Maharashtra State Budget 2010-11

Composition Scheme for Builders and Developers – Levy of 1% VAT on Under-Construction Property

Prashant Chaubey
On 25th March 2010, the Finance Minister – Mr. Sunil Tatkare, Maharashtra Government presented the State Budget 2010-11. One of the key highlights of the budget was the initiation of 1% (one percent) Value Added Tax (VAT) to be payable on the contract price of flats mentioned in the agreement of sale. For example, from the buyers’/purchasers’ perspective, if the sale value (SV) of a flat is Rupees 25 lakhs based on the agreement, he/she (Buyer) would have to pay Rupees 25,000 (1% of SV) as VAT. The new VAT scheme shall come into force for the agreements registered after 1st April 2010.

The levy of VAT is governed by the Maharashtra Value Added Tax Act, 2002 (MVAT). In MVAT, the definition of sale was amended by a State Ordinance issued on 20th June 2006, which was converted into an act by Act No. XXXII of 2006 (Effective 5th August 2006). The adoption of the Supreme Court of India judgement in the case of K. Raheja Development Corporation v. State of Karnataka {2005-(031)-MTJ -0767 –SC} led to amendment of ‘definition of sale’ in MVAT.

Part b (ii) of Section 2 (24) of the MVAT was amended FROM “the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract” TO “the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract including, an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property”.

In K. Raheja Development Corporation vs. State of Karnataka, the honourable Supreme Court held that – where the agreement for sale is entered at any time before the construction is completed, the same would qualify to be a works contract and is liable to pay VAT. It is immaterial that the construction work is done in the capacity of a contractor or a builder.

The perceptible benefit of the new Composition Scheme for Builders and Developers under State Budget 2010-11 is that it brings about uniformity in the levy of VAT on the contract price of flats with no set-off available. Prior to this, VAT was levied at the composite rate of 5% on civil contracts, on which partial set-off could be availed. However, the partial VAT credit led to varied effective VAT rates on construction activities causing incongruity. Additionally, the new rule would also facilitate in bringing down the cost of ownership of flats for the prospective buyer.

(The views expressed are that of the author)

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2 thoughts on “Maharashtra State Budget 2010-11

  1. Only increasing Expence( vat,serivce tax) from our side and increasing income in government side .

    What is result of that – Maharashtra still stand on DEBT side .

    What budget.- NICE

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