Keeping
in view the lack of uniformity in assessment of tax and the resulting avoidable
disputes, the Haryana Excise & Taxation
Commissioner
has released a Circular Memo No. 152 /ST-1 dated May 7, 2013 (“Circular”)
clarifying the applicability of VAT on the construction contract and Joint
development agreements (“JDA“) executed by builders and developers for sale of
flats and buildings under the Haryana Value Added Tax Act, 2003.
The key
principle emerging from the Circular is that a builder/developer would be liable
to discharge VAT on the turnover relating to transfer of property in goods
involved in execution of such construction contracts and joint development
agreements entered for construction of buildings.
Single
agreement for the sale of constructed building to be treated as works contract
if entered into before completion of building
The
Circular clarifies that in the event the developer enters into an agreement for
sale of constructed flats, apartments or other buildings with the prospective
buyers, before completion of such buildings, then such agreement for
construction/ agreement for sale shall be treated as works contract of
construction of building on which VAT shall be applicable.
Landowners’
share of building constructed by the developer under a JDA should also be
treated as works contract
The
Circular importantly states that the position currently adopted by most
developers to not discharge VAT on the amounts received from the customers
towards transfer of undivided share of land on which flat is constructed is
incorrect, in case of JDA projects. It is clarified that in case of JDA entered
into by developers, the landowners’ share of building constructed by the
developer should also be liable to works contract tax. The Circular prescribes
the following valuation principles in such cases:
·
Where
Separate amounts are collected from customers towards undivided share of
land -
aggregate of all such amounts would be considered as the value for payment of
VAT by the builder/developer.
·
Where no
separate amounts are collected -
aggregate of amounts declared by builder/developer to be the value of undivided
share of land transferred to customers at the time of registration shall be
considered as the value for payment of VAT by the
builder/developer.
·
If value
of the undivided share of land transferred is not declared separately at the
time of registration -
aggregate of amounts fixed under the relevant law as the value of undivided
share shall be considered as the value for payment of VAT by the
developer.
The
total consideration towards construction of the land owner's share of the
building shall be added to the monthly or other periodical receipts declared by
the developer or builder as received from his customers.
However,
on the date of handing over possession of the land owner's share of constructed
building to the land owner, it shall be taken that the consideration towards
such construction has been made in full and added to the total turnover of the
developer or builder or dealer, if not already declared.
Agreement
by Landowner with prospective customers before completion also works
contract
It is
clarified that in the event the landowner enters into sale agreements with
prospective customers directly for selling his portion of the building being
constructed by the developer, then the land owner would be liable to discharge
tax on the amounts collected from the buyers though the works contract is
actually carried out by the builder/developer. However, both the land owner and
the builder/developer should not to be taxed on the same transactions
twice.
Options
available for discharging VAT liability
Composition
scheme -
In case
of JDA, if the builder/developer opts for a composition scheme, the total
consideration on which such dealer is liable to tax would not include the amount
received from the customers towards their undivided share in land. However, in
the case of joint development projects this exclusion would not be
applicable.
Regular
Scheme -
The
Circular relies on the decision of the Supreme Court in case of Ganon
Dunkerely & Co (88 STC 204) wherein it is stated that in case of works
contract, tax will be applicable only on value of the goods involved in the
execution of the works contract which had to be determined by taking into
account the value of the entire works contract and deducting there from the
charges towards labour and services. The total profits of the contract should
be apportioned between material and labour
proportionately.
If the
value of labour is not ascertainable on actual basis, then the same shall be
arrived at by adopting standard percentage rate prescribed in the table provided
under rule 25(2) of the Haryana Value Added Tax Rules, 2003.
With
regard to the sub-contractor deduction, in case the works contract is executed
partly or fully through a sub-contractor, the profit earned by the
sub-contractor on labour charges and the gross profit earned by the main
contractor on such charges shall be allowed as deduction
No comments:
Post a Comment