St on purchase of flat after delhi high court judgement

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Querist : Anonymous

Querist : Anonymous (Querist)

09 June 2016 Dear All, can any one let me know the ST Applicability on purchase of flat under construction after judgement of delhi high court in the case of suresh kumar bansal, pls clarify weather ST on 25% value of flat included land is still applicable or not, Thanx & Regard vijay wasan

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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09 June 2016 Dept may appeal to Supreme court and also amend the Act/Rules.

Querist : Anonymous

Querist : Anonymous (Querist)

09 June 2016 sir... deptt. may appeal in supreme court & amend the rule/act. however this is further pls clarify at this time does the builders need to charge ST on under construction flat or not if yes how much,

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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09 June 2016 As the matter will be taken up for appeal better charge ST on under construction flat.

Querist : Anonymous

Querist : Anonymous (Querist)

09 June 2016 but sir court has also directed to refund the ST with 6% interest

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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09 June 2016 Keeping open the query for other experts to reply.

Asha Kanta Sharma online

Asha Kanta Sharma online

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25 July 2025 You're referring to a key issue in **Service Tax on under-construction flats**, particularly after the **Delhi High Court judgment in the case of \*Suresh Kumar Bansal v. Union of India (2016)**.

Here’s a clear explanation of the legal position **as of June 2016** and what it meant for buyers and builders at that time:

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## 🧑‍⚖️ Delhi High Court Judgment – *Suresh Kumar Bansal v. Union of India* (2016)

### 📌 Key Facts:

* The court held that **Service Tax could not be levied on the value of under-construction flats** **unless there was a mechanism to clearly exclude the value of land** from the total consideration.
* Since **Rule 2A of Service Tax (Determination of Value) Rules** provided no such method for construction service **not covered under a works contract**, the Court declared the levy of Service Tax on under-construction flats **invalid** in such cases.

### ✅ Outcome:

* **Service Tax on the flat (including land value)** was **held to be unsustainable** under existing rules.
* Court ordered **refund of Service Tax paid**, along with **6% interest**.

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## 🔍 What This Meant in June 2016 (At That Time)

| Situation | Status |
| ---------------------------------------------------------------------------- | ----------------------------------------------------------------- |
| Builder sells an **under-construction flat** with **land included in price** | **Service Tax not applicable** as per Delhi HC ruling |
| Buyer paid Service Tax on full price (without separate land valuation) | Eligible to **claim refund**, subject to limitations |
| Rule not yet amended by CBEC / Dept. | **Uncertainty**, but the ruling stood unless stayed or overturned |
| Department’s reaction | Likely to **appeal in Supreme Court** and/or **amend rules** |

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## 🏢 Did Builders Need to Charge ST After the Judgment?

* **Technically**: After the *Suresh Kumar Bansal* judgment, if the **builder did not segregate land cost**, **Service Tax should not be charged**.
* **Practically**: Many builders **continued to charge Service Tax** to avoid future liability, since:

* The ruling applied only to **Delhi HC jurisdiction**.
* The **department could appeal** or issue retrospective clarifications.
* **Refunds required legal process**, causing delays for buyers.

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## 🧮 Previous Tax Mechanism (Before HC Ruling)

* Normally, for under-construction flats, **ST was charged on 25% of the total amount** (after abatement for land), if land was included in total price.
* Effective rate = **3.09%** (i.e., 12.36% of 25%)

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## ✅ Summary Answer to Your Question:

| Question | Answer |
| ------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- |
| **Is Service Tax applicable on under-construction flat after Delhi HC ruling?** | **No**, if land is included in price and no clear valuation mechanism is given. |
| **Should builders continue charging ST?** | **Yes, as a precaution**, since the Dept. was expected to appeal/amend law. |
| **How much ST was normally charged?** | On **25% of total flat value** (if land included), so **3.09% effective rate**. |
| **Can buyers claim refund?** | Yes, based on the HC ruling—but would require a legal claim/application. |

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Let me know if you'd like a sample refund application format or updates on the **Supreme Court appeal** (if you're checking this in a later year).

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