Gujarat High Court has ruled that the estimate of 1/3 deduction for land costs in construction contracts is not mandatory.
The court found it and not mandatory. The deduction can be claimed from the actual value of the land or the value of the construction service can be determined according to the assessment rules.
According to the Judges of the Chamber of Deputies JB Pardiwala and Nisha M Thakore, the court, although maintaining the mandatory deduction of 1/3 of the land value, is not tenable in cases where the value of land is clearly ascertainable or where the value of building services. can be deduced by means of valuation rules, such a deduction may be allowed at the choice of a taxable person, especially in cases where the value of land or unaltered share of land can not be determined.
“The notice is read so that the estimate of 1/3 will not be mandatory. It will only be available at the choice of the taxable person in cases where the actual value of land or unchanged share in land can not be ascertained,” it states.
The court also said that the contested paragraph 2 of Notice No. 11/2017 Central Tax (Rate) dated 28 June 2017, and identical notice under the Gujarat Goods and Services Tax Act, 2017, which provides a mandatory fixed rate deduction of 1/3 of the total consideration for the land value are the ultra-vires provisions as well as the scheme in the GST laws. “Applying such a mandatory uniform deduction rate is discriminatory, arbitrary and violates Article 14 of the Constitution of India,” it states.
According to Abhishek A Rastogi, partner at Khaitan and Co, who argues for different subpoenas in different courts on GST, it should be understood that there is no GST in the transfer of land and building and therefore the actual value of land should be excluded when GST is asserted on such contracts. In the light of this logic, Article 14 of the Indian Constitution comes into play to ensure that the higher deduction for the value of land is available and is not limited to only one-third deduction
“While similar issues are pending in different states, the Gujarat High Court decision will set the trend and the excess tax paid will be refunded at some point, perhaps after the case is fully settled by the Supreme Court,” Rastogi added.
Published on
May 7, 2022