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VAT on Builders- the new perspective
INDER CHAND JAIN
Chairman, Anupam Housing Group, Agra
E mail: [email protected]
M:09319215672
The Builders throughout the State of Uttar Pradesh are facing SIB surveys to bring them under
the purview of VAT. On the basis of the decision of K.Raheja Development Corporation v.
State of Karnataka (2005) 5 SCC 162 & consequential Circular dated December 15, 2005 issued
by the Commissioner of Trade Tax Uttar Pradesh, huge tax liabilities are being illegally fastened
on the builders. The builders, under a bonafide belief and conviction that they are not exigible to
Trade Tax/VAT have not collected any tax from their buyers, are under constant fear of the
unanticipated impending tax liabilities. To add to their woes, the appellate authorities in-spite of
the binding decision of the Allahabad High Court distinguishing K. Raheja, are not granting a
blanket stay on these illegal demands. The builders of Delhi & other states are also being
tormented by their respective VAT departments. In this background, it is necessary to analyse the
issue of exigibility of VAT on builders in the new perspective.
To have a better understanding of the issues involved, it is relevant to look into the history of this
controversy. Under the State Sales Tax Laws, before the 46th Amendment to the Constitution of
India, Sales Tax was applicable only on the sales covered under the sale of goods Act (Normal
sale). The indivisible works contracts were not covered under the State Sales tax Acts since
works contracts were not normal sales. The Supreme Court confirmed this legal status in its land
mark judgment in the case of Gammon & Dunkerely (9 STC 353). Due to this legal status, the
states were denied the levy of Sales Tax on the indivisible works contracts. Such contractors
were outside the purview of sales tax laws.
The then Finance Ministers of the States requested the then Union Finance Minister to take
necessary legal steps so as to levy Sales Tax on indivisible works contracts. Finally, the 46th
amendment to the Constitution of India was made on 2 nd February, 1983 to add a sub-article
(29-4) as under,
“(b) a tax on the transfer of property in goods (whether a goods or in some other form) involved
in the execution of a works contract”.
After the said 46th
Amendment to the Constitution, the States were empowered to levy Sales Tax
/ Works Contract Tax on such sales, called as “Deemed sales” involved in the execution of
works contract. The important features of deemed sales are as under,
(a) It is not a normal sale as defined under sale of goods Act but a deemed sale of goods subject
to sales tax by the States.
(b) In the `deemed sales’ the states can levy Sales tax only on `the transfer of property in goods”.
In other words, the states can levy Sales Tax / VAT only on the `Material Value’ of the works
contract and not on the `labour portion’ of the works contract.
(c) If in a contract there is no transfer of property in goods from the contractor to the contractee,
then sales tax is not applicable on such contracts, called as “Pure Labour Jobs”.
(d) Under the deemed Sale , an artificial break up of indivisible works contract has to be made to
arrive at the `material’ value and the `labour’ value of the contract.
BUSINESS MODELS:
There are basically 2 business models adopted by builders/developers for their projects. These
models are the outcome of the various state laws and business practices in different states.
1) Builder Model: This business model is most common and is adopted in most of the states.
Under this model, the builders purchase land from private landowners or State / Development
Authorities through registered sale deed/ lease deed. Thereafter, the builder gets the building
plans of the Residential/Commercial complex sanctioned by the competent authorities. The
bookings of the residential apartments/commercial units are publicized and the builder
commences construction work. Contracts/agreements for sale are executed with the intending
purchasers specifying the covered area, agreed cost, time duration, number & amount of
instalments, specifications etc. After the building is complete, conveyance/sale/transfer deeds
are executed by the builder in favour of the purchasers in respect of the land as well as the
constructions/superstructure, on which requisite stamp duty is paid as per the provisions of
Stamp Act and the said deed is duly registered. The possession of the demised unit is handed
over to the purchaser simultaneously with the execution of conveyance deed.
2) Developer Model: This business model is in vogue in some of the states, particularly the
Southern states. In this model, the developer enters into a development agreement with
landowner, who hands over the land to the developer for construction of
residential/commercial units. The developer gets the building plans sanctioned. The
developer advertises the project and commences the bookings. The developer enters into
contracts/agreements for construction with the intending purchasers. The construction of
building thereafter commences. After the construction is complete and on receipt of the
agreed amount, the possession of the unit is handed over to the Allottee on the basis of
construction agreement/contract executed earlier. The owner of the land directly transfers the
entire land to the society of owners of the apartments/units who become the owners of
undivided share of land. However, no conveyance deed is executed in respect of the
construction/superstructure by the developer. The Allottee becomes the owner of the
construction/superstructure by virtue of contracts/agreements earlier entered by the
developer. This model is flourishing as stamp duty payable on execution & registration of
sale/transfer deed is legally avoided.
K. RAHEJA’S CASE:
K. Raheja’s case is a case under the Karnataka Sales Tax Act. In order to appreciate what the
Apex Court has decided, the facts of the case are briefly stated as under:
The Company (KRDC) has its office at Bangalore. The company entered into development
agreements with certain owners of land. Thereafter KRDC got the building plans on the said land
sanctioned from the appropriate authorities for building residential apartments and commercial
units. Before starting construction, in most of the cases the company booked units and entered
into agreement for sale with intending purchasers. As per the agreements, on completion of
construction, the residential apartments or the commercial units were agreed to be handed over to
the purchasers, who would get an undivided interest in land also. The owners of the land after the
construction of the complexes transfer the ownership of land directly to the society formed under
Karnataka Ownership Flats (Regulation of Promotion of Construction, Sale, Management and
Transfer) Act 1972. The pertinent fact in this case is that no transfer deed / sale deed/
conveyance deed in respect of super structure/ Constructions of the Residential or Commercial
units is executed by the developer company in favour of the purchasers to transfer the
ownership of superstructure of the units booked by KRDC.
The relevant extracts of clauses q (ii) & r 1(b) of the agreement executed by KRDC with the
intending purchaser are reproduced below:
‘……M/S K. Raheja Development Corporation as Developers of such person would construct
for, as a unit ultimately to belong to such person a unit or units that would be so mutually
selected and settled by and between K. Raheja Development Corporation and the person
concerned.’
‘K.Raheja Development Corporation, (as Developers) agree to build the said building ‘Raheja
Towers’ having the specifications and amenities therein set out in the Second Schedule
hereunder written and as Developer for the prospective purchaser, the said premises (details
whereof are set out in the third schedule hereunder written) for a lump-sum agreed and
quantified consideration…’ (emphasis supplied)
The revenue took the stand that there was transfer of property in goods pursuant to a works
contract. The company took the stand that there was no works contract. According to the
Karnataka Sales Tax Act works contract includes "any agreement for carrying out either for cash
or for deferred payment or for any other valuable consideration, the building or construction of
any moveable or immoveable property". The company took the stand that they were owners of
land and an owner could not be said to be carrying on works contract on behalf of others. The
Company also pleaded that it was developing the property itself and selling flats and commercial
complexes in that property and in such activities, no works contract was involved. The Court
dismissed the contentions of the company and held as under: -
"To be also noted that the definition does not lay down that the construction be on behalf of
an owner of the property or that the construction cannot be by the owner of the property. Thus
even an owner of the property enters into an agreement to construct for cash, deferred
payment or valuable consideration a building or flats on behalf of anybody else, it would be a
works contract within the meaning of the term as used under the said Act."
The Apex Court further held:
"Thus the appellants are undertaking to build as developers for prospective purchaser. Such
construction/development is to be on payment of a price in various instalments set out in the
agreement. As the appellants are not the owners they claim a "lien" on the property. Of
course, under clause they have right to terminate the agreement and to dispose of the unit if
the breach is committed by the purchaser. However merely having such a clause, does not
mean that an agreement ceases to be a works contract within the meaning of the term in the
said act. All that this means that if there is a termination and that particular unit is not resold
but retained by the appellants, there would be no works contract to that extent. But so long as
there is no termination the construction is for and on behalf of the purchaser. Therefore, it
remains a works contract within the meaning of the term as defined under that said Act. It
must be clarified if the agreement is entered into after flat or unit is already constructed, then
there would be no works contract. But so long the agreement is entered into before the
construction is completed it would be works contract."
In the circumstances of the case, the court held the transaction to be 'Works Contract' exigible to
Karnataka Sales Tax. The decision is binding under article 141 of the Constitution and is the
declaration of the law of the land. Relying on this decision, the VAT/Sales tax Department has
issued notices to Developers/Builders. It cannot be disputed that a builder is liable to Sales Tax/
VAT if there is a ' Works Contract'.
But if there is no 'Works Contract' but a 'Contract for Sale' the question of imposition of Sales
Tax/VAT does not arise. On the given facts the Apex court in K.Raheja's case has held the
activities of the Development Company to be in the nature of 'Works Contract'. But the facts in
case of most of the builders are different. Judicial tests have to applied to determine whether the
activities carried on by these builders are in the nature of a 'Contract for Sale' or a 'Works
Contract'.
PRECEDETIAL VALUE:
K.Raheja is a binding ‘Precedent’ in identical facts and circumstances of the case. It would not
be out of place to mention that a judgment has to be understood in the facts and circumstances of
a particular case without adding anything to it (Sarva Shramik Sangh v Indian Hume Pipe Co.
Ltd (1993) 2 SCC 386,396(SC). The Apex Court has time and again held that a decision is only
an authority on what it actually decides and not what may logically follow from it. Every
judgment must be read as applicable to the particular facts proved, or assumed to be proved,
since the generality of expressions, which may be found there, are not intended to be expositions
of the whole law but governed or qualified by particular facts of the case in which such
expressions are to be found (Union of India v Dhanwanti Devi (1991) 6 SCC 44, 52(SC).
Dalbir Singh & Others v. State of Punjab, AIR 1979 SC 1384 provides guidelines as to how
the judgment of the Supreme Court should be read, understood and applied. The Court held as
under:
“According to the well settled theory of precedents every decision contains three basic
ingredients:
1) finding of material facts, direct and inferential. An inferential finding of a facts is the
inference which the Judge draws from the direct or perceptible facts;
2) Statement of the principles of law applicable to the legal problems disclosed by the
facts; and
3) Judgment based on the combined effect of (i) and (ii) above
For the purpose of the parties themselves and their privias, ingredient no. (iii) is the material
element in the decision for it determines finally their rights and liabilities in relation to the
subject matter of the action. It is the judgment that estops the parties from reopening the
dispute. However, for the purposes of the doctrine of precedents, ingredient No. (ii) is the vital
element in the decisions. This is indeed the ratio decidendi. It is not everything said by a Judge
when giving principle upon which the case is decided and for this reason it is important to
analyse a decision and isolate from it the ratio decidendi”.
It would be apt to refer to the case of Ambica Quarry works v. State of Gujarat, AIR 1987 SC
1073, wherein the Supreme Court held as under:
“The ratio of any decision must be understood in the background of the facts of that case. It
has been said long time was that a case is only an authority for what it actually decides, and
not what logically follows from it. (See Lord Halsbury in Quinn v. Leathes, 1981 AC 4950”
The Supreme Court reiterated this view in the case of The Divisional Controller, KSRTC v.
Mahadeva Shetty & Anr. AIR 2003 4172 wherein it held as under:
“The decision ordinarily is a decision on the case before the Court, while the principle
underlying the decision would be binding as a precedent in a case which comes up for
decision subsequently. Therefore, while applying the decision to a later case, the Court dealing
with it should carefully try to ascertain the principle laid down by the previous decision. A
decision often takes its colour from the question involved in the case in which it is rendered.
The scope and authority of a precedent should never be expended unnecessarily beyond the
needs of a given situation. The only thing binding as an authority upon a subsequent Judge is
the principle upon which the case was decided. Statements which are not part of the ratio
decidendi are distinguished as obiter dicta and are not authoritative. The task of finding the
principle is fraught with difficulty as without an investigation into the facts, it cannot be
assumed whether a similar direction must or ought to be made as measure of social justice.
Precedents sub silentio and without argument are of no moment. Mere casual expression
carry no weight at all. Nor every passing expression of a Judge, however eminent, can be
treated as an ex cathedra statement having the weight of authority.”
The facts & circumstances in the case of Builders, particularly Northern India, are different to K
Raheja's case. Whereas in K. Raheja’s case, the allottee becomes owner of the apartment by
virtue of an agreement executed at the time of booking of the apartment and no transfer deed/sale
deed is executed by the developer in favour of the purchaser, in the case of other builders the
ownership vests in the allottee with the execution and registration of sale deed and
simultaneously handing over the possession of the demised unit. It is pertinent that no transfer
deed was executed in the case of K. Raheja and the allottee becomes the owner of the
superstructure by virtue of the earlier agreement executed at the time of allotment whereas in
case of builders the allottee becomes the owner by virtue of the registered sale deed. Since the
facts are distinguishable, the dictum of K. Raheja is not applicable in general in the case of other
builders and K. Raheja is not a binding precedent in the case of builders with different facts &
circumstances.
CONTRACT FOR SALE v WORKS CONTRACT:
There have been a number of decisions of the Hon'ble Supreme Court where the Court has laid
down tests to determine whether the transaction is in the nature of 'Contract for Sale' or 'Works
Contract'.
The Apex Court in the case of Commissioner of Sales Tax MP v Purshottam Premji (1970) 26
STC 38 (SC) has set out the distinction between a 'Works Contract' and 'Contract for Sale' as
under:
"The primary difference between a contract for work or service and a contract for sale of
goods is that in the former there is in the person performing work or rendering service no
property in the thing produced as a whole not withstanding that a part or even the whole of the
materials used by him may have been his property. In the case of the contract for sale, the
thing produced as a whole has individual existence as the sole property of the party who
produced it, at sometime before delivery, and the property therein passes only under the
contract relating thereto to the other party for price.
Mere transfer of property in goods used in the performance of the contract is not sufficient; to
constitute a sale there must be an agreement express or implied relating to the sale of goods
and completion of an agreement by passing of the title in the very goods contracted to be sold.
Ultimately the true effect of an accretion made pursuant to the contract has to be judged not
by an artificial rule that the accretion may be presumed to have become by virtue of affixing to
a chattel, part of the chattel, but from the intention of the parties to the contract."
The Apex Court in State of Gujarat V/s Kailash Engineering Co. AIR 1976 SC 2108 has held
that if unfinished goods are held as property of the buyer, the transaction / activity is that of a
works contract.
The Apex Court in Union of India V/s CIMMCO AIR 1977 SC 1537 has held that if property in
final article passes only after it is completed, the contract will be of sale, even if raw materials
are purchased on behalf of the buyer.
In the case of Hindustan Aeronautics Ltd. V/s State of Karnataka (1984) 1 SCC 706 (3
Member Bench), the court has held thus at page 714
" It is well settled that the difference between Contract of Service and Contract for Sale of
goods is that in the former, there is the person performing work or rendering service no
property in the things produced as a whole notwithstanding that a part or even the whole of
materials used by him had been his property. In the case of a Contract for Sale, the things
produced as a whole has individual existence as the sole property of the party who produced it
sometime before delivery and the property therein passed only under the contract relating
thereto to the other party for price. It is necessary, therefore in every case for the courts to find
out whether in essence there was any agreement to work for a stipulated consideration. If that
was so, it would not be a sale because even if some sale may be extracted that would not affect
the true position. Merely showing in the bills or invoices, it was contended on behalf of the
appellant, the value of material used in job would not render the contract as one of sale. The
nature and type of the transactions are important and determining factors. What is necessary
to find out, in our opinion, is the document object. It is urged before us that the contract of
sale is one whose main object was to transfer property and the delivery of the possession of
chattel as chattel to the buyer. If the principal object of works undertaken by the party was
transfer of a chattel, the contract would be for sale. It is necessary to find out whether the
contract is primarily a contract for supply of materials at a price agreed between the parties
and the work or service rendered is only incidental to the transfer of property in goods used in
the performance of a contract was not sufficient. To constitute a sale, there must be an
agreement expressed or implied relating to the sale of goods and the performance of the
agreement by passing of the title in those very goods."
The Apex Court in State of Andhra Pradesh V/s Kone Elevators (India) Ltd. AIR 2005 SC
1581(3 member Bench) has drawn distinction between Contract of Sale and Works Contract. It
has held thus:
"There is no standard formula by which one can distinguish a 'Contract for Sale' from
'Works Contract'. The question is largely one of the fact depending upon the terms of the
contract, including the nature of obligations there-under and the surrounding circumstances.
If the intention is to transfer for price a chattel in which the transferee had no previous
property, then the contract is a contract for sale. Ultimately, the true effect of an accretion
made pursuant to contract has to be judged not by artificial rules but from the intention of
parties to the contract. In a ' Contract for Sales', the main object is the transfer of property
and delivery of possession of the property, whereas the main object in a ' Contract for Work' is
not the transfer of property but is one for work and labour. Another test to be often applied to
is: when and how the property of the dealer in such a transaction passed to the customer: is it
by transfer at the time of delivery of the finished article as a chattel or by accession during the
procession of work on fusion to the immovable property of the customer? If it is former, it is '
Sales'; if it is latter, it is ' Work Contract'. ---- the essence of the contract or the reality of the
transaction as a whole has to be taken into consideration. The predominant object of the
contract, the circumstances of the case and the custom of the case provides a guide in deciding
whether the transaction is ' Sale' or 'Work Contract'. -- - - It is settled law that the substance
and not the form is material in determining the nature of transaction.'
The Two main distinctions between sale of goods and work contract, as derived from the
aforesaid decisions of the Apex Court are as under:
Works Contract Sales Contract
1 In Works contract the articles
produced as a whole are never the
absolute property of the maker,
although materials used in the work
contract may have been maker's
absolute property.
In the case of sale of goods, the
articles produced as a whole are the
absolute property of the maker when
they come into existence. The article
produced is then transferred to the
buyer.
2 Property in goods contained in a
works contract pass by accession
during the procession of work.
In the case of sale, goods are sold as
goods i.e. 'chattel as a chattel '. The
property in goods is transferred at the
time of delivery of finished article/
goods.
APPLICABILITY OF TRANSFER OF PROPERTY ACT 1882:
One aspect, which has the ultimate bearing on this issue and which was neither argued &
referred to nor considered by the Apex Court in K.Raheja, is the applicability of the Transfer of
Property Act 1882. In the case of Sale of Immovable Property, the provisions of Transfer of
Property Act are mandatorily applicable.
S.54 of the Transfer of Property Act (Chapter III of Sales of Immovable Property) defines
Sale & Contract for Sale. The said Section is reproduced as under:
“Sale defined” “Sale” is a transfer of ownership in exchange for a price paid or promised
or part-paid and part-promised.
Sale how made. Such transfer, in the case of tangible immovable property of the value of
one hundred rupees and upward, or in the case of a reversion or other intangible thing, can
be made only by a registered instrument.
In the case of tangible immovable property of a value less than one hundred rupees, such
transfer may be made either by a registered instrument or by delivery of property.
Delivery of tangible immovable property takes place when the seller places the buyer or
such person as he directs, in possession of the property.
Contract for sale A contract for the sale of immovable property is a contract that a sale of
such property shall take place on terms settled between the parties.
It does not, of itself, create any interest in or charge on such property.
Thus, in order to constitute a valid sale of immovable property, the Sale/ Transfer can only be by
a registered instrument in view of S.54 of the Transfer of Property Act. Moreover, a contract for
the sale of immovable property, of itself, does not create any interest or charge on such property.
The distinction between Sale and contract for sale has been finely made in Shib Lal v Bhagwan
Das (1889) 11 All 245. It has been held that Sale creates a jus in rem, as it passes ownership
immediately it is executed, and a contract to sell is a jus ad rem, for it only creates an obligation
attached to the ownership of property and does not amount to an interest therein.
Till the time the builder conveys the units unto to the prospective buyers he remains the absolute
owner of the property. If this transaction had been a 'Works Contract' the property would have
not been the absolute property of the builder. Moreover if the apartment would have been
constructed for and on behalf of the prospective buyer, the prospective buyer would have
automatically become the owner of the apartment and there would have been no need/legal
requirement to transfer/ convey the property by the builder to the prospective buyer.
It is pertinent that in the case of K.Raheja, the property passes to the agreement holder by
accession during the procession of work. On the other hand in case of other builders the
ownership of the property in goods is transferred at the time of delivery coupled with the
execution of transfer deed. Applying these principles to developers like K.Raheja, we find that
property in goods pass by accession during procession of work. Moreover the articles produced
i.e. the residential apartments/ commercial units are never the absolute property of the developer
although the construction material had been developer’s absolute property. Thus the Apex Court
rightly held the transaction to be ' Works Contract'.
Thus the true test of whether a transaction is in the nature of ‘Works Contract’ or a ‘Contract for
sale’ is that the mode of transfer of title/ownership & possession pursuant to an earlier
agreement. If no registered conveyance deed has been executed and possession is pursuant to the
earlier contract, the transaction is that of ‘Works Contract’.
EXIGIBILITY TO TRADE TAX/VAT/SALES TAX –APPLYING K. RAHEJA
Following the decision of K. Raheja, the Commissioner of Trade Tax, U P issued a circular dated
15th December 2005. The Circular tends to interpret the decision of the Apex Court and says that
if the agreement between the builder and the prospective purchaser has been entered into before
the date of completion of the construction, it will be treated as a ‘work contract’.
In Civil Writ Petition (Tax) No.1749 of 2006 in the case of ATS Infrastructures Ltd. V State of
U.P & others, the aforesaid Circular has been challenged in Allahabad High Court. A division
bench vide its judgement dated 6 December, 2006 has held as under:
“The circular apparently interprets the decision of the Supreme Court correctly but there is
one ambiguous part in that circular, which says that if the agreement between the builder and
the prospective purchaser has been entered into before the date of completion of the
construction, it will be treated as a ‘work contract’.
Prima facie, the decision of the Supreme Court referred above, does not lead to the above
conclusion. As far as, we have been able to understand the decision of the Supreme Court, it
will apply to cases where the construction is being done by the builder, who may be the owner
of the land, “for and on behalf of” the prospective purchaser. Construction “for and on behalf
of” purchaser would be a ‘work contract’ in view of the decision of the Supreme Court.
Whether the construction is ‘for and on behalf of’ the purchaser is basically a question of fact
to be determined by the fact finding tax authorities, having regard to the totality of facts and
circumstances of each individual case.
The mere fact that the agreement for sale of the flat as a completed unit has been entered into
before the date of actual completion, by itself is not the conclusive factor. Further, the mere
fact that the agreement between the builder and the prospective purchaser provides that if the
prospective purchaser backs out and does not get the sale deed executed ultimately, the
advance instalments or its part or the earnest money or security will stand forfeited is also not
by itself a conclusive factor. The reason is that this kind of an agreement providing for future
sale and charging advance sale consideration or charging earnest money or security could
also be entered into after the completion of the construction and if such agreement entered
into after the completion of construction provides for forfeiture of the earnest money or
security or the advance sale consideration or its part, it would not make the transaction of
‘work contract’.
Therefore, the only factor which is left and which can be said to be a conclusive factor as to
whether agreement between the builder and the prospective purchaser, when entered into
before the completion of the construction, and whether charging advance sale consideration
or not, and whether providing for forfeiture or not will amount to a ‘work contract’ only if the
entirety of facts show that throughout the process of construction, the title to the
superstructure or its various parts at various stages of construction continues with the
prospective purchaser.
If the facts and circumstances show that the title to the super-structure is transferred by a
registered sale deed to the prospective purchaser, in that event, the transaction would not be a
‘work contract’.”
The decision has become final and is binding on all officers of the State. No Special Leave
Petition against the said judgment has been filed by the State of Uttar Pradesh or the Trade
Tax Department before the Apex Court. It is worth mentioning that the State of U.P filed a
Recall application bearing number 27024/2007 against the said order dated 06-12-2006.
Rejecting the said Recall application on merits vide order dated 11-07-2008, the Court held
as under:
“We have heard the matter on merits. We have also gone through our order dated 6-12-2006
by which the writ petition was disposed of.
The order dated 6.12.2006 leaves the question of fact to be decided by the fact finding
authority, after reply to the show cause notice is submitted. The remaining part of the order
only spells out the principle for guidance of the fact finding authority. After hearing both the
sides we do not find anything wrong with the principle spelt out, because of which the State
can be said to be aggrieved. Accordingly, we reject the recall application on merits.”
It would be trite to refer to the decision of the Division Bench of Allahabad High Court in Civil
Writ Petitions No. 997 & 1238 of 2006 in the case of Assotech Realty Private Limited v
State of U.P. and another which has been decided on 23-3-2007.
The facts of the case and the controversy involved are being reproduced from the said
judgement:
“The petitioner is a private company incorporated under the provisions of the Companies Act,
1956. It has its registered office at 5-7, DDA Shopping Complex, Mayur Vihar, Phase-I, Delhi
and head office at F-27-28, Sector 18, Noida, district Gautam Budh Nagar in the State of U.P.
The petitioner is engaged in the business of developing the land purchased from various
authorities and constructing houses with intention of selling them for the consideration to the
interested persons/allottees. According to the petitioner, it had purchased 43123.756 sq.meters
of land situate at 5, Vaibhav Khand, Indrapurum, Ghaziabad from the Ghaziabad
Development Authority, Ghaziabad for development of group housing. The land is free hold
land. It proposed construction of an integrated group-housing complex, known as “Windsor
Park”. Several persons had shown their interest of purchase of the flats/houses. The petitioner
had allotted the houses/flats to various allottees.
In the allotment letter, it has been specifically mentioned that the terms and conditions of
allotment are subject to the sale deed to be signed between the parties. Common areas and
facilities, such as park, parking, public amenities, community hall, etc., as approved in the
layout plan was to remain the property of the petitioner and no rights would accrue to the
allottees till a sale deed is executed and registered. According to the petitioner, it continued to
be the owner of the apartments/flats and construction thereon till the execution of the
registered sale deed. It is the case of petitioner that it does not undertake to make any
construction for and on behalf of the purchasers/allottees and all the constructions made by it
are on its own account in accordance with the layout and sanctioned map approved by the
Ghaziabad Development Authority. No construction have been undertaken on the request of
the allottees. The Assistant Commissioner, Trade Tax, Sector 1, Noida, respondent no.2,
issued a notice purporting to be under Section 7(3) of the U.P. Trade Tax Act1948 (hereinafter
referred to as “the Act”) calling upon it to appear in 29.12.2005 for verification of the papers
in respect of the assessment year 2004-05 U.P./Central. The aforesaid notice was issued on the
basis of a decision of the Apex Court in the case of K. Raheja Development Corporation v
State of Karnataka (2005) 5 SCC 162. The petitioner submitted its reply stating, inter alia, that
the principle laid down in the aforesaid decision of the Apex Court is not applicable in the
case of the petitioner in as much as the petitioner has not undertaken any construction work
for and on behalf of the prospective allottees/purchasers and the title in the flats/apartments so
constructed passes to the purchasers only upon execution of the sale deed and its registration.
Till such time the sale deed is not executed, the right, title and interest including the
ownership and possession in the construction so made remains with the petitioner. In the
circumstances, the notice was requested to be discharged……”
It was vehemently argued by the petitioner that “the right, title, interest, ownership and
possession in the construction/finished flats vests with the petitioner till such time the sale
deed is executed and registered and, therefore, the question of making construction for and on
behalf of the prospective allottees/purchasers is not correct”. It was further argued that “
…the payments made in instalment is only to facilitate the prospective allottees/purchasers so
that they may not be burdened with the price in one go and to facilitate the construction but
from it, it cannot be inferred that the petitioner is making the constructions for and on behalf
of the prospective allottees/purchasers”.
The Court relied upon clause 8 & 20 of the letter of Allotment which are reproduced below:
“8. It is hereby agreed, understood and declared by and between the parties that the ASSOTECH
may take construction finance/demand loan for the construction of the above complex from the
Banks/Financial institutions after mortgaging the land apartments of the said complex, however
the sale deed in respect of the said apartment in favour of allottee(s) will be executed &
registered free from all encumbrances at the time of registration of the same.
20. The allottee agrees that no right will accrue in favour of the allottee in the apartment until a
sale deed is executed & registered, and the ASSOTECH shall continue to be the owner of the
owner of the apartment and also the construction thereupon and this allotment shall not give to
the allottee(s) any rights or title or interest therein even though all payments have been received
by the ASSOTECH. The ASSOTECH shall have the first lien and charge on the apartment for all
its dues that may become due and payable by the allottee(s) to the Assotech.”
The court held thus:
“ From a reading of the aforesaid clauses, we find that the specification, plan, price payment,
schedule and layout plan as has been proposed by the petitioner is to be agreed by the parties.
Further, the petitioner has been empowered to mortgage the land and apartments of the said
complex to raise construction/finance/demand loan for the construction of the complex, from
the banks/financial institutions. The only stipulation is that the sale deed would be executed
and registered free from all encumbrances. The allottees are to strictly adhere to payment
schedule falling which liability for payment of interest accrues. The allottees does not get any
right, title and interest to the allottees even though full payment has been received by the
petitioner. The petitioner is empowered to make variations / modifications in the plan, design
and specification and possession is to be handed only upon payment of the entire amount.
Taking into consideration, the terms and conditions of the letter of allotment, which has been
reproduced above, we are of the considered opinion that the petitioner continues to remain the
owner of the apartments/flats including all constructions till such time the sale deed is
executed and registered in favour of the prospective allottees/purchasers. The payment of
instalments by the prospective allottees/purchasers do not transfer any right, title or interest in
the construction undertaken by the petitioner. Thus, the constructions undertaken by the
petitioner cannot be said to have undertaken by it for and on behalf of the prospective
allottees/purchasers.”
The Court finally held thus:
“In the aforesaid case, the agreement provided that K.Raheja Development Corporation, as
developer on its own behalf and as developer of such person, would construct the flats as a
unit, ultimately to belong to such person. In the aforesaid case, K Raheja Development
Corporation were constructing the unit for and on behalf of the person who had agreed to
purchase the flats. In the present case, we find that the petitioner is constructing the
flats/apartments not for and on behalf of the prospective allottees but otherwise. The payment
schedule would not alter the transaction. The right, title and interest in the construction
continue to remain with the petitioner. It cannot be said that the constructions were
undertaken by the petitioner would not fall under clause (m) of Section 2 read with Section
3F of the Act and are outside the purview of the provisions of the Act. In other words, they
cannot be subjected to tax under the Act and the action in imposing tax on such constructions
treating them to be works contract, is wholly without jurisdiction.
We are, therefore, of the considered opinion that the impugned orders dated 24.03.2006 and
29.5.2006 passed by the Assistant Commissioner Trade Tax, Sector 1, Noida, respondent no. 2
in so far as they relate to imposition of tax on construction of apartments/houses/flats and
other construction in question, are wholly without jurisdiction and they cannot be sustained
and are hereby set aside.”
Thus the aforesaid decisions of Allahabad High Court have held that the builders booking
apartments before the completion of construction of the apartments and receiving advance/part
payments as being not exigible to Sales Tax/Trade Tax.
The State of Uttar Pradesh filed a Special Leave Petition before the Apex Court. The Apex Court
disposing the said Special Leave Petition on 03-12-2007 set aside the order of the High Court on
technical ground that “Writ Petition filed in High Court by the respondent against the Order of
Assessment was not maintainable. The respondent ought to have filed statutory Appeal against
assessment order............ These questions were not capable of being decided in writ petition.”
Since the decision rendered in the Assotech has been set aside purely on technical grounds, the
principles rendered by the High Court cannot be said to have been overruled and apply with full
force to the given facts, even today.
K. RAHEJA REFERRED TO LARGER BENCH:
In the Special Leave Petition No. 17741 OF 2007 in the case of M/S Larsen & Toubro Limited
& Anr. v. State of Karnataka & Anr. vide order dated August 19, 2008 the Division bench of the
Apex Court expressed dissent/disagreement to the decision of K. Raheja and the matter has been
referred to the Larger Bench. In the detailed reference order the Court held:
“It is important to bear in mind the distinction between two types of Contracts sale and works
which rests on the principle that a contract of sales one whose object is transfer of property in
and delivery of possession of a chattel as a chattel to the buyer. When the object of the work
undertaken by the payee for a price is not the transfer of a chattel as a chattel the contract is
one of work and labour.
……….Be that as it may, apart from the disputes in hand, the point which we have to examine
is whether the ratio of the judgment of the Division Bench in the case of Raheja Development
Corporation (supra) as enunciated in Para 20, is correct. If the Develop Agreement is not a
works contract could the Department rely upon the second contract, which is the Tripartite
Agreement and interpret it to be a works contract, as defined under the 1957 Act. The
Department has relied upon only the judgment of this Court in Raheja Development
Corporation (supra) case because para 20 does assist the Department. However, we are of the
view that if the ratio of Raheja Development case is to be accepted then there would be no
difference between works contract and a contract for sale of chattel as a chattel. Lastly, could
it be said that petitioner Company was the contractor for prospective flat purchaser. Under
the definition of the term "works contract" as quoted above the contractor must have
undertaken the work of construction for and on behalf of the contractor for cash, deferred or
any other valuable consideration. According to the Department, Development Agreement is
not works contract but the Tripartite Agreement is works contract which, prima facie, appears
to be fallacious. There is no allegation that the Tripartite Agreement is sham or bogus.
For the afore-stated reasons, we direct the Office to place this matter before the Hon'ble
Chief Justice for appropriate directions in this regard, as we are of the view that the judgment
of Division Bench in the case of Raheja Development (supra) needs re-consideration by the
larger Bench.” (emphasis supplied)
Once the dictum in K. Raheja has been doubted by a detailed and reasoned order and the matter
referred to a larger bench, proprietary demands that Builders should not be taxed by the Revenue
Authorities merely on the basis of this decision or on the basis of circular issued on the basis of
this decision.
DOUBLE TAXATION- SELF CONTADICTORY:
It is undisputable that a transaction in immoveable property can either be a sale of immovable
property attracting Stamps Duty or a Works Contract attracting VAT but by any stretch of imagination it cannot be both. A purchaser of an apartment is required to pay Stamp Duty &
Registration Fee in accordance with the Stamps Act read with the provisions of Transfer of
Property Act, 1882. Ironically, the State is also demanding VAT on these transactions by way of
the Circular dated 16 December 2005. How can the State treat the same transaction
simultaneously as sale of immovable property & works contract and impose double taxation? It
is pertinent that both VAT & Stamp Duty fall under the domain of one State Department i.e Tax
& Registration.
It would be trite to refer to the decision of Ashwani Kumar Tripathi v. State of U.P. & others
2005 (4) AWC 3270. The dispute was regarding chargeability of Stamp Duty on houses/units
constructed by Avas Vikas Parishad (Housing Board) & Development Authorities under Self
Finance Schemes. The Allottees of the Housing Board filed Writ petitions before the Allahabad
High Court challenging the demand of Stamp Duty on the value of superstructure. It was
contended on behalf of the petitioners that the constructions have been raised from their own
money and they are its owners and therefore the question of conveyance or transfer of the
superstructure does not arise. On behalf of the State, it was reiterated that under Self Finance
Scheme remained under the ownership of the Housing Board and constructions raised thereupon
become part & parcel of such land. It was also argued that merely by depositing money in
installments, the Allottees get no right and title in the superstructure.
The Court referred & applied the various provisions of Indian Stamp Act, 1899 and also dealt
with Sections 54 & 55 of the Transfer of Property Act. The Court at para 16,17, 18, 22 & 28
held as under:
“16. Perusal of Sections 54 and 55, Transfer of Property Act, shows that terms and conditions
under Self-Financing Scheme are merely contract for sale without possession and not the sale
with possession as such. Section 55(1)(d) makes it clear that seller is bound, on payment of
land with or without superstructure of flat price, to execute a conveyance deed.
17. The above provisions read with the terms and conditions of Self-Financing Scheme would
go to show that payment in installment is merely a step in aid for completing contract of sale.
Deposition of money (in installment), towards cost of flat/ superstructure, is not as such part
of sale consideration- which itself is not final.
18. Once it is not disputed that land, upon which superstructure, under Self-Financing
Scheme is raised, continues, to be in the ownership of the Parishad Authority any
superstructure fixed or raised by embedding it and making it part of earth/land, allottees-
cannot claim to have interest in it as owner thereof. At no relevant point of time, allottees, who
pay instalments towards cost of construction as such, get no rights transferred or vested in
them with respect to the superstructure raised in land belonging to the Parishad/Authority.
22. In view of terms and conditions of "Self-Financing Schemes" before us, we have no
hesitation in holding that superstructure stood embedded in the land without any right or
interest to the allottees being created therein.
28. We may also point out that, if contention of the petitioners is to be accepted, it will lead to
various complications, anomalies and it will give a handle for avoiding payment of Stamp
Duty on sale transactions by making payment before hand and executing the property
subsequently. Parties get no edge to argue that since they had already paid certain amounts, it
will invariably mean vesting transfer of right or ownership in a given property, cannot be
accepted as a universally correct proposition in law. It will result preposterous.”
This decision became final and is a binding precedent. It is worthwhile to reproduce an important
Government order no. ka.Ni.-5-4122/11-2000-500(9)/99 dated 27 July 2000 issued the
Principal Secretary Tax & Registration, Uttar Pradesh. The said order is reproduced as
under:
la[;k&dk0fu0&5&4122@11&2000&500¼9½@99la[;k&dk0fu0&5&4122@11&2000&500¼9½@99la[;k&dk0fu0&5&4122@11&2000&500¼9½@99la[;k&dk0fu0&5&4122@11&2000&500¼9½@99
izs"kd]izs"kd]izs"kd]izs"kd] Vh0 tktZ tkslsQ]Vh0 tktZ tkslsQ]Vh0 tktZ tkslsQ]Vh0 tktZ tkslsQ] izeq[k lfpo]izeq[k lfpo]izeq[k lfpo]izeq[k lfpo] mRrj izns'k 'kkluAmRrj izns'k 'kkluAmRrj izns'k 'kkluAmRrj izns'k 'kkluA lsok esa]lsok esa]lsok esa]lsok esa] 1111---- leLr e.Myk;qDr ,oaleLr e.Myk;qDr ,oaleLr e.Myk;qDr ,oaleLr e.Myk;qDr ,oa v/;{k fodkl izkf/kdj.k]v/;{k fodkl izkf/kdj.k]v/;{k fodkl izkf/kdj.k]v/;{k fodkl izkf/kdj.k] mRrj izns'kAmRrj izns'kAmRrj izns'kAmRrj izns'kA 2222---- leLr ftykf/kdkjh]leLr ftykf/kdkjh]leLr ftykf/kdkjh]leLr ftykf/kdkjh] mRrj izns'kmRrj izns'kmRrj izns'kmRrj izns'k 3333---- leLr vij ftykf/kdkjh ¼fo0@jk0½ ,oaleLr vij ftykf/kdkjh ¼fo0@jk0½ ,oaleLr vij ftykf/kdkjh ¼fo0@jk0½ ,oaleLr vij ftykf/kdkjh ¼fo0@jk0½ ,oa ftyk fucU/kd] mRrj izns'kAftyk fucU/kd] mRrj izns'kAftyk fucU/kd] mRrj izns'kAftyk fucU/kd] mRrj izns'kA 4444---- leLr mi@lgk;d egkfujh{kd] fucU/ku]leLr mi@lgk;d egkfujh{kd] fucU/ku]leLr mi@lgk;d egkfujh{kd] fucU/ku]leLr mi@lgk;d egkfujh{kd] fucU/ku] mRrj izns'kAmRrj izns'kAmRrj izns'kAmRrj izns'kA 5555---- leLr mifucU/kd]leLr mifucU/kd]leLr mifucU/kd]leLr mifucU/kd] mRrj izns'kAmRrj izns'kAmRrj izns'kAmRrj izns'kA dj ,dj ,dj ,dj ,oa fucU/kuoa fucU/kuoa fucU/kuoa fucU/ku vuqHkkx&5 vuqHkkx&5 vuqHkkx&5 vuqHkkx&5 y[kuÅ % fnuk¡d&27 tqykbZ] 2000y[kuÅ % fnuk¡d&27 tqykbZ] 2000y[kuÅ % fnuk¡d&27 tqykbZ] 2000y[kuÅ % fnuk¡d&27 tqykbZ] 2000 fo"k; % LofoRr iksf"kr ;kstukvksa ds vUrxZr Hkwfe rFkk Hkouksa ds gLrkUrj.k lEcU/kh foys[kksa ds fo"k; % LofoRr iksf"kr ;kstukvksa ds vUrxZr Hkwfe rFkk Hkouksa ds gLrkUrj.k lEcU/kh foys[kksa ds fo"k; % LofoRr iksf"kr ;kstukvksa ds vUrxZr Hkwfe rFkk Hkouksa ds gLrkUrj.k lEcU/kh foys[kksa ds fo"k; % LofoRr iksf"kr ;kstukvksa ds vUrxZr Hkwfe rFkk Hkouksa ds gLrkUrj.k lEcU/kh foys[kksa ds fu"iknufu"iknufu"iknufu"iknu ij LVkEi 'kqYd olwy fd;s tkus ds lEcU/k esaAij LVkEi 'kqYd olwy fd;s tkus ds lEcU/k esaAij LVkEi 'kqYd olwy fd;s tkus ds lEcU/k esaAij LVkEi 'kqYd olwy fd;s tkus ds lEcU/k esaA egksn;]egksn;]egksn;]egksn;] 'kklu ds laKku esa dbZ ,sls izdj.k vk;s gSa'kklu ds laKku esa dbZ ,sls izdj.k vk;s gSa'kklu ds laKku esa dbZ ,sls izdj.k vk;s gSa'kklu ds laKku esa dbZ ,sls izdj.k vk;s gSa ftuesa fodkl izkf/kdj.k LofoRr iksf"kr ftuesa fodkl izkf/kdj.k LofoRr iksf"kr ftuesa fodkl izkf/kdj.k LofoRr iksf"kr ftuesa fodkl izkf/kdj.k LofoRr iksf"kr ;kstuk ds;kstuk ds;kstuk ds;kstuk ds vUrxZr vkoafV;ksa dh Hkouksa dk fuekZ.k djds mldk gLrkraj.k djrs gSa fdUrq cSukek vUrxZr vkoafV;ksa dh Hkouksa dk fuekZ.k djds mldk gLrkraj.k djrs gSa fdUrq cSukek vUrxZr vkoafV;ksa dh Hkouksa dk fuekZ.k djds mldk gLrkraj.k djrs gSa fdUrq cSukek vUrxZr vkoafV;ksa dh Hkouksa dk fuekZ.k djds mldk gLrkraj.k djrs gSa fdUrq cSukek djrs le; foys[kdjrs le; foys[kdjrs le; foys[kdjrs le; foys[k esa dsoy Hkwfe dk gLrkUrj.k fn[kkrs gSa ,oa mlh ds ewY; ds vk/kkj ij LVkEi esa dsoy Hkwfe dk gLrkUrj.k fn[kkrs gSa ,oa mlh ds ewY; ds vk/kkj ij LVkEi esa dsoy Hkwfe dk gLrkUrj.k fn[kkrs gSa ,oa mlh ds ewY; ds vk/kkj ij LVkEi esa dsoy Hkwfe dk gLrkUrj.k fn[kkrs gSa ,oa mlh ds ewY; ds vk/kkj ij LVkEi 'kqYd dk Hkqxrku djkrs'kqYd dk Hkqxrku djkrs'kqYd dk Hkqxrku djkrs'kqYd dk Hkqxrku djkrs gSaAgSaAgSaAgSaA 2222---- 'kklu }kjk bl lEcU/k esa fopkj djrs gq;s ;g ik;k x;k gS fd mijksDr izfØ;k fof/kd 'kklu }kjk bl lEcU/k esa fopkj djrs gq;s ;g ik;k x;k gS fd mijksDr izfØ;k fof/kd 'kklu }kjk bl lEcU/k esa fopkj djrs gq;s ;g ik;k x;k gS fd mijksDr izfØ;k fof/kd 'kklu }kjk bl lEcU/k esa fopkj djrs gq;s ;g ik;k x;k gS fd mijksDr izfØ;k fof/kd n`f"Vn`f"Vn`f"Vn`f"V ls mfpr ugha gS ,oa ,sls foys[kksa esa Hkouksa ds ewY; dks 'kkfey u fd;s tkus ds dkj.k Hkkjh ls mfpr ugha gS ,oa ,sls foys[kksa esa Hkouksa ds ewY; dks 'kkfey u fd;s tkus ds dkj.k Hkkjh ls mfpr ugha gS ,oa ,sls foys[kksa esa Hkouksa ds ewY; dks 'kkfey u fd;s tkus ds dkj.k Hkkjh ls mfpr ugha gS ,oa ,sls foys[kksa esa Hkouksa ds ewY; dks 'kkfey u fd;s tkus ds dkj.k Hkkjh djkioapudjkioapudjkioapudjkioapu gks jgk gSA LofoRr iksf"kr ;kstuk ds vUrxZr fof/kd :i ls mfpr dk;gks jgk gSA LofoRr iksf"kr ;kstuk ds vUrxZr fof/kd :i ls mfpr dk;gks jgk gSA LofoRr iksf"kr ;kstuk ds vUrxZr fof/kd :i ls mfpr dk;gks jgk gSA LofoRr iksf"kr ;kstuk ds vUrxZr fof/kd :i ls mfpr dk;Zokgh ;gh gks Zokgh ;gh gks Zokgh ;gh gks Zokgh ;gh gks ldrh gS fd IykVldrh gS fd IykVldrh gS fd IykVldrh gS fd IykV dk ykVjh }kjk vkea=.k gksus ij igys foØ; foys[k] iV~Vk foys[k vFkok Ýh dk ykVjh }kjk vkea=.k gksus ij igys foØ; foys[k] iV~Vk foys[k vFkok Ýh dk ykVjh }kjk vkea=.k gksus ij igys foØ; foys[k] iV~Vk foys[k vFkok Ýh dk ykVjh }kjk vkea=.k gksus ij igys foØ; foys[k] iV~Vk foys[k vFkok Ýh gksYM foys[k dk iathdj.kgksYM foys[k dk iathdj.kgksYM foys[k dk iathdj.kgksYM foys[k dk iathdj.k gks] rRi'pkr IykV /kkjd lEcfU/kr fodkl izkf/kdj.k] vkokl fodkl gks] rRi'pkr IykV /kkjd lEcfU/kr fodkl izkf/kdj.k] vkokl fodkl gks] rRi'pkr IykV /kkjd lEcfU/kr fodkl izkf/kdj.k] vkokl fodkl gks] rRi'pkr IykV /kkjd lEcfU/kr fodkl izkf/kdj.k] vkokl fodkl ifj"kn~ vFkok iathd`r vkoklifj"kn~ vFkok iathd`r vkoklifj"kn~ vFkok iathd`r vkoklifj"kn~ vFkok iathd`r vkokl fodkl lfefr;ksa ds i{k esa ;g izLrko ikfodkl lfefr;ksa ds i{k esa ;g izLrko ikfodkl lfefr;ksa ds i{k esa ;g izLrko ikfodkl lfefr;ksa ds i{k esa ;g izLrko ikfjr djsa fd lEcfU/kr fjr djsa fd lEcfU/kr fjr djsa fd lEcfU/kr fjr djsa fd lEcfU/kr laLFkk IykV /kkjdksa ds iSls ls fd'rksa esalaLFkk IykV /kkjdksa ds iSls ls fd'rksa esalaLFkk IykV /kkjdksa ds iSls ls fd'rksa esalaLFkk IykV /kkjdksa ds iSls ls fd'rksa esa ;Fkk fu/kkZfjr Js.kh ds Hkouksa dk fuekZ.k djsaA blds ckn ;Fkk fu/kkZfjr Js.kh ds Hkouksa dk fuekZ.k djsaA blds ckn ;Fkk fu/kkZfjr Js.kh ds Hkouksa dk fuekZ.k djsaA blds ckn ;Fkk fu/kkZfjr Js.kh ds Hkouksa dk fuekZ.k djsaA blds ckn lEcaf/kr laLFkk viuh fu;ekoyh ds vUrxZrlEcaf/kr laLFkk viuh fu;ekoyh ds vUrxZrlEcaf/kr laLFkk viuh fu;ekoyh ds vUrxZrlEcaf/kr laLFkk viuh fu;ekoyh ds vUrxZr fu/kkZfjr 'krksZ ds v/khu Hkouksa dk fuekZ.k djkdj fu/kkZfjr 'krksZ ds v/khu Hkouksa dk fuekZ.k djkdj fu/kkZfjr 'krksZ ds v/khu Hkouksa dk fuekZ.k djkdj fu/kkZfjr 'krksZ ds v/khu Hkouksa dk fuekZ.k djkdj IykV /kkjdksa dks miyC/k djk;sa] ,slh fLFkIykV /kkjdksa dks miyC/k djk;sa] ,slh fLFkIykV /kkjdksa dks miyC/k djk;sa] ,slh fLFkIykV /kkjdksa dks miyC/k djk;sa] ,slh fLFkfr esa ghfr esa ghfr esa ghfr esa gh Hkou dk fuekZrk IykV/kkjd dks ekuk tk Hkou dk fuekZrk IykV/kkjd dks ekuk tk Hkou dk fuekZrk IykV/kkjd dks ekuk tk Hkou dk fuekZrk IykV/kkjd dks ekuk tk ldrk gS rFkk lEcfU/kr laLFkk dks Bsdsnkj ds :i esa ekuk tkldrk gS rFkk lEcfU/kr laLFkk dks Bsdsnkj ds :i esa ekuk tkldrk gS rFkk lEcfU/kr laLFkk dks Bsdsnkj ds :i esa ekuk tkldrk gS rFkk lEcfU/kr laLFkk dks Bsdsnkj ds :i esa ekuk tk ldrk gSA Hkwfe dk foØ; foys[k] ldrk gSA Hkwfe dk foØ; foys[k] ldrk gSA Hkwfe dk foØ; foys[k] ldrk gSA Hkwfe dk foØ; foys[k] iV~Vk foys[k vFkok Ýh gksYM foØ; foys[k fu"ikfnr djkdjiV~Vk foys[k vFkok Ýh gksYM foØ; foys[k fu"ikfnr djkdjiV~Vk foys[k vFkok Ýh gksYM foØ; foys[k fu"ikfnr djkdjiV~Vk foys[k vFkok Ýh gksYM foØ; foys[k fu"ikfnr djkdj iathd`r djk;s cxSj IykV /kkjd iathd`r djk;s cxSj IykV /kkjd iathd`r djk;s cxSj IykV /kkjd iathd`r djk;s cxSj IykV /kkjd mlds ekfyd ugha cu ldrs gSa Hkys mlds ekfyd ugha cu ldrs gSa Hkys mlds ekfyd ugha cu ldrs gSa Hkys mlds ekfyd ugha cu ldrs gSa Hkys gh os vkoaVh gksa vkSj os fdlh Hkhgh os vkoaVh gksa vkSj os fdlh Hkhgh os vkoaVh gksa vkSj os fdlh Hkhgh os vkoaVh gksa vkSj os fdlh Hkh laLFkk dks izLrko ikfjr laLFkk dks izLrko ikfjr laLFkk dks izLrko ikfjr laLFkk dks izLrko ikfjr djds vFkok mlds i{k esa iSls tek djds Hkou fuekZ.k dh vuqefr ugha nsdjds vFkok mlds i{k esa iSls tek djds Hkou fuekZ.k dh vuqefr ugha nsdjds vFkok mlds i{k esa iSls tek djds Hkou fuekZ.k dh vuqefr ugha nsdjds vFkok mlds i{k esa iSls tek djds Hkou fuekZ.k dh vuqefr ugha ns ldrs gSaA ;fn os ldrs gSaA ;fn os ldrs gSaA ;fn os ldrs gSaA ;fn os ,slk djrs gSa rks var esa tc lEifRr dk cSukek gksxk rks mlesa Hkwfe ,oa Hkou nksuksa ds,slk djrs gSa rks var esa tc lEifRr dk cSukek gksxk rks mlesa Hkwfe ,oa Hkou nksuksa ds,slk djrs gSa rks var esa tc lEifRr dk cSukek gksxk rks mlesa Hkwfe ,oa Hkou nksuksa ds,slk djrs gSa rks var esa tc lEifRr dk cSukek gksxk rks mlesa Hkwfe ,oa Hkou nksuksa ds gh gh gh gh foØ; dks nf'kZr djukfoØ; dks nf'kZr djukfoØ; dks nf'kZr djukfoØ; dks nf'kZr djuk iM+sxk ,oa nksuksa ds ewY;kadu ds vk/kkj ij gh LVkEi 'kqYd dk Hkqxrku iM+sxk ,oa nksuksa ds ewY;kadu ds vk/kkj ij gh LVkEi 'kqYd dk Hkqxrku iM+sxk ,oa nksuksa ds ewY;kadu ds vk/kkj ij gh LVkEi 'kqYd dk Hkqxrku iM+sxk ,oa nksuksa ds ewY;kadu ds vk/kkj ij gh LVkEi 'kqYd dk Hkqxrku djukdjukdjukdjuk iM+sxkAiM+sxkAiM+sxkAiM+sxkA 3333---- mijksDr dks ns[krs gq, 'kklu }kjk jftLVªh djus okys ,oa dysDVj dh 'kfDr;ksa dk mijksDr dks ns[krs gq, 'kklu }kjk jftLVªh djus okys ,oa dysDVj dh 'kfDr;ksa dk mijksDr dks ns[krs gq, 'kklu }kjk jftLVªh djus okys ,oa dysDVj dh 'kfDr;ksa dk mijksDr dks ns[krs gq, 'kklu }kjk jftLVªh djus okys ,oa dysDVj dh 'kfDr;ksa dk mi;ksxmi;ksxmi;ksxmi;ksx
djds LVkEi oknksa dk fuLrkj.k djus okys leLr vf/kdkfj;ksa dks ;g funsZ'k fn;s djds LVkEi oknksa dk fuLrkj.k djus okys leLr vf/kdkfj;ksa dks ;g funsZ'k fn;s djds LVkEi oknksa dk fuLrkj.k djus okys leLr vf/kdkfj;ksa dks ;g funsZ'k fn;s djds LVkEi oknksa dk fuLrkj.k djus okys leLr vf/kdkfj;ksa dks ;g funsZ'k fn;s tkrs gSa fd os tkrs gSa fd os tkrs gSa fd os tkrs gSa fd os LofoRrLofoRrLofoRrLofoRr iksf"kr ;kstuk ds vUrxZr mfpr LVkEi 'kqYd ds Hkqxrku dk ijh{k.k djrs le; mijksDr iksf"kr ;kstuk ds vUrxZr mfpr LVkEi 'kqYd ds Hkqxrku dk ijh{k.k djrs le; mijksDr iksf"kr ;kstuk ds vUrxZr mfpr LVkEi 'kqYd ds Hkqxrku dk ijh{k.k djrs le; mijksDr iksf"kr ;kstuk ds vUrxZr mfpr LVkEi 'kqYd ds Hkqxrku dk ijh{k.k djrs le; mijksDr ckrksa dk /;kuckrksa dk /;kuckrksa dk /;kuckrksa dk /;ku j[ksa ,oa tgka Hkh IykV ds foØ; foys[k] iV~Vk foys[k vFkok ÝhgksYM foys[k dk j[ksa ,oa tgka Hkh IykV ds foØ; foys[k] iV~Vk foys[k vFkok ÝhgksYM foys[k dk j[ksa ,oa tgka Hkh IykV ds foØ; foys[k] iV~Vk foys[k vFkok ÝhgksYM foys[k dk j[ksa ,oa tgka Hkh IykV ds foØ; foys[k] iV~Vk foys[k vFkok ÝhgksYM foys[k dk iathdj.k djk;s cxSjiathdj.k djk;s cxSjiathdj.k djk;s cxSjiathdj.k djk;s cxSj gh fdlh laxBu ds ek/;e ls Hkou fuekZ.k gh fdlh laxBu ds ek/;e ls Hkou fuekZ.k gh fdlh laxBu ds ek/;e ls Hkou fuekZ.k gh fdlh laxBu ds ek/;e ls Hkou fuekZ.k djk;k x;k gks oakg ij djk;k x;k gks oakg ij djk;k x;k gks oakg ij djk;k x;k gks oakg ij lEifRr ds cSukesa ds le; Hkwfe ,oalEifRr ds cSukesa ds le; Hkwfe ,oalEifRr ds cSukesa ds le; Hkwfe ,oalEifRr ds cSukesa ds le; Hkwfe ,oa Hkou nksuksa ds ewY;kadu ds vk/kkj ij LVkEi 'kqYd dk Hkou nksuksa ds ewY;kadu ds vk/kkj ij LVkEi 'kqYd dk Hkou nksuksa ds ewY;kadu ds vk/kkj ij LVkEi 'kqYd dk Hkou nksuksa ds ewY;kadu ds vk/kkj ij LVkEi 'kqYd dk Hkqxrku djk;k tkuk lqfuf'pr djsaA ;fn iwoZ esaHkqxrku djk;k tkuk lqfuf'pr djsaA ;fn iwoZ esaHkqxrku djk;k tkuk lqfuf'pr djsaA ;fn iwoZ esaHkqxrku djk;k tkuk lqfuf'pr djsaA ;fn iwoZ esa ,sls dksbZ foys[k Hkou dk ewY; lfEefyr djds ,sls dksbZ foys[k Hkou dk ewY; lfEefyr djds ,sls dksbZ foys[k Hkou dk ewY; lfEefyr djds ,sls dksbZ foys[k Hkou dk ewY; lfEefyr djds LVkEi M~;wVh tek djk;s cxSj iathd̀r fd;s x;s gksa rksLVkEi M~;wVh tek djk;s cxSj iathd̀r fd;s x;s gksa rksLVkEi M~;wVh tek djk;s cxSj iathd̀r fd;s x;s gksa rksLVkEi M~;wVh tek djk;s cxSj iathd̀r fd;s x;s gksa rks llllEcfU/kr mifucU/kdx.k bldk ijh{k.k EcfU/kr mifucU/kdx.k bldk ijh{k.k EcfU/kr mifucU/kdx.k bldk ijh{k.k EcfU/kr mifucU/kdx.k bldk ijh{k.k dj ysa rFkk ,sls ekeysa ftlesa mijksDr ds vk/kkj ij dehdj ysa rFkk ,sls ekeysa ftlesa mijksDr ds vk/kkj ij dehdj ysa rFkk ,sls ekeysa ftlesa mijksDr ds vk/kkj ij dehdj ysa rFkk ,sls ekeysa ftlesa mijksDr ds vk/kkj ij deh LVkEi ik;k tk; vkSj tks 4 o"kZ ds LVkEi ik;k tk; vkSj tks 4 o"kZ ds LVkEi ik;k tk; vkSj tks 4 o"kZ ds LVkEi ik;k tk; vkSj tks 4 o"kZ ds vUnj gh iathdr̀ fd;s x;s gksa muds lEcU/k esa /kkjk&47 d ¼3½ dsvUnj gh iathdr̀ fd;s x;s gksa muds lEcU/k esa /kkjk&47 d ¼3½ dsvUnj gh iathdr̀ fd;s x;s gksa muds lEcU/k esa /kkjk&47 d ¼3½ dsvUnj gh iathdr̀ fd;s x;s gksa muds lEcU/k esa /kkjk&47 d ¼3½ ds vUrxZr LVkEiokn pyk;s vUrxZr LVkEiokn pyk;s vUrxZr LVkEiokn pyk;s vUrxZr LVkEiokn pyk;s tkus dh dk;Zokgh djkuk lqfuf'pr djsaAtkus dh dk;Zokgh djkuk lqfuf'pr djsaAtkus dh dk;Zokgh djkuk lqfuf'pr djsaAtkus dh dk;Zokgh djkuk lqfuf'pr djsaA 4444---- dddd`i;k mijksDr funsZ'kksa dk dM+kbZ ls vuqikyu lqfuf'pr djkrs gq, bldh izkfIr Lohdkj `i;k mijksDr funsZ'kksa dk dM+kbZ ls vuqikyu lqfuf'pr djkrs gq, bldh izkfIr Lohdkj `i;k mijksDr funsZ'kksa dk dM+kbZ ls vuqikyu lqfuf'pr djkrs gq, bldh izkfIr Lohdkj `i;k mijksDr funsZ'kksa dk dM+kbZ ls vuqikyu lqfuf'pr djkrs gq, bldh izkfIr Lohdkj djusdjusdjusdjus dk d"V djsaAdk d"V djsaAdk d"V djsaAdk d"V djsaA
Hkonh;]Hkonh;]Hkonh;]Hkonh;]
Vh0 tktZ tkslsQVh0 tktZ tkslsQVh0 tktZ tkslsQVh0 tktZ tkslsQ
izeq[k lfpoizeq[k lfpoizeq[k lfpoizeq[k lfpo
la[;k&d0fu0&5&4122@11&2000 rn fnukad %la[;k&d0fu0&5&4122@11&2000 rn fnukad %la[;k&d0fu0&5&4122@11&2000 rn fnukad %la[;k&d0fu0&5&4122@11&2000 rn fnukad % izfrfyfi fuEufyf[kr dks lwpukFkZ ,oa vko';d dk;Zokgh gsrq izsf"kr %&izfrfyfi fuEufyf[kr dks lwpukFkZ ,oa vko';d dk;Zokgh gsrq izsf"kr %&izfrfyfi fuEufyf[kr dks lwpukFkZ ,oa vko';d dk;Zokgh gsrq izsf"kr %&izfrfyfi fuEufyf[kr dks lwpukFkZ ,oa vko';d dk;Zokgh gsrq izsf"kr %& 1111---- izeq[k lfpo] vkS|ksfxd fodkl foHkkx] mRrj izns'k 'kkluAizeq[k lfpo] vkS|ksfxd fodkl foHkkx] mRrj izns'k 'kkluAizeq[k lfpo] vkS|ksfxd fodkl foHkkx] mRrj izns'k 'kkluAizeq[k lfpo] vkS|ksfxd fodkl foHkkx] mRrj izns'k 'kkluA 2222---- lflflflfpo] vkokl foHkkx] mRrj izns'k 'kkluApo] vkokl foHkkx] mRrj izns'k 'kkluApo] vkokl foHkkx] mRrj izns'k 'kkluApo] vkokl foHkkx] mRrj izns'k 'kkluA 3333---- LVkEi vk;qDr ,oa vij lfpo] jktLo ifj"kn] mRrj izns'k] bykgkcknALVkEi vk;qDr ,oa vij lfpo] jktLo ifj"kn] mRrj izns'k] bykgkcknALVkEi vk;qDr ,oa vij lfpo] jktLo ifj"kn] mRrj izns'k] bykgkcknALVkEi vk;qDr ,oa vij lfpo] jktLo ifj"kn] mRrj izns'k] bykgkcknA 4444---- vkokl vk;qDr] 104 egkRek xk¡/kh ekxZ] y[kuÅAvkokl vk;qDr] 104 egkRek xk¡/kh ekxZ] y[kuÅAvkokl vk;qDr] 104 egkRek xk¡/kh ekxZ] y[kuÅAvkokl vk;qDr] 104 egkRek xk¡/kh ekxZ] y[kuÅA vkKk lsvkKk lsvkKk lsvkKk ls
;w0 ds0 ,l0 pkSgku;w0 ds0 ,l0 pkSgku;w0 ds0 ,l0 pkSgku;w0 ds0 ,l0 pkSgku
fo'ks"k lfpofo'ks"k lfpofo'ks"k lfpofo'ks"k lfpo
The Uttar Pradesh Government cannot take divergent views. It has to speak with ONE VOICE.
It has taken a clear stand that conveyance is required where the payment towards an
apartment/unit is received in installments as no ownership vests until a Transfer Deed is
executed. How can it take a different view that such an activity tantamount to ‘works contract’
chargeable to VAT? It would be apt to refer to the Judgment of the Apex Court in Vadilal
Chemicals Ltd v. The State of Andra Pradesh & others 2005 AIR 3073. The Court Held thus:
“The Department of Industries and Commerce which was responsible for the issuance of the
1993 G.O. accepted the appellant as an eligible industry for the benefits. Apart from the fact
that it can be assumed that the Department of Industries was in the best position to construe
its own order, we can also assume that in framing the scheme and granting eligibility to the
appellant all the departments of the State Government involved in the process had been duly
consulted. The State, which is represented by the Departments, can only speak with one
voice.”
Moreover, the rate of Stamp Duty in the State of Uttar Pradesh is 7%. The rate of VAT under
composition scheme for contracts made before 30 December 2010 is 2%. Even if a builder does
not opt for composition scheme and purchases construction material through tax invoices, the
liability towards VAT would be not be more than 2%. In such circumstances, it would be
beneficial for the State to collect Stamp Duty under the Stamps Act & not tax the transactions
under VAT Act. The same shall be in consonance with the law laid down by the Apex Court and
the Allahabad High Court, binding on all the officers of the State. This stand would also be in
conformity to the Government order dated 27 July 2000, referred to above. It is pertinent that this
Government Order has been issued by the Principal Secretary, Tax & Registration who heads
both the VAT Department & the Stamps & Registration Department. It is equally important to
note that the Allottees of the Housing Board/ Development Authorities/the private builders are
paying the requisite Stamps Duty in pursuance to the aforesaid Government Order and the
binding final decision of the Allahabad High Court in Ashwani Kumar Tripathi v. State of U.P.
& others 2005 (4) AWC 3270 (supra).
STAND OF THE MINISTRY OF FINANCE, GOVERNMENT OF INDIA IN RESPECT
TO THESE TRANSACTIONS:
It would be worthwhile to reproduce the Circular no. 108/02/2009, wherein the Ministry of
Finance elucidated the transactions of Builders and resolved the controversy. Para 3 of the said
Circular clearly confirms the final view point of the Ministry of Finance, Government of India
and is vital in deciding the present controversy of chargeability of VAT on Builders.
Circular No. 108/02/2009 – ST
F. No. 137/12/2006-CX.4
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
***
New Delhi, dated 29th January 2009
Subject: Imposition of service tax on Builders - regarding
************
Construction of residential complex was brought under service tax w.e.f.01.06.2005. Doubts
have arisen regarding the applicability of service tax in a case where developer /
builder/promoter enters into an agreement, with the ultimate owner for selling a dwelling unit in
a residential complex at any stage of construction (or even prior to that) and who makes
construction linked payment. The ‘Construction of Complex’ service has been defined under
Section 65 (105)(zzzh) of the Finance Act as “any service provided or to be provided to any
person, by any other person, in relation to construction of a complex”. The ‘Construction of
Complex’ includes construction of a ‘new residential complex’. For this purpose, ‘residential
complex’ means any complex of a building or buildings, having more than twelve residential
units. A complex constructed by a person directly engaging any other person for designing or
planning of the layout, and the construction of such complex intended for personal use as
residence by such person has been excluded from the ambit of service tax.
2. A view has been expressed that once an agreement of sale is entered into with the buyer
for a unit in a residential complex, he becomes the owner of the residential unit and subsequent
activity of a builder for construction of residential unit is a service of ‘construction of residential
complex’ to the customer and hence service tax would be applicable to it. A contrary view has
been expressed arguing that where a buyer makes construction linked payment after entering into
agreement to sell, the nature of transaction is not a service but that of a sale. Where a buyer
enters into an agreement to get a fully constructed residential unit, the transaction of sale is
completed only after complete construction of the residential unit. Till the completion of the
construction activity, the property belongs to the builder or promoter and any service provided
by him towards construction is in the nature of self service. It has also been argued that even if it
is taken that service is provided to the customer, a single residential unit bought by the individual
customer would not fall in the definition of ‘residential complex’ as defined for the purposes of
levy of service tax and hence construction of it would not attract service tax.
3. The matter has been examined by the Board. Generally, the initial agreement between the
promoters / builders / developers and the ultimate owner is in the nature of ‘agreement to sell’.
Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any
interest in or charge on such property. The property remains under the ownership of the seller (in
the instant case, the promoters/builders/developers). It is only after the completion of the
construction and full payment of the agreed sum that a sale deed is executed and only then the
ownership of the property gets transferred to the ultimate owner. Therefore, any service provided
by such seller in connection with the construction of residential complex till the execution of
such sale deed would be in the nature of ‘self-service’ and consequently would not attract service
tax. Further, if the ultimate owner enters into a contract for construction of a residential complex
with a promoter / builder / developer, who himself provides service of design, planning and
construction; and after such construction the ultimate owner receives such property for his
personal use, then such activity would not be subjected to service tax, because this case would
fall under the exclusion provided in the definition of ‘residential complex’. However, in both
these situations, if services of any person like contractor, designer or a similar service provider
are received, then such a person would be liable to pay service tax. (emphasis supplied)
4. All pending cases may be disposed of accordingly. Any decision by the Advance Ruling
Authority in a specific case, which is contrary to the foregoing views, would have limited
application to that case only. In case any difficulty is faced in implementing these instructions,
the same may be brought to the notice of the undersigned.
(Gautam Bhattacharya)
Commissioner (Service Tax)
CBEC, New Delhi
It is expected that the State Governments shall also issue necessary clarifications, in conformity
to the aforesaid clear stand of the Union Government of India.
MAHARASHTRA AMENDMENT ON VAT PURSUANT TO K.RAHEJA:
The Government of Maharashtra pursuant to the judgment of the Supreme Court in the matter of
K.Raheja (supra) amended the definition of sale w.e.f 12 June 2006 to bring the Agreement for
sale of apartments under the purview of VAT. The Maharashtra Chamber of Housing Industry
(MCHI) filed a Tax Writ Petition in the High Court of Mumbai. The Court vide Order dated 08-
02-2007 restrained from levy and collection of VAT till final order. The relevant paragraph of
the order is reproduced as under:
“ Such members of the Petitioner No. 1, who on regular basis, furnish information and data to
the Sales –Tax authorities will not be compelled to be registered as ‘dealers’ liable to pay tax
under the Maharashtra Value Added Tax, 2002. No order of assessment shall be passed in
respect of ‘sale of flats’ under the Maharashtra Ownership Flats Act in building/s
constructed/under construction by the members of the Petitioner No. 1` as ‘unregistered
dealers’ or as ‘registered dealers’. It will be open to the Respondents to process the
information up to the stage of passing of assessment order/s.”
No other National or State Builders Association has approached their respective High Court to
obtain a blanket stay in terms of the aforesaid order of the Mumbai High Court. It is strongly
advised that Builders Association of India, NARDECO, CREDAI and other State Builders
Associations to move to their respective High Courts to obtain such order and save their
members from the illegal levy of VAT.
The Maharashtra Government was not getting revenue from VAT from Builders due to the
operation of blanket Stay Order referred to above. The matter was reconsidered by the Cabinet
and a new simple Composition Scheme has been introduced w.e.f 1st April, 2010 vide
Notification No. VAT. 1510/CR-65/Taxation-1 dated 9th July, 2010 under which 1% VAT would
be payable on the aggregate value of Agreement or the value as per the Bombay Stamps Act,
whichever is higher. Although the scheme is simple but the Builders are not paying VAT on the
pretext that the imposition of VAT is illegal and unwarranted and also on the ground of the
continuance of the earlier blanket stay on VAT vide Mumbai High Court Order dated 08-02-
2007, referred to above.
LEGAL VALIDITY OF THE TRADE TAX CIRCULAR DATED 15-12-2005:
The said circular had been issued by the Commissioner Trade Tax with a view to implement the
decision of the Apex court in K. Raheja. Since this decision itself is pending reconsideration by a
larger bench of the Apex Court, the circular itself has become redundant. More so after the
binding decision of ATS Infrastructures rendered by the Allahabad High Court clarifying that K.
Raheja is not applicable to the facts & circumstances as they exist in the State of Uttar Pradesh.
Moreover, it is well settled law that departmental circulars cannot levy tax on something, which
is not taxable under the Act. The circulars are meant to clarify the law and not to lay down a Law
(Advise Advertising Pvt. Ltd. Vs Union of India 2001 (131) ELT 529 (Mad).
CONCLUSION:
In the light of discussions made above, it is crystal clear that the Builders of North India,
particularly Uttar Pradesh, are not liable to VAT even if they make bookings from prospective
purchasers before the completion of their project, collect the Allotment price in instalments as
they remain the owners of the superstructure and the ownership in the superstructure is
transferred only on execution of Sale/Transfer Deed. The dictum of K. Raheja does not apply to
the Builders as the facts and circumstances of these Builders are different from that of K. Raheja
in as much as they transfer the ownership of the superstructure of the unit by way of registered
sale deed and not by accession as in K. Raheja. More so as K. Raheja is not a Precedent and has
been rightly distinguished by the Allahabad High Court in ATS Infrastructures case (supra). The
binding precedent in Ashwani Kumar Tripathi v. State of U.P. & others 2005 (4) AWC 3270
(supra) and the Government order no. 5-4122/11-2000-500(9)/99 dated 20 July2000 should
be respected and followed. Moreover, judicial proprietary demands that huge illegal tax demands
be not made by the assessing authorities on the basis of K. Raheja as its veracity is under shadow
as the matter is sub- judice before a larger bench of the Apex Court. The Appellate Courts & the
High Courts should also grant a total stay to these illegal demands in all pending cases. Last but
not the least, the Supreme Court should give out of turn expeditious hearing to this important
case so that the controversy is finally settled and litigations pending at different forums may end.
INDER CHAND JAIN
Chairman, Anupam Housing Group, Agra
E mail: [email protected]
M:09319215672