Paying VAT to Builders

Citizens’ groups and consumer forums have appealed to flat owners to refrain from hurriedly paying Valued Added Tax (VAT) to builders, following the Supreme Court’s decision. Citizens’ forums like Grahak Hitvardhini, Grahak Panchayat and Sajag Nagrik Manch held a meeting of flat buyers at Perugate Bhave School in Sadashiv Peth on Sunday. “Some builders may try to interpret the decision to their benefit and pressure flat owners into paying VAT. The owners should not panic and rush to pay the builders,” Vivek Velankar, founder of citizens’ group Sajag Nagrik Manch, said. Velankar said the flat owners should make sure the builder has fulfilled all terms and conditions of the agreement. If the builder has not, the citizen should insist to builders that they should fullfill it.
Sudhakar Velankar of Grahak Hitvardhini, the group that has filed the PIL seeking restraint on builders from collecting VAT from buyers, said that more clarity is needed as there are few points that can create confusion while interpreting the Supreme Court verdict. “The confusing aspects relate to owners of land and developers. We have filed a PIL in Bombay high court and are expecting a hearing on October 23. After that things would be even further clear,” he said. Before making any decisions about paying VAT to the builder, flat owners should review details about the owner of the land, the builder’s registration date, and the contract between flat owners and builders, he added.
The owners should also seek details of the works that were completed at the time the contract was signed. “Flat buyers should demand the calculation of VAT amount based on their personal contract, unless the builders give such calculation, no payment should be made to them,” he added. In August 2012, the state had issued a circular asking developers to pay 5% of the works contract value as VAT for flats under construction between June 20, 2006 and March 31, 2010. The developers had challenged it in Bombay high court as well as in Supreme Court. As many as six lakh properties in the state and about 1.5 lakh in Pune were registered between June 20, 2006 and March 31, 2010. Tax liability for every flat could be in the range of Rs 1 lakh to Rs 3 lakh.
Supreme Court verdict
The Supreme Court on Thursday upheld the validity of the state-imposed Valued Added Tax (VAT) on sale of flats and dismissed a petition filed by developers challenging the state’s powers to levy the tax. The SC heard 26 appeals against VAT on sale of flats, 12 of which were from Maharashtra and the rest from Karnataka. The verdict means that flats sold since July 1, 2006 will be liable for payment of the tax, unless the building was issued an Occupancy Certificate before the sale agreement. Experts said builders can seek to recover the amount from flat buyers only if the sale agreement provides for collection of VAT from the purchaser, not otherwise. Else, builders are liable to pay.
Things to check before VAT payment
* Who is the owner of the land?
* Date of registration of the builder
* Agreement between builder and flat owners