The Supreme Court on Tuesday began to hear a bunch of petitions filed by three organizations challenging the levy of value-added tax (VAT) by state governments.
An apex court bench of Justice R M Lodha, Justice J Chelameswar and Justice Madan B Lokur partly heard petitions filed by Larsen & Toubro, the Maharashtra Chamber of Housing Industry and the Builders’ Association of India against the levy by Karnataka and Maharashtra governments. The hearing will continue tomorrow.
In L&T’s case, in 2008, it was asked to pay tax under the Karnataka Sales Tax (KST) Act, 1957. The company argued that it had signed a development agreement, to develop the plot belonging to the owner.
The KST department, though, relied on an earlier 2006 apex decision in the case of K Raheja developers on a similar works contract issue. The department said the company had signed a tripartite agreement with the plot owner and prospective flat buyers. As the agreement involved constructing flats for the buyers, the department said, it is a works contract and, therefore, VAT was leviable.
This view was opposed by L&T and subsequently by other developer bodies such as MCHI, which pointed to the difference between sale and works contracts. They said in a sale contract, a developer or a plot owner themselves develop a property and sell flats or commercial complexes. In such activities, no works contract was involved. They also argued in the agreement, there was a clause that if all payments are not made, then amounts paid can be forfeited and the agreement rescinded. No such right has been given to a person carrying out a works contract.
The KST department, though, relied on an earlier 2006 apex decision in the case of K Raheja developers on a similar works contract issue. The department said the company had signed a tripartite agreement with the plot owner and prospective flat buyers. As the agreement involved constructing flats for the buyers, the department said, it is a works contract and, therefore, VAT was leviable.
This view was opposed by L&T and subsequently by other developer bodies such as MCHI, which pointed to the difference between sale and works contracts. They said in a sale contract, a developer or a plot owner themselves develop a property and sell flats or commercial complexes. In such activities, no works contract was involved. They also argued in the agreement, there was a clause that if all payments are not made, then amounts paid can be forfeited and the agreement rescinded. No such right has been given to a person carrying out a works contract.