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Humble Relief to developers in Haryana, as Rule 49A got substituted

CS Priyanka Gupta 
on 29 September 2015

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There has been a great controversy regarding liability to pay VAT on agreements for sale of flats and units by builders and developers in Haryana. The applicability of VAT on the builders in Haryana has gained a further impetus due to recent judgements in the case of CHD Developers Limited, Karnal vs. the State of Haryana And Others, [TS-147-HC-2015(P&H)-VAT]

Although, the Hon’ble  Supreme Court judgements of  K. Raheja {141 STC 298 (SC)} and L & T {2013-TIOL-46-ST-CT-LB}, have made it crystal clear that where a builder sells readymade flat i.e. after the flat is constructed, it is considered as a sale of immovable property and there is no question of VAT liability and further, only under construction contracts/agreements where the builder enters into an agreement for sale of flat with prospective buyer when the construction is yet to commence or is under progress, are applicable for VAT.

There are mainly two methods for computation of the VAT liability:

  • Normal Provisions
  • Composition Scheme

This article focuses on the methodology and procedure to be followed for opting composition scheme.

A year ago, on 12th August 2014, for the first time the Haryana State Government, issued a notification No. S.O. 89/H.A.6/2003/S.60/ 2014, specifically for the builders engaged in the construction activities and introduced Rule 49A for the lump sum payment of VAT by the builders. However, prior to 12-08-2014, the builders and the work contractors, both were covered under one rule i.e. rule 49.

However, on 24th September 2015, the rule 49A has been replaced with newly inserted rule 49A vide Notification 23/H.A.6/2003/S.60/2015 (added with retrospective effect i.e. 01-04-2014). This article provides an insight to the recent changes made by the government in the then introduced composition scheme for the builders in Haryana. The provisions of new rule 49A are detailed as below:

1. Registration:

a. A developer may opt for payment of tax in lump sum w.e.f. 1-04-2014 (in accordance with the provisions of new notification dated 24-09-2015) by submitting an application in Form VAT-CD1 to the appropriate assessing authority, within 60 days of the issue of the notification.

b. If a developer gets registration certificate after the issue of the notification, he may opt for the scheme within 30 days of the issue of registration certificate under the Act.

c. Further, a registered developer (who is already registered under this act) can also exercise such option from the beginning of a financial year by submitting the application to the appropriate assessing authority within 30 days of the commencement of the financial year concerned

2. Rate of tax: A developer liable to pay tax under the HVAT may pay, in lieu of tax payable by him under the Act, by way of composition of lump sum tax calculated at the compounded lump sum rate of 1% percent of entire aggregate amount specified in the agreement or value specified for the purpose of stamp duty, whichever is higher, in respect of the said agreement.

3. Concessional Purchases: The composition developer opting for composition under this scheme shall not be entitled to use declaration Form VAT D-1 for purchasing goods at concessional rate of tax from within the State.

4. Interstate purchases:

a. The composition developer shall be entitled to purchase or receive goods, from any place outside the State including imports from out of India, against prescribed declaration forms, to be used in the execution of the contract at any time during the period for which the composition remains in force under this Scheme, but he shall pay tax at the rate of 4% on purchase price thereof and on goods purchased and or received from any place outside the State and held in stock at the time of option of the composition scheme.

b. Further, such tax shall not be adjustable towards his composition tax liability

5. Availability of ITC: The composition developer shall be treated as non-vat dealer and shall not be eligible to claim input tax credit under section 8 of the Act. Further:

a. The composition developer can purchase goods from the registered dealer of the state, for use in the execution of the works contract but shall not be entitled to claim any input tax credit thereon.

b. If the input tax in respect of any goods purchased in the State has been availed of by a developer and such goods are held in stock at the time of option of composition scheme, the input tax in respect of such goods shall be reversed.

c. In case any goods used in the execution of works contract are procured or purchased from dealers other than the registered dealers from within the State or from outside the State on which no tax has been paid to the State, the composition developer shall be liable to pay an amount equal to the amount of tax that would have been payable, had the goods been purchased within the State from a registered dealer.

6. Due date of payment: The tax period for the composition developer shall be monthly and the payment of lump sum in lieu of tax shall be paid by the composition developer within fifteen days of the close of the month.

7. Interest: If the composition developer fails to make the payment of tax including tax on purchases in time under this scheme, then he shall be liable to pay interest as per the provisions of sub-section (6) of Section 14 of the Act, i.e.

@ 1%- if payment is made within 90 days from the last day specified for the payment of tax

@2%- If payment is not made within 90 days from the last day specified for the payment of tax and the default continues

8. Deduction for sub-contractor: If the composition developer awards any portion of his contract to another contractor or sub-contractor, he shall not be eligible for any deduction on account of any tax paid by the contractor or the sub-contractor under the Act.

9. Filing of Returns: A composition developer shall furnish a quarterly return in Form VAT R-13 to the appropriate assessing authority and also submit proof of payment of tax along with the return.

10. Transitional Provisions: A composition developer who has opted for lump sum payment of tax under the lump sum scheme notified on the 12th August, 2014, shall be deemed to have opted for lump sum payment of tax under this scheme. In case the tax deposited under the scheme notified on the 12th August, 2014 is more than the tax liability calculated under this Scheme, the excess tax shall be adjusted against the future tax liability but no adjustment on account of such excess tax shall be allowed if the composition developer opts out of the Scheme.

11. Charging VAT from customer: The composition developer shall not collect any amount by way of tax under the Act. Further, he shall not issue "Tax Invoices".

12. Documents to be maintained: The composition developer shall retain the originals of all tax invoices and all the retail invoices for all his purchases.

13. Eligibility to refund: The composition developer shall not be entitled to any refund

A comparative table of the provisions of composition scheme introduced via new rule 49A (dt. 24-09-2015) and old rule 49A (dt. 12-08-2014) is represented below for your kind perusal:

Bases

New Rule 49A (dt. 24-09-2015)

Old Rule 49A (dt. 12-08-2014)

Builder opting this rule to be called as

Composition developer

Procedure for Registration

a. A developer opting for this scheme w.e.f.01-04-2014, shall submit an application in Form VAT-CD1 within 60 days.

b. If a developer registers itself, after the issue of this notification, he may opt for the scheme within 30 days by submitting application.

c. A developer already registered under this act, can exercise this option by submitting application within 30 days of the concerned F.Y.

a. A developer already registered under this act may opt for this scheme w.e.f. 01-04-2014 and submit an application within 30 days from the date of publication of this notification dated 12-08-2014

b. A developer applying for fresh registration may also opt for this scheme by filing an application along with registration application.

Availability of ITC

Not available

Rate of Tax

1% of entire aggregate amount specified in the agreement or value specified for the purpose of stamp duty, whichever is higher

Concessional Purchases

Not entitled to use declaration Form VAT D-1 for purchasing goods at concessional rate of tax from within the State

No such provision for making concessional purchases.

Availability of interstate purchases

a. Eligible to make interstate purchases subject to payment of tax at the rate of 4% on purchase price thereof and on goods purchased and or received from any place outside the State and held in stock at the time of option of the composition scheme.

b. Further, such tax shall not be adjustable towards his composition tax liability

a. Eligible to make interstate purchases subject to payment of tax on their purchase price at the rate applicable on the sale of such goods in the state along with interest as applicable.

b. Further, such tax shall not be adjustable towards the composition tax liability.

Filing of Return

Quarterly return in Form VAT R-13

No special form of return for the composition developers, i.e. Return as per normal provisions:

a. Quarterly Return in FORM VAT-R1

b. Annual Return in FORM VAT-R2 on or before 30th November.

Deduction for awarding a portion of contract to sub-contractor

No deduction available

Due date of payment

Within 15 days of the close of month

Interest

As per normal provisions

Tax period

Month

Charging VAT from Customer

Not allowed to collect any amount by way of tax under the Act and issuing  "Tax Invoices"

Eligibility to refund

Not allowed

Documents to be maintained

The originals of all tax invoices and all the retail invoices for all the purchases.

Thus, if any builder who has earlier not opted for composition scheme as per notification 12-08-2014, can now opt for the same by filing an application in Form VAT CD-1 and is also allowed to make interstate purchases subject to payment of VAT @ 4%.

Also new form of return has also been prescribed under new rule 49A, i.e. Form VAT R-13.    

CS Priyanka Gupta
APRA & Associates (VAT Team)  


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