Peeved builders move HC over VAT confusion

The Builders Association of India has approached the Bombay high court, seeking to bring clarity in the state government’s value added tax (VAT) circular 2005 and 2012.

Apart from the Supreme Court interim order, the developers are not happy with the sales department’s complicated and vague circular and the method of calculating VAT. The high court will hear the writ petition on October 11.

“Rather than bringing clarity, the department is creating confusion in the minds of developers and buyers. So much is written and talked about VAT, but still, no one has a clear understanding,” said Anand Gupta, secretary of the Builders Association of India (BAI).
Shankar Desai, a trustee of BAI, said they were calculating 5% VAT on the basis of total cost of the construction value of the flat plus 15% profit as an ad hoc basis.

“But the sales department refused to accept it. As per the composition scheme U/s 42(3), a developer has to pay 5% VAT on the agreement value. The department has not clarified whether the 5% tax is to be calculated on the basis of construction value or the total flat cost. Sales tax officials are saying that VAT should only be as per the given formula. Therefore, we have decided to challenge their decision,” said Desai.

He added that according to the government, if the land cost is shown then there would be a deduction in charging VAT.

“But it is not clear whether the land cost should be considered as per the market value or ready reckoner rate basis. Also, there is no clarity on transfer of developmental right (TDR). TDR is as good as land. The circular is full of anomalies. There are several gray areas and no one from the government has addressed them,” said Desai.