HC throws out builders’ plea against VAT levy Says Scheme Not Against Constitution

Mumbai: The Bombay high court on Tuesday dismissed a bunch of petitions challenging the state government's decision to charge builders a 5% Value Added Tax on buildings that were under construction from June 20, 2006 to March 31, 2010. The ruling came a day before the October 31 deadline to pay the tax.      "There is no merit in the challenges," said a division bench of Justice Dhananjay Chandrachud and Justice Rajesh Ketkar, while adding, "A wide degree of latitude was enjoyed by the legislature in tax matters." The court held that the composition scheme formulated by the state in two circulars of August and September 2012 were not against the Constitution.      Builders had challenged the state's decision on grounds that it discriminated between buildings built before and after 2010. As per the state's composition scheme, developers of buildings under construction from 2006 to 2010 should pay VAT at 5% of the Works Contract, which includes the cost of construction and excludes the land value, amount paid to subcontractor, service charges, etc. But for buildings under construction from April 2010, builders have to pay VAT of only 1% of the total agreement's value.  NO RESPITE FOR FLAT BUYERS  Flats sold in buildings under construction from June 20, 2006 to March 31, 2010 will attract VAT of 5% of the Works Contract  Flats sold in buildings under construction from April 1, 2010 will attract VAT of 1% of the agreement value  Builders must pay VAT on the 2006-10 flats by today or pay annual 15% penalty  Builders say they will pass on cost to buyers 'Assessing officer can decide on contract type'      Buyers who purchased flats that were under construction from 2006 to 2010 are seeing builders pass on the costs to them. There have been reports of builders demanding that flat buyers deposit the money with them or face a penalty. While the builders are supposed to pay VAT of 5% on just the Works Contract, experts say that flat buyers are being charged 5% on the total agreement of the flat.      The VAT applies only to under construction buildings and not those that were ready with Occupation Certificates when flats were sold.      The builders were led by the Maharashtra Chamber of Housing Industry-Confederation of Real Estate Developers Association of India (MCHI-Credai) and Pune-based Marathi Bandkam. The court said that it was "far-fetched" to assume that the government had applied the April 2010 date inadvertently. The court ruled that the state had the right to frame a scheme and determine the cutoff date for bringing it into effect.      However, the court held out a ray of hope by saying the order would not come in the way of the state taking any decision to hear the pleas of developers who wanted the post-April 2010 scheme made applicable to buildings under construction from 2006 to 2010.      The court also said that, if the builder raised the issue, the assessing officer (sales tax) could decide on whether a particular type of development contract was not a Works Contract. VAT would not be applicable if it was not a Works Contract.