2015 (7) TMI 230 - HC - VAT and Sales Tax

Denial of the benefit of composition under Section 4(7)(d) of the A.P. VAT Act - completed apartment - consideration and to pay the tax due either directly to the assessing authority or to the Sub-Registrar. The month in which the sale of the property is concluded and registered is the month in which the entire tax due is required to be paid which as noted hereinabove is at 4%/5% of 25% of the consideration received or receivable. As tax is required to be paid even on the consideration not yet received it is evident that the liability to pay tax on composition under Section 4(7)(d) is also on the consideration receivable on the construction to be continued and completed in terms of the initial agreement after conclusion and registration of the sale of the semi-finished structure. The VAT at the rate prescribed in Section 4(7)(d) must be paid on the entire consideration and not merely on the consideration reflected in the registered sale deed to the Sub-Registrar at the time of registration or in the very same month along with the tax return to the assessing authority. The entire tax liability is required to be discharged in the month in which the sale of a semi-finished structure is concluded and registered and tax should be paid at that stage itself for the total consideration received or receivable for the land and buildings which would include the consideration which the developer has not yet received for the post-sale construction to be undertaken by him. The consideration still due as referred to in the finishing/completion agreement is the consideration stipulated in the initial agreement minus the consideration already received and reflected in the registered sale deed. It matters little therefore whether the right of the purchaser to sue for any defect in construction post-execution of the sale deed is referable to the completion agreement or to the initial agreement. If dealers engaged in the construction and sale of residential apartments houses buildings or commercial complexes exercise the option and comply with the conditions stipulated in Section 4(7)(d) and Rule 17(4) they cannot be denied the benefit of composition thereunder for the construction made by them for the very same person after execution of a registered deed for the sale of a semi- finished structure. Denial of the benefits of the composition scheme under Section 4(7)(d) to such dealers for the post-sale construction made in terms of the initial agreement is illegal and is contrary to the provisions of the AP VAT Act and the Rules made thereunder. The impugned assessment orders must therefore be and are accordingly set aside. - matter remanded back - Decided in favour of assessee.

Issues Involved:
1. Conflicting Advance Rulings
2. Submissions Beyond the Impugned Orders
3. Eligibility for Composition under Section 4(7)(d) Post-Sale
4. Distinction Between Pre-Sale and Post-Sale Works Contracts
5. Consideration for Finishing Works
6. Legislative Intent and Historical Context

Detailed Analysis:

I. Conflicting Advance Rulings:
The petitioners contended that the rulings in Maytas Hill Country Pvt. Ltd. and Sai Sree Developers (P) Ltd. were applicable and binding as per Section 67(4) of the Act. The assessing authorities failed to follow these rulings, instead relying on conflicting rulings in M/s Madhu Collections and M/s Lumbini Constructions (P) Ltd. The court noted that conflicting rulings create confusion and emphasized the need for uniformity in tax administration. The court aimed to resolve the uncertainty by interpreting Section 4(7)(d) of the Act.

II. Submissions Beyond the Impugned Orders:
Petitioners argued that the revenue's submissions exceeded the scope of the assessment orders and counter affidavits. The court found it unnecessary to address this contention as the interpretation of Section 4(7)(d) is a pure question of law that can be raised at any stage, even for the first time in writ proceedings.

III. Eligibility for Composition under Section 4(7)(d) Post-Sale:
Petitioners argued that Section 4(7)(d) does not exclude the composition facility for post-sale construction. They claimed that both the sale deed and the construction agreement are integral parts of the initial agreement, and the entire tax liability was discharged upon registration of the semi-finished flat. The court examined the statutory provisions and held that the liability to pay tax under Section 4(7)(d) includes the total consideration received or receivable for the composite value of land and building, from commencement to completion of construction.

IV. Distinction Between Pre-Sale and Post-Sale Works Contracts:
The court rejected the revenue's contention that post-sale construction constitutes a separate works contract. It emphasized that the entire construction, as specified in the initial agreement, falls within the ambit of Section 4(7)(d). The court noted that the artificial severance of the identity of the purchaser before and after the sale deed does not align with the plain language of Section 4(7)(d).

V. Consideration for Finishing Works:
The court held that the consideration for the finishing works is part of the initial agreement. The tax liability under Section 4(7)(d) is on the total consideration stipulated in the initial agreement, which includes the value of land and the completely constructed building. The court clarified that any construction beyond the scope of the initial agreement would be an independent works contract, taxable under Section 4(7)(a).

VI. Legislative Intent and Historical Context:
The court referred to the APGST Act and the distinction made between general works contracts and those for constructing apartments and buildings. It noted that this distinction continued under the AP VAT Act, reflecting the legislative intent to extend the benefit of a distinct composition scheme to contractors of residential apartments and buildings. The court emphasized that the benefit of composition under Section 4(7)(d) is not contingent on the stage of construction when a registered sale deed is executed.

Conclusion:
The court concluded that dealers engaged in the construction and sale of residential apartments, houses, buildings, or commercial complexes who exercise the option under Section 4(7)(d) and comply with the conditions cannot be denied the benefit of composition for post-sale construction. The impugned assessment orders were set aside, and the assessing authorities were directed to re-examine the matter in light of the court's findings and pass fresh orders in accordance with the law. The writ petitions were disposed of accordingly, without costs.

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