale of land is neither supply of goods nor services.

The Honorable High Court observed that the paragraph 2 of the Notification No. 11/2017-Central Tax (Rate) dated 28.6.2017 provides for a mandatory fixed rate of deduction of 1/3rd of total consideration towards the value of land.

Such deeming fiction is not only contrary to the scheme of the GST Acts but mandatory uniform rate of deduction is discriminatory, arbitrary and violative of Article 14 of the Constitution of India.

 It was also observed that when detailed statutory mechanism for determination of value is available then the impugned deeming fiction can’t be justified on the basis that it is meant to curb avoidance of tax when in fact such fiction is leading to arbitrary consequences.

 Thus, it was held that the mandatory deeming fiction for deduction of value of land was liable to be quashed and set aside