Bombay High Court Dicssion on VAT good for builders

By Accommodation Times Bureau

By Dr Sanjay Chaturvedi

Nothing is gone from Builder’s pocket as far as VAT or service taxes are concerned. In fact, Builders must be thankful to the Hon. Court for giving retrospective decision on VAT.

There is a provision in VAT for claiming Set Off against the VAT paid just like service tax. Under Maharashtra Value Added Tax 2002, a registered vendor or dealer can claim the Set Off of tax paid. Hence builders or contractor paid VAT on building materials like cement, tiles, steel, paints, glass and almost 3000 number of items used for construction including elevators and gadgets would have been unclaimed if the end users were given the relief.

The builders will collect the VAT or collected VAT kept in escrow account will be utilised to Set Off VAT already paid through construction material bills. The onus is on the flat or property purchasers to pay the VAT. Builders or contractors will get input tax credit, if they paid the taxes u/r 58 or u/s 42 (3). State of Maharashtra had merged Works Contract Tax with VAT and hence VAT is applicable to the real estate.
If the agreement is not entered into and only advances were given then there is no VAT applicable.

From 20.06.2006 to 31.03.2010
1. Composition Scheme U/s 42 (3)- Under this scheme developer has to pay 5% tax on the agreement value. Land deduction is not available. Input tax credit is available subject to the reduction of 4 per cent.
2. Actual Expense Method U/r 58- Under rule 58, the deduction of Labour 86 service charges is available on actual basis. Land deduction is also available. Set-off will be calculated subject to the condition u/r 53 and 54.
3. Standard Deduction Method U/r 58- Under rule 58, the deduction of land cost will be allowed. Thereafter 30% standard deduction from remaining amount will be available as per proviso to sub-rule 1. Set-off will be calculated subject to the condition u/r 53 and 54.

After 01.04.2010
The developers can opt for fourth option also, under this option u/s 42 (3A), developer has to pay 1% tax on agreement value. No land deduction and input tax credit is available.
The Builder will be required to make the payment of interest according to the provisions of law.

However, all the VAT is collected from the flat purchaser will be retained by the builders and set off will be claimed. Hence neither government nor flat purchasers will benefit from paying VAT.





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11 thoughts on “Bombay High Court Dicssion on VAT good for builders

  1. “However, all the VAT is collected from the flat purchaser will be retained by the builders and set off will be claimed.HENCE NEITHER GOVERNMENT NOR FLAT PURCHASERS WILL BENEFIT FROM PAYING VAT ”

    The message (BOLD FONT SUPPLIED) sought to be conveyed is prima facie lacking in clarity to be understood by a common man (flat purchaser); if not by legal luminaries and experts on the subject !

  2. The imposition of 5 % VAT is YET another case of CORRUPTION. The government has declared tat 5 % VAT is payable. So the builder will collect from the customer the amount equal to 5% (say Rs 5 laks for a flat vauled at 1 Cr). He will claim set-off for land, purchased etc and as published in newpapers and the govt clarity this is unlikely to be 70% of value. As a result he pays 1.5 Lacs to govt. What happens to 3.5 Lacs . That is pocketed by the Builder. The customer pays Rs 5 L but only 1.5 L goes to govt and the rest to builder. How can the government levy a tax where the beneficiary is the builder.. I hope I am WRONG and would like someone to clarify. But it astonishing how customers are being cheated with retrospective taxes and to TOP it all the TAX collected does not reach the govt treasury. The govt if it has to levy should ament it to a Flat 1% of the agreement value. atleast all the money collectedwil reach the govt – and that a big solace.

  3. The agrement value includes profit earned by the builder. This profit is charged to Income-tax. Hence subjectng it to VAT not only amounts to double taxaton and also the State has no jursdiction to charge on the subjected listed in schedule list 1 of consttution.

    The state’s intention to amend the definition to sale in 2006 is premotivated to collect revenue and such amendments do not reflect the socoobjesctves as enshrined in the preamble of theconsttuton. Hence it is palatably wrong

  4. What if the Flat purchaser have already paid the VAT amount to Builder..??
    Are they liable to get refund from the builder..??

  5. The government should make it clear to the builders and developers that the MVAT is not to be applied on consumers. It is the tax which the builder pays on the cost of construction after claiming set offs. Therefore, it must be treated as the cost of construction by the builder and not simply passed on to the flat purchasers as the builder is charging hefty rates in any case to the flat purchaser while selling the flats.

  6. I FULLY AGREE WITH MR. RAJIVJI COMMENT. BUILDERS ARE FOOLING THE COSTOMERS.

    WHEN HC HAS GIVEN THREE OPTION OF VAT PAYMENT & BUILDRS ARE OPTING IST OPTION.
    IT IS CLEARLY MENTION THAT DEVELOPER HAS TO PAY 5% TAX ON AGREEMENT VALUE. LAND DEDUCTION NOT AVAILABLE. BUT, BUT INPUT TAC CREDIT IS AVAILABLE SUBJECT TO REDUCTION OF 4%. THAT MEANS BULIDERS WILL GET 4& REFUND LATER ON.
    SO WHAY SHOULD WE PAY 5%, WHAY NOT 1%.THIS IS VERY MUCH CLEAR.

  7. I FULLY AGREE WITH MR. RAJIVJI COMMENT. BUILDERS ARE FOOLING THE COSTOMERS.

    WHEN HC HAS GIVEN THREE OPTION OF VAT PAYMENT & BUILDRS ARE OPTING IST OPTION.
    IT IS CLEARLY MENTION THAT DEVELOPER HAS TO PAY 5% TAX ON AGREEMENT VALUE. LAND DEDUCTION NOT AVAILABLE. BUT, BUT INPUT TAX CREDIT IS AVAILABLE SUBJECT TO REDUCTION OF 4%. THAT MEANS BULIDERS WILL GET 4% REFUND LATER ON.
    SO WHAY SHOULD WE PAY 5%, WHAY NOT 1%.THIS IS VERY MUCH CLEAR.

  8. Dear sir, is it legal bill of jewelery if there are not cutting VAT in bill. I mean will court accept this type bills???? Please answer me in detail.
    Thank you.

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