Vat or service tax or both on property in pune

Dear Mr.Amroatkar

Answer to your questions will be as follows:-

Q1) Is builder right in charging both-VAT & Service Tax?

Ans:- Yes. The VAT on under construction flats was introduced by the Maharashtra Department on 20.06.2006 but the constitutional validity of the levy of VAT by The Maharashtra Chamber of Housing Industry (MCHI).

However, Hon’ble Bombay High Court has upheld the constitutional validity to levy on VAT on Construction. Though MCHI, has submitted an appeal before Supreme Court, the said appeal was admitted but without Stay and so now, VAT is required to be paid and Builders have send notices to all the flat owners to pay VAT amount.

In respect of Service Tax- The same was introduced in the year 2005 and as per the provisions of Finance Act, unless the entire consideration is received after issue of Completion Certificate, the activity will be considered as Service provided by builders to prospective buyers and Service Tax is payable. 

Q2) How Do I Calculate the correct amount for VAT as well as Service Tax?

Ans:- For VAT-As per Section 42 of the Maharashtra Value Added Tax Act, 2002, from 1^st April 2010, under composition scheme VAT @ 1% of the Agreement Value is required to be paid. This method of calculating VAT is reiterated by the Department in the Ciruclar No.14T dated 6^th August 2012 as well as FAQs available on www.mahavat.gov.in.

For Service Tax:- As per the Notification No.1/2006-ST dated 01.03.2006 as amended, w.e.f.01.07.2010, Service Tax is payable as follows if proper costing records are not maintained by the Service Provider i.e. Builder:-

1. on 33% of gross amount charged if the gross amount does not include value of land; or
2. on 25% of gross amount charged if the gross amount includes value of land.

Q3) Regarding interest & Penalty

It will be depend upon the clause in the agreement regarding VAT & Service Tax. As per my understanding, few builders have taken Bank Guarantee or entered into a separate MOU with Flat Owners to pay VAT & Service Tax if it becomes liable. If in the said MOU or Agreement, it is provided that, any interest and penalty for non payment of VAT and Service Tax is levied by the Department will be borne by Flat Owner then, you may have to pay the interest and penalty.

Informative article just need some clarification,

1.If I have bought a property post occupational certificate then I am not supposed to pay 3% Service tax ahich the builder has demanded, please confirm?

2. VAT has to be paid irrespective of whether the deed was registered pre or post issuance of occupational certificate?

My case, bought a property worth 50L in april 2012, the occupational certificate is isssued dated June 2009. and now builder has asked for 2L ( .5 towards- 1% towards VAt and 1.5L -3% towards Service Tax/

Is he justified in demanding that? What all documents should I ask him , if the same has to be submitted?

Thanks in Advance.

Answers:-

1) Yes. There is no liability on account of Service Tax if Completion Certificate is received before entering into an Agreement for Sale with the builder as the transaction will fall under the Sale/Purchase of an Immoveable Property.

2) As per Ciruclar 17T of 2007, Maharashtra Sales Tax Department have issued a clarification in this matter. As per point no 4 the said circular, any agreement is entered into prior to completion of contruction or after the completion of contructed unit will depends upon the terms of the agreement. Also, as per latest FAQ issued by the department on Department's website, Q 3 is relevant for you. In short, VAT is not payable if the completion certificate is received before entering into an Agreement for Sale.

You can ask for Copy of Completion Certificate from the Builder. Also check your Agreement as well. On the basis of these documents and the provisions of the Act, you can reply to builder accordingly.

Hi

I did the registration of a flat which was under construction in Pune on Feb 2010 the value was 34 Lakhs, the builder has already taken 63000 as Service tax for the installment payment post June 2010.

The builder has now demanded VAT approx 1 lakh at the rate of 3% due to the new supreme court ruling.

My question is it correct to collect both VAT and ST on the same agreement value.

Hi,

I have purchased a ready flat directly from builder in Pune  and registration/agreement was done in Sept. 2009. Building has received completion certificate in March 2008. So when I purchased a flat, building has already received completion certificate a year back.

1. Now in this case am I liable to pay VAT on the purchased property which already has completion certificate?
2. Builder is highlighting the clause mentioned in agreement that buyer will bare all the future taxes from Govt. OR any local body.
3. Now the question is if said property is purchased after the completion certificate, can builder ask for VAT using the above mentioned clause in agreement?

Please advice me..