As the last date for paying VAT by developers on flats sold during 2006 and 2010 is nearing, several builders are sending notices and exerting pressure on buyers to cough up the money. However, consumer organisations say the deadline is for builders and flat buyers need not pay the VAT

Several home buyers from Maharashtra are complaining harassment from builders for coughing up more money as value added tax (VAT). Citing a circular issued by the Maharashtra Sales Tax Department, builders are asking flat buyers to pay the additional money before 31st October for their homes bought between 2006 and 2010. However, Pune-based Grahak Panchayat has asked buyers neither to pay any heed to these tactics from builders nor pay any money as VAT.

Following the directions from the Supreme Court, developers who would pay the VAT before 31st October would be exempted from interest and penalty. This has prompted several developers to issue second notices to flat buyers.

Several builders are even exerting pressure and also threatening to charge exorbitant interest rates or take legal action on buyers if he/she refuses to pay the money. That too when the circular issued by the Sales Tax department clearly says the developer has to pay MVAT on his/her profits. Here are the specific points mentioned in the circular under its FAQ section...

From 20.06.2006 to 31.03.2010

1. Composition Scheme U/s 42(3) Under this scheme, the developer has to pay 5% tax on the agreement value. Land deduction is not available. Input tax credit is available to the reduction of 4%.

2. Actual Expense Method U/r 58 Under rule 58, the deduction of labour & service charges is available on actual basis. Land deduction is also available. Set-off will be calculated subject to the condition u/r 53 and 54.

3. Standard Deduction Method U/r 58 Under rule 58, the deduction of land cost will be allowed. Thereafter 30% standard deduction from remaining amount will be available as per proviso to sub-rule 1. Set-off will be calculated subject to the condition u/r 53 and 54.

After 01.04.2010

The developers can opt for fourth option also, under this option u/s 42(3A), developer has to pay 1% tax on agreement value. No land deduction and input tax credit is available.

It further states: “Needless to mention that the developer will be required to make the payment of interest according to the provisions of law.”

Here is a copy of the circular issued by the Sales Tax Department...
 

Here is a copy of the the Supreme Court order...

On 14 September 2012, Sudhakar Velankar filed a public interest litigation (PIL) in the Bombay High Court. Here are the points mentioned in the PIL…

[A] Once the buyer pays the stamp fee for the transaction of the immovable property, VAT cannot be recovered by the builder from him/her.

[B] Agreement to Sale, of the flat under construction, does not constitute SALE. It does not give the possession of the flat. It does not give the title to the property purchased. It only assures the sale of the property on certain future date and on completion of the construction of the flat.

[C] The instalments paid under the agreement, are not “deferred payment of price” but are “advance payment of agreed price”. The payment creates a charge on the property of the builder, which is not a sale, as defined under MVAT Act.

For those buyers who have been given notices by their builders, here is the “What to do” guideline provided by the Grahak Panchayat...

It is not binding on you to give written reply to the notice, legal or otherwise, of the builder. You have liberty not to respond to the notice and not comply with the demands of VAT amount from the builder.

If you have to respond, you may respond in very precise manner as under...

• • Please write to the builder as an individual. Do not involve the society or condominium in this issue. Individually written letters, however, can be forwarded to the builder in one bunch.
• • Please send the letters in any of the following manners.

-by hand delivery/courier, insisting on receipt with stamp and date.

-By Speed Post. preserve the computerised receipt of the post office.

-By registered post AD.

• • Those who have already written letters on the receipt of first notice might have received the second notice. They should also follow the same course of action.

DRAFT Reply to the notice of the builder for demanding VAT

(Delete the part not applicable to you)

From:

Name……………………………..

Address………………………….

Date……………………

To,

M/s …………………………

Address……………………..

Subject: Your Notice/letter for demand of VAT

Dear Sir,

I/We have received your notice/letter dated ………. For payment of VAT amount against flat No…….  in your ………………….. project. In this regard I/We have to write to you as under:

The matter of VAT on Flat is sub-judice with Hon. High Court and till such time that the hon. Court decides the matter, I have no intention to pay tax money.

Your demand of VAT money is not in proper form. Please issue a tax invoice or bill, as the case may be, as required under the MVAT Act. On receipt of your invoice/bill, I will respond appropriately to same.

Further as promised in the registered agreement you have do the following things

1.         Formation of society

2.         Conveyance in favour of society

3.         Return of balance amount after formation of society (as per Grahak Panchayat, Pune and as per Commissioner of co-op society the charges for society formation are just Rs500/- per member hence you return the balance amount with 18% interest)

4.         As per the MSEDC guidelines and as per the information received from Grahak Panchayat Pune the electricity meter charges are just Rs3,000 to Rs10,000 per flat and you have collected Rs……………. Which are very high. Hence please give receipts of payments made to MSEDC and pay the balance amount with 18% interest.

5.         Also as per Flat Ownership Act 1963, you have to form the society within four months from date of registration of the flat agreements by the 60% consumers. But you have not formed the same. And also you have not made conveyance in favour of the society. Hence you are requested to do the needful within 30 days from receipt of this notice otherwise we will take appropriate action against you at your cost.

6.         Also as per the promise made in the agreement you have not provided amenities. Hence you please provide it.

7.         Further as MOFA 1963 you are not to collect the parking charges but you have collected illegally the parking charges of Rs……………… per head. Please return the same within 30 days with 18% interest.

We are giving you 30 days time for above all facts and if you fail to comply then we will take appropriate action against you at your cost.

Thanking you

Yours faithfully

Sign ………………………………… 

Flat buyers, who are under pressure from the builder for paying VAT can also contact Grahak Panchayat at their Pune Office. Grahak Panchayat, 2020, Sadashiv Peth, Tilak Road, Pune 411030 (Opp SP College, above Grahak Peth) on any Monday between 6pm to 7.30pm.