2009 (8) TMI 1163 - HC - Service Tax

Constitutional validity of certain provisions of the Kerala Stamp Act, 1959, which were introduced by way of an amendment by the Finance Act, 2007 - scope of works contract. Held that - there is no reason for the third petitioner to include those conditions, if he is only a works contractor. Those conditions would show that the third petitioner is more than a works contractor. A close reading of Ext.P2 would show that the third petitioner is not at all a works contractor. Yet another relevant fact is that it was the third petitioner who obtained the building permit from Kakkanad Panchayat, under the Kerala Municipality Building Rules, 1999, which were extended by the Government to the said Panchayat s area also. So, it is the responsibility of the third petitioner under the said Rules to build the apartments in accordance with the conditions of the building permit and also in compliance with the relevant Rules. Therefore, the third petitioner is not a works contractor. If the veil is lifted, it is clear that the builder is building and selling flats to prospective buyers and the sale consideration is received in instalments. But, agreements are made to appear the transaction to be one of works contract. If it is a works contract and the owner is constructing a building in his property, no duty can be levied on the building constructed because no transfer takes place. A legislation cannot be invalidated by simply saying that its provisions are arbitrary, unless the challenge is referable to specific violation of any constitutional provision. The payment or the liability to pay stamp duty will not, in any way, affect the rights of the first petitioner or its members to carry on the business of development of lands or building flats. Petition dismissed - decided against petitioner.

Summary

Issues Involved:
1. Constitutional validity of the amendments to the Kerala Stamp Act, 1959.
2. Legislative competence of the State to enact the amendments.
3. Alleged violation of fundamental rights under Articles 14 and 19(1)(g) of the Constitution of India.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Amendments to the Kerala Stamp Act, 1959:
The petitioners challenged the amendments introduced by the Kerala Finance Act, 2007 to the Kerala Stamp Act, 1959, specifically targeting Articles 5(3), 21, 22, and 44(f) of the Schedule to the Act. The amendments aimed to levy stamp duty on agreements related to the construction, development, or sale of immovable property at the same rate as conveyance. The amendments also included provisions to consider the value of the building in the stamp duty calculation when transferring an undivided share of land. The petitioners argued that these amendments were arbitrary, irrational, and constituted an overreach of the State's legislative competence.

2. Legislative Competence of the State to Enact the Amendments:
The petitioners contended that the State lacked the legislative competence to enact the amendments, arguing that the amendments effectively treated non-conveyance transactions as conveyances, thus overstepping the State's authority. They cited various judicial precedents to support their claim that the amendments were an attempt to levy stamp duty on transactions not covered by the definition of conveyance under Section 2(d) of the Kerala Stamp Act. The State, however, argued that the amendments were necessary to prevent tax evasion and were within the legislative competence of the State.

3. Alleged Violation of Fundamental Rights under Articles 14 and 19(1)(g) of the Constitution of India:
The petitioners argued that the amendments violated their fundamental rights under Articles 14 and 19(1)(g) of the Constitution of India. They claimed that the amendments were discriminatory and imposed unreasonable restrictions on their right to carry on business. The petitioners highlighted that the amendments did not provide for a refund of stamp duty if the construction did not take place, thus causing undue hardship.

Judgment:
The court upheld the constitutional validity of the amendments to the Kerala Stamp Act, 1959. It reasoned that the amendments were introduced to prevent tax evasion and were within the legislative competence of the State. The court observed that the agreements in question were structured in a way to appear as works contracts, but in reality, they were transactions involving the sale of flats. The court noted that the amendments were not meant to levy duty on genuine works contracts but on builders who construct and sell flats. The court also referred to various judicial precedents to support its decision that the amendments did not violate Articles 14 and 19(1)(g) of the Constitution. The court concluded that the legislation was aimed at addressing practical problems and preventing tax evasion, and therefore, could not be struck down as unconstitutional. The writ petition was dismissed.