levy of tax under vat

States not empowered to levy VAT on transfer of immovable property- under normal provision

Recently, on 22.04.2015, P&H High Court in CHD Developers v. State of Haryana & Ors. (TS-147-HC-2015(P&H)-VAT) upholder the levy of VAT on the sale of goods in an agreement to sale of flat, and further held that States are not empowered to levy VAT on the transfer of immovable property.

Rule 25 of Haryana VAT Rules was sought to be challenged on-premise that levy of VAT on the value of land was ultra vires the powers of State Legislature.

However, Circular No. 259/ST-1 dated February 10, 2014, which provides a composition scheme was declared optional, and hence no deduction of land is allowed, for the lump sum dealer.

The settled pronouncements of the said case are as under –

  1. Where the agreement is entered into after completion of flat/unit, there would be no element of works contract, hence VAT is not applicable.
  2. Further, in the case of the developer, the activity of construction undertaken by him would be called a works contract only from the stage he enters into a contract with the flat purchaser.
  3. Thus the value addition made to the goods transferred after the agreement is entered, shall only be made chargeable to VAT.

The major conditions for an activity to be chargeable under VAT are –

    • There must be a works contract
    • Goods should be involved in the execution of works contract
    • Property must be transferred to a third party either as goods or some other form
  • In case the Developers opt for the deductive method of calculation of VAT, the deduction of labor and like charges (similar to other work contractors as specified in rule 25 of HVAT) is admissible.
  • However, in case of Haryana VAT, provisions for deduction of value of land for the developer are not expressly specified.
  • Hence, the P&H HC, relying on the landmark judgment of Supreme court in the case of M/s Larsen and Toubro v.
  • State of Karnataka {(2013) 46 PHT 269 (SC)} held that State has no power to charge tax on anything except the value of transfer of property in goods and thus deduction of land is permissible in the case of developers.
  • (Reference was also made to the affidavit dated 24.4.14 of Shri B.L. Gupta, Additional Excise and Taxation Commissioner, Haryana).
  • However, in the case of a non-VAT dealer, i.e. lump sum works contractor, no deduction of the value of land is admissible to the developer.
  • Here it is held that since the composition method is optional to the dealer, and the same is not a charging provision, no deduction toward the value of land can be granted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:singh@carajput.com or call at 011-233 433 33/9555555480

 

Rajput Jain & Associates

Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

Recent Posts

Overview on Simplified GST Registration Process

Simplified GST Registration Scheme for small and low-risk businesses in India, A new optional scheme approved by the GST Council… Read More

19 hours ago

GST is applicable on dinner coupons issued to members,

GST is applicable on dinner coupons issued to members COUPONS (FOR COMMUNITY LUNCH/DINNER/PARTY) SUPPLY IS CONCERN: Supply of Dinner Coupons… Read More

19 hours ago

GST Changes Coming in GST from October 2025

GST Changes Coming in GST from October 2025 No Auto ITC in GSTR-2B : Until now: Input Tax Credit (ITC)… Read More

2 days ago

New cheque clearing process starting from Oct 4, 2025

New cheque clearing process in India starting from October 4, 2025 Existing System (Until Oct 3, 2025) : Clearing Method:… Read More

6 days ago

Overview on Tax Treatment on Gratuity in India

Overview on Tax Treatment on Gratuity in India What is Gratuity? Gratuity is a lump sum paid by an employer… Read More

6 days ago

Taxation Comparison: Gold Coin vs Gold Jewellery

Taxation Comparison: Gold Coin vs Gold Jewellery Tax Aspect Gold Coin Gold Jewellery ITR Reporting Treated as a capital asset.… Read More

1 week ago
Call Us Enquire Now