Housing body meet may clear air on VAT refund

Mumbai: With the sales tax department insisting that the payable value added tax (VAT) is much less than 3%, buyers who purchased flats between 2006 and 2010 and had paid money (in the form of guarantees and deposits) to builders are now a confused lot over the refund mechanism. 

    Vilas S, an executive with a leading corporate firm, said, "I do not know which authority to approach. I had given a bank guarantee of Rs 3.5 lakh, which is 5% of the agreement value, to my developer when I booked a flat in Vashi five years ago. After the recent fiasco, 14 flat buyers from my building and I asked a sales tax official to explain VAT to us. We were surprised by what he told us. According to rough estimates, the VAT works out to approximately Rs 25,000. I showed this to the developer, but he is refusing to accept our calculation. He is also not willing to show us how he had arrived at the figure of Rs 3.5 lakh," Vilas said. 
    Borivli resident Rajat Purohit, who paid Rs 1.5 lakh as VAT, echoed similar views. "I do not understand why there is no clarity on the amount payable as VAT. I purchased this flat from my hardearned savings. Which consumer has the time and the energy to fight a legal battle to verify whether or not the developer has taken the correct amount," he asked. 
    The Maharashtra Chamber of Housing Industry (MCHI) will meet on Tuesday and is likely to discuss the refund issue. 
    Pujit Aggarwal, managing director of Orbit Corporation and MCHI member, said buyers need not worry. "The balance VAT amount will definitely be refunded to the buyers. VAT is paid against each flat agreementand not as a lump sum. A receipt is made with details of the transaction. No developer will keep the amount with himself," said Aggarwal. "The sales tax department may interpret the VAT payable as 5%. Had we refunded the amount to buyers earlier, it would have been difficult for us to search for the. So the refund, if any, will take time as the sales tax department is yet to clarify to developers the exact amount payable as VAT,'' Aggarwal added. 
DO THE MATH 
The Bombay Chartered Accountants Society has given two examples to show how VAT is calculated 1 Tax payable where builder sub-contracts construction and finishing of a building of 20 flats to a contractor 
Sale price @ 25L each paid by 20 flat owners | 5cr 
Less value of land | 3cr 
Less amount paid to subcontractor | 1.5cr 
Less 30% on the balance Rs 50 lakh on account other services like labour, architects fee, profit | 15L 
Balance liable to tax | 35L 
Total tax payable on goods purchased @ 12.5 % | 3.88L 
For each flat, the tax payable | 19,444 2 In case the builder uses his own material 
Total Sale Value @ 25L each paid by 20 flat owners | 5cr 
Less Value of land | 3cr 
Less 30% on the balance 2cr on account of other services like labour, services, architects fee, profits | 60L 
Balance liable to tax | 
1.4cr 
Total tax payable after deducting set-off on goods purchased @12.5 % and 4 % | 3.12L 
For each flat, the tax payable works out to 
15,630