Bombay High Court gives no relief to builders on VAT

The Bombay High Court today dismissed a bunch of petitions filed by builders against two circulars of the Maharashtra Sales Tax department which levied VAT on all property transactions between 2006 and 2010.

The division bench of Justices D Y Chandrachud and R G Ketkar upheld the circulars issued on August 6 and September 26 which said that developers/ builders must register themselves with the Department and pay VAT under the Maharashtra Value Added Tax Rules.

According to a recent amendment, the definition of 'sale' was changed, so as to levy VAT on every sale of flat.

Maharashtra Chamber of Housing Industry, Builders Association of India, and a few builders had challenged this.

As per the circulars, builders will have to pay five per cent tax on the agreement value of under-construction flats for the period between June 2006 and March 31, 2010.

Regarding the liability from April 1, 2010, the developer would have to pay one per cent tax on agreement value without any "land deduction" and "input tax credit". The petitioners had sought similar scheme for June 2006 to March 2010 period.

The bench, however, rejected this demand and said that circulars were "not bad in law".

As per the circulars, developers were supposed to register themselves by September 15 and pay tax arrears by October 31.