Society to builder: Give 5% VAT breakup

Mumbai: Seeking clarity on their tax liability, members of a Belapur cooperative housing society (CHS) on Thursday shot off a letter to their developer, demanding a detailed breakup of the 5% value added tax (VAT) levied on the total agreement value of their flats. Lakhani's Suncoast CHS has also asked Lakhani Builders, the developer, to explain which payment option under the Maharashtra Value Added Tax (MVAT) Act they have chosen to calculate the VAT as well as the reason. 

    The society sent the letter following an interaction with consumer activists and service tax officials. The members were told their VAT liability worked out to just a few thousands, even as many of them had already paid lakhs to the developer, albeit in the form of bank guarantees. (See: 'An Illustration', an unrelated example cited by consumer activists). 
    "We have no objection to paying the tax, but we want to know the components such as land, interest and the profit margins the developer may have included to compute it,'' said a resident. 
    The residents have further asked the builder for the government order authorizing developers to collect the amount from buyers in cheques issued in the developer's name. 
    Residents have alleged that VAT was collected from those who bought flats after the building got an occupation certificate in 2010. "I purchased a resale flat in 2011, six months after the building got an OC. Government rules say VAT has to be recovered from the first buyer. Why then is the developer not returning my bank guarantee of Rs 1.75 lakh, which is 5% of my flat agreement value of Rs 35 lakh," asked Arun Gandotra, a resident of Suncoast.
    Sunny Lakhani, director of Lakhani Builders, said the company has no problems providing a detailed breakup of the tax computation. "If the buyer wants to see our records on how we computed the liability, we will ask him to talk to our chartered accountants and see our returns.'' 
    Lakhani said he has returned bank guarantees of 10 members who purchased flats after the building was completed. "We did not return the money for three and half years as the state had not clarified how VAT would be charged. As we had taken only bank guarantees, the money remained with the buyer, who got interest from the bank,'' said Lakhani. 
    On Suncoast, the developer said they took over the partially completed building from another developer. "Computing the tax liability will be tedious as many residents have booked and paid the flat value at various stages of construction. We are getting different numbers from chartered accountants,'' said Lakhani. 
    "We plan to meet the residents during the weekend and answer their queries. One thing is clear. We would not be collecting the levy till we get a clarity on VAT calculations." 
PROPERTY HASSLE HOW TO SEEK YOUR TAX DETAILS 
Ask the developer for a breakup of how the 5% VAT amount was arrived at Ask to see the developer's records or returns filed with the sales tax department Use the Right to Information (RTI) Act to find out whether a developer—who as per rules is deemed a dealer—has registered with the sales tax department 
    Use RTI to access records of the VAT computed and paid by the developer against your building and flat 
    Consumers can seek redressal on any VATrelated dispute with the Council for Fair Business Practices (CFBP) and/or approach a consumer forum CFPB web site | http://www.cfbp.org Register complaints at | http://ccrc.in/ Phone nos | 22885249, 22842590 
AN ILLUSTRATION 
Composition Scheme | 
Section 42(3) of MVAT (preferred option of city builders) 
VAT payable where a builder subcontracts construction of a building of 20 flats Sale price | 25L each paid by 20 flat owners 
Total | 5Cr Less land value | 3Cr 
Less amount paid to subcontractor | 1.5Cr 
Less 30% on balance 50L owing to services such as labour, profit &architects fee | 15L 
Balance liable to tax | 35 lakh 
Total tax payable on goods purchased at 12.5% | 3.8L 
For each flat, the tax payable at 5% of Rs 3.8 lakh | 19,444 Times View: Remove the smokescreen T he government cannot leave home buyers at the mercy of developers. Both buyers and developers are justified in expecting much greater clarity on the amount of value-added tax they will have to pay. The government should release simple calculations as soon as possible that both home buyers and developers can apply to each transaction and know the exact payable amount. We are talking about lakhs of rupees here; no one should lose out on money because of the smokescreen that is still there.

TOI reported about the 5% VAT issue on September 13