Developer/building works contractor under Haryana VAT

Building works contractors/developers in Haryana were not paying tax since there were no proper guidelines or Rules prescribed under Haryana Value Added Tax Act, 2003. Now, Haryana Government has prescribed the rules for building works contractor/developer after the direction of Punjab & Haryana High Court while deciding the case of M/s CHD Developers Limited, Karnal Vs State of Haryana reported as (2015) 51PHT1 (P&H). The developers and building works contractors have to strictly follow these rules and ascertain their liability to pay the tax otherwise they will be made liable to pay the interest and penalty leviable under the Act.

Developer has been defined under the rule that developer means a person who is engaged in and undertakes the construction of civil structures, flats, dwelling units, buildings, premises, complexes, commercial or otherwise, whether wholly or partly (either himself or through an authorized person) for sale and transfers them in pursuance of an agreement along with land or interest underlying the land to a buyer, where the value of land or interest underlying the land is included in the total consideration received or receivable. Therefore, a person transfer the land along with the building after construction will be developer and if he transfers only building after construction he is works contractor and not developer.

Rule 25(2) of Haryana Value Added Tax Rules 2003 has been amended w.e.f. 17.5.2010 and turnover will be determined after deduction of the charges towards labour, services and other like charges. Further the charges towards cost of land, other charges relatable to land, if any, paid to the Government or its agency, subject to the dealer maintained proper records such as invoice, voucher, challan or any other document evidencing payment of above referred charges to the satisfaction of the taxing authority. Now, the cost of land will not be included in the turnover of works contractor.

The charges towards labour, Services and other like charges shall include labour charges for execution of works, charges for planning and architect’s fees, cost of consumables such as water, electricity, fuel etc. used in the execution of the works contract in which the property in goods is not transferred in the course of execution of the works contract, cost of establishment of the contractor to the extent it is relatable to supply of labour and services, other similar expenses relatable to supply of labour and services and profit earned by the contractor to the extent it is relatable to supply of labour and services subject to furnishing of a profit and loss account of the works sites.

If amount of charges towards labour, services and other like charges are not ascertainable from the books of accounts of the dealer or the dealer fails to produce documentary evidence in support of such charges then the amount of such charges shall be calculated for civil works like construction of building, bridges, roads, dams, barrages, canals and diversions @ 25% after deductions of the cost of transferred land. Different percentage varying from 15% to 40% towards labour, service and other like charges has been allowed under Rule 25(2) as per nature of works contract.

Agreement executed between the land owner and the contractor or similar other agreement is of the nature of collaboration or joint development where the contractor constructs the building/units and consideration for the construction is given by the land owner in the form of share in the land with or without additional money exchange. The value of the works contract carried out by the contractor for the land owner shall be the highest among (i) actual value of construction, including profit, transferred by the contractor to the landowner in accordance with the books of accounts maintained by the contractor (ii) where proportionate land is transferred by the land-owner to the contractor by executing a separate conveyance/sale deed, the value stated in the deed for the purpose of payment of stamp duty as reduced by consideration paid by the contractor to the land owner through any mode of payment (iii) on the basis of circle rate of proportionate area of land transferred by the land owner to the contractor prevailing at the time of execution of agreement between them, as reduced by the consideration paid by contractor to the land owner through any mode of payment.

It is also provided in the rule that where separate circle rates for land and construction have not been notified in respect of certain buildings or properties, then circle rate for land and construction prevailing in that locality for other buildings or properties, in respect of which separate circle rates have been notifies shall be taken into consideration for the purpose of determination of value. Further provided that value of works contract shall not be less than the circle rate of construction applicable on the date on which agreement between the landowner and the contractor for the construction of property was executed. The taxable turnover in relation to contractor’s share of construction for activity carried on by him for the intended purchaser shall be calculated separately.

The cost of land in a works contract carried on by the developer for the intended purchaser shall be the highest between the consideration amounts of land stated in the deed and notified circle rates of land prevailing at the time of execution of agreement between the developer and the intended purchaser. Where separate circle rates for land and construction have not been notified in respect of certain properties, then circle rate for land and construction prevailing in that locality for other properties in respect of which separate circle rates have been notified, shall be taken for the purpose of determination of value of land.

Where land has been valued at circle rate and the value of conveyance/sale deed of the constructed unit with the intended purchaser exceeds the circle rate, then the difference between the two shall be proportionately divided between the value of land and the works contract (comprising material and services).For example, in case of composite works contract, circle rate of land is ` 2 crore and circle rate of construction is ` 1 crore and the consolidated value of sale deed is ` 3.60 crore. Difference of ` 0.60 crore shall be divided in the ratio of 2:1 and thus, value of land shall be 2.40 crore.

The term Intended purchaser means the person who agrees to buy the property before completion of construction and pays the consideration in full or part before such completion. Construction shall be deemed to be complete at the time of issuance of completion certificate by the competent authority.

The Rule 25 also prescribe that in the case of works contract where the payment of charges towards the cost of land is not ascertainable as per this rule then the amount of such charges shall be calculated @ 25% of the total value of the contract except in the case of construction of commercial building/complexes where it shall be calculated @ 40% of the total value of the contract.

In the case of works contract, where only a part of the total area to be constructed is being transferred, the charge towards the cost of land shall be calculated on a pro rata basis through the formula “Proportionate super area multiplied by value of land as determined by rule divided by total plot area multiplied by floor area ratio.” In this formula, Proportionate super area means the covered area booked for transfer and the proportionate common area to be constructed, attributable to it and Floor Area Ratio = Total constructed area divided by Total plot Area.

Haryana Government has now increased the period of assessment of unregistered dealer from 3 years to 6 years to assess the dealers who are not registered under the camouflage of uncertainty in rules. Registered dealer can now also be reassessed by Assessing Authority since reassessment period increased to 8 years from the close of the year or with in 3 years from the date of assessment order whichever is later. Revision period is also increased to 6 years from 3 years from the date of service of assessment order. This period is extended vide ordnance No. Leg.9/2015 dated 3.8.2015 reported as (2015) 51 PHT 163 (JS).

DISCLAIMER: The contents of this article are solely for informational purpose.  It does not constitute professional advice or recommendation.  Author does not accept any liabilities for any loss or damage of any kind arising out of information in this article nor for any action taken in reliance thereon.

BY RK JAIN,

M. COM. LLB, ADVOCATE,

SONEPAT