Supreme Court - L&T / K Raheja

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Contracts entered into or...
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• VAT and Service Tax updates for the ...
History…
• Levy of Sales Tax / VAT on Works contract
• Power of states confined to taxes on sale or
purchase of goods
• GD...
History…
• Five Judge Bench in BAI- Upheld
Constitution’s 46th Amendment
• Five Judge Bench in GDC-II laid down the
valuat...
Back Ground
• Karnataka, in the early 2000s, the rate of sales
tax used to be rather low at around 4%, while
the stamp dut...
• When the VAT law came into effect from 14-2005, the VAT rate was fixed at 12.5% and
the stamp duty has come down to 5%.
...
When is a job established as a Works Contract –
FACTS IN THE CASE OF SUPREME COURT JUDGEMENT
OF K. RAHEJA DEVELOPMENT CORP...
Facts Contd….
• The land owner transferred only the ownership of land
to the society and the appellant transferred structu...
• Works Contract - Section 2(1)(v-i) of Karnataka Sales Tax
Act defines a "works contract" as: "works contract"
includes a...
• Kar HC gave a great regard to the wide definition
of works contract under Karnataka VAT
• Sales Tax -Works Contract - So...
• On the basis of K Raheja, can we say that all
builders are liable to VAT?
L&T Dev Project
• L & T - contract to develop the property of
Dinesh Ranka- 75:25.
• SCN - Tripartite Agreement is a works...
Review……
• However Supreme Court on Aug 19, 2008 had referred
the judgment for reconsideration to a larger bench
consideri...
Raheja needs reconsideration
• There would be no difference between
works contract and a contract for sale of
chattel as a...
Raheja needs reconsideration
• There were 26 appeals for reconsideration
out of which
• 14 appeals were from Karnataka and...
• While interpreting the Judgement, Lets
appreciate the fact that the definition of
‘works contracts' under the VAT laws o...
Def’n in Gujarat
• Contract to do any works
• Valuation

www.consultconstruction.com
Key contentions of the Appellants

www.consultconstruction.com
Key contentions of the Appellants
• GDC – I still a good law
• Wider definition of works contract not acceptable
• Applica...
Key contentions of the Appellants
• work undertaken is for joint development of
project as a whole, ie work is undertaken ...
Key contentions of the Appellants
• Maharashtra - Section 2(24) of MVAT Act and
Rules 58 and 58(1A) - redefine the taxable...
Key contentions of the Appellants
• Main intention remains to buy the flat
• Buyer has no role in conceptualising the
proj...
Key contentions of the Revenue

www.consultconstruction.com
Key contentions of the Revenue
• View taken in Raheja Development case is
correct and needs no reconsideration.
• After in...
Key contentions of the Revenue
• Nothing in Article 366(29-A)(b) limits the
term “works contract”, and ownership of
goods ...
Key contentions of the Revenue
• No question of ascertaining dominant
intention of contract since sale of goods
element is...
Key contentions of the Revenue
• Different aspects of same transaction can
involve more than one taxable event.
Transfer o...
Key contentions of the Revenue
• Explanation b(ii) in section 2(24) of MVAT Act
offers diverse options for valuation which...
Key contentions of the Revenue
• As long as there is obligation to construct
under agreement between Developer and
flat pu...
Ruling of the Supreme Court

www.consultconstruction.com
Ruling of the Supreme Court
• “Tax on sale or purchase of goods” in Entry
54 in List II of Seventh Schedule when read
with...
Ruling of the Supreme Court
Three conditions :
- there must be a works contract;
- goods should have been involved in
exec...
Ruling of the Supreme Court
• For purpose of Article 366 (29-A)(b), in
building contracts or any construction
contracts, i...
Ruling of the Supreme Court
• A contract comprising both works contract
and transfer of immovable property, does
not denud...
Ruling of the Supreme Court
• The dominant nature test has no application
• Traditional decisions on substance of
contract...
Ruling of the Supreme Court
• Transfer of property in goods under Article
366 29-A(b) is deemed to be sale of goods
involv...
Ruling of the Supreme Court
• Value of goods which can constitute the
measure for levy of tax has to be value of
goods at ...
Ruling of the Supreme Court
• It is thus, not correct to say that work is
undertaken by developer for himself and the
owne...
Ruling of the Supreme Court
Constitutional validity of MVAT provisions, the SC held
that:
• - Amendment in explanation b(i...
Consequences

www.consultconstruction.com
Consequences
• The Apex Court has not overruled its
decision in the case of State of AP and Ors v.
Larsen & Toubro Ltd and...
Consequences
• As a matter of huge relief, the Apex Court
rejected the contention of the State of
Karnataka that sale of i...
Consequences- Para 115
• It may, however, be clarified that activity of
construction undertaken by the developer
would be ...
• Let us assume that the total value of a flat is Rs 100
lakhs, with Rs 40 lakhs being treated as the value
of the land.
•...
Consequences
• Going forward…

www.consultconstruction.com
Consequences
• The L&T decision would have retrospective
effect,
• Will the State Governments be flooded with
refund appli...
Consequences
• Possible Loss of revenue
• unless the Constitution is amended, there is
no way the States can get over this...
Changes in VAT Legislation
• Madhya Pradesh
• Maharashtra
• Haryana

www.consultconstruction.com
Consequences on Service Tax

www.consultconstruction.com
Consequences on service tax?
• Decisions of the High Courts in the Magus
Construction Pvt Ltd Vs Union of India (2008-TIOL...
Consequences on service tax?
• Most transactions involving construction and sale of flats
would also get covered under Sec...
Consequences on Service Tax
• Instances where, the construction would be
complete but the CC would not have been
received....
Consequences on service tax?
• In effect we could have a scenario wherein, a
transaction of construction and sale of a fla...
Consequences on Service Tax
• Constitutional validity of Explanations inserted
to the definition of 'commercial or industr...
Consequences on service tax?
• Can pure developers as per law laid down
by the Apex Court in the State of AP v. L & T
case...
Consequences on Service Tax
• Do the Developer/Builder would have the
choice to opt for either of the entries under
Sectio...
Consequences on Service Tax
• Section 66E(b) and Section 66E(h) would
indicate that, while services covered under
the earl...
Consequences on Service Tax
• In effect, post L&T decision, the Developer/Builder
would seem to have two choices, viz.
• +...
Consequences on Service Tax
• Can you shift from 66E(h) to 66E(b) and opt
for the abatement scheme under
Notification No. ...
Consequences on Service Tax
• The Hon'ble Apex Court makes a strong
statement that the label of payment is not
decisive bu...
Joint Development Agreement

www.consultconstruction.com
Joint Development Agreement
• how does the L&T decision affect the levy of
service tax in respect of Joint Development
Agr...
Joint development Agreements
• This decision in Para 111 makes an
observation that "direct monetary
consideration may not ...
Joint Development Agreement
• There is a view that, in terms of Para 111,
reproduced above, even Joint Development
Agreeme...
Before concluding…
• ramifications arising out of the L&T decision on the Realty
Sector would be far and wide
• It would p...
Message from BAI Judgement
• The Constitutional-Amendment in Article 366(29A) read with the
relevant taxation-entries has ...
Supreme Court Judgement - L&T / K Raheja (VAT on Builders)
Supreme Court Judgement - L&T / K Raheja (VAT on Builders)
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Supreme Court Judgement - L&T / K Raheja (VAT on Builders)

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This presentation takes one through the details of recent Supreme Court Judgement in the case of Larsen & Toubro, which was a review of K Raheja Judgement. The judgement has a severe impact on the tax aspects of builders and real estate developers. It redefines the definition of works contract and levy of VAT on sale of flats and commercial premises

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  • and this would lead to the sustainable view that, if the Developer is not purchasing any goods and not transferring any property in goods to the prospective buyer, which is actually undertaken by the contractor appointed by the Developer, no VAT is still leviable on the Developer, under the VAT law.This argument is based on the view that, by not transferring goods, in the same or in other form, to the prospective buyer, the Developer, who has contracted out the construction activity, cannot be treated as a ‘dealer' or ‘works contractor' under the VAT law.
  • 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.
  • In my view, with several High Courts upholding the constitutional validity of a similar entry which came into being from 1-7-2010, due to the insertion of the Explanation to the definition of the then prevailing ‘Construction of Complex' services and ‘Commercial or Industrial Construction' services, it seems unlikely that the constitutional validity of Section 66E(b) can be called into question.
  • But, in the aftermath of the L&T decision, it would seem that, there would be a lot of pressure (from the Department, of course) for the Developer/Builder to pay service tax under 'construction services' by opting for the Abatement Scheme under Notification No. 26/2012-ST, in terms of which, service tax is payable on 25% of the total value inclusive of the value of the land,  
  • As such, there is no statutory bar for the Developer/Builder who has been paying tax under 'works contract' services to shift to paying tax under 'construction services'.
  • In my humble view, given the fact that, monetary consideration is a pre-requisite for levy of VAT, no sales tax/VAT can be levied in respect of joint development agreements entered into between the Developer and the owner of the land, as these are largely ‘barter' transactions involving the Developers and the Land owners. Though non-monetary consideration might be good enough to attract service tax levy, insofar as levy of service tax on works contracts is concerned, the service tax law will have to follow the VAT law and consequently, no service tax can be levied in respect of transactions between the Developers and Landowners.
  • Transcript of "Supreme Court Judgement - L&T / K Raheja (VAT on Builders)"

    1. 1. Supreme Court - L&T / K Raheja www.consultconstruction.com
    2. 2. Consult Construction is a consulting firm with all governance, compliance and IT related services related to the construction sector under one roof. Focus Areas :Corporate Governance Management Audit Project Budgeting and Monitoring Indirect Tax Compliances Corporate Training Information Technology and Allied Services ISO Implementation www.consultconstruction.com
    3. 3. Indirect Tax Services Advice on the applicability and levy of Service Tax, CST and State VAT on Contracts entered into or proposed to be entered into by the company. Assistance in the structuring of transactions and agreements in relation to inter-state and intra-state sales to optimise the tax incidence Conduct tax based health checks to determine the service tax & Multi State - VAT implications on the operations, Giving Multi State VAT opinions www.consultconstruction.com
    4. 4. Subscribe to our E-Bulletin Call at 9426024975 email - info@consultconstruction.com • VAT and Service Tax updates for the construction / Project sector companies. • Legislative changes and major case laws under the State VAT Laws and under Service Tax law affecting the construction /Project Sector. • In addition our brief analysis and comments on the various developments. www.consultconstruction.com
    5. 5. History… • Levy of Sales Tax / VAT on Works contract • Power of states confined to taxes on sale or purchase of goods • GDC – I – Five Judge Bench- Theory of Accretion • Para 51 of GDC – I – True Interpretation of the expression of sale of goods • Constitution’s 46th Amendment www.consultconstruction.com
    6. 6. History… • Five Judge Bench in BAI- Upheld Constitution’s 46th Amendment • Five Judge Bench in GDC-II laid down the valuation norms • Three Judge Bench in BSNL – Vivesection • Then came Raheja www.consultconstruction.com
    7. 7. Back Ground • Karnataka, in the early 2000s, the rate of sales tax used to be rather low at around 4%, while the stamp duty rate used to be at around 15%. • Some of the brightest tax brains (in Bangalore) came out with a plan • Split the consideration into two agreements, viz. one, for the sale of the undivided portion of the land and the second, for the construction of the apartment www.consultconstruction.com
    8. 8. • When the VAT law came into effect from 14-2005, the VAT rate was fixed at 12.5% and the stamp duty has come down to 5%. • What was good planning in an era where the stamp duty rate was high became a disaster, with the sales/VAT rates climbing up www.consultconstruction.com
    9. 9. When is a job established as a Works Contract – FACTS IN THE CASE OF SUPREME COURT JUDGEMENT OF K. RAHEJA DEVELOPMENT CORPORATION • Appellants were carrying on business as real estate developer. • They entered into Development agreement with owners of land. • The agreement was for carrying out construction on behalf of somebody else.
    10. 10. Facts Contd…. • The land owner transferred only the ownership of land to the society and the appellant transferred structure by a separate agreement for construction. • The appellants were carrying out construction as developers for the prospective purchaser. • Agreement entered into before the completion of the unit, was considered as Works Contract. • Agreement entered into after the flat or unit already constructed would not be within the ambit of works contract.
    11. 11. • Works Contract - Section 2(1)(v-i) of Karnataka Sales Tax Act defines a "works contract" as: "works contract" includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any moveable or immovable property.
    12. 12. • Kar HC gave a great regard to the wide definition of works contract under Karnataka VAT • Sales Tax -Works Contract - So long as there is no termination the construction is for and on behalf of purchaser • If the agreement is entered into after the flat or unit is already constructed, then there would be no works contract-
    13. 13. • On the basis of K Raheja, can we say that all builders are liable to VAT?
    14. 14. L&T Dev Project • L & T - contract to develop the property of Dinesh Ranka- 75:25. • SCN - Tripartite Agreement is a works contract. • No allegation of consideration involved in the first contract which is the Development Agreement. www.consultconstruction.com
    15. 15. Review…… • However Supreme Court on Aug 19, 2008 had referred the judgment for reconsideration to a larger bench considering the Writ Petition filed by L&T on the count that the judgement has adversely affected the entire construction industry. www.consultconstruction.com
    16. 16. Raheja needs reconsideration • There would be no difference between works contract and a contract for sale of chattel as a chattel. • Could it be said that petitioner Company was the contractor for prospective flat purchaser. • Observations of Dept, Dev Agr is not works contract but the Tripartite Agr is works contract which appears to be fallacious. www.consultconstruction.com
    17. 17. Raheja needs reconsideration • There were 26 appeals for reconsideration out of which • 14 appeals were from Karnataka and • 12 were from Maharashtra. www.consultconstruction.com
    18. 18. • While interpreting the Judgement, Lets appreciate the fact that the definition of ‘works contracts' under the VAT laws of most States are very similar to Karnataka and thus this decision will apply to almost, the whole of the country. www.consultconstruction.com
    19. 19. Def’n in Gujarat • Contract to do any works • Valuation www.consultconstruction.com
    20. 20. Key contentions of the Appellants www.consultconstruction.com
    21. 21. Key contentions of the Appellants • GDC – I still a good law • Wider definition of works contract not acceptable • Applicability of Article 366(29-A) read with Entry 54 of List II still cannot apply to an agreement for sale of immovable property resulting in a conveyance. • well-known tests to determine whether a particular contract is “works contract” or “contract of sale” have not been adverted to. • Dominant intention of the agreement was to sell a flat and not enter into a works contract. www.consultconstruction.com
    22. 22. Key contentions of the Appellants • work undertaken is for joint development of project as a whole, ie work is undertaken by developer for himself and the owner; and not for purchaser; • the flat is to be sold as a flat and not an aggregate of its component parts; • if a suit is filed by flat purchaser, it would be for conveyance of title and not for construction of a building. www.consultconstruction.com
    23. 23. Key contentions of the Appellants • Maharashtra - Section 2(24) of MVAT Act and Rules 58 and 58(1A) - redefine the taxable event by moving away from theory of accretion to transfer of immovable property by way of conveyance and that renders these provisions unconstitutional; • State levies stamp duty on agreement of sale under Entry 25 (as immovable property) and not under Entry 63 (as works contract) and hence does not consider agreement for sale to be works contract. www.consultconstruction.com
    24. 24. Key contentions of the Appellants • Main intention remains to buy the flat • Buyer has no role in conceptualising the project / design / supervision / material quality • Accretion happens in the hands of developer www.consultconstruction.com
    25. 25. Key contentions of the Revenue www.consultconstruction.com
    26. 26. Key contentions of the Revenue • View taken in Raheja Development case is correct and needs no reconsideration. • After insertion of Article 366 (29-A)(b) in Constitution, transfer of movable property in works contract is deemed to be sale even though it is not sale as per Sale of Goods Act. www.consultconstruction.com
    27. 27. Key contentions of the Revenue • Nothing in Article 366(29-A)(b) limits the term “works contract”, and ownership of goods need not pass only by way of accretion or accession to owner of the immovable property. www.consultconstruction.com
    28. 28. Key contentions of the Revenue • No question of ascertaining dominant intention of contract since sale of goods element is deemed sale under Article 366(29-A)(b) and can be taxed separately. • A composite contract comprising both works contract and transfer of immovable property does not denude it of its character as works contract. www.consultconstruction.com
    29. 29. Key contentions of the Revenue • Different aspects of same transaction can involve more than one taxable event. Transfer of immovable property cannot be taxed as sale of goods but there is no constitutional bar to tax only sale of goods element. www.consultconstruction.com
    30. 30. Key contentions of the Revenue • Explanation b(ii) in section 2(24) of MVAT Act offers diverse options for valuation which are methods approved by the SC – in Gannon Dunkerley& Co and others v State of Rajasthan and Others (1993-1-SCC-364) (“Gannon Dunkerley-II”). • Further, Rule 58A and Rule 58(1A) of the MVAT Rules are constitutionally valid, as these provisions are consistent with principles laid down in Gannon Dunkerley-II. www.consultconstruction.com
    31. 31. Key contentions of the Revenue • As long as there is obligation to construct under agreement between Developer and flat purchaser (in case of Maharashtra, being agreement under MOFA) deemed sale of goods can be taxed even after incorporation of goods in works www.consultconstruction.com
    32. 32. Ruling of the Supreme Court www.consultconstruction.com
    33. 33. Ruling of the Supreme Court • “Tax on sale or purchase of goods” in Entry 54 in List II of Seventh Schedule when read with definition clause 29-A of Article 366 includes tax on transfer of property in goods, whether as goods or in some other form involved in execution of works contract. www.consultconstruction.com
    34. 34. Ruling of the Supreme Court Three conditions : - there must be a works contract; - goods should have been involved in execution of works contract; and, - property in those goods must be transferred to third party either as goods or in some other form. www.consultconstruction.com
    35. 35. Ruling of the Supreme Court • For purpose of Article 366 (29-A)(b), in building contracts or any construction contracts, if consideration is received, all the above conditions are satisfied • As in performance of a contract for construction of building, goods (chattels) like cement, concrete, steel, bricks etc are intended to be incorporated in the structure www.consultconstruction.com
    36. 36. Ruling of the Supreme Court • A contract comprising both works contract and transfer of immovable property, does not denude it of its character as works contract. • The term “works contract” in Article 366 (29-A)(b) is not restricted to contract to provide for labour and services alone. • Building contracts are species of works contract. www.consultconstruction.com
    37. 37. Ruling of the Supreme Court • The dominant nature test has no application • Traditional decisions on substance of contracts have lost their significance. www.consultconstruction.com
    38. 38. Ruling of the Supreme Court • Transfer of property in goods under Article 366 29-A(b) is deemed to be sale of goods involved in execution of works contract by person making transfer and purchase of those goods by person to whom such transfer is made. • Purchase Tax www.consultconstruction.com
    39. 39. Ruling of the Supreme Court • Value of goods which can constitute the measure for levy of tax has to be value of goods at time of incorporation of goods in works, even though property passes as between developer and flat purchaser after incorporation of goods. www.consultconstruction.com
    40. 40. Ruling of the Supreme Court • It is thus, not correct to say that work is undertaken by developer for himself and the owner and construction is not carried for and on behalf of purchaser. www.consultconstruction.com
    41. 41. Ruling of the Supreme Court Constitutional validity of MVAT provisions, the SC held that: • - Amendment in explanation b(ii) to Section 2(24) was brought because of judgment of SC in Raheja Development and as the judgment lays down correct legal position, there is no merit in challenge to constitutional validity of the provisions. • - However, wrt rule 58(1A), the SC held that mode of valuation of goods provided in Rule 58(1A) has to be read to include value of goods only at the time of incorporation even though property in goods passes later. www.consultconstruction.com
    42. 42. Consequences www.consultconstruction.com
    43. 43. Consequences • The Apex Court has not overruled its decision in the case of State of AP and Ors v. Larsen & Toubro Ltd and Ors • Impact on Pure developers www.consultconstruction.com
    44. 44. Consequences • As a matter of huge relief, the Apex Court rejected the contention of the State of Karnataka that sale of immovable properties, whether finished or semifinished, are within the purview of VAT. www.consultconstruction.com
    45. 45. Consequences- Para 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. www.consultconstruction.com
    46. 46. • Let us assume that the total value of a flat is Rs 100 lakhs, with Rs 40 lakhs being treated as the value of the land. • On the date of the agreement 70% of the work has already been completed in the flat. • In terms of the L&T decision, only Rs 18 lakhs representing 30% of Rs 60 lakhs can be treated as a works contract. www.consultconstruction.com
    47. 47. Consequences • Going forward… www.consultconstruction.com
    48. 48. Consequences • The L&T decision would have retrospective effect, • Will the State Governments be flooded with refund applications from the flat purchasers / builders www.consultconstruction.com
    49. 49. Consequences • Possible Loss of revenue • unless the Constitution is amended, there is no way the States can get over this historic decision. • Reversal of Input Credit www.consultconstruction.com
    50. 50. Changes in VAT Legislation • Madhya Pradesh • Maharashtra • Haryana www.consultconstruction.com
    51. 51. Consequences on Service Tax www.consultconstruction.com
    52. 52. Consequences on service tax? • Decisions of the High Courts in the Magus Construction Pvt Ltd Vs Union of India (2008-TIOL-321-HC-GUW-ST) and Assotech Realty Pvt Ltd Vs State of UP (2007-TIOL-297-HC-ALL-CT), which had held that, no service is involved when the Developer enters into an agreement of sale shall no more be valid www.consultconstruction.com
    53. 53. Consequences on service tax? • Most transactions involving construction and sale of flats would also get covered under Section 66E(b) of the Finance Act, 1994, which reads as under:• construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority. • Can entry also cover transactions which are not works contracts ? • Can this include the value, of the period, prior to the date of the agreement ? www.consultconstruction.com
    54. 54. Consequences on Service Tax • Instances where, the construction would be complete but the CC would not have been received. • In these cases, it is perfectly legal to take the view that, no VAT is applicable, as the construction is complete. But, the levy of service tax, in terms of Entry No. (b)of Section 66E could still survive www.consultconstruction.com
    55. 55. Consequences on service tax? • In effect we could have a scenario wherein, a transaction of construction and sale of a flat could get treated quite differently, under the VAT law and the Service tax law. • Can we challenge the constitutional validity of levy of service tax ? www.consultconstruction.com
    56. 56. Consequences on Service Tax • Constitutional validity of Explanations inserted to the definition of 'commercial or industrial construction' services and 'construction of complex' services upheld by the High Courts of Bombay, Punjab & Haryana and Madras. • Given further the fact that this entry is under the 'Declared List', the chances of a challenge to its legality on constitutional grounds look very bleak. www.consultconstruction.com
    57. 57. Consequences on service tax? • Can pure developers as per law laid down by the Apex Court in the State of AP v. L & T case challenge the new law that has taken effect from 1-7-2012 as well as the old law with effect from 1-7-2010, in respect of ‘construction services'. www.consultconstruction.com
    58. 58. Consequences on Service Tax • Do the Developer/Builder would have the choice to opt for either of the entries under Section 66E(b) or Section 66E(h) ? www.consultconstruction.com
    59. 59. Consequences on Service Tax • Section 66E(b) and Section 66E(h) would indicate that, while services covered under the earlier entry could cover the services rendered under the latter entry, the converse is not true. www.consultconstruction.com
    60. 60. Consequences on Service Tax • In effect, post L&T decision, the Developer/Builder would seem to have two choices, viz. • ++ to classify his service as a 'works contract' in terms of Section 66E(h) and pay service tax in terms of the L&T decision, on the balance value of construction completed on and after the date of the agreement. • ++ to classify his service as 'construction service' in terms of Section 66E(b) and opt for the abatement scheme under Notification No. 26/2012-ST. www.consultconstruction.com
    61. 61. Consequences on Service Tax • Can you shift from 66E(h) to 66E(b) and opt for the abatement scheme under Notification No. 26/2012-ST. www.consultconstruction.com
    62. 62. Consequences on Service Tax • The Hon'ble Apex Court makes a strong statement that the label of payment is not decisive but the factum of the payment is. • contentious items like non-refundable deposits, amounts collected towards providing water/electricity connections, etc., may be considered for valuation of the taxable services. www.consultconstruction.com
    63. 63. Joint Development Agreement www.consultconstruction.com
    64. 64. Joint Development Agreement • how does the L&T decision affect the levy of service tax in respect of Joint Development Agreements? www.consultconstruction.com
    65. 65. Joint development Agreements • This decision in Para 111 makes an observation that "direct monetary consideration may not be involved but such agreement cannot be seen in isolation to the terms contained therein and following development agreement, the agreement in the nature of the tripartite agreement between the owner of the land, the developer and the flat purchaser whereunder the developer has undertaken to construct for the flat purchaser for monetary consideration”. www.consultconstruction.com
    66. 66. Joint Development Agreement • There is a view that, in terms of Para 111, reproduced above, even Joint Development Agreements could get treated as works contracts under the VAT law. • Karnataka High Court is yet to pronounce its verdict on the leviability of VAT on joint development agreements. • Service tax law on works contract would necessarily have to follow the VAT law, not-withstanding some CESTAT decisions, the Board Circular No. 151/2/2012-ST dated February 10, 2012 and the Education Guide. www.consultconstruction.com
    67. 67. Before concluding… • ramifications arising out of the L&T decision on the Realty Sector would be far and wide • It would perhaps take some time for the Realty Sector to fully digest the impact arising out of the L&T decision • This decision could have no implications in so far as the levy of stamp duty by the States is concerned • It would be interesting to see how the States would react to this historic decision in general and Para 115 in particular. • The L&T decision may also impact works like BOT, maintenance contracts, erection contracts, etc. • Can we challenge the levy of Stamp Duty now www.consultconstruction.com
    68. 68. Message from BAI Judgement • The Constitutional-Amendment in Article 366(29A) read with the relevant taxation-entries has enabled the state to exert its taxing power in an important area of social and economic life of the community. In exerting this power particularly in relation to transfer of property in goods involved in the execution of 'works-contracts' in building activity, in so far as it affects the housing-projects of the underprivileged and weaker sections of society, the state might perhaps, be pushing its taxation-power to the peripheries of the social limits of that power and, perhaps, even of the constitutional limits of that power in dealing with unequals. In such class of cases 'BuildingActivity' really relates to a basic subsistential necessity. It would be wise and appropriate for the state to consider whether the requisite and appropriate classifications should not be made of such buildingactivity attendant with such social purposes for appropriate separate treatment. These of course are matters for legislative concern and wisdom. www.consultconstruction.com

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