Liability of the flat buyer under Service Tax and VAT

With effect from 1st July, 2010 a person booking the flat under construction has been subjected to Service tax in respect of the services provided by the builder on or after Dt. 1/7/2010. The Service Tax is payable by him if the flat is booked in a residential complex having more than 12 flats.

It is clarified that service tax is payable only in respect of payments made on or after 1st July, 2010. In other words, if part of the payment towards the cost of the flat was made prior to 1st July, 2010, that part is not subjected to service tax. If, therefore, the project stood completed before 1st July, 2010 or the entire payment was made before that date service tax is not payable. The same is also not payable if the transaction is for the purchase of a ready made flat and not of a flat under construction.

With the insertion of the definition of 'Works Contract' in the MVAT Act w. e. f. 20/06/2006, any agreement for carrying out the building construction falls under Works Contract and as such is subject to VAT under the Act. The liability to pay VAT is that of a builder which can be passed on to the purchaser and, accordingly, the purchaser is supposed to make payment to the builder and not to the concerned government organisation. The VAT is to be computed on the contract value of the flat (which does not include the society charges) subject to the condition that the deduction towards cost of land should not exceed 70% of the agreement value. The Government of Maharashtra has formulated a composition scheme applicable to the registered dealers in respect of the agreements registered after 1st April, 2010, which enables the eligible builder to discharge his liability under VAT by payment at 1% of the agreement amount or value determined for stamp duty purpose under Bombay Stamp Act, 1958 whichever is higher.

-      Adv. R. P. Rathod.