Clarity on VAT need of the hour

The Supreme Court yesterday reached a decision that the retrospective Value Added Tax that has been imposed on builders for properties sold from 2006 onwards is valid, and that it should be paid by the builder to the Sales Tax department by October 31, 2012. Unfortunately, neither the Supreme Court, nor the Sales Tax department spoke on behalf of the consumers. Of course, the builders were never expected to.

More than 2,000 builders in Mumbai were either raided or sent notices by the Sales Tax department recently following a discovery that they collected VAT from their home buyers but never deposited that money with the government. Now, to collect that money, builders in turn are sending notices to those who have bought flats in the last five years to recover the money.

Though the fight is between the builders and the government, it is the home buyer that is the ultimate loser. For one, no one is speaking on his behalf. Two, the builder-investor mafia has ensured the skyrocketing of prices which have effectively kept the middle-class buyer off the real estate market. Third, with this retrospective implementation, who is to guarantee that the builder will not charge the buyer again? Or, for that matter, charge the buyer but not deposit the money?

It is a truism that the real estate market is in the doldrums — there is unsold inventory to the tune of thousands of flats in Mumbai alone, and the economy is not moving forward either. In such a scenario, it should have been incumbent upon government to implement the VAT immediately rather than wait for so long. Also, even if there is immunity on interest and penalty until October 31, 2012, what if the builder is unable to recover that money from a genuine buyer? Will the buyer end up paying the interest and penalty for something that is not his fault?

These questions need to be answered soon; otherwise the little consumer confidence left in the real estate sector will erode further.

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