itself assessed on that basis.
This process led to complications as different goods may have different rates of taxation and for some goods it would be difficult to determine exactly how much of it was used and when.
“Say for example there are nails, bolts, cement, electrical wires etc. This would mean that not only developer has to keep detailed record in respect of the material used to erect the building but also has to correctly state the date of transfer of material into the works,” said Tiwari.
Buyers too have suspicions on whether the tax amount the developer asks them to cough up is indeed the right one. Buyers are in no position to evaluate the developer’s expenses and there is every possibility that higher amounts may be collected from them.
The second method is that the developer at the commencement of the year chooses to opt for a compositions scheme. Every state has a compositions scheme, in most cases, a value to the contract is ascribed to a building, and certain permissible deductions are made towards, value of the immovable property, amount towards services and labour etc. The balance amount is taxable as amount of goods involved in transfer of works contract.
“Therefore, now with the judgment in the L&T case, in case the right, title and interest in the immovable property is transferred along with a works contract, the value ascribed towards the immovable property shall also be deducted. The Supreme Court has categorically made it clear that the state does not have right to deduct value added tax on the immovable property. However, the state does have right to collect stamp duty on its transfer,” said Tiwari.
A key issue was whether VAT that was charged on under-construction property was applicable to completed apartments and those on the resale market. The Maharashtra order, for example, did not clarify this aspect. “Conversely, the position that no VAT is payable if flats are sold after construction is complete has also been upheld,” said Jaising.
In a conference call with media, Prashanth Bhat, Director-Indirect Tax, BMR Advisors said that while most developers