Case BriefsHigh Courts

Uttaranchal High Court: The Bench of Ramesh Ranganathan, CJ. and N.S. Dhanik, J. allowed an appeal against the interlocutory order passed by learned Single Judge, for construction of the Advocates’ Chamber without giving appropriate time extension to the appellant. 

The appellant filed an appeal seeking relief and pleading extension of time against the impugned order directing them to file a final affidavit and to take immediate decision on the project. They contended that sanction of Detailed Project Report (for short DPR) is linked to releasing of funds. It is only if a budgetary sanction is accorded for construction of the Advocates’ chambers, would the question of approval of the DPR arise; and as funds can only be sanctioned by the State Legislature, and not Executive, a mandamus to the Executive is wholly unjustified.

The respondents in the aforementioned writ are practicing Advocates of the respective High Court; they had previously requested the Court for issuing the writ of mandamus and directing the appellant to complete the construction and to constitute a competent committee for allotment of new chambers and to review the existing chambers. The further allegation was that because of the negligence on the part of State, they are forced to work in harsh conditions. 

The learned Single Judge observed negligence and inaction on the part of State and the concerned agencies despite a constant reminder from the Registrar General of High Court, who identified and allotted the land area for construction. After the declaration of Chief Minister sanctioning funds for the particular project, State remained inactive and failed to deliver the project in time. 

The Court inquired about the laws which obligate State to finalize DPR only after adequate funds are sanctioned. Hence, the Court observed that there were no such laws and it was only the customary practice which required the State to approve DPR only when funds are released. The Court held, “It is not in dispute that a DPR is a pre-requisite for the commencement of construction, and it is only if the detailed project report is approved by the State Government, would the question of commencement of construction arise thereafter.” 

The Bench, however, observed that funds are undoubtedly required, but in absence of any such law which makes obligatory on the part of State to approve DPR after sanction of funds, upheld and modified the order of learned Single Judge and directed State to finalize DPR within three months. [State of Uttarakhand v. Pradeep Kumar Chauhan, Special Appeal No. 268 of 2019, Order dated 02-05-2019]

Case BriefsHigh Courts

Punjab and Haryana High Court: A Single Judge Bench comprising of Anil Kshetarpal, J. disposed of a revision petition by allowing construction of a portion of the subject building.

Plaintiffs had filed a suit for possession of a land claiming themselves to be the owner of the said property. They claimed that the further reconstruction was done during the pendency of the suit.

The defendant-petitioner claimed that the entire disputed area was under construction and only the areas that were marked by them were to be completed which only comprised of a house which was incomplete on account of the stay order. Additionally, it was alleged by them that the plaintiff was using it for their residential purposes. Referring to the reconstruction at the time of the suit, they contended that the construction was already complete by then.

The High Court held that no useful purpose would be served if the defendant-petitioner was not allowed to finish construction of their house. Accordingly, the revision petition was allowed.[Jagdish v. Manjeet, 2017 SCC OnLine P&H 5048, Order dated 06-12-2017]

Case BriefsSupreme Court

Supreme Court: The Bench comprising of Madan B. Lokur and Deepak Gupta, JJ. disposed of substantive applications in Kant Enclave Matters directing the illegal construction in Aravali Hills to be demolished. The Court further directed the State and R. Kant and Co. to compensate the citizens duped by them into investing large amounts in the illegal colonising activity.

Factual background of the matter is that R. Kant and Co. was granted exemption by the State of Haryana in 1984 for setting up a film studio and allied complex in Faridabad district. The land in exemption to which the exemption was granted, falls in the Aravali Hills range. According to the terms and conditions of exemption, the company was to complete the construction within 5 years which did not happen. There was nothing on record to show that an extension was granted for group housing (activity subsequently undertaken by the company). Subsequently, the State took decision to close all construction activity in certain areas, which included the subject land, due to serious environmental concerns vide a notification dated 18-8-1992 issued under Punjab Land Preservation Act, 1900. However, the Town and Country Planning Department of the State, on the basis of the exemption granted in 1984, encouraged the company to carry on its colonising activity. It is notable that many a number of citizens had invested large sums of money in the properties sold by the company in the subject land — Kant Enclave. Also, some of them even started/completed construction in the same. The present proceedings were in connection to a writ petition filed by M.C. Mehta being WP No. 4677 of 1985.

The Supreme Court, after considering whole factual matrix, held that the colonising activity in the subject land was illegal. The Notification having been issued, the company should have refrained from all further activity in the subject land. The Court noted that there were two categories of persons who were taken for a ride by R. Kant and Co. In respect of the first category — persons who only made investments — it was ordered that the company will repay the entire amount of investment with an interest at 18% pa from the date of investment so made. In respect of second category — persons who also made construction — it was ordered that the construction done before 18-8-1992 (date of the Notification) will remain, while those done after that date would be demolished. The company was directed to pay such persons, the entire amount of investment with interest at 18% pa. The Court, following Godrej and Boyce Mfg. Co. Ltd. v. State of Maharashtra, (2014) 3 SCC 430, held that well-meaning citizens were led up the garden path by the State allowing such illegal construction. Therefore, State, along with the company, was directed to pay Rs 50 lakhs as compensation to those whose construction is to be demolished. Furthermore, referring to Indian Council for Enviro-Legal Action v. Union of India, (1996) 3 SCC 212 and Vellore Citizens Welfare Forum v.  Union of India, (1996) 5 SCC 647, the Court held that polluter pays principle is a wholesome and universally accepted principle. It was observed that the damage caused to Aravali Hills due to such illegal activity was irreversible. Consequently, R. Kant and Co. was further directed to pay Rs 5 crores (10% of the total amount spent on developing Kant Enclave) for rehabilitation of the damaged areas. [M.C. Mehta v. Union of India (Kant Enclave Matters), 2018 SCC OnLine SC 1426, decided on 11-09-2018]

Case BriefsHigh Courts

Jammu & Kashmir High Court: The Court recently addressed a writ petition for quashment of a previous order that had been passed by the Joint Commissioner of the Municipal Corporation owing to which the premises of the petitioners had been cordoned off by way of the powers vested under Section 8(1) of the J&K Control of Building Operations Act, 1988.

The facts stated briefly are that the petitioners had raised construction of a building in accordance with the municipal corporation’s plan at a certain area in Jammu. The petitioners had got permission of a part of the premise to be used for commercial purposes. But subsequently, the demolition of the premises was ordered by a competent authority after a notice under Section 7(1) of the J&K Control of Building Operations Act was issued to the petitioners for the misuse of the premise for commercial purposes. Despite the petitioners having filed their reply to the notice, the Joint Commissioner after considering it, directed for the premise to be sealed under Section 8 of the J&K Control of Building Operations Act.

The counsel for the petitioner argued that resorting to Section 8 was in itself an action that was per se without jurisdiction as this provision can only be invoked when a work is in progress or has been completed and that it cannot be invoked against the user of the building. The petitioner’s counsel also contended that Section 8 shall be invoked only to prevent a dispute on the nature and extent of construction. The Counsel for the respondents submitted that the proceedings had been invoked under Section 7 of the Act and hence consequently, Section 8 could also be invoked.

The Court held that a reading of the provisions make it clear that Section 8 of the Act can only be resorted to if the construction is in progress and not when it’s a case of illegal use of the building by its owner. The Court also noted that the validity of the order passed in the proceeding under Section 7 of the Act was still pending wherein the Tribunal had passed an interim order demanding for status quo to be maintained and hence, the respondents invoking Section 8 per se was in itself a contravention and without jurisdiction. Thus, the Court quashed the petition. [S. Lt. Col. (retd) G.C. Raina v. Municipal Corporation, Jammu, 2017 SCC OnLine J&K 697 , order dated 16.11.2017]

Case BriefsHigh CourtsTaxation

Delhi High Court:  A Division Bench of the Delhi High Court comprising of S.Muralidhar and Vibhu Bakhru, JJ. ruled on whether ‘service tax’ could be charged on a contract regarding ‘construction of a complex’. The petitioners had entered into an agreement with a builder to buy flats being developed in Noida, Uttar Pradesh. The dispute arose when the builder recovered ‘service tax’ from the petitioners in addition to the ‘cost of construction of the complex’.

The issue in contention was apropos the impugned ‘Explanation’ to Section 65(105)(zzz-h) of the Finance Act, 1994. The provision created a legal fiction and expanded the scope of the taxable service by including the ‘construction of the complex’ as a service rendered by the builder to the future buyer.

The petitioners contended that entries related to taxation are present only in Lists 1 and 2 of the Seventh Schedule to the Constitution and, therefore, are mutually exclusive. The Centre is permitted to charge tax on the service component and the States are empowered to charge tax on the transfer of property. As a consequence, in the absence of a service recipient/future buyer, the service rendered by the builder while he is the owner, in the construction of the complex would amount to service to self and cannot be taxed. The petitioners relied on Commissioner Central Excise and Customs, Kerala v. Larsen and Toubro, (2016) 1 SCC 170 to contend that in case ‘construction of a complex’ is a composite contract, the Centre is only authorized to levy tax on the service component of the contract. That being the case, neither the Act, nor the Rules provide for any machinery for ascertaining the service component of a composite contract of the ‘construction of a complex’.

The respondents contended that that development of a project results in substantial value addition on bare land and services such as consulting services, engineering services, management services and architectural services are rendered. And further that only 25% of the base selling price is charged by the builder from the ultimate buyers as service tax.  Therefore, the aforementioned services are subsumed in the composite contract of ‘constructing a complex’ and should be levied with sales tax because a fixed defined amount is levied uniformly on every buyer.

The Court disagreed with the petitioners on the limited point that service tax cannot be charged in a transaction between a developer and a prospective buyer. The Court found that the logic for levying service tax on the prospective buyer of the flat was sound because the activity of construction would be deemed to be a taxable service if the prospective buyer had paid the builder for it in part or full before construction was completed. However, the Court agreed to there being an absence of a statutory mechanism to ascertain the value of the service component in the levy. Thus the challenge to that extent was successful and the impugned ‘Explanation’ to Section 65(105)(zzz-h) was set aside, which brought composite contracts for purchase of units in a building complex within the scope of a taxable service. [Suresh Kumar Bansal v. Union of India, 2016 SCC OnLine Del 3657, decided on June 3, 2016]

Case BriefsSupreme CourtTaxation

Supreme Court: Deciding on the issue that whether the State Government may deny the tax exemption which was promised earlier, the bench comprising of Dr. A.K Sikri and R. F. Nariman, JJ., was of the view that the non-exercise of the power to give exemption in certain taxes is in itself an arbitrary act. The Court also, while considering the principle of promissory estoppel, observed that promissory estoppel can be the basis of an independent cause of action in which detriment does not need to be proved and it is enough that a party has acted upon the representation made.

A Government Order dated 11.07.1986 was issued by the State of Kerala, stating that tourism be declared “industry” and exemption from Building Tax levied by the Revenue Department was one of the concessions granted. The power to make exemption was granted by adding Section 3A to the Kerala Buildings Act, 1975, however the same was omitted in 1993.  In the present case, the appellants relying on a government order, constructed a hotel building in the year 1991 while reasonably assuming the rightful entitled tax exemption and the government had the statutory power to grant exemption from building tax. A discretionary power was to be exercised on facts under Section 3A of the Kerala Buildings Tax Act, 1975 as the said provision was in force at that time. The non issuance of such of a notification was an arbitrary act of government which must be remedied by applying the doctrine of promissory estoppel. The Court further held that no valid public interest exist which justifies the government’s resilience from its promise. The appellants are therefore entitled to exemption till the date of existence of such exemption provision in the statute and not thereafter. (Manuelsons Hotel v. State of Kerala, 2016 SCC OnLine SC 487, decided on 11.05.2016).