Shree Velu Builders Pvt. Ltd. v. State Tax Officer

What happened

Shree Velu Builders Private Limited challenged an order of 27 March 2026 of the State Tax Officer raising a tax demand of ₹5,50,25,100 based on its projected revenue, together with a further ₹2,40,19,438 towards other liabilities. Its counsel said that the other liabilities were disputed, but that the main grievance was the levy of tax on projected revenue for Block Nos. 12 and 13, made solely on the strength of the planning approval granted by the Member Secretary, Salem Local Planning Authority, when construction had not yet begun, and that the order was passed hastily although the company had taken part in the proceedings and asked for time to file a reply. The company offered to deposit ₹50,00,000 and prayed that the matter be remanded for fresh consideration. The Government Advocate answered that sufficient opportunity had been given and not used. The bank accounts of the company and of its erstwhile director had been attached.

Questions before the court

• Can tax be levied on projected revenue from building blocks on which construction has not begun, merely because the plans have been approved, and was the order passed after a sufficient opportunity?

Why the court ruled this way

The Court found that for Block Nos. 12 and 13 construction had not even commenced, so levying tax on projected revenue merely because the plan was approved by the Member Secretary of the Local Planning Authority was improper (paragraph 7). The records also showed that the company was not given a sufficient opportunity to put forward its defence, especially when it had sought time to file a detailed reply (paragraph 8). In view of those circumstances and the company's willingness to deposit ₹50,00,000 to show its bona fides, the Court set the order aside on conditions (paragraph 9).

Controlling point

Tax cannot be levied on the projected revenue of building blocks on which construction has not commenced merely because the plan has been approved, and an order passed without a sufficient opportunity to reply can be set aside and the matter remanded on a condition of deposit.

Order and next steps

The Court set aside the order of 27 March 2026 and remanded the matter to the State Tax Officer for fresh consideration on the condition that the company deposits ₹50,00,000 within four weeks of receiving the order, the setting aside taking effect on the date of payment. The company is to file its reply and documents within four weeks of the payment, and the officer must decide after a personal hearing as expeditiously as possible. On proof of payment the attachments on the bank accounts of the company and its erstwhile director are to be lifted within one week, the officer is to instruct the banks, and if the officer does not communicate the lifting within time the company may produce proof of the deposit with the order directly to the banks, which are directed to de-freeze the accounts. The Court disposed of the petition without costs and allowed the application to dispense with the original impugned order.

Practical implications

A builder that has only obtained planning approval for blocks on which construction has not begun can challenge a demand on projected revenue, and a taxpayer that asks for time to reply should record the request, since a hasty order can be set aside, although a court may ask for a deposit as the price of the remand.

Limits of this ruling

• The Court dealt with the levy on projected revenue for Block Nos. 12 and 13 and the lack of opportunity and did not decide the other liabilities of ₹2,40,19,438, which the company disputed and which are for the officer's fresh consideration, or the merits of any tax liability.