BY RAKESH GARG, FCA
Incorporating
Amended Rule 3 of DVAT Rule vide Notification No.F.3(16)/Fin.(Rev-I)/2013-14/
dsVI/785 dated 20.09.2013 with effect from 20.09.2013.
Abbreviations
used: LO - Land Owner; BD - Builder/Developer; IP - Intended Purchaser;
DVAT
Act - Delhi
1. Introduction
Delhi Government
has always been a front-runner in bringing Rules for the builders for
computation of their taxable turnover under the Delhi VAT. Rule 3 of the DVAT
Rules was amended in 2006 immediately after the Judgment in Raheja case (next Para) was pronounced in 2005. Now, for the sake of bringing
simplicity and uniformity, the Government has carried comprehensive amendment
in Rule 3 with effect from 20.09.2013. It may also be noted that the Government
has simultaneously announced the Amnesty Scheme (VVAS) for tax dues for the
period up to 31.3.2013; and the builders could compute the value of land even for
the earlier years with the assistance of amended Rule 3, and pay tax for those
years, without any interest and penalty. VVAS has briefly been discussed in Para 5 of this Paper.
“Builders Collaboration Contracts” or “Joint Development
Agreements” (referred as “Builder Contracts”) for the purpose of our present discussion means the
contracts where LO offers his land to BD for construction of residential/ commercial
complex/units and the latter offers part of the constructed flats/units to LO;
and remaining flats are sold by BD to the customers, either during construction
or post construction as ready units. Size of complex, which may contain 4 units
or 400 units, will not have an effect on our discussion; nonetheless, in big
complexes, number of LOs can certainly be more than one, and certain other
issues would also crop up. Revenue sharing contracts between LO and BD have
been excluded from our present discussion. Thus,
our present discussion is confined to implication of Delhi
Before coming to
the taxability part, it is necessary to look at the history of the same. In a case
before the Division Bench of the Supreme Court
in K. Raheja Development Corporation vs. State of Karnataka (2005) 141 STC 298 (hereinafter
referred as Raheja case), the owners of the land were also engaged in
the business of constructing apartments/complexes, and for this purpose, they
entered into agreements of sale with the intended purchasers. It was held by
the Supreme Court that even an owner of the property might also be said to be
carrying on a works contract if the builder enters into an agreement to
construct with the intended purchasers. However, if the agreement is entered
into after the unit is already constructed, then there would be no works
contract. But so long as the agreement is entered into before the construction
is complete, it would be a works contract.
The Raheja case was referred to the larger
bench in the case of Larsen & Toubro Limited vs. State of Karnataka
(2008) 17 VST 460 (SC); but, without grant of any stay by the Apex Court.
Relying upon the judgment in Raheja case, Delhi Government initiated
imposition of VAT on the material involved in the transfer of residential and
commercial complexes by considering the activity as works contracts. It also
amended Rule 3 of the DVAT Rules for this purpose.
The Bombay High Court in Maharashtra Chamber of
Housing Industry vs. State of Maharashtra
Very recently, the
Larger Bench of the Supreme Court pronounced its judgment in L&T Case (supra)
on 26.09.2013 and approved the Raheja case. Para No. 114 and 118 of the
judgment reads as,
“114. In Article
366(29-A)(b), the term “works contract” covers all genre of works contract and
it is not limited to one specie of the contract. In Raheja Development (supra),
the definition of “works contract” in KST Act was under consideration. That
definition of “works contract” is inclusive and refers to building contracts and
diverse construction activities for monetary consideration viz; for cash,
deferred payment or other valuable consideration as works contract. Having
regard to the factual position, inter alia, Raheja Development (supra) entered
into development agreements with the owners of the land and it also entered
into agreements for sale with the flat purchasers, the consideration being
payment in installments and also the clauses of the agreement the Court held
that developer had undertaken to build for the flat purchaser and so long as
there was no termination of the contract, the construction is for and on behalf
of the purchaser and it remains a “works contract”. The legal position
summarized by us and the foregoing discussion would justify the view taken by
the two Judge Bench in Raheja Development.
118.
We are clearly of the view that
Raheja Development (supra) lays down the correct legal position and we approve
the same.”
After
pronouncement of the judgment by the Larger Bench of the Supreme Court, the law
has been settled in respect of imposition of VAT on builder contracts. Nevertheless,
the charge of VAT would certainly depend upon the terms of the contracts
between the parties.
In respect of determination of VAT on
the builder contracts, the Delhi Government has amended Rule 3 of the DVAT Rule
vide Notification No.F.3(16)/Fin.(Rev-I)/2013-14/dsVI/785 dated 20.09.2013 with
effect from 20.09.2013 comprehensively, discussed hereinafter.
3. Delhi
3.1 Taxability /
Incidence of tax
In accordance with Raheja case,
builder contract, where agreement is executed with intended purchasers before
completion of the building, falls within the definition of works contract.
Under the DVAT Act, the term “works
contract” has been defined under section 2(1)(zo) as,
“works contract” includes any agreement for carrying
out for cash or for deferred payment or for valuable consideration, the
building construction, manufacture, processing, fabrication, erection,
installation, fitting out, improvement, repair or commissioning of any moveable
or immovable property.
In view of Raheja
case (as approved by the Larger Bench), recently amended DVAT Rules and analyzing the activity in
detail, it can be stated that BD executes works contract for two separate
persons, that is, -
(A) Works Contract for the LO: where BD
constructs the units for a consideration in the form of share in the land; and
(B) Works contract for IP, if BD receives
payment (or enters into agreement of sale) from IP before completion of the construction.
So
far as activity stated at (A), it is always of the nature of works contract
activity (unless, it can be termed as barter transaction, discussed in next Para ); whereas activity referred to at (B) has become
taxable with the decision in Raheja case.
Valuable Consideration
– Barter Transaction [Builder’s Activity for land-owner]
As per the Courts, valuable
consideration includes cash, money, cheques, bill of exchange, promissory
notes, shares and like instruments. Whether exchange of goods (barter) constitutes
a valid sale? It had been a matter of great controversy and the Courts had
expressed different views in this regard. While discussing the basic elements
of “sale”, the Apex Court Punjab
In the case of CST vs. Ram Kumar
Agarwal (1967) 19 STC 400 (All), gold was paid as a price of jewellery. The
jeweller purchased gold from the market, prepared ornaments, and transferred to
the customer against the gold. It was held that exchange of goods was “barter”
and not a “sale”. In another case, the dealer collected kansa, melted it
and returned to the customer after deducting certain percentage in weight and
collected labour charges extra: the Court held it as a barter transaction and
not as sale. [CST vs. Kansari Udyog (1979) 43 STC 176 (MP)].
However,
contrary views were observed in the case of VP Vadivel Achari vs. State of
Madras (1969) 23 STC 273 (Mad), where gold was exchanged for new jewellery;
it was held to be a “sale” since gold, handed over to assessee, could easily be
converted into money.
Where goods are sold partly for goods
and partly for money, it is a transaction of sale. [Aldridge vs. John.
(1887) 7 E & B 885; LJ QB 296; Sheldon vs. Cox (1824) 3 & C 420].
Similarly, in the case of CIT vs. M. & G. Stores AIR 1968 SC 200,
an old car was returned and difference was paid in cash: While explaining the
word “price”, the Supreme Court held that it was a transaction of sale.
Likewise, where
machinery was transferred against allotment of shares, it was considered as
sale since transfer of shares was a mode of payment of price and discharge of
liability. [Premier Electro Mechanical Fabricator vs. State of T.N. (1984)
55 STC 371 (Mad) followed
in State of T.N. vs. T.M.T. Drill
(P) Ltd. (1991) 82 STC 59 (Mad); I.B.P. Co. Ltd. vs. Asstt. CCT (2000) 118 STC 33 (WBTT)]
In Dhampur
Sugar Mills Ltd. vs. CTT (2006) 147 STC 57 (SC), a company, which owned a
sugar mill, executed a deed of licence in favour of the dealer; wherein the
licence fee for the use of the entire sugar mill complex was to be paid in the
shape of molasses. Looking at the facts of the case and terms of the agreement
between parties, it was held that the transaction could not be termed as
“barter”.
In another case, the Madras High Court
held that even barter or exchange of goods might be considered as sale,
provided there is transfer of property in the goods. [Vishweshwasadars
Gokuldas vs. Govt. of Madras
Therefore, in
the view of author, it prima-facie appears that “exchange of land” against
“value of construction” is not a barter transaction for the purposes of DVAT
Act; hence, VAT would be payable on construction carried on by BD for LO. However,
it would depend upon facts of the case and the terms of the contract between
the parties.
3.2 Measure of tax
Determination of VAT in case of works
contract depends upon the provisions under the State VAT Act. Three Schemes
have been laid for computation of DVAT in builder contracts:
(1) Regular Scheme (1) – Total
consideration receivable from the land-owner (in the form of land) and the
intended purchaser (–) Value of Land as per Rule 3 (–) Value of actual
labour & services in accordance with Rule 3 of the DVAT Rules;
(2) Regular Scheme (2) – Total
consideration receivable from the land-owner (in the form of land) and the
intended purchaser (–) Value of Land as per Rule 3 (–) Value of labour &
services calculated as per percentage specified in Rule 3(2) of DVAT
Rules;
(3) Composition Scheme – Discussed later.
Under the regular scheme,
determination of turnover and output VAT of the builders’ transaction is as
under: -
i
|
Gross Turnover – Work executed
during the tax period
|
………….
|
ii
|
Less : Cost of land and labour &
services [Rule 3]
|
………….
|
|
|
[Either on actual basis or at percentage
basis]
|
|
iii
|
Taxable value of material (Taxable
Turnover)
|
………….
|
iv
|
Computation of Output Tax on (iii)
|
|
|
|
Declared goods, e.g., iron &
steel @ 5% ……………. Tax …………
(transferred in the same form)
|
|
|
|
Other goods @12.5%........... Tax …………
|
………….
|
Provisions under the Delhi
As per section 2(1)(zd)(vii) of the DVAT Act, the term “sale price”, in relation to works contract
means the amount of valuable consideration paid or payable to a dealer for
execution of the works contract.
As
per section 5(2),
in the case of turnover arising from the execution of a works contract, the
amount included in taxable turnover is the total consideration paid or payable
to the dealer under the contract excluding the charges towards labour, services
and other like charges, subject to such conditions as may be prescribed:
Provided that where the amount of charges towards labour,
services and other like charges is not
ascertainable from the books of accounts of the dealer, the amount of such
charges shall be calculated at the prescribed percentages.
As per Rule 3(1) of the DVAT Rules
In the case of turnover arising from the execution of a works contract, the amount included
in taxable turnover is the total
consideration paid or payable to the dealer under the contract and exclude –
(i) the
charges towards labour, services and other like charges; and
(ii) the
charges towards cost of land, if any, in civil works contracts,
subject to the dealer’s maintaining
proper records such as invoice, voucher, challan or any other document
evidencing payment of above charges to satisfaction of the Commissioner.
Explanation. – The term “civil works contracts” for the purpose of
this rule shall include construction of building or complexes - residential or
commercial, bridges, flyovers, dams, barriers, canals, diversions, other works
of similar nature, and the collaboration
agreements or joint develop-ment agreements or similar other
agreements/arrangements between the land-owner(s) and the
contractor(s)/builder(s)/ developers/ collaborators/ similar other persons by
whatever name called for construction of complex or property.
3.3 Determination of value of land in the builder contracts
The value of land is required to be determined for two purposes,
namely:
(A)
Determination of value of works
contract executed by the builder for the land-owner where consideration has
been received in the form of land; and
(B)
Determination of taxable
turnover in the case of sale by the builder to the intended purchaser where
consideration includes value of land.
Relevance of “Circle Rate” in determining value of land
The amended Rule
3 of the DVAT Rules is primarily based upon the circle rates prevalent
in Delhi Delhi (Prevention of Under Valuation of Instruments)
Rules, 2007 (hereinafter
referred as “circle rates”), depending upon
the location of the property in Delhi
(a) Circle rate for land, and (b) Circle rate for construction
Present applicable circle rates have been notified vide notification no.
F.1 (152)/Regn.Br./ Div.Com./ HQ/2611/780 dated 4.12.2012, wherein Delhi mt. Few
3.3.1 Transaction between the builder (BD) and the
land-owner (LO)
In relation to determination of value
of works contract executed by BD for LO, where consideration has been received
in the form of land, Rule 3(1A) has been inserted. As per the said Rule, value
of works contract carried out by BD shall
be highest of the following amounts:
(i) Actual value of construction, including
profit, transferred by BD to LO in accordance with the books of accounts
maintained by the BD.
(ii) Where proportionate land is transferred by LO to BD by executing a separate conveyance/ sale deed:
§ Value stated in the deed for the purpose of payment of
stamp duty
( – )
§ Consideration paid by BD to LO through account payee
cheque/draft/pay order/
electronic transfer, if any.
(iii) Based upon Circle Rates of land in Delhi
§ Circle
rate of proportionate area of land transferred by LO to BD in accordance
with the circle rates prevailing at the time of execution of agreement
between them
( – )
§ Consideration
paid by BD to LO through account payee cheque/draft/pay order/ electronic
transfer, if any.
Where separate circle rates for land
and construction have not been notified in respect of certain buildings or
properties: -
In such cases, circle rate for land and construction prevailing in that locality for
other buildings or properties, in respect of which separate circle rates have been notified, shall be taken for
the purpose of determination of value under this sub-rule.
Minimum
value of construction by BD for LO:
As per the Proviso to Rule 3(1A), it
is further stated that the value of works contract executed by BD for LO shall not be less than the circle rate of
construction applicable on the date on which agreement between LO and BD
for the construction of property was executed.
3.3.2 Transaction between the builder (BD) and
the intended purchaser (IP)
Sub-rule 3(3) applies to those cases where
BD has sold units/property to IP before completion of construction.
(A) Definitions
The terms “builder”, “intended purchaser” and “completion of construction” have been described in explanations to
sub-rule 3(3), as under:-
(i) Builder: The term
“Builder” means and includes,
§ The person who undertakes the construction of property,
either as owner of the land or under an agreement of power of attorney with the
land owner or under some other arrangement, and
such person transfers the property to some other person
before completion of construction for a consideration, which may be received by
him either as a composite sum or under separate agreements for land and
construction.
§ The land-owner who transfers the property to IP before
completion of construction.
(ii) Intended Purchaser (IP):
The
term, “IP”, means the person who agrees to buy the property before completion
of construction and pays the consideration, in full or part, before such
completion.
(iii) Completion of construction:
Construction shall be deemed to be completed,
§ at the time of issuance of completion certificate by the
competent authority, or
§ at the time and in the manner notified by the Government
for this purpose. No such notification has been issued by the Government till
date.
(B) Determination of cost of land on actual basis or at circle
rate
In relation to determination of cost
of land for the purpose of computation of value of works contract in the case
of sale by BD to IP, Rule 3(3) prescribes, as under:-
(a) Where separate conveyance/sale deed of
the land has been executed
between BD and IP, the consideration amount of land stated in that deed.
(b) Where
separate conveyance/sale deed of the land has not been executed for
transfer of land
between BD and IP, then the value of land
in the value of “composite works contract inclusive of land” may be arrived at on any of the
following basis:-
(i) Where proportionate land is transferred
by LO to BD by executing a conveyance/sale
deed: On the basis of rate of land arrived at from such
deed for the purpose of payment of stamp duty.
(ii) Where clause (i) is not applicable: On the basis of rate of land arrived at by
adding the followings:
§ Amount paid by BD
through account payee cheque/draft/pay order/ electronic transfer to LO towards the land rights,
( + )
§ Value of construction transferred by BD to LO determined
as per sub-rule (1A).
To illustrate, LO
and BD enter into an agreement, where BD would build four units, which would be
shared equally between them. In addition, BD pays Rs.1 crore to LO. Total
construction cost for four flats is Rs.4 crores. Here, BD transfers the value
of construction worth Rs. 2 crores [Rs.4 crores divided by two, since 50% share
in the construction is transferred to LO]. In this case, value of land
transferred by LO is: Rs.1 crore + Rs.2 crores = Rs.3 crores; and total value
of land transferred by BD to IP for his share of the land shall also be Rs.3
crores (Rs. 1.5 crs. per flat if there are two IP).
(iii) Based upon circle rate - In all other
cases where clauses (i) and (ii) are not applicable: The value of land
shall be determined on the basis of notified circle rates of land, prevailing at the time of execution of agreement between BD and IP.
- Where separate circle rates for land and
construction have not been notified in respect of certain buildings or
properties: -
In such cases, circle rate for land and construction prevailing in that locality
for other buildings or properties, in respect of which separate circle rates have been notified, shall be taken for
the purpose of determination of value under this sub-rule.
- Where the value of conveyance/sale deed between BD and IP
exceeds the circle rate (land + construction): -
The difference between the
two shall be proportionately divided between the value of land and the works
contract (comprising material and services).
For example, in case of composite works contract, circle rate of
land is Rs.2 crore and circle rate of construction is Rs.1 crore respectively,
and the consolidated value of sale deed (inclusive of land and cost of
construction) is Rs.3.60 crores. Difference of Rs.0.60 crore shall be divided
in the ratio of 2:1; and thus, value of land for the purpose of this sub-rule
shall be Rs.2.40 crores.
(C) Determination of cost of land on percentage basis
As per Rule 3(3)(c),
where charges towards cost of land is not ascertainable from the books of
accounts of the dealer (or the preceding clause), the amount of such charges
shall be calculated on percentage basis, as under–
§ In the case of construction of commercial buildings or complexes: @ 50% of the total value of the contract.
§ In other cases:
@ 30% of the total value of the
contract.
(D) Determination of cost of land where a part of the constructed
area is transferred by BD
As per Rule 3(3)(d), where only a part of the total constructed area is being transferred by BD, the charges
towards the cost of land shall be calculated on a pro-rata basis, through the
following formula: -
Proportionate
super area X Value of land as determined in this sub-rule
Total plot area X Floor
Area Ratio
§ Proportionate
super area
for the purpose of this clause means: Covered area booked for transfer ( + ) Proportionate common constructed
area attributable to it.
§ Floor Area Ratio = Total constructed area / Total plot Area
3.4 Determination of value of labour, services, etc. in the
builder contracts
3.4.1 Meaning of the term “labour & services
& other like charges”
As per rule
3(2), the charges towards labour, services, etc. shall include: -
i.
Labour charges
for execution of works;
ii.
Charges for
planning and architects fees;
iii.
Charges for
obtaining on hire or otherwise machinery and tools used for the execution of
the works contract;
iv.
Cost of
consumables such as water, electricity, fuel, etc. used in the execution of the
works contract the property in which is not transferred in the course of
execution of a works contract;
v.
Cost of
establishment of contractor including cost of marketing, finance expenses and
security deposits to the extent relatable to supply of labour & services;
vi.
Other similar
expenses relatable to supply of labour and services;
vii.
Profits earned by
contractor to the extent it is relatable to supply of labour and services
subject to furnishing of a profit and loss account of the works sites.
3.4.2 Two methods for determination of labour,
services, etc. prescribed in DVAT Rules
(A) Actual Basis (B) Percentage Basis
(A) Actual Basis
If labour and services are determined on actual basis, the contractor
shall maintain the records in a manner so as to easily quantify the value of
material, amount of direct labour and services and proportionate amount of
indirect labour and services. Scope of “labour and services” is not confined to
wages and salaries; but it extends to the other charges of the nature of
expenses stated in seven clauses of Rule 3(2) discussed above.
(B) Percentage Basis
Where amount of
charges towards labour, services and other like charges are not ascertainable
from the books of accounts of the contractor, the amount of such charges shall
be calculated on the basis of percentages specified in the table given in Rule
3(2) of DVAT rules. Builder contracts fall within the following clause: -
Sl. No.
|
Type of contract
|
Percentage of total value of the
contract
|
6
|
Civil works
|
3.4.3 Specific provisions
for labour, services, etc. in case of contracts between BD and IP
(i) Where only a part of total constructed
area is being transferred by BD, the deduction towards labour, services and
other like charges mentioned shall be calculated on a pro-rata basis.
[Rule 3(4)]
To
illustrate, out of two flats of BD, one flat is booked by IP, and another
flat is sold after completion of construction. If both the flats are of equal
area, then deduction towards labour and services shall be available only to the
extent 50% of total charges.
(ii) BD
shall be eligible to deduct labour, services, other like charges in relation to
(i) above in the tax period when output tax becomes payable [Rule 3(5)(iii)].
This
provision
will ensure the matching of output tax vis-Ã -vis
claim of deduction towards labour charges; and also bring consistency in
showing the taxable turnover by BD.
It may be notes that as
per Rule 3(5)(ii), in such cases, tax shall be payable at the time of
receipt of consideration by BD, in whatever form or manner, from IP in
relation agreement towards sale of property/unit.
Continuing the illustration given at
(i) above,
(a) BD
is eligible for 50% of labour charges, and
(b) Labour
and like charges shall be claimed as deduction by BD at the time when output
tax is payable (i.e., at the time of receipt of consideration).
3.5 “Amount of turnover of sale” in case of contracts between
BD and IP
As per Rule
3(5)(i), where an agreement is executed between BD and IP before completion of
construction, then total value of agreement, as reduced by cost of land, and
amount of labour, services and like charges (determined in accordance with this Rule), shall be
deemed to be taxable turnover of sale.
3.5.1 Booking/Sale of flat during
construction with IP
In a
collaboration agreement, BD’s share in the property could be sold prior to
completion, but at various stages of construction. Sometimes, BD sells the flat
when the project has just started, and sometimes when the flat is almost
complete. The question generally arises as to on which value of construction,
VAT shall be paid; that is, on the total value of flat or on the value received
after the date of agreement? As per Rule 3(5)(i), where an agreement is
executed between BD and IP before completion of construction, then total value
of agreement shall be deemed to be turnover of sale.
However, the Larger Bench of the
Supreme Court in L&T Case (supra), pronounced on 26.09.2013, clarified,
“115. It may,
however, be clarified that activity of construction undertaken by the developer
would be works contract only from the stage the developer enters into a
contract with the flat purchaser. The value addition made to the goods
transferred after the agreement is entered into with the flat purchaser can
only be made chargeable to tax by the State Government.”
Therefore, in the opinion of the
author, the judgment by the Supreme Court will prevail over Rule 3(5)(i) of
the DVAT Rule, and BD shall pay tax only on that value of goods which is
transferred by him to IP after the date of agreement, and not on the entire
value of agreement.
Simultaneously, it
may also be noted that since BD is liable to pay tax on post-agreement value,
he shall be eligible for deduction towards labour and services and benefit of
input tax credit only in respect of works contract executed post-agreement.
3.5.2 “Manner of determination of turnover” on
receipt of every installment
As per Rule 3(5)(ii) of the DVAT Rules,
goods shall be deemed to be sold at the time when installment is received.
However,
it would be practically difficult to arrive at the correct value of taxable
turnover at that time since every installment would consist of payment towards
land, material and services. Therefore, the author is of the view that
amount of output VAT may be calculated, in advance, as a percentage of per
square foot rate; and tax be computed accordingly on the basis of per square
foot receipt of every installment. At the time of completion of the project,
actual liability of VAT shall be ascertained and shortfall of VAT, if any, be
paid.
3.6 “Time of turnover” in case of builder contracts
Unless otherwise
contrary in the contract, works contracts are taxable at the time of
incorporation of goods in the contract by the contractor.
As per section
12(4) of the Act, the Government may prescribe the time at which a dealer shall
treat the (a) turnover; (b) turnover
of purchases; and (c) adjustment of tax or adjustment to a tax credit; as
arising for a class of transactions.
As per 4(c) of
the DVAT Rules, the amount of turnover or turnover of purchases arising in the
tax period in the case of a sale or purchase occurring by means of transfer of
property in goods (whether as goods or in some other form) under a works
contract executed or under execution in the tax period, is the consideration
received or receivable by the dealer for such transfer of property in goods during
the relevant tax period.
The Government has further laid rule 3(1B) and 3(5) in
the DVAT Rules in this regard, discussed hereinafter.
3.6.1 Transaction between BD and LO
In this case, entire land is received
by BD in advance, before commencement of construction. Therefore, it might be
said that time of turnover would be the execution of agreement between LO and BD,
and tax would be payable at that time itself on total construction value.
However, it may be noted that no material is transferred by BD on that date;
therefore, time of turnover should be the time when goods are incorporated in
the works contract.
As per Rule 3(1B), in case of works contract carried by BD for LO, tax
shall be payable at the time of incorporation of goods in the execution
of works contract.
3.6.2 Transaction between BD and IP
Tax shall be payable by BD at
the time of receipt of consideration, in whatever form or manner, from IP
in relation agreement towards sale of property/unit. [Rule 3(5)(ii)].
Thus, for the purpose of builder activity, time of turnover will not
depend upon the incorporation of goods or raising of an invoice by BD.
3.7 Input tax credit (ITC) in case of builder contracts between
BD and IP
(i) Where only a part of total constructed
area is being transferred by BD, input tax credit under section 9 shall be
calculated on a pro-rata basis.
[Rule 3(4)]
To
illustrate, out of two flats of the builder, one flat is booked by IP and
another is sold after completion of construction. If both the flats are of
equal area, then input tax credit shall be available to BD only to the extent
50% of total credit.
(ii) BD
may claim input tax credit in relation to taxable sales in the tax period when output tax becomes payable on the
basis of separate books of accounts maintained for that property. [Rule
3(5)(iv)]. It may be noted that this clause requires that BD shall maintain
project wise accounting for the purpose of claiming input tax credit.
It has already been
stated that in such cases, tax shall be payable at the time of receipt of
consideration, in whatever form or manner, from IP in relation agreement
towards sale of property/unit. [Rule 3(5)(ii)]
For
example, BD starts construction of the property, comprising his share of
one flat to be sold to IP ultimately. The flat (BD’s share) would be sold at a value
of Rs.1 crore (apprx.); and out of which, taxable value of material component
would be, say, Rs. 20 lacs. After incorporating materials worth Rs. 4 lacs (ITC
- Rs.20000/-) up to June, he enters into agreement with IP in July, and
receives Rs. 5 lacs as booking cum first installment. In December ending
quarter, he further incorporates material worth Rs. 6 lacs (ITC-Rs.30000/-).
Next installment is received in October of Rs.7 lacs. In such a case, first
output tax would be payable in July on Rs. 5 lcas; and second in October on Rs.
7 lacs. BD would claim input tax credit of Rs.20000/- in July; and Rs.30000/-
in October.
It
may further be noted that BD could not claim ITC in the month of purchase; and
will claim in the month when output tax is payable. Therefore, procedurally,
in the quarter when goods were purchased, he will show it as turnover of
purchase in Form 16 & 2A, which would, however, be reversed through Annexure
of Form DVAT-16. He will reclaim the ITC in the subsequent tax period, when so
eligible, through Annexure of Form DVAT-16.
3.8 Cancellation of booking by IP
If booking of the
flat/unit is cancelled during the construction thereof, and subsequently the
construction is carried by BD for himself, the sale shall be treated as cancelled
in accordance with section 8(1)(a) of the DVAT Act and Supreme Court Judgment
dated 26.09.2013; and BD would be entitled to adjust/refund the tax already
paid. However, if the same flat is again sold to another IP during
construction, then it would be taxable under the DVAT, as discussed
earlier.
3.9 Sale
As per explanation
1 to Rule 3(3): -
“The
term “Builder” for the purpose of this sub-rule means the person who undertakes
the construction of property, either
as owner of the land or under an agreement of power of attorney with
the land owner or under some other arrangement, and transfers the property to
some other person before completion of construction for a consideration, which
may be received by the builder either as a composite sum or under separate
agreements for land and construction. The
term “builder” shall also include the land-owner(s) who transfers the property
to the intended purchaser before completion of construction.”
Therefore, where LO also enters into
agreements with IP in respect of sale of his portion of building, being
constructed by BD, before completion of construction, then LO would also be
liable to pay tax. However, he could claim input tax credit for the amount
charged from him by BD.
3.10 Composition Scheme
Under
the DVAT Act, in relation to builders contracts, following composition schemes
are applicable with effect from 01.04.2013:-
S.N.
|
Nature of the Contract
|
Scheme A
|
Scheme B
|
1
|
Construction, of complex, building, a civil
structure or a part thereof, including residential unit or complex or
building, for sale whether wholly or partly, to a buyer before construction
is complete, where value of land is included in
total consideration. (Excluding contracts where entire consideration
is received after issuance of completion certificate by competent authority).
|
1%
|
3%
|
2
|
Other construction/building contracts
|
3%
|
6%
|
Scheme A: The contractor shall (i) not
purchase or procure goods from any place outside Delhi at any time during the
period for which he opts to avail this Scheme; and (ii) not sell or supply
goods to any place outside Delhi at any time during the period for which he opts to avail this
Scheme. However, he may procure his own plant & machinery and equipments
from outside
Scheme B: Contractor shall be entitled
to make purchases of goods required for execution of the contract in the
course of inter-State trade or commerce on the strength of his certificate of
registration against declaration in Form C or by way of inward transfer of
stocks from other States against Form F or by way of imports from other
countries solely for the purposes of utilizing the same in the execution of
works contract in Delhi only. However, the dealer shall use the
material/goods imported or procured from outside
|
|||
Apart from various other restrictions,
the composition dealer is not eligible for input tax credit on purchases made
within
|
|||
3.11 Liability
of BD – Computation of Delhi
Let us adapt our discussion in the form of an illustration:
LO enters into a collaboration agreement
with BD, wherein - (Rs. In lacs)
·
BD
constructs 4 flats/units.
·
Out
of which, BD gives 2 flats to LO towards consideration of land.
·
Remaining
2 flats are kept by BD for further sale in market.
·
BD
sells 2 flat to IPs during construction for Rs.1200 (600/- per flat); sale deed
also executed for Rs.1200.
·
Value
of land is Rs.2000 and value of construction is Rs.400 (Rs.100 per floor).
·
Since
BD receives land worth Rs.1000 (2000*2/4) and gives Rs.200 as value of
construction for 2 floors (100 per floor); it is further agreed that BD will
give Rs.800 to LO towards land or as value for transfer of construction
rights.
·
Break-up
of value of construction of Rs.400 is:-
o
Material
with proportionate overheads & profit -
Rs. 240
o
Labour
& Services with proportionate overheads &profit -
Rs. 120
o
Permissions
and sanctions (treated as services) - Rs.
40
o
Total
Expenses - Rs. 400
o
Proportion
of expenses by BD towards LO and IP portion
- 50 : 50
·
It is assumed that total
material consists of 1/3 iron & steel taxable @5%; and 2/3 other materials taxable @12.5%: thus
average VAT rate comes to 10%.
·
VAT input tax credit is
assumed at Rs.16 (10% of 66% of 240).
·
It is also assumed that
majority of the contract is executed by BD himself, and thus, Cenvat Credit
is only Rs.2.
·
Circle
rate in
·
Here,
Value of construction of Rs.400/- exceeds circle rate of construction of
360/-[90/-(x) 4]
·
Total Investment of BD
comes to : Rs.800 paid to LO (+) Construction value of all four flats being
Rs.400 (=) Rs.1200.
|
Met-hod
|
Description
|
Output
VAT- LO
|
Output
VAT- IP
|
Input Tax
|
Net Liabi-lity
|
Liability (% of Invest-ment)
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
(6)
|
(7)
|
I
|
Regular
Scheme (1) (Services-Actual; Land - Actual)
|
|
|
|
|
|
|
|
·
LO-10% of (240)/2 [50% material pertains to LO]
|
12
|
12
|
16
|
8
|
0.07
|
|
|
·
PB -10% of [(1200-1000) – (160)/2]
|
|
|
|
|
|
II
|
Regular Scheme (2)
(Services-%; Land-Actual)
|
|
|
|
|
|
|
|
·
LO-10% of 75% of 200
|
15
|
15
|
16
|
14
|
1.17
|
|
|
·
PB -10% of 75% of (1200-1000)
|
|
|
|
|
|
III
|
Composition Scheme
|
|
|
|
|
|
|
|
·
LO-3% of 200
|
6
|
12
|
0
|
18
|
1.5
|
|
|
· PB -1% of 1200
|
|
|
|
|
|
4. Activities
carried on up to 31.03.2013 – Amnesty Scheme (VVAS)
We are aware that the DVAT Department has
carried number of surveys at builders’ premises and also gathered information from
MCD. In number of cases, notices of assessment have already been issued. In
such cases, where tax deficiency pertains to the period up to 31.03.2013, the
builders may opt for Delhi Tax Amnesty Scheme (VVAS) introduced on 20.09.2013.
In VVAS, tax for the period upto
31.03.2013 shall be payable in two installments: (i) First, upto 31.03.2014;
and (ii) Second, upto 21.03.2014. If notice of assessment (i.e., assessment
order) has not been issued,
the builder is required to pay tax only (no interest or penalty); and where assessment
order has been issued, the builder shall pay tax and interest stated in the order.
The builder would get immunity from payment
of (i) interest from the date of order till the date of declaration under this
Scheme, (ii) penalty, and (iii) prosecution under the Act.
Following are the highlights of the VVAS: -
4.1 Calculation
of tax dues by the builder
S.N.
|
Nature of Tax Dues
|
Procedure of Calculation
|
1
|
Builder, whether registered or not, under the DVAT
Act or the CST Act on whom assessment order has not been served by VATO/AA
|
(a)
Works contractors engaged in construction, of complex,
building, etc., for sale to a buyer before completion of construction, where value of land is included in
total consideration: @1% of total
consideration (including labour & services);
(b) Other works contractors [including the dealers stated at Sl. No.
(a), who opt to exclude the value of
land as per Rule 3 of the DVAT Rules]:
@ 3% of total turnover
(including value of labour and services).
|
2
|
Builders registered under the
DVAT Act, CST Act, Works
Contract Act, 1999 on whom assessment order has been served
|
Aggregate of
amount of tax and interest stated in the assessment order (exclude penalty,
if any)
(less)
Amount paid by
the dealer towards the said demand.
|
§ Manner of calculation of tax
dues by the builders:
Activities of
builders may be divided in two parts: -
(i) Activity carried
by BD for LO (consideration has been received by BD in the form of land): Here, the value of land shall be determined as per
recently inserted Rule 3(1A) in the DVAT Rules; and builder shall calculate tax
@ 3% of that value.
(ii) Activity carried
on by BD for IP: Builder has two options for calculation of turnover and
tax, as stated in row 1 of table given above.
§ Adjustment of input tax credit
from declared tax dues: Input tax credit
cannot be adjusted against payment of tax dues under VVAS. Accordingly, entire
tax dues under the VVAS shall be paid in cash through challan.
§ Adjustment of ‘excess tax
credit’ or ‘carry forward amount’ from declared tax dues: The declarant
shall not be entitled to adjust his carry forward amount as per the Returns, if
any. For example, a declarant, who has
carry forward amount of Rs. 10 lacs as on the date of declaration, declares the
amount of tax dues of Rs.12 lacs under the VVAS. In such a case, he shall pay
entire Rs.12 lacs in cash, without adjusting carry forward amount of Rs.10
lacs.
4.2 Steps to be followed in VVAS, in brief
1.
Compute the amount of tax dues upto 31.03.2013 (and
not paid upto 31.08.2013) in accordance with preceding Para ;
2.
If not registered under the DVAT Act, obtain
registration. In addition, pay tax and file returns for the period after
1.4.2013 along with the declaration in DSC-1;
3.
Fill the declaration
in Form DSC-1 on the web-site of the Department;
4.
Pay at
least 50% of amount of
declared tax dues through Challan online. It may be noted that declarant may
pay even the entire amount of tax dues at this stage;
5.
File hard copy of Form DSC-1 along with Challan to
the designated authority on or before 31.1.2014;
6.
The designated authority shall suo-moto issue the acknowledgement in
Form DSC-2 within a period
of 15 working days from the date of receipt of the declaration. If it is not
received, then designated authority may be contacted;
7.
Pay remaining (unpaid) amount of tax dues through
Challan online on or before 21.3.2014;
8.
Submit proof of such payment along with a copy of
acknowledgement in DSC-2 (already received at Step No. 6) to the designated authority;
9.
Obtain Form DSC-3 from the designated authority: On
furnishing the details of full payment of declared tax dues, the designated
authority shall issue an acknowledgement of discharge of such dues within 15
days in Form DSC-3.
4.3 Immunities
A. Immunities, where
assessment order has NOT been issued:
·
Immunity from interest, penalty and any
other proceedings in relation to declared tax.
·
Immunity from prosecution.
·
If declarant is not already registered
under the Act: -
–
Immunity from penalty of late registration.
–
Immunity from interest for late payment
of tax for the period after 1.4.2013.
–
Immunity for late filing of returns for
the period after 1.4.2013.
B. Immunities, where assessment order has been issued:
·
Immunity from interest in relation to declared
tax for the period after issuance of order till the date of declaration.
·
Immunity from penalty or any other
proceedings in relation to declared tax.
·
Immunity from prosecution.
5. Conclusion
The
Government has undoubtedly attempted to simplify the computation of VAT in respect
of builder contract. Nevertheless, the exact implication of tax would depend
upon the time and terms of the agreement between the parties. Where the
property is booked by the intended purchaser at the time of commencement of the
project and the builder is paying VAT (as applicable) on its entire revenue, there
would be minimum complexity. But, wherever the builder considers his certain receipts
as non-taxable (such as, construction for himself, non-booking of property,
etc.), then the burden of proof lies upon him. In such cases, he would not be
eligible for deduction towards labour, services, etc., and input tax credit in
relation to such exempted sales; that is, he would claim these deductions proportionately.
Moreover, at a single point of time, the builders would be carrying on
construction of number of properties; where the terms of the agreements, cost
of the projects and time of agreements with IP would be diverse. Therefore, to determine
his taxable turnover, he would be required to maintain his books of accounts in
a manner so as to provide details and information in respect of every project
separately (that is, Project-wise Accounting). Simultaneously, the agreements
should be drafted in a manner so as to avoid overlapping and ambiguity.
Further, the exact
taxation would mainly depend upon the value of land involved in that project. The
variance in the total price of a flat/unit is mainly due to land rates. For
example, a flat of 500 sq. yards with same amenities would price for Rs.10
crores in south Delhi and Rs.5 Crores in east Delhi Delhi
The step of the
Delhi Government to clarify and simplify the determination of VAT on the
builders’ activities is laudable. Exact impact and complications would,
however, be known at the time when these rules are applied by the builders for
calculation of their turnover and VAT. Nevertheless, these amended Rules have
certainly created a platform for removal of the complications faced by them in
determining the DVAT.
28th September 2013
Disclaimer:
This Paper contains personal views of
the author and has been prepared for academic use only. The taxability would
also depend upon the contents and nature of agreement between the parties. Since
these views might not be acceptable to the Authorities, the
readers/stake-holders are advised to understand the implications of discussion
contained therein. Errors or omission may kindly be
brought to the notice of the author.
Appendix
Rule 3 of the
[As amended vide Notification
No.F.3(16)/Fin.(Rev-I)/2013-14/dsVI/785 dated 20.9.2013]
RULE 3(1):
(1) In
the case of turnover arising from the execution of a works contract, the amount included in taxable turnover is the total
consideration paid or payable to the dealer under the contract and exclude –
(i) the
charges towards labour, services and other like charges; and
(ii) the
charges towards cost of land, if any, in civil works contracts,
subject to the dealer’s maintaining proper records such as invoice,
voucher, challan or any other document evidencing payment of above referred
charges to the satisfaction of the Commissioner.
Explanation. – The term “civil works contracts” for the purpose of
this rule shall include construction of building or complexes - residential or
commercial, bridges, flyovers, dams, barriers, canals, diversions, other works
of similar nature, and the collaboration agreements or joint
development agreements or similar other agreements/arrangements between the
land-owner(s) and the contractor(s)/builder(s)/ developers/ collaborators/
similar other persons by whatever name called for construction of complex or
property.
RULE 3(1A):
(1A) In
case the civil works contract mentioned in sub-rule (1) are of the nature
wherein the agreement executed between the land owner(s) and contractor(s) or
similar other agreements/ arrangements is of the nature of collaboration or
joint development where the contractor(s) constructs the building/units and
consideration for the construction is given by the land owner in the form of
share in the land with or without additional money exchange, the value of works
contract carried out by the contractor(s) for the land owner shall be highest
of the following amounts:
(i) Actual
value of construction, including profit, transferred by the contractor to the
land-owner in accordance with the books of accounts maintained by the contractor.
(ii) Where proportionate land is transferred by the land-owner to the
contractor by executing a separate conveyance/sale deed, the value stated in
the deed for the purpose of payment of stamp duty as reduced
by consideration paid by the contractor to the land owner through account
payee cheque/ draft/ pay order/ electronic transfer, if any.
(iii) On the
basis
of circle rate of proportionate area of land transferred
by the land-owner to the contractor in accordance with the notification
under Delhi (Prevention of Under Valuation of Instruments) Rules, 2007 as
amended from time to time (hereinafter referred as “circle rates”) prevailing
at the time of execution of agreement between them, as reduced by the
consideration paid by contractor to the land-owner through account payee
cheque/draft/pay order/electronic transfer, if any.
Provided that
where separate circle rates for land and construction have not been notified in
respect of certain buildings or properties, then circle rate for land and
construction prevailing in that locality for other buildings or properties, in
respect of which separate circle rates have been notified, shall be taken for
the purpose of determination of value under this sub-rule.
Provided further that the value of
works contract under this sub-rule shall not be less than the circle rate of
construction applicable on the date on which agreement between the land-owner
and the contractor for the construction of property was executed.
Explanations:-
1.-
The term “contractor” for the purpose of this sub-rule shall include the
builders, developers, collaborators and similar other persons by whatever name
called.
2.- The taxable turnover in relation to
contractor’s share of construction for activity carried on by him for the
intended purchaser shall be calculated separately as per sub rule (1) of this
rule.
RULE 3(1B):
(1B) In case of works contract falling under
sub-rule (1A), tax shall be payable at the time of incorporation of goods in
the execution of works contract by the contractor.
RULE 3(2):
(2) For the purpose of sub-rule (1), the
charges towards labour, services and other like charges shall include-
(i) labour charges for execution of works;
(ii) charges for
planning and architects fees;
(iii) charges for obtaining on hire or otherwise
machinery and tools used for the execution of the works contract;
(iv) cost of consumables such as water,
electricity, fuel, etc. used in the execution of the works contract, the property in which is not transferred in
the course of execution of a works contract;
(v) cost of establishment of the contractor
including cost of marketing, finance expenses and securities deposits to the
extent it is relatable to supply of labour and services;
(vi) other similar expenses relatable to supply
of labour and services;
(vii) profits earned by the contractor to the extent it is relatable to supply of labour and
services subject to furnishing of a profit and loss account of the works sites:
PROVIDED that
where amount of charges towards labour, services and other like charges are not
ascertainable from the books of accounts of the dealer, the amount of such
charges shall be calculated at the percentages specified in the following table
:-
TABLE: PERCENTAGES FOR WORKS CONTRACTS
Sl. No.
|
Type of contract
|
Labour, service and other like charges
are percentage of total value of the contract
|
1
|
Fabrication and installation of plant and
machinery.
|
Twenty five percent
|
2
|
Fabrication and erection of structural
works of iron and steel including fabrication, supply and erection of iron
trusses, purloins and the like.
|
Fifteen percent
|
3
|
Fabrication
and installation of cranes and hoists.
|
Fifteen percent
|
4
|
Fabrication
and installation of elevators (lifts) and escalators.
|
Fifteen percent
|
5
|
Fabrication
and installation of rolling shutters and collapsible gates.
|
|
6
|
Civil
works.
|
|
7
|
Installation
of doors, doorframes, windows, frames and grills.
|
Twenty percent
|
8
|
Supply and fixing of tiles, slabs, stones
and sheets.
|
Twenty percent
|
9
|
Supply
and installation of air conditioners and air coolers.
|
Fifteen percent
|
10
|
Supply
and installation of air conditioning equipment including deep freezers, cold
storage plants, humidification plants and de-humidors.
|
Fifteen percent
|
11
|
Supply
and fitting of electrical goods, supply and installation of electrical
equipments including transformers.
|
Fifteen percent
|
12
|
Supply
and fixing of furniture and fixtures, partitions including contracts for
interior decoration and false ceiling.
|
Twenty percent
|
13
|
Construction
of Railway coaches and wagons on under carriages supplied by Railway.
|
Twenty percent
|
14
|
Construction
or mounting of bodies of motor vehicle and construction of trailers.
|
Twenty percent
|
15
|
Sanitary fitting for plumbing and
drainage or sewerage.
|
Twenty five percent
|
16
|
Laying
underground surface pipelines, cables or conduits.
|
Thirty percent
|
17
|
Dyeing
and printing of textiles.
|
Thirty percent
|
18
|
Supply
and erection of weighing machines and weighbridges.
|
Fifteen percent
|
19
|
Painting,
polishing and white washing.
|
Thirty percent
|
20
|
Book-binding
|
Fifty Percent
|
 21 |
Textile processing such
as dying, fabrication, tailoring, embroidery and other similar activities
where textile is supplied by the contractee
|
Fifty percent
|
22
|
Electro plating, electro
galvanizing, anodizing, powder coating and other similar activities
|
Fifty percent
|
23
|
Re-treading of old tyres
|
Forty Percent
|
24
|
All
other contracts not specified from Sl. No. 1 to 23 above.
|
Twenty percent
|
* Twenty
five percent of total value of the contract, excluding the cost of land
transferred, if any, as determined under this Rule.
RULE 3(3):
(3) For the purpose of
sub-rule (1), the cost of land, if any, in a civil works contract carried on by
the builder for the intended purchaser, shall be determined in the following
manner:
(a) Where
separate conveyance/sale deed of the land has been executed between the builder
and the intended purchaser, the consideration amount of land stated in that
deed;
(b) Where
separate conveyance/sale deed of the land has not been executed for transfer of
land between the builder and the intended purchaser, then the value of land in the value of composite works contract
inclusive of land may be arrived at on any of the following basis:-
(i) Where
proportionate land is transferred by the land-owner to the builder by executing
a conveyance/sale deed:
On the basis of rate of land arrived at from such deed for the purpose
of payment of stamp duty.
(ii) Where
clause (i) is not applicable, on the basis of rate of land arrived at by adding the amount paid by the builder through
account payee cheque/draft/pay order/electronic transfer to the land-owner
towards the land rights and value of construction transferred by the builder to
the land-owner determined as per sub-rule
(1A).
To
illustrate, land-owner and builder enter into an agreement, where builder would
build four units, which would be shared equally between them. In addition,
builder pays Rs.1 crore to the land owner. Total construction cost for four
flats is Rs.4 crores. Here, builder transfers the value of construction worth
Rs. 2 crores [Rs.4 crores divided by two, since 50% share in the construction
is transferred to the land-owner]. In this case, value of land transferred by
the land-owner is: Rs.1 crore + Rs.2 crores = Rs.3 crores; and total value of
land transferred by the builder to the intended purchasers for his share of the
land shall also be Rs.3 crores (Rs. 1.5 crs. per flat if there are two intended
purchasers).
(iii) In all
other cases where clauses (i) and (ii) are not applicable, the value of land shall be determined on the basis of notified circle rates of land prevailing at the
time of execution of agreement between the builder and the intended purchaser.
Provided that where separate circle rates for land and
construction have not been notified in respect of certain properties, then circle rate for
land and construction prevailing in that locality for other properties in
respect of which separate circle rates have been notified, shall be taken for
the purpose of determination of value under this sub-rule.
Provided further that where land has been valued at
circle rate and the value of conveyance/sale deed with the intended purchaser
exceeds the circle rate, then the difference between the two shall be
proportionately divided between the value of land and the works contract
(comprising material and services).
For example, in case of composite works contract, circle
rate of land is Rs.2 crore and circle rate of construction is Rs.1 crore
respectively, and the consolidated value of sale deed (inclusive of land and
cost of construction) is Rs.3.60 crores. Difference of Rs.0.60 crore shall be
divided in the ratio of 2:1; and thus, value of land for the purpose of this
sub-rule shall be Rs.2.40 crores.
Explanation 1: The
term “Builder” for the purpose of this sub-rule means the person who undertakes
the construction of property, either as owner of the land or under an agreement
of power of attorney with the land owner or under some other arrangement, and
transfers the property to some other person before completion of construction
for a consideration, which may be received by the builder either as a composite
sum or under separate agreements for land and construction. The term “builder”
shall also include the land-owner(s) who transfers the property to the intended
purchaser before completion of construction.
Explanation 2: The
term “intended purchaser” for the purpose of this sub-rule means the person who
agrees to buy the property before completion of construction and pays the consideration,
in full or part, before such completion.
Explanation 3: For
the purpose of this sub-rule, construction shall be deemed to be completed at
the time of issuance of completion certificate by the competent authority, or
at the time and in the manner notified by the Government for this purpose.
dffsd(d) In the
case of works contract of civil nature where only a part of the total constructed
area is being transferred, the charges towards the cost of land shall be
calculated on a pro-rata basis through the following formula:
Proportionate
super area X Value of land as determined in this sub-rule
Total plot area X Floor Area Ratio
Explanation1.- Proportionate super area for the purpose of this
clause means the covered area booked for transfer and the proportionate common
constructed area attributable to it.
Explanation 2.- Floor Area Ratio = Total constructed area/ Total plot
Area
Rule 3(4):
(4) In
the case of works contract of civil nature where only a part of total constructed area is being transferred, the
deduction towards labour, services and other like charges mentioned in sub-rule
(2) and input tax credit under section 9 shall be calculated on a pro-rata
basis.
Rule 3(5):
(5) Where
an agreement is executed by the builder with the intended purchaser before
completion of construction as referred in sub-rule (3),
(i) total value of agreement, as reduced by cost of land, and
amount of labour, services and like
charges, determined in accordance with
this Rule, shall be deemed to be taxable turnover of sale;
(ii) tax shall
be payable at the time of receipt of consideration, in whatever form or manner,
from the intended purchaser in relation to (i) above;
(iii) the builder
shall be eligible to deduct labour, services, other like charges in relation to
(i) above in the tax period when output tax becomes payable; and
(iv) the builder may claim input tax credit under
section 9 in relation to turnover of
sale stated in (i) above in that tax period on the basis of separate books of
accounts maintained for that property.”
----------------
ssarca.rgarg@gmail.com
ssarca.rgarg@gmail.com
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