Credai fears slew of VAT related litigation
Satish Magar, president, Credai, Pune Metro, said the developers have begun remitting their VAT liability though some couldn't remit their entire dues before the deadline.
Nov 03, 2012
Source : The Times of India
Satish Magar,President Credai Pune Metro


PUNE: The Confederation of Real Estate Developers Association of India (Credai), Pune Metro, said on Friday that the state government's decision to stick to its stand on the Value Added Tax (VAT) on residential properties in the state - sold during the period June 2006 to March 2010 - will lead to multiple legal cases and cause ill-will between the developers and home buyers.

After the Bombay high court declined to interfere with the state's discretion to decide the tax rate October 30 and the state refused to change the rates it had declared earlier, realtors across the state had to rush to pay VAT on October 31.

Satish Magar, president, Credai, Pune Metro, said the developers have begun remitting their VAT liability though some couldn't remit their entire dues before the deadline. "WThe process of paying the tax is on and we have requested the sales tax authorities to condone the delay as their own system could not accept the rush of remittances which kept coming through the night of October 31," he said.

While that issue is solved separately,

Meanwhile, Credai members will have to now recover VAT which they paid on behalf of the apartment owners. Trashing the claims of some consumer organizations that it was not the customer but the developer who was liable to pay VAT, Magar said VAT is an indirect tax and like all indirect taxes the 'dealer' (a developer in this transaction) has to collect it from the customer.

Magar said the assessment of the VAT returns, which the developers have filed, and the recovery of the tax from customers are likely to lead to prolonged litigation. "Rule 58 of the Sales Tax Rules suggests three methods to determine the base value of an apartment for calculation of tax. We have followed the method that causes the lowest burden on a customer, but the sales tax officers may demand tax based on the method that gives the highest amount. This will certainly be subject of appeals and court cases which will take years to reach a solution."

On the other hand, the customers are agitated and apparently in no mood to pay anything as VAT dues, so the developers may have to resort to legal remedies such as civil suits for recovering the tax, Magar pointed out. "The Supreme Court has upheld the state's approach to the issue and the customers will have to ultimately pay up, though considerable delay and bitterness will mark this process," Magar said.

Highlighting the complexity of calculations necessary to arrive at the VAT amount for each apartment, Magar said, "The state has over 10,000 dealers who have to file 26 quarterly returns to fulfill their obligation to pay VAT. This works out to 2,60,000 returns for the sales tax officials to scrutinize. Also, as each apartment is sold at different points in time and at different stages of construction, the base value for working out VAT will be different for every apartment."

Credai had pleaded with the Bombay high court that the state be directed to modify the rate of tax to a flat 1% on the agreement value, which it is charging on transactions done on or after April 1, 2010, anyway. The court asked the state's counsel if this was acceptable and when the state declined the suggestion, dismissed the developers' case.

Magar said Credai would continue to follow up with the state government their request to modify the VAT to a flat 1%.

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