VAT on flats: SC gives interim relief

Mumbai: Lakhs of citizens who bought property between 2006 and 2010 have got temporary benefit. The Supreme Court on Tuesday directed the Maharashtra sales tax department not to levy interest and penalty on developers if they registered the sale of such flats by October 15 and paid the valueadded tax (VAT) by October 31. 

    The order was passed by a three-judge bench headed by Justice R M Lodha while hearing an application filed by a host of developers' associations challenging the department's August 6 circular demanding 5% of the sale value as VAT. The circular asked developers to register with the department by August 16 and pay VAT with interest and penalty by August 31. 
    The court, however, refused to stay the circular. As a result, post-October 31, the department is again free to levy interest and penalty on developers who have not paid VAT. 'Buyers won't benefit from order' 
Mumbai: The SC refused to stay the state sales tax department's circular on VAT on flats bought between 2006 and 2010. It dismissed the application that was part of the special leave petition filed by the Maharashtra Chamber of Housing Industry (MCHI) and others challenging the constitutional validity of the government to levy VAT. The department had issued the circular after the Bombay HC, in April, rejected the developers' contention against being categorized as dealers of goods and thus liable to attract sales tax. 
    Developers are elated by the order. Paras Gundecha, president of MCHI, said with the apex court waiving interest and penalty, the VAT now payable has dropped to less than 5%. "We plan to first pay VAT on behalf of those customers from whom we have collected the amount through bank guarantees, or escrow accounts. We will ask the bank to either release this sum to us or 
directly deposit it with the department," said Gundecha, adding that he would wait for the department to assess the VAT payable before issuing notices to those customers who have not paid the tax amount when booking the flat. 
    Maharashtra Societies Welfare Association chairman Ramesh Prabhu said flat buyers would not benefit from the order. "It is the builders and not flat buyers who are supposed to pay VAT. So, developers cannot collect VAT separately from buyers. Considering the complicated working of computing VAT, I wonder if a customer will know whether the VAT amount paid by the developer is the same as the former had already paid" said Prabhu. Meanwhile, Mhada has sought legal opinion on whether it too as a developer will have to pay VAT. Currently, no notice for collection of tax levy has so far been issued to the nearly 10,000 Mhada flat buyers between 2006 and 2010. "We have not charged or collected VAT even after 2010. We will take a call on issuing notices,'' said Mhada vice-president Satish Gavai.