Query on VAT and Service Tax for flat purchase in Bangalore


16 December 2008


I have a question regarding VAT and ST for a flat purchased in Bangalore.
I purchased the flat (1500 sft SBA and 750 sft undivided share of the land) while the construction was almost 50% over.

I entered into a sale agreement with the builder, for paying the cost as per the following breakup:
1. 1500 sft * cost per sft (say 2000) = 30,00,000
2. Car Park = 2,00,000
3. Amenities = 1,00,000
4. BWSSB & KPTCL = 1,50,000
5. VAT and Service Tax = As per actuals

Please note that in the "Sale Agreement" there was no separate reference to the cost of the undivided share of the land. Also there is no separate construction agreement and land sale agreement as in case of many builders. It's a composite sale agreement.

Once the agreement was done, Builder is demanding for 4% of 32,00,000 (1+2)= 128000 as VAT and 4% of 32,00,000 (1+2) = 128000 as service tax. Can someone clarify what is my actual tax liability in this case ?

Few points on which i want specific clarification are:

1. Builder says as per composition Scheme he is paying 4% VAT on the item (1+2), and hence i should reimburse him that. My question is in composition scheme the 4% VAT tax is on what amount? Is it really 4% on the item (1+2) ? Or is it on the construction cost of the flat.

2. Since there is no construction agreement in this case, do we have to pay service tax at all just because i bought the flat when construction was only 50% over and in my friends case it is 95%. Builder is sighting the Harekrishna Developer case Advance Ruling to demand ST from me.

3. As per service tax laws (reading from the net), we are required to pay 12.24% on 33% of construction cost, which will come roughly to 4% on construction cost. Then is it right on his part to ask for 4% on item (1+2).

If any professional would be interested to take up our (we are 5 friends who bought flats from this builder together) case and provide us professional consultancy, please free to drop us a mail at rajpanda@gmail.com and we would be happy to revert back to you.


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