In a recent decision that might have a blow on realty prices in the metropolis and nearby areas, the Bombay High Court has upheld the decision of the Union Government to levy Service Tax on construction of flats and shops.

A division bench held by Justice D. Y. Chandrachud and Justice Amjad Sayed upheld the decision of the Centre to levy service tax, saying it was legal and constitutional.

Maharashtra Chamber of Housing Industries (MCHI) had filed a petition challenging the decision mainly on the ground levying Service Tax on land and landed properties was the prerogative of the State Government and therefore the Centre could not impose such tax on the construction industry.

MCHI prayed that the Centre’s decision to levy Service Tax on construction of properties may be struck down as it was illegal and unconstitutional.

The Union government had amended the Finance Act of 2009 and imposed 2.5 per cent Service Tax on construction of flats and shops with effect from July 1, 2010.

The bench concurred with the argument of the Additional Solicitor General of India Darius Khambata that construction activity was a service and so the union government was empowered by the Constitution to levy service tax.

To buttress his argument, Khambata cited several Supreme Court judgements and also quoted provisions of Maharashtra Ownership of Flats Act which allows registration of flats and shops even before they are constructed and are ready for possession.

The judges however felt that the decision of the Centre was absolutely legal and constitutional and that it could levy Service Tax on the construction of properties such as flats and shops.

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