A GUIDE TO SALES TAX ON APARTMENT BUILDINGS
Works Contract is most questioned and often litigated issue within the Court of Law, and conjointly between the client of the flat and promoter. the choice of the Hon’ble Supreme Court in Gannon Dunkerleys case stating that the expression “Sale of products as utilized in Seventh Schedule of Constitution has an equivalent which means as in Sale of products Act created the law commission in its sixty 1st report back to advocate to amend the Constitution of India - consequently forty sixth modification was passed in 1982. This authorized the states to pass laws to levy tax on transfer of property. the products concerned in execution of works contract is also within the kind of goods or in the other type. Article 269 of the Constitution provides for levy of tax on sale or purchase of products apart from news paper. Just in case of interstate trade and commerce, the tax is to be levied by Government of india, however assigned to the states within which tax is leviable.
Article 286 of the Indian Constitution works as restraint on the authority of an equivalent.
One should distinguish the distinction between contract of sale of products contract of labor. The distinction is extremely skinny. Its terms of the contract and nature and of the requirement to be discharged, that distinguishes works contract from contract purchasable.
In case of sale of products, product area unit delivered as they're to the client, whereas just in case of works contract, the products area unit delivered in an exceedingly changed type. this could be explained within the purchase of readymade house, that is sale of products and contract to construct a house, that may be a works contract. In purchase of readymade house, the home is delivered because it is, whereas just in case of contract for construction, the home is made victimisation numerous materials and delivered to the client. This can be well explained just in case HAL Vs State of province (1984) fifty five STC 314.
In another case HAL Vs State of orissa,Hon’ble Supreme Court has determined that in contract of works there's someone acting or rendering service on property, wherever as just in case of sale of property there's individual existence of the property as an entire, that is being delivered to the client.
Types of Contracts
There is no well established formula by that contract purchasable and contract of labor is distinguished.Any contract that contains not solely the work however conjointly needs product to be used is also of the subsequent 3 types;
Contract may be for works to be in hot water remuneration and also for provide of products in execution of labor. this can be a composite contract.
It is also contract of labor within which use of materials is related to the execution of the work. this can be contract for work and labour not involving sale of products.
It is also contract for provide of products wherever some work is needed as related to sale. this can be strictly a contract of labor.
Agreements, wherever in land and buildings area unit sent to the potential client and correct stamp tax is paid on such conveyance area unit transfer of stabile property and aren't vulnerable to tax below sale tax laws.
Agreement with Builder
However we tend to shall examine cases, wherever developer executes General Power of professional in favour of builders for valuable thought such contracts is also any of the subsequent types;
Power of professional for valuable thought.
For valuable thought partially and partially by manner of made property.
Hon’ble Supreme Court in Raheja Development Corporation Vs State of province (Appeal [Civil]) 2766 of 2000 5/5/2000 determined that “the definition of works contract below province nuisance tax is extremely wide and not restricted to works contract, it conjointly includes “any agreement for finishing up either for money or for credit or for any valuable thought, the building and construction of any movable or stabile property.
Land being stabile property isn't to blame for payment of nuisance tax. However once associatey construction takes toward land through a freelance contractor on behalf of the builder, contractor execution the work is vulnerable to pay works contract tax.
Dual Role of Developer
We can also visualise a scenario wherever a builder himself acts as contractor.In such scenario the nuisance tax department considers the builder in twin capability as contractor and as owner/builder.The department is subjecting the builder to nuisance tax.The relevant case is Mittal investments corporation Vs. State of province that was determined by Hon’ble tribunal of province. it absolutely was control as follows;
If the building was 1st made and thenceforth in agreement to be sold-out, then it absolutely was an acquisition of stabile property that no nuisance tax is attracted.
According to the agreement, some advance has been taken at the time of execution agreement and also the balance quantity to be paid in fifteen instalments
It has not been established that at the time of agreement, whether or not construction has started by the builder.
The client should purchase the land from the client and not from the builder.
It isn't clear whether or not plans were approved, before the execution of agreement.
It was control that there's transfer of property in product and to blame for tax. On review petition it absolutely was control, the builder wouldn't be vulnerable to pay nuisance tax below section 5B in respect of buildings that are completed before getting in associate agreement and conjointly in respect of agreements that are entered when the development of the building was started.However, this was overruled by Hon’ble Supreme Court just in case of K. Raheja Development Corporation Vs. State of province
The question whether or not a selected contract is purchasable of products or contract for work or labour is extremely tough to work out. The distinctions and terms such by numerous courts aren't complete. They primarily linger over one or 2 points that have are available the cases, that area unit rigid and might be created applicable to all or any cases. The deciding issue would be the contents of contract, the circumstances of the group action of the prevailing custom of the trade.The levy of the works contract tax is on the materials utilized in execution of explicit contract, the property that is ultimately transferred.
Karnataka sales tax Act
The provisions regarding works contract below province nuisance tax Act were inserted with impact from 01.08.1985 however got impact from 1986.Section 2(29)(b) of KVAT Act traumatize the Works Contract, that refers to the property in product concerned in execution of works contract for money or credit. Section 2(37) defines “Works Contract” as works contract includes any agreement for finishing up for money, credit or different valuable thought, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement modification, repair, or commission of any movable or stabile property.
The contractor should embody the nuisance tax within the quotation itself, in order that he will collect it from the principle and pay same to the Department, if not he should pay the nuisance tax on his own profit. The developer should embody this clause within the agreement to sell and collect the tax from the client of flat and remit an equivalent to the business Tax Department.
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