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Monday, November 5, 2012

Please, Refuse to Pay VAT - An appeal from Pune Builders!

Join the Fight Against Maharashtra Government!

Satish Magar
Mr. Satish Magar, President CREDAI, Pune Metro & CREDAI – Maharashtra

In an informal chat over a lunch, after the press conference of CREDAI Pune Metro, two senior reporters of leading newspapers in Pune were discussing how popular sentiments and advertising policies of the newspaper compels them to hide the truth while reporting.

For example, though, they - both the reporters - have understood the hidden messages given by the president of builders association of Pune & Maharashtra, - editors & owners of their newspapers - will not allow them to pass on that "hidden message" to the readers.

"Don't worry. That's why - CREDAI has invited me. I will pass on the builders' message to the property buyers who have bought flats between June 20, 2006, and March 31, 2010," I assured worried senior reporters.

"Who are you? How could you understand the "hidden message" of Pune builders?," the reporter who didn't know me asked.

"I am Ravi Karandeekar. For a while, I am writing 'Ravi Karandeekar's Pune Real Estate Market News Blog.' But, before starting the blog, for years, I was in Pune real estate advertising & marketing. Most of these Pune builders were my clients. So, I can read their minds. I can read between the lines. As a blogger - you know - I have a freedom to write the secret appeal - the hidden message - of builders in Pune!," I said.

"OK. What was the hidden message?," the other senior reporter asked.

"The hidden message of the builders in Pune & Maharashtra is - Dear property buyers, please, refuse to pay VAT & join our fight against Maharashtra Government!," I said.

If You Fight Against VAT, You Don't Have to Fight Against the Builders!:

The true reason behind calling urgent press conference on the noon of Friday, November 2, 2012, was to announce "compromise formula" to avoid impending war between builders & property buyers in Pune and Maharashtra.

The builders have realized that the united property buyers are not going to stop only at VAT. These united property buyers are going to fight against all exorbitant 'other charges' like MSEB, Parking, Legal & Society Formation, Maintenance and all. Including completion & occupation certificate and conveyance deed.

Instead of only complaining and spreading bad word about the builders, now, under the guidance of consumer organizations like Grahak Panchayat, Grahak Hitwardhini & Sajag Nagarik Manch, these united property buyers are going to take legal actions against the builders for these 'other charges' and demand accounts - refund - compensation - interest.

Builders have realized that it would be difficult to fight enlightened & united property buyers.

The builders have realized that united assertive property is bigger threat than the sales tax officers. While assessing their VAT returns, the sales tax officers can only challenge the method of calculation but these enlightened united assertive property buyers will damage their business itself.

If theses united property buyers continue to fight, in the near future, the builders will not be able to enjoy the protection they are going to gain from Maharashtra Housing (Regulation and Development) Bill, 2012.

Worried builders who prefer Income Tax Exemption Scheme like 80IB(10), are ready to go at any length to protect their books of accounts from Income Tax as well as from Sales Tax Officers.

On the last day, 31st October 2012, the builders realize that Maharashtra Government is not ready to levy 1 per cent VAT on the agreement value. It means that they can't avoid sales tax officers. Now, builders realized that only the property buyers can save them from sales tax officers. It means that there is no point in fighting with the property buyers. And builders decided to throw in the towel and called the press conference.

Though officially the press note given to the reporters said that it's property buyer's responsibility to pay VAT as per the demand letter sent by the builder, in an informal conversation the builders said that this demand is unreasonable. We don't agree with the 3 methods of calculation which forces the property buyer to pay from 0.6% to 5% VAT. We ourselves are fighting for 1 per cent VAT. It means that, please, ignore our demand note and keep on fighting with the Maharashtra Government for the uniform 1 per cent VAT on the agreement value.

The compromise formula is - if the property buyers help us to fight against Maharashtra Government, builders will see that property buyers don't have to fight for other clauses in the same agreement!

Builders can't go against the Maharashtra Government openly. Builders can not go on strike.

Court of law can not order the Maharashtra Government to levy or not to levy VAT.

Media is making it difficult for the Maharashtra Government - already suffering with policy paralysis - to change it's mind on VAT because the decision will be criticized as a favor to builders.

The ministers are not ready to take any decision because they want to avoid one more allegation of scam - Maharashtra Value Added Tax (MVAT) Scam - because of which Maharashtra - the most debt-ridden state in India (Rs 2.53 lakh crore!) - lost revenue of nearly 1,000 crore.

In this situation, for the builders, in Pune & Maharashtra, only hope is property buyers. So, the builders are trying to convince the property buyers that the real culprit is government. Not the builders. In fact, the builders are on the property buyers' side. The builders support the property buyers' cause. So, fight against the government. Not against the builders.

Property buyers, we, the builders. will keep on sending legal notices to you. But you are free to ignore them and continue with your fight against the government.

Property buyers, don't worry about the payment of VAT. We, the builders, will keep on demanding extension of the due date and no interest & no penalty for you.

Property buyers, we, the builders, can't officially join your fight against 5 per cent VAT for the flats bought between June 20, 2006, and March 31, 2010. But, always remember that we, the builders, are your friends.

And friends don't fight. Friends don't go to court. Friends solve dispute by negotiations. Any dispute. Dispute about VAT as well as dispute about MSEB, Parking, Legal & Society Formation, Maintenance, Completion & Occupation Certificate and Conveyance deed!

So, dear property buyers, if you keep on fighting against VAT, we promise, you will never have to fight against builders!

The 'Official' Press Note Issued by Builders:

Though you have got the hidden message, I am sure, you will be curious to read the official stand of CREDAI Pune Metro and Marathi Bandhakam Vyavsayik Association. So, please, have a look at the press note and news links of both organisations. Entertain yourselves and keep on fighting for your rights! After all 'an agreement for sell' is 'an agreement for sell' is 'an agreement for sell'. Binding for both. For the property buyer as well as for the builder.

(Press Release- CREDAI's Press Conference on MVAT):

November 2, 2012: There has been a lot of confusion created about the liability and responsibility towards the payment of the VAT to the Govt. of Maharashtra as a result of the various statements and opinions pertaining to the issue.

MVAT (Sales Tax) is an indirect Tax. Thus, under the taxation laws of India the assessee is permitted to collect the same from his customers (similarly to service tax which too is an indirect tax.) Like any other goods are purchased the VAT collected from the customers is deposited to the Government likewise, the VAT amount for flats is required to be paid by the respective flat owners by depositing it with respective builders.

As per the law, there are 3 ways the developer (dealer) can calculate the VAT that is payable to the State. The dealer is free to take the method that leads to the lowest payment. As an example, in one case, the dealer is free to deduct the value of the land (as per the ready reckoner rates), also deduct the value of works contracts issued. From the remaining amount, 30% is permitted to be deducted as a standard deduction towards labor. On the balance, the average rate of tax on materials purchased is to be applied and this leads to the exact tax liability for each flat.

The method has numerous variables such as rate per square foot which can be different for each customer, rate for land which changes every year as per the ready reckoner. Each developer follows different contract strategies and as such, the works contract deductions differ. Depending on the purchases made from within Maharashtra or out of state, the tax rate to be applied also varies. As a result, there can be a difference in the rate of tax for neighbors within a project and certainly a difference between projects. In fact, in order to simplify the process, the state government had come up with a standard rate of VAT at 1% with no land setoff etc from 2010 onwards.

Considering the background and legal history of the VAT from 2006 the State Government had issued a circular on 6th Aug. 2012 with various terms and conditions making it mandatory to deposit VAT (sales Tax) on the flats from 20th June 2006 with the deadline of 31st Aug. 2012. To challenge the punitive portions of the circular and the applicability of VAT on the industry as a whole the CREDAI-Pune Metro had moved to the Hon'ble Supreme Court of India and the Hon'ble Supreme Court of India extended the period for becoming dealers and granted administrative relief filing returns and paying tax before the said date.

During the period of 2006 onwards the developers have in their agreements of Sale with flat holders put the liability to pay VAT (Sales Tax) and other taxes to the flat holders as when it would become liable. In the larger interest of the Real Estate Industry and for all its players (including the customers), various organizations had filed cases against the applicability of this tax per se.

Since the matter of applicability of VAT on the Real Estate Industry was in dispute and matters were sub-judice in Court through various orders since 2009 and hence the Developers did not collect the VAT amount from the Customers.

On 28-08-2012 the Hon'ble Supreme Court of India gave an interim relief wherein they had directed that VAT be paid by and before 31st Oct. 2012 so as to avoid any coercive action penalty or interests while extending the date and of payment of this tax from 31st Aug. 2012 to 31st Oct. 2012 under the Trade Circular issued on 6th Aug,. 2012 by the Sales Tax Department, Government of Maharashtra.

Under the provision of the MVAT 2002 for the period from 20th June 2006 to 31st March 2010, the methodology of calculation of MVAT liability is very complicated and cumbersome. After going through all calculations of deduction and set offs, variation in tax liability can be from 0.6% to 5% in each individual case and this will further vary in projectwise calculations on year to year basis.

The State Government, from 1st April 2010 however did bring the composition scheme wherein 1% of the agreement value is to paid at the time of registration as VAT (Sales Tax) however this was not applicable to the period from 20th June 2006 to 31st March 2010. We are however still in pursuit with the State Government to consider our appeal in the interest of the entire Real Estate Industry to make this Composite Scheme from 20th June 2006 so as to bring a major relief to all flat holders in the State.

In fact, there were various petition including a PIL that were filed in the Hon'ble Bombay High Court wherein a similar prayer was sought some of which were decided and dismissed on 31st Oct. 2012 however we are yet to receive a copy of the same.

In recent articles and news publication it seems that there few organization that are misguiding the flat purchasers as to not making the VAT payment to the Developers who on their behalf pays to the State Government. As we have stated here even the PIL in the Hon'ble Bombay High Court did not seek for flat purchasers not to pay tax rather their prayer was to recover lowest VAT amount from the flat purchaser as recovery of the amount paid or payable to the State Government in discharge of liability of the flat purchaser and that the Developer has full right to collect from the customers.

So it is quite clear that the ultimate liability to pay VAT on the sale of flat is on the flat purchaser as it being an indirect tax like that of Service tax. Kindly do not heed to any misinformation and confusing information or articles as it would only increase the burden of liability over the flat purchaser.

It is pertinent to note that the Hon'ble Supreme Court of India has passed on interim order to pay tax before 31st Oct. 2012 and stating that if the applicability of VAT is finally held as unconstitutional then the State shall refund the entire tax amount with interest as decided. The Developers in turn shall refund the same to the Flat holders as and when decided.

Thus even though VAT tax is being paid it does not mean that the issue of applicability of VAT is decided rather all these issues are open before the Hon'ble Supreme Court.

CREDAI-Pune Metro is voicing this demand and is fighting a legal battle since last 5 years for the benefit of the flat buyers.

News about Press Conferences of Credai Pune Metro and Marathi Bandhakam Vyavsayik Association:

1) Credai fears slew of VAT-related litigation

2) Developers' body wants time till March to pay VAT

3) 'व्हॅट'ची जबाबदारी सदनिकाधारकांची

4) व्हॅट भरण्यास मुदतवाढ द्यावी

Related Stories:


United Pune Property Buyers Continue Their Fight Against VAT & Builders!

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  1. Good Post,

    Appreciate your willingness towards End-users.

    Although, I don't agree with all your opinions.
    You deserve full support for this (VAT) matter.

    Between, How many builders have paid the VAT.?

    Is there any official figure avilable about the same.?

    1. Thanks for the compliments, Rohit! Official numbers are not yet announced.

  2. Ravi Sir,

    Firstly thanks for helping all the flat buyers by putting up these updates on your blog. Your efforts are highly appreciated.

    Is there any word from Govt. if they have increased the due date from Oct 31st 2012?

    My builder has sent me a a note in Aug 2012 and no notice after that. Not sure if he has payed the VAT since the due date has passed. I have not payed VAT because I cannot afford it atleast not so fast.

  3. This comment has been removed by the author.

  4. Dear Mr.Karandikar,
    What is the latest update about the vat on property! Please update us.

  5. Dear Mr. Karandikar,
    we are also curious to know what are the latest updates on VAT (2006-2010)topic. We have twice refused to builder for PAying VAT and do not know exactly what his next action will be.
    Thanks in advance, waiting for your reply.