No escaping VAT, high court tells builders

Dismisses clutch of petitions seeking the quashing of govt circulars on the tax

DNA Correspondent l Mumbai

Builders will have to assess their tax liabilities the way the government wants it to and pay VAT (value added tax) by October 31.  Also, they can avail of the option of composite payment for agreements entered after April 2010, the Bombay high court ruled on Tuesday.  While upholding the two sales tax department circulars related to VAT, the court dismissed a clutch of petitions from various builders’ bodies that had sought the quashing of the circulars.  The Maharashtra Chamber of Housing Industry and the Builders Association were among the petitioners. A division bench of justices DY Chandrachud and RG Ketkar directed the developers/builders to register themselves with the sales tax department and pay VAT as per the new Maharashtra Value Added Tax (MVAT) Act, 2002. Under the act, the new definition of “sale” makes it mandatory for developers to pay tax every time they sell a flat/house.  As per the circular, developers were supposed to register by September 15 and pay the taxes by October 31. The earlier deadline was August. The SC had extended it while admitting a petition that challenged the HC order, which had upheld the constitutional validity of an amendment in the MVAT Act (changing the definition of “sale”). Going by the circulars, developers will have to pay 5% of the agreement value as tax for flats built between June 2006 and March 31, 2010. In case of tax liability after April 1, 2010, developers will have to pay 1% of the agreement value as tax without any land deduction and input tax credit.  For the period 2006-2010, input tax credit, with conditions, will be available. Also, deduction for labour and service will be available on actual basis. Deduction of land cost too will be there followed by a 30% standard deduction from the remaining amount.  The petitioners wanted the composite scheme — offered to developers for agreements entered after April 1, 2010 — to be extended to them.  But the bench rejected it saying, “The state is empowered to provide scheme of composition to registered dealers. While providing the scheme the first principle is to encourage voluntary compliance of the law.”  The court went on to add, “The scheme is not a way of amnesty but provisions made by the state acting as a delegate of the legislature.” Source:::: DNA, 31-10-2012, p.01. http://epaper.dnaindia.com/story.aspx?id=30776&boxid=23190&ed_date=2012-10-31&ed_code=820009&ed_page=1