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Notice on VAT payment

It does not matter to the sales tax dept whether the promoter has signed an agreement with the purchaser or not for VAT recovery,the official said.

Written by Ajay Khape |
August 24, 2012 3:11:01 am

It does not matter to the sales tax dept whether the promoter has signed an agreement with the purchaser or not for VAT recovery,the official said

A public notice by CREDAI-Pune Metro (formerly PBAP),an association to promote real estate,informing citizens about a government circular seeking Value Added Tax (VAT) on property deals that had taken place between June 2006 and March 2010 with retrospective effect has put buyers in a bind.

Buyers have to pay higher VAT for the said period according to a sales tax department circular. VAT was brought down in March 2010.

Buyers who have not signed an agreement to pay VAT need not worry,but those who have signed such a clause will find no way out from paying this indirect tax,said a tax consultant.

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“The notice has come as a shock. The developer is demanding the amount saying the government has served a notice on them. I had bought the property in November 2006 and got possession three years ago after making the entire payment to the developer,” said Prasad Kothare,a resident of Kothrud,who said he would not be able to pay the amount. He added he has no clues as to how to tackle the situation.

A senior sales tax official said,“The sales tax office has not served any notice on promoters but issued a trade circular to deposit VAT on property sold,as per government rules. VAT being an indirect tax will be recovered by the government from promoters and developers. We have nothing to do with the purchaser.”

“It’s a liability of the developer and we will recover VAT from them. We cannot interfere in matters of developer and purchaser as it was the responsibility of the developer and not the government to recover VAT from the purchaser,” he said.

There should not be any problem for the promoter to deposit VAT if it has been already collected from the buyer during the deal,he said adding,“It was the responsibility of the developer to charge VAT from the purchaser and nothing can be done if they have failed to do that. The government will recover VAT from the developer.”

It does not matter to the sales tax department whether the promoter has signed an agreement with the purchaser or not for VAT recovery,the official clarified.

Tax consultant Govind Patwardhan said that the concern among public is over five per cent VAT being demanded by the promoter. “VAT has to be paid on cost of construction material and it will vary. It should hardly be around one percent of the construction material cost as against the five per cent being demanded,” he said.

Patwardhan said buyers need not worry if the promoter has not signed any agreement about recovering VAT in future.

“The builder’s demand will stand only if there is a clause in the agreement between purchaser and promoter that VAT would have to be paid,” he said adding that the purchaser should ask for details of VAT being charged.

However,buyers who have not got possession and may not have signed any clause in the agreement to pay VAT might have to shell out VAT or else the promoter might delay giving possession,he added.

Builders await Aug 28 hearing

The state government’s circular for payment of VAT has stirred a hornets’ nest as builders have termed August 31deadline ‘extremely unreasonable’. The government has issued notices to developers for payment of VAT on sold out flats from 2006-2010 with retrospective effect. Credai Pune Metro had filed a writ petition in Bombay HC but the petition was dismissed by the court in April 2012. Following this,they filed a Special Leave Petition in the Supreme Court,the hearing for which is scheduled for August 28. Credai vice-president Pune Rohit Gera said the timeline that the government has set is “extremely difficult and definitely unreasonable.’’ He said apart from collecting funds for payment one needs to put together returns from documents as long as six years back,which is extremely challenging. He said since the matter is in court they would wait for the outcome.

Gera said the tax liabilities on the flat purchasers are already very heavy — at the local level,there are development charges,premiums and octroi,at the state level,there is stamp duty and VAT and at the Central level there is excise and service tax. All this adds up to huge costs for the home buyers,he added.

Liability of payment based on agreement: Legal experts

The state government has issued a circular for payment of value added tax (VAT) by August 31 on properties sold after 2006 but lawyers claim that its liability depends on the agreement between the owner and builder. “There is a clause in all agreements about the liability of payment of any additional tax that may occur,” senior civil lawyer Vinayak Abhyankar said.

The non-payment of VAT will attract punitive action from the state government but it will be directed towards builders and not property owners as builders have to collect it and deposit it with the government. “However,not paying VAT will give rise to a conflict between the builder and property owners. In such cases,the builder can file a recovery suit against those owners failing to pay it.”

Former district government pleader D D Shinde said the picture would be clear once the special leave petition pending in the Supreme Court is disposed of.

The Confederation of Real Estate Developers’ Associations of India (CREDAI) – Pune metro on Thursday issued a public notice on the deadline for paying VAT. Shinde said CREDAI,as an association,would not be able to take legal action against property owners if they refused to pay VAT but individual builders can take owners to court for the same.

CREDAI president Satish Magar said there was an ambiguity about VAT on properties sold between 2006 and 2010. “Like any other manufactured commodity,it is up to the builder to collect VAT from the property owner and deposit it with the government.”

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