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Controversies between MVAT Department and Builders.

Arjuna (Fictional Character): Krishna, in this period of recession builders are very tensed and disturbed. After the decision of Honorable Supreme Court, it seems that Maharashtra VAT department increased tension of the builders.

Krishna (Fictional Character): As per decision of the Honorable Supreme Court in the case of L & T, MVAT department’s levy of VAT on Builders from 20th June 2006 was confirmed. From this decision one thing came in front that VAT is applicable from the date of contract on goods used in works contract of builders and developers Transactions. However after this decision, came in January 2014 amended rules and it were made applicable to taxpayers retrospectively from June 2006. The reworking of previous years VAT will increase headache of Builders.

Arjuna: Why this so? If Builders, have paid VAT from June 2006 till now, then why this reworking?

Krishna: Arjuna, first of all this is a controversial issue and therefore it went to Supreme Court. In the business of builders there are various aspects and issues. In this business not only goods are sold but services cost is also involved and most important, the third part of Cost is the value of land. For e.g. If flat is booked by customer for Rs. 30 Lakh while it is being constructed then on what amount of goods VAT should be levied is a big question?. Therefore, as per decision of the Supreme Court chargeability of VAT will have to be re-verified and hence new rules are made applicable to the builders by the VAT department. However recently, these new rules are also being challenged in the Mumbai High Court. Let’s see what happens next.     

Arjuna: So what builders are required to do as per these new rules now?

Krishna: If builders have paid VAT for the period from 20th June 2006 to December 2013 then they are required to verify the working. If it is not as per new rules then builders have to file revise returns before 30th April 2014. Further the value of the goods will be decided and VAT will be levied from the date of contract and as per the stages of construction. As per new rules, first stage of construction is before permission, second stage is construction up to plinth level, third stage is 100% RCC construction and the last i.e. fourth stage is the occupancy certificate. VAT will be levied from the stage in which booking was done. In this there are various rules and conditions that builders are required to satisfy. Due to this new rule many questions arose to the builders, if the liability to pay VAT arises then from whom it will be recovered and, in case of refund will VAT department refund the same. Further how to bifurcate purchases before date of contract and setoff is a major issue. Case to case issues will arise in builder’s cases.

Arjuna: Then how builders can get the relief?

Krishna: Arjuna, If builders already registered under composition scheme and have paid VAT @ 5% for the period June 2006 to March 2010 and @ 1% from April 2010 then they are not required to re-verify VAT as per above new rule.

Arjuna: What one should learn from these Controversies of the law?

Krishna: Arjuna, it is said that law and “Dush karma” (bad deeds) never leave anyone’s way. Some time or later, the old bad deeds and issues cross the way again in life. Before taking any decision on the controversies, one should take guidance of the experienced and knowledgeable people and act with wisdom. As a Half knowledge is a dangerous thing, therefore either one should have complete knowledge or it is better to know nothing and live happy. From this issue of Sales Tax Department and Builders & Developers one should understand that if laws are followed completely then its good otherwise one will have to suffer for it. Sales tax department has increased the complexity of rules due to which adherence of the rules has become difficult. God knows, how taxpayer and sales tax department will calculate retrospective VAT, as already there are various issues and complexities in this and above it builders will have to adhere to the decision of The Supreme Court. Government should understand that laws should be made easy to understand and apply. In this case the situation of builder is like “Fallen from the sky got stuck in a date palm.” It is the Sales Tax departments duty to have simple and practical rules, but they have increased controversies to increase revenue, which is not a correct "Neeti" of Tax collection. 

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