The Supreme Courts verdict upholding the state governments decision to levy value added tax (VAT) on real estate has evoked mixed reactions from realtors and activists. While the realtors insist that the tax has to be paid by end consumers,in this case flat owners,activists and analysts say the onus would be on realtors. Builders body Credai had moved the apex court challenging the decision of the state government to levy 5 per cent VAT on real estate. Earlier,the builders body had challenged the decision in Bombay High Court. Welcoming the Supreme Court judgment,activist Vivek Velankar said,Supreme Courts decision makes it clear that relators will have to pay VAT. Meanwhile,Anant Rajegaonk,president,Credai Maharastra,said VAT would have to be paid by buyer. Supreme Court while deciding on the K Raheja case upheld the validity of charging VAT by the government. Now as per said judgment,VAT is applicable on sale of flats,shops and offices under construction in the state from June 20,2006. The apex courts decision is a set back to buyers as they will now have to pay VAT on properties bought June 20,2006, he said. Realtor Lalit Kumar Jain said buyers who booked flats between 2006 and 2010 would now have to pay VAT. The judgment clearly lays down that an agreement entered into by a developer/builder with a buyer is a composite contract involving a contract for work,labour and sale. The same comes within the framework of work contract for which provisions of Article 366(29-A)(b) are applicable. However,in paragraph 115 of the judgment,Supreme Court has clarified that activity of construction undertaken by a developer would be deemed as work contract only from the stage the developer enters into a contract with flat buyer, Supreme Court also said VAT is not payable if a fully-constructed flat is sold to a buyer as it would not amount to a work contract. As Credai matter has not been disposed of by the SC judgment and the interim order passed will continue to operate, said Jain. Property blogger Ravi Karandeekar said legal challenge by Credai was on wrong grounds. At the end of the day,it is an indirect tax and depends how the government recovers it from builders, he said.
