Introduction: The Office of the Commissioner of State Tax (GST), Maharashtra, has released Trade Circular No. 28 T of 2023, dated 10th November 2023, addressing the stay of recovery in a matter concerning the Special Leave Petition filed by the Promoters and Builders Association and the Maharashtra Chamber of Housing Industry (MCHI).
1. Background on Litigations: Several litigations regarding the taxation on the sale of under-construction flats have been ongoing in the courts. The Hon. Bombay High Court confirmed the levy of tax in such cases, leading to the issuance of Trade Circulars in 2012 providing instructions for registration, administrative relief, and tax payment by Builders and Developers.
2. Special Leave Petitions and Interim Order : The Promoters and Builders Association, along with MCHI, filed Special Leave Petitions before the Hon. Supreme Court. The apex court issued an interim order on 28th August 2012, staying the coercive process for recovery of tax, interest, or penalty if developers paid tax under the Maharashtra Value Added Tax Act by October 31, 2012.
3. Modification through Trade Circular 17T of 2012: To adhere to the Supreme Court’s interim order, the Department modified instructions through Trade Circular 17T of 2012. It outlined deadlines for obtaining registration, filing returns, and paying tax, all subject to the final outcome of the petition filed by Promoters and Builders Association and MCHI.
4. Supreme Court’s Final Decision (September 26, 2013): The Hon. Supreme Court, in the case of M/s. Larsen & Toubro Limited, delivered a comprehensive judgment on September 26, 2013. The judgment clarified various aspects, including the constitutional validity of certain provisions and the permissibility of taxing the sale of goods element in a works contract.
5. Impact on Recovery Stay: With the Supreme Court’s decision in 2013, the recovery stay in the cases involved in the aforementioned petitions no longer stands in abeyance. The circular instructs Departmental authorities to proceed with recovery as per legal provisions, and traders are urged to voluntarily settle any outstanding liabilities.
Conclusion: GST Trade Circular 28/2023 marks a crucial development in the context of recovery stays related to the taxation of under-construction flats. The Supreme Court’s definitive decision in 2013 has paved the way for the resumption of recovery actions. Stakeholders, including builders, developers, and tax authorities, must be cognizant of the circular’s directives. It is imperative for the trade community to proactively address any pending tax, interest, or penalty obligations to ensure compliance with the evolving legal landscape. As the Commissioner of State Tax, Maharashtra, issues this clarificatory circular, it becomes essential for the concerned entities to stay informed and take necessary actions in line with the latest regulatory developments.
Office of the Commissioner of State Tax (GST),
8th Floor, GST Bhavan, Mazgaon, Mumbai-400010.
TRADE CIRCULAR
To,
NO.DC(A&RANVAT/Promoters &Hicks Assen/ADM Relief 06-10/ADM-8
Mumbai, dt. 10|11|2023
Trade Circular No. 28 T of 2023
Subject : Stay of recovery in the matter of Special Leave Petition filed by the Promoters and Builders Association and the Maharashtra Chamber of Housing Industry(MCHI).
Ref. 1. Trade Circular bearing No. 14T 2012 dated 6th August 2012.
2. Trade Circular bearing No. 17T 2012 dated 25th September 2012.
Gentlemen/Sir/Madam
You arc aware that there were several litigations going on in the Hon. Courts in respect of the taxation on sale of under construction flats. Hon. Bombay High Court in Maharashtra Chamber of Housing Industry vs State of Maharashtra And Ors. (Writ petition no. 2022 of 2007 decided on 10th April, 2012) confirmed the levy of the tax in respect of sale of under construction flats etc. Thereafter, this office issued a Trade Circular referenced at sr. no.1 above and issued instructions with regards to registration, administrative relief and payment of tax by Builders and Developers.
02. The Promoters and Builders Association as well as MCHI filed Special Leave Petitions before the Hon. Supreme Court. The apex court passed an interim order on dt.28/08/2012 in the matter [Promoters & Builders Assn. & Ors. Versus State of Maharashtra & Ors. [I.A. No. 2 in S.L.P. (C) Nos. 17709, 17738 And 21052 Of 2012]. The interim order held that in case the concerned developers pay tax under the Maharashtra Value Added Tax Act, 2002 as amended vide Section 2(24) w.e.f. June 20, 2006 on or before October 31, 2012, the coercive process for recovery of tax, interest or penalty shall remain stayed subject to the final decision in the matter before this Court.
03. To give effect to the interim order of the Hon’ble Apex Court, the Department modified the instructions in Trade Circular 14T of 2012 by bringing in Trade Circular 17T of 2012 dated 25th September 2012 which provided that –
(a) The developers who have not obtained the registration under MVAT’ Act, 2002 shall obtain the same on or before 15th October 2012.
(b) The time for filing of return and payment of tax stands extended up to 31st October 2012.
(c) The payment of the tax as aforesaid shall be subject to the final outcome of the aforesaid petition.
Thus, the modified instructions provided that the payment of the tax shall be subject to the tax shall be subject to the final outcome of the petition Promoters and Builders Association and the MCHI.
04. The Hon. Supreme Court in M/s. Larsen & Toubro Limited Anr. (Civil Appeal No. 8672 OF 2013 and Others dated September 26, 2013) by its order dt.26/09/2013 decided all the above and like petitions and put all arguments as regards validity and taxability to rest by holding that-
- There is no merit in the challenges to the constitutional validity to the provisions of explanation (b)(ii) to Section 2(24) of the Maharashtra Value Added Tax ACT, 2002 (MVAT Act) which were amended with effect from 20.06.2006.
- The value of the goods which can constitute the measure of the levy of the tax has to be the value of the goods at the time of incorporation of goods in the works even though property in goods passes later.
- Taxing the sale of goods element in a works contract is permissible even after incorporation of goods provided tax is directed to the value of goods at the time of incorporation and does not purport to tax the transfer of immovable property.
- The mode of valuation of goods provided in Rule 58(IA) has to be read in the manner that meets this criteria and we read down Rule 58(1-A) accordingly. The Maharashtra Government has to bring clarity in Rule 58 (I A) as indicated above. Subject to this, validity of Rule 58(1-A) of MVAT Rules is sustained.
- Once we have held that Raheja Development lays down the correct law, in our opinion, nothing turns on. the circular dated 07.02.2007 and the notification dated 09.07.2010. The circular is a trade circular which is clarificatory in nature only. The notification enables the registered dealer–to opt for a composition scheme. The High Court has dealt with the circular–and notification. We do not find any error in the view of the High Court in this regard. Moreover, the Advocate General for Maharashtra clearly stated before us that implementation of Rule 58(1-A) shall not result in double taxation and in any case all claims of alleged double taxation will be determined in the process of assessment of each individual case.
5. The Hon. Supreme Court in the above judgment was called upon to decide as to whether the two-Judge Bench decision of the Supreme Court. in K. Raheja Development Corporation v. State of Karnataka 1(2005) 5 SCC 1621 laid down the correct legal position. It is to consider this question that in M/s. Larsen & Toubro Limited & Anr. v. State of Karnataka & Anr. 1SLP(C) No. 17741 of 20071, a two-Judge Bench of the Supreme Court referred the matter for consideration by the larger Bench.
After giving answer to the reference by delivering the aforesaid decision dt. 26/09/2013, the Hon. Supreme Court sent the matters back to the Regular Bench for final disposal. Of the 26 appeals under consideration before the Hon Supreme Court, 14 were from Karnataka and 12 from Maharashtra. The matters from Maharashtra had the following Civil Appeal Nos. which were finally disposed on dates and for reasons shown in the Table below-
06. In view of the above, the recovery in the cases involved in the above petitions stands no longer in abeyance. The Departmental authorities are requested to recover the same as per the provisions of the law. Also, the Trade is also requested to suo-motu come forward and pay the liability i.e. tax, interest and penalty, as the case may be, if any, involved in these cases.
07. This circular cannot be made use of for legal interpretation of the provisions of law as it is clarificatory in nature and
08. You arc requested to bring the contents of this circular to the notice of the members of your association.
Your faithfully,
Commissioner if State Tax,
Maharashtra State, Mumbai.
No. DC(A&R)3/VAT/Promoters & 131drs Assen/ADM Relief 06-10/ADM-8
Mumbai, dt. 10|11|2023
Trade Circular No.28 T of 2023
Copy forwarded to the Joint Commissioner of State Tax (MAHAVIKAS) with the request to upload this Trade Circular on the Department’s Website.
(A. S . GORDE)
Joint Commissioner of State Tax, (110)- 1,
Maharashtra State, Mumbai.
