Residents Face Threats To Pay
Rajshri Mehta TNN
With the Bombay High Court upholding the state government’s scheme to levy Value Added Tax (VAT) on builders for projects under construction from June 2006 to March 2010, social activists say a large number of litigations between builders and flat buyers could be in the offing.
Many builders are already threatening flat buyers to cough up the VAT charges by October 31, 2012, the deadline set by the apex court. While the official penalty for late payment is 15% annually, there are reports that developers are asking for 300 to 400% of the tax from November 1 onwards.
“My builder has asked me to pay the VAT charge of Rs 65,000. He warned that he will charge a 300% penalty. I do not have that kind of money nor the capacity to fight legal battles. What am I to do?” asked an I-T professional.
Flat buyers say their problems are compounded because some builders are not being transparent about the VAT they must pay. “I paid money on a bill prepared on plain paper. When I asked my builder -- who has constructed small buildings of four to five storeys --to explain the amount, he refused and later said he does not have the returns. I’m sure he hasn’t even registered with the sales tax (ST) department. Why should I pay?” said a buyer in a Chembur society.
The ST department has received complaints that developers are using several means to dig into citizens’ pockets. A top builder has applied the MVAT liability for the electricity deposit and water, legal, development, piped gas, club and infrastructure charges for a high-rise project in Dombivli. A Pune builder has sent notices demanding 15% interest over three years besides MVAT liability. Complaints of builders slapping payment notices for projects not under VAT have been raised. Builders are demanding a flat 5% on the sale agreement, even though they must pay 5% VAT on only the Works Contract.
In many cases, buyers of flats constructed by reputed developers are refusing to pay on the grounds that the sale agreement does not constitute a Works Contract. VAT is applicable only on Works Contract, where the builder has been contracted to construct for the property owner.
Builders too are battling buyers. A reputed builder from Goregaon said, “I paid Rs 7 crore, which I had collected as bank guarantees from buyers when I sold the flats. Many buyers are now refusing to pay, though I explained the calculations to them. Some wanted to see my returns, but it is not possible to show owners of the 8,000 flats I have constructed so far. If they don’t pay by October 31, I will be left with no option but to levy a penalty on the buyers and move the courts to recover the amount.”
Vimal Shah, MD of Hubtown (former Ackruti), said, “Consumers have to pay VAT as they gave an undertaking they would pay this tax. Consumers will naturally have objections on the quantum of VAT we have worked out. Though we do not like to pay VAT ourselves, the final amount is dependent on the assessment officer.”
Pune-based consumer activist Sudhakar Velankar, who has filed a PIL challenging VAT, urged buyers not to pay any charges. He said, “Those who have yet to get possession of flats may bow down and pay VAT. But I strongly urge flat owners not to pay so as to put pressure on builders to point out to the ST department that if stamp duty is paid and a flat is sold under Maharashtra Ownership of Flats Act, it cannot attract VAT. Buyers should see if the assessing officer rules the agreement is a Works Contract.”
Regards,
RAJESH CHOUDHARY
CAclubindia
