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Flats to get costlier as HC upholds VAT on sale of flats
April, 12th 2012

Property prices in the city are likely to rise after the Bombay high court on Tuesday upheld the constitutional validity of an amendment in the Maharashtra Value Added Tax (MVAT) Act of 2002, which imposes VAT on newly constructed properties. A division bench of justice DY Chandrachud

 
and justice SK Sankalecha dismissed a petition filed by the Maharashtra Chamber of Housing Industries (MCHI) and a bunch of petitions filed by various builders.
MCHI and other builders had challenged the constitutional validity of the 2006 amendment by which the term sale of goods had been broadened to bring construction activities under the purview of the legislation.

Developers had to pay 1% of total sale price of the flat or 5% of the value of goods transferred (value of the property minus the land price and some other deductible components).

MCHI counsel Milind Sathe argued that imposing VAT on transfer of immovable property such as flats was beyond the competence of the state legislature and it could not expand the definition of the term sale, since contract for sale of an immovable property was not a works contract. According to the lawyer, works contract comprised supply of material and goods or labour and service.

Referring to the provisions of the Maharashtra Ownership of Flats Act (MOFA), the judges said the agreement for sale executed under the act was a conveyance, as it conveys right, title and interest in the flat to the purchaser. Therefore it was not possible to accept that the contract involving sale of a flat under MOFA was not a works contract.
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