Pay VAT, court tells Maharashtra builders

Mumbai, Oct 30 (IANS) The Bombay High Court Tuesday said that real estate developers and builders must pay Value Added Tax (VAT) on all property deals between 2006-10.

Dismissing petitions filed by two builder's bodies against circulars of the Maharashtra Sales Tax department, which levied the tax, the court upheld the circulars issued Aug 6 and Sep 26.

A division bench of Justice D.Y. Chandrachud and Justice R.G. Ketkar upheld the circulars, a lawyer said.

Last week, the Maharashtra Chamber of Housing Industry-Confederation of Real Estate Developers Association of India (MCHI-Credai) had filed a petition stating that the government has ignored the fact that they constructed and sold flats under the Maharashtra Owners of Flats Act.

"The building is constructed at our cost and without buyers having control over any activities of purchasing land to getting development permissions. The sale, thus, does not constitute a works contract and, hence, VAT cannot be levied," the petition said.

The developers also argued that they pay VAT for goods purchased during construction.

Maharashtra's sales tax department had sent out a circular in August demanding the VAT arrears -- ranging between Rs.8-10 billion -- from the developers by Aug 31.

Later, in a relief to developers and property buyers, the Supreme Court had extended the deadline by two more months to pay the tax arrears.

An apex court bench comprising Justice R.M. Lodha, Justice A.R. Dave and Justice Ranjan Gogoi passed the interim order while hearing a special leave petition (SLP) filed by developers through the Maharashtra Chamber of Housing Industry.

The MCHI has challenged an earlier order of the high court dismissing its plea against the government's decision to collect five percent value added tax (VAT) on all property deals between 2006-10.

In its interim order, the Supreme Court extended till Oct 31 the deadline for the developers to pay the VAT arrears. They were given time till Oct 15 to register themselves with the sales tax department.