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August, 30th 2012

In a relief to developers and buyers, the Supreme Court (SC) on Tuesday stayed the Bombay high court judgment dismissing the builder associations appeal against the state governments move to levy 5% value added tax (VAT) for flats sold between 2006 and 2010. The amount is 1% for flats sold after 2010.

The SC has extended the deadline for builders to pay VAT from August 31 to October 31. If they do so, they are not entitled to pay penalty and 15% interest on delayed payment of VAT, according to the SC interim order. The builders must register with the sales tax department by October 15 before paying VAT.

The VAT money will be collected and kept in a separate account of the state government. If the state loses the case, the developers will get back their money along with interest. The date for the final SC ruling is not known as yet.

We welcome the SC order. It gives relief to buyers and developers. I hope in the next hearing, VAT imposed by the state government gets scrapped, said Manohar Shroff, general secretary of the Maharashtra Chamber of Housing Industry (MCHI), Navi Mumbai.

The court has restrained the state government from taking coercive steps to collect tax till October 31. The SC verdict gives breathing period to the affected property buyers. However, there is no real relief in terms of the actual VAT amount that one has to pay, said Kishor Pate, secretary, CREDAI (Maharashtra).

Another developer said the SC order is a positive start. We have been unnecessarily targeted and penalised by the state and central government. Instead of correcting the slowdown in the market, they are imposing new taxes every day. The central government is tightening bank rules so that developers do not survive for long. The cost of houses is going up in Mumbai because of various taxes, said a prominent city-based developer on condition of anonymity.

He said hopefully the court will understand the plight of builders and either scrap VAT or bring it down from 5% to to 1% . This will ensure there is no discrimination for buyers who bought flats between 2006 and 2010. There will be one tax for all, he said.

A bench of justices RM Lodha, AR Dave and Ranjan Gogoi on Tuesday stayed the sales tax department notification dated August 6, 2012, asking VAT developers to file their VAT returns by August 31.

The SC passed the interim order while hearing a special leave petition filed by MCHI-CREDAI, a developers representative organisation. The petition challenged the Bombay high court order dismissing the writ petition against the state government in the VAT case. Dr AM Singhvi and Parimal Shroff appeared on behalf of MCHI-CREDAI.

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