VAT confusion aggravates as deadline ends

Published: Nov 01, 2012, 07:01 IST | Varun Singh |

Govt says those builders who haven't paid tax will be penalised; while developers forced some property buyers to fork out the money, others stood their ground

With little clarity on the matter, the last day for payment of five per cent value-added tax (VAT) by builders for under-construction residential properties they sold between 2006 and 2010 was also the most tumultuous. Developers had come up with their own formulas for recovering the money from buyers. On Tuesday, while upholding the two sales tax department circulars related to VAT, Bombay High Court set aside a clutch of petitions from various builders’ bodies that had sought the quashing of the notices. However, the court also made it clear that the judgement will not affect the appeals made to the government, but the deadline of payment still remained October 31.

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Mostly out of the loop, flat buyers were in a quandary. While some decided not to pay the builders, others loosened their purse strings.

Sunil T (name changed on request) last week got a call from Housing Development and Infrastructure Limited (HDIL), asking him to pay Rs 1.33 lakh as VAT. Apart from this he was also asked to shell out Rs 57,000 as interest on late payment. He had bought the apartment in 2009 and got it registered in January 2010. The building is located at Kurla and is still under construction.

“First of all a letter wasn’t delivered to me. I got a call from the builder’s office and then went and collected the letter (copy of which is available with MiD DAY). However, after that, the company’s representative told me that I would have to give them two cheques – one for the VAT amount and other for the interest. I asked the employee why I was being charged such an exorbitant interest when I received the communication last week. To this the representative kept mum,” he told MiD DAY.

Sunil, however, went ahead and made the payment. Like the company’s representative, the builder didn’t have any response to our query regarding the late payment?

According to Swati Kale, deputy commissioner for sales tax department, any developer who hasn’t deposited the money in the state treasury by yesterday will be penalised. So if a builder pays the amount by October 31 then there’s no clause of charging penalty at the rate of 15 per cent per annum.

On the other hand, several property purchasers have decided against paying the VAT money to the builders unless they receive proper notices. Meenakshi Maheshwari, a resident of Dosti Flamingo at Sewri, said, “The builder has not sent any formal VAT invoice or a legal notice that needs to be responded to.

As per Maharashtra Value Added Tax (MVAT) Act, 2002, to raise a VAT demand, the developer must employ a prescribed invoice format. However, the builder sent us a letter, and that too was received by us only on October 27. The correspondence said that we should pay the money on the same date. I found it in the society letter box.” The residents now plan to send a rejoinder to the builder asking him to respond on how he calculated the tax and why the homebuyers should pay for it.

Calls to Deepak Goradia, owner Dosti Group, went unanswered.

Meanwhile, the sales tax department has repeatedly said that the money towards VAT has to be paid by the builder. “A buyer cannot be forced to pay VAT to the builder, unless the latter obtains the order from a court of competent jurisdiction stating otherwise. In all probability, politicians will take speed money from builders and give an incentive on VAT liability to get the vote of the citizens,” said Advocate Vinod Sampat.

He added, “If a buyer has paid the money to the builder under pressure, he can seek redressal in a consumer court after getting possession of the flat.” 

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