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Builders can't pass on VAT to flat buyers: Supreme Court

Apex court verdict upholding Bombay high court ruling is a jolt to developers in the state.


This is good news for those who have bought property between June 2006 and March 2010. The Supreme Court on Thursday said Value Added Tax (VAT) cannot be imposed on buyers.

This has come as a jolt to builders in the state who wanted 1% tax instead of 5% imposed by the state government in 2006. They were recovering the VAT amount from buyers.

Justice RM Lodha upheld the Bombay high court order that VAT cannot be imposed on buyers.

“The value of goods which can constitute the amount to be taxed has to be the value of the goods at the time of incorporation of goods in the works even though property in goods pass later. Taxing the sale of goods element in a works contract is permissible even after incorporation of goods provided tax is directed to the value of goods at the time of incorporation and does not purport to tax the transfer of immovable property,” the court observed.

The court also directed the Maharashtra government to bring clarity in Rule 58 (1-A) — relating to VAT rules.

“We respect the Supreme Court verdict but we will study the judgment only after we get a copy. The taxes imposed by the government have always been passed on to the buyer. We will not pay from our pocket,” said Sunil Mantri, vice president Naredco, CMD Mantri Realty.

“Imposing 5% VAT under section 42(3) of MVAT on flat purchased during June 20, 2006, to March 2010 would impact consumers. The SC verdict will lead to disputes between developers and buyers,” he added.

Builders’ association CREDAI had approached the apex court after the Bombay high court rejected their plea to impose only 1% VAT. In 2006, the state government imposed a VAT of 5% on constructions made between 2006 and 2010. The move resulted in an additional tax liability on flats, shops and bungalows sold by developers between June 20, 2006, and March 31, 2010.

“Whatever VAT amount the developer has recovered, will now have to be returned to buyers with interest,” said a consumer activist. “If they don’t, then we will move court.”

Advocate general’s stand

The apex court recorded the statement of advocate general of Maharashtra that clearly stated that implementation of Rule 58(1-A) shall not result in double taxation and in any case all claims of alleged double taxation will be determined in the process of assessment of each individual case

Article referred: http://www.dnaindia.com/mumbai/1894455/report-builders-can-t-pass-on-vat-to-flat-buyers-supreme-court

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