Higher tax on spacious property

Written by Amit Bhagat | Jayanta Kalita | Updated: May 10 2013, 06:42am hrs
Queries on taxation and service tax liabilities, addressed by Amit Bhagat and Jayanta Kalita of Ernst & Young

I have purchased an under-construction residential flat. The carpet area of the flat is more than 1570 sq ft and the consideration charged is R1.5 crore. For the work completed in the months of March and April 2013, the builder has raised an invoice, with an increased service rate of 3.7% (as against the earlier rate of 3.09%). Kindly advise whether I am required to pay a higher service tax amount.

With effect from March 1, 2013, the government has increased the taxable portion (i.e. reduced the abatement available) in case of such properties with a carpet area of more than 2000 sq ft, and having a consideration of more than R1 crore. Please note that the rate of service tax remains the same @12.36%. In such cases, the effective service tax rate has been increased from 3.09% (with abatement of 75%) to 3.708% (with abatement of 70%). In your case, we understand that although the value of the unit purchased is more than R1 crore, the carpet area of the same is less than 2000 sq ft. Given the above, the increased service tax should not be applicable to the unit purchased by you and the builder should be charging tax @3.09%.

VAT/CST depends on character of sale

We are the wholesalers of consumer goods from various distribution centres across India. Our main customer is our sister concern which procures goods from our centre in Indore. The purchase order is placed from outside the state and transportation is the responsibility of the purchaser, but the transfer of title occurs at our distribution centre. During a recent visit, the VAT authorities contended that since the transfer of title is at the distribution centre, the sale would attract VAT and not CST. Is this correct

As mentioned in the background, the company is engaged in the sale of goods from the distribution centres and in some cases even though the purchase order is received from outside the state, the transfer in title to the goods occurs at the distribution centre itself. In such cases, since the title to goods is transferred to the buyer, the liability (if any) during transportation is borne by the buyer.

In the case of TELCO vs. The State of Bihar a similar matter has been addressed by the Supreme Court. The Supreme Court held that mere transfer of title within a state may not be the only parameter to determine whether a sale is an interstate sale or local sale.

In the present case, if the goods were always meant to be transported outside the state of sale, a purchase order was placed from outside the state and the seller is in a position to substantiate the same, the sale should qualify as an interstate sale and not a local sale. Mere transfer of title within the state of sale would not alter the characteristic of the sale. Accordingly, in the present case, the sale of goods to your group company should attract CST and not VAT provided the relevant facts of the case are established by the seller.

Importers can sell consignment to customs

We have recently imported goods (raw materials) for our manufacturing unit. However, the goods were held up at the port by the customs authorities for the past ten days. The goods imported are perishable in nature and a majority of the consignment has deteriorated (despite being warehoused at the port). We estimate that the consignment is not of use to us and would not fetch good value if sold post-clearance by customs authorities. Can we surrender our right to the goods in this case We have already deposited the applicable duty.

The Customs Act, 1962, specifically provides that in the event goods imported are not warehoused, and cleared for home consumption, the same may be sold by the customs authorities. Given the background, the customs authorities do not have the right to sell goods imported by you since the same have been warehoused. However, since the goods are of no residuary value, you may relinquish your title on the same. An importer is eligible to relinquish the title on imported goods provided the customs authorities have not issued an out of charge order i.e. the goods have not been cleared for home consumption.

In your case, since the goods have not been cleared for home consumption and only duty has been paid, you may be eligible to relinquish the title on the same. However, an importer is not eligible to relinquish title on goods in case an offence has been committed under the Customs Act, 1962 or any other legislation in force.

The replies do not constitute professional advice. Neither E&Y nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to sme@expressindia.com