A division bench of the Gujarat High Court comprising Mr. Justice J.B.Pardiwala and Ms. Justice Nisha M. Thakore has read down paragraph 2 of Notification No. 11/2017 mandating 1/3rd deduction of Land as ultra virus.
As per the notification, the entire consideration towards the sale of land has not been excluded for the purpose of computing tax liability under the GST Acts. 1/3rd of the total consideration has been deemed to be land value as per paragraph 2 of the impugned notification.
The writ applicant, a practicing advocate the Gujarat High Court entered into an agreement dated 29th September 2020 with the Navratna Organisers & Developers Pvt. Ltd. The said agreement also encompassed construction of bungalow on the said plot of land by the respondent No.4 for the writ applicant. As per the said agreement, the writ applicant was liable to pay all taxes including GST. The writ applicant under a bona fide belief that by virtue of such clause he would be liable to pay tax under the Central/ Gujarat Goods and Services Tax Act, 2017 on the consideration payable for construction of bungalow in as much as it would constitute supply of construction service under the GST Acts.
The GST department held that the applicant liable to pay 18% GST on the entire consideration payable for land as well as construction of bungalow after deducting 1/3rd of the value towards the land in accordance with the impugned paragraph 2 of the said notification.
Noting that the impugned notification is contrary to the statutory provisions of the CGST Act, the division bench held that one of the most glaring features of the impugned deeming fiction is its arbitrariness in as much as the same is uniformly applied irrespective of the size of the plot of land and construction.
Allowing the petition, the Court observed that “the prescription under Section 15(5) of the CGST Act has to be by rules and not by notification. Be that as it may, wherever a delegated legislation is challenged as being ultra-vires the provisions of the CGST Act as well as violating Article 14 of the Constitution of India, the same cannot be defended merely on the ground that the Government had competence to issue such delegated piece of legislation. Even if it is presumed that the Government had the competence to fix a deemed value for supplies, if the deeming fiction is found to be arbitrary and contrary to the scheme of the statute, then it can be definitely held to be ultra-vires.”
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