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On 26th September 2013, the Apex Court pronounced a landmark judgement regarding the validity of the imposition of service tax on composite works contracts under various sub-clauses of S. 65(105) as existed prior to 1-7-2012. The main issue, in this case, was, does the two-Judge Bench decision of this Court in Raheja Development laid down the correct legal position.
The question that in Larsen and Toubro, a two-Judge Bench of this Court has referred the matter for consideration by the larger Bench was also considered. In the referral order dated 19.8.2008, the two-Judge Bench, after noticing the relevant provisions of the Karnataka Sales Tax Act, 1957 and the difference b/w a contract of sale and a works contract, made the reference to the larger Bench. The present article shall discuss the aspects of this case.
Before discussing the facts of the present case, it is important to examine the decision in the Raheja Case, as the present case questions the correctness of the same.
The case was about the levy of sales tax in the case of property development. The appellants carried the business of real estate development and allied contracts.
They entered into development agreements with owners of lands, and, post the approval of the plan, they constructed and entered into agreements of sale with intended purchasers.
The agreement also provided that the intended purchaser would also get undivided interest in the land, also.
The issue is whether the developer is liable to pay sales tax.
While analysing the case, the court observed the following
The larger Bench of the apex court held that any agreement for selling immovable property entered into before the construction would fall within the purview of the term ‘works contract’, allowing state governments the power to impose value-added tax (VAT) on such contracts.
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