C.A. Prem T. Chhatpar

Sales tax / VAT is either payable on sales of “goods” or on deemed sales within the meaning of Article 366(29A)(b) of the Constitution on the value of goods transferred in the execution of a works contract. To constitute a “works contract”, there should be two parties to the contract which should be for construction of Flats, etc on behalf of the contractee under a contract for construction and not for self. The transfer of property in goods should take place immediately upon appropriation of the goods to the contract. No powers have been conferred on the State Government under Entry 54 of the State List to levy tax on transfer of interest in immovable property as was held in Builders Association of India’s case 73 STC 370 (S.C.).

The controversy started after the Government of Maharashtra amended Explanation b(ii) to the definition of “Sale” in Section 2(24) and proceeded to list out the various types of works contracts like the building, construction, etc. so as to derive the benefit of K. Raheja Development Corporation 141 STC 298 (S.C).

The constitutional validity of the provisions in the Act, Rules, and the Composition scheme as they stand on the Statute book has been upheld by the Bombay High Court vide order dated April 10, 2012. The Court held that the amendment ex-facie did not transgress the boundaries of Article 366(29A)(b), and was clarificatory in nature of the legislative intent to tax works contracts of various nature referable to Article 366(29A)(b). Thus, the amendment was held to be superfluous and the Constitutional boundaries as drawn vide the 46th Constitutional amendment continued to be sacrosanct.

There is a vital distinction between proceedings for testing the constitutional validity of the provisions and petitions / appeals arising out of assessment proceedings. The Court has directed the Assessing authorities to determine the contracts which constitute “works contracts.” However, the judgment is being misinterpreted as having empowered the State Government to tax indiscriminately all transactions in the Real Estate sector without first ascertaining whether they constitute works contracts or not. Builders are also under the erroneous impression that with the MCHI ruling dated 10/4/2012, VAT on sale of Flats under construction has become applicable unless relief is provided by the Supreme Court on the SLP filed recently by the MCHI. However, as informed, the real test of applicability of VAT lies in assessment proceedings on case to case basis. If applicability of tax in a particular case is dependent on the facts of the case, then answers to the vexed question should not be expected by way of writ petition. Readers would be aware that Assotech Realty 2007 (7) S.T.R. 129 (All.) was set aside by the Supreme Court on technical ground that in the absence of facts, “these questions were not capable of being decided in writ petition” by the Allahabad High Court. Hence, it would be improper to treat the MCHI judgment as being on facts and in my humble opinion, it would be futile to expect a verdict from the Supreme Court too on the real question, which contracts constitute “works contracts”, a question that can be decided only out of proceedings arising out of assessment / appeal proceedings.

The possibility of contracts being Agreements to Sell immovable property (and hence beyond the ambit of VAT) cannot be ruled out as observed in Larsen & Toubro’s case while placing the observations in K. Raheja’s case before the Larger Bench of the Supreme Court. K Raheja’s case has been distinguished in Assotech Realty 2007 (7) S.T.R. 129 (All.) and Magus Construction P. Ltd. 2008 (11) S.T.R. 225(Gau.).

The mere fact that the earlier Stay against recovery of dues and direction not to treat the Builders as “Dealers” liable to registration has got vacated with the disposal of the writ petition does not mean that automatically, all Builders, not being “Works contractors” are mandatorily liable to registration. Trade Circular 14T dt. 6/8/2012 has been issued directing Builders to apply for registration by 16/8/2012, file returns by 31/8/2012 along with payment of taxes and interest. Considering the normal business model adopted by Builders in Maharashtra, in all probability, most of the contracts are classifiable as Sales of Immovable property. While a works contract can be vivisected to segregate the value of the goods transferred in the course of execution of the works contract, the same does not hold true for contracts for sale of immovable property. There should be a works contract in the first place and as held in K Raheja’s case, the provisions of MOFA /KOFA are not relevant in deciding the nature of the contract.

The Circular adopts a carrot and stick policy and grants an incentive to the Builders to treat contracts for sale of immovable property as taxable, although in principle they are not taxable so as to enjoy set off of taxes paid on purchases of building material and construction machinery, that would otherwise have not been be eligible to them.

It is also noticed that VAT is being inadvertently paid at 1% under the Composition scheme u/s 42(3A) even on sales of Flats that have been fully constructed. Unfortunately, the Circular No. 14T dated 6/8/2012 has maintained a studied silence on this although the legal position had been clarified beyond doubt in the earlier Trade Circular dated 7/2/2007, K. Raheja’s judgment and the MCHI judgment dated 10/4/2012.

To summarize, in my humble opinion,

1. VAT on Sale of immovable property is not payable – Looking to the business model of Builders in Maharashtra, Agreements for sale entered into cannot be classifiable as Works contracts and their vivisection into Material / Labour / or even Land cannot be done. Article 366(29A)(b) only permits vivisection of Works contracts.

2. The MCHI judgment has only upheld the constitutional validity of the provisions as they stand on the statute book – the Department has been directed to ascertain which contracts constitute works contracts and for which finding of fact is essential to be brought on record. The MCHI judgment which was by way of a writ petition cannot be construed as a Judicial precedent on facts, which can only be established in DDQ / assessment proceedings.

3. In my view, if the Builders decide to play safe and opt for administrative relief and pay up taxes, it is upto them to take a call. However, if they play safe with Flat buyers’ money, then it would be unfair since the real question about whether tax is payable on such types of contracts has not been decided in the MCHI judgment given on writ petition and was not arising out of assessment proceedings. In fact, in view of the fact that the amendment has been held to be merely clarificatory in nature and does not add to the State’s power to tax and the limitations and restrictions on the power of the State Government to tax only works contracts continue, there is no reason that the earlier DDQs and Tribunal decisions that have been decided in the Builder’s favour would not be applicable, facts remaining the same.

4. With the issuance of Trade Circular No. 14T of 2012 dt. 6/8/2012, the State has bared its intentions of collecting taxes in a hurried manner on transactions that are per se non-taxable without establishment of the authority of law to collect tax thereon.

 (Author can be reached at [email protected])

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  1. ak jain says:

    i purchased a flat 25 lakhs in kota rajasthan and 25 lakhs paid before 31 mar 2015, how much service tax paid by me now.

  2. Sunil Bhirud says:


    I have purchased flat on 7-5-2014. Flat is under construction. The agreement value is Rs.25,00,000/- and Stamp duty (Ready reckoner) valuation is Rs.34,65,000/-.

    Kindly let me know on what value I have to pay VAT (1%) and Service tax (3.09%).
    The builder is demanding on higher of agreement value and ready reckoner value.
    Please clarify.

    Sunil Bhirud., Dombivli.

  3. Vat registration Bangalore says:

    We at Apt assist consulting provide sales tax registration, VAT registration, sales tax consulting, sales tax assessment services, value added tax returns services in Hebbal, Electronic city, KR Puram , Whitefield Bangalore.

  4. kishor pabari says:

    pl now wht to do ?
    a. builder demanding vat for agreement under construction between 20.6.2006 to 31.3.2010
    b. builder not ready to give there calculation of VAT
    c. demanding vat without issuing any tax invoice and without mentioning VAT TIN no
    d. builder can take any legal action against flat buyer ? til date no clarification whether WCT or not
    f. flat buyer has purchase only flat as per builder’s prospectus – they dont have any right til flat ready for possetion
    g. land owned by builders – all work done by builders as per his own – no right of flat owner for any changes or instruction – agrement made at the time of under construction between 20.6.2006 to 31.3.2010
    h. at the time of possetion given by builder befor 2 to 3 years they have takn blanck cheque from flat buyer. whether builder can utilise this check? and if bounced -due ti insufficient fund or stop paymennt – can builder take action u/s 138 of negotiable instrument for future liabilities which is til date not confirm

  5. Ashim Guha says:

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  7. D.G.Wankhede says:

    Dear sir, Please Please end immediatly, I have purchaes new under constructed flat of 1044 sq ft. Rs 14,00,000 in yavatmal maharastra and given advance of 1,00,000 to the builder and now i want to make a registored agreement for loan of amount 14,00,000 from SBI so lease give me idea about sale deed stamp duties. Whether have to pay UDS duties or on total (land share+ constuction cost ) Please send me reply immediatly.
    Thanks & Regards,
    D.G.Wankhede, mob. 9822468432.

  8. vswami says:


    Points made from impacted quarters are not to be simply glossed over as if to be without substance; especially the objection validly raised by someone against including , though indirectly, the land value, albeit the levy is purported to be on ‘works’ (material).  

    As is understood by one, the levy (VAT or Service Tax) is to be reckoned / calculated with the agreed ‘price’ (as per contract agreement) as the base. As such, in one’s perception, the tax levied is, quite likely, going to be also on the component of the price for the land. It is anybody’s guess, rather one’s grouse is, that it is more likely to be also on the element of profit marked /loaded in the price quoted/ charged.

    There are more reasons as to why the levies are prima facie riddled with faulty logic/ fatal lacunae. For more clues and further thoughts as to why it is so, while the comments herein may be taken to provided the necessary backdrop, a close and mindful  study of, inter alia the special  State enactments applicable to the property – i.e. Flats and Apartments is a must, hence highly recommended , 

  9. vswami says:

    @Rajendra The comments posted on this website are simply intended to supply feedback info. considered  to  be of  general interest. As made implicitly clear in the title of the article itself, there are several issues  still lacking clarity, hence remains a big question mark.. 
    Nonetheless, on one of the comments provided, with a view to making it more clear, reproduced below, is an input feedback  limited thereto :                                                                                                
    Now, that the SC has given its blessing, albeit for the time being, for the authorities  to collect, and for developers  to pay up, it could only be expected that  would speed up the already ongoing exercise . In turn, developers are most likely to accelerate, and try and recover the amounts paid from the purchasers.
    But one very crucial aspect that seems to have, despite pointed out more than once, not having received the due attention of everyone concerned/ percolated through is this: That pertains to the modality of reckoning/quantifying the tax payable by developers, and in turn recoverable from the purchasers.
    Pithily restating : should the concept of ‘works contract’ be strictly and rightly construed, there could be levy of VAT on no  portion of the ‘works’ carried out by developer except to the extent it could be considered to have been carried out for and on behalf of a purchaser. In other words, – in respect of any one purchaser, should there be no ‘contract agreement’ entered into andis  in place, no levy would be permissible. 
    For a straight forward understanding , the canvassed proposition may be illustrated thus:  Suppose in a given case the developer has , as evidenced by the requisite ’ certificate of commencement’ procured by him , started the ‘construction works’ , and  been carrying on the works  on his own till say, the  3oth of  June. Assume it is only on the 1st of July, that the first contract agreement (agreement to sell) with a prospective purchaser – P, is signed and registered. Proceeding on the premise that the proposition cannot be flawed on any ground, no VAT can be levied on the developer for the portion of the works on the project carried out up to 30 th June. And, hence, also the developer could not require the Purchaser P to pay any amount on account of VAT on the said portion of the works on construction.
    Looking back, so far one could see, neither in any of the published articles this finer aspect of the issue has been examined;  nor been urged before, so not gone into by,  courts in the cases decided/reported  thus far.
    It is expected that, the clinching  proposition advanced above, would be suitably urged in the pending proceedings before the SC , so that a definite ruling  is given by the court. Of course, that would be helpful or of avail only in those cases, where depending on the final decision of the SC on other primary  issues, the levy eventually comes to be attracted.

  10. RAJENDRA says:

    Pl. mail your advise whether VAT 1% is applicable for aggrement registered during the month of July 2012 for Flat construction work is n procees & charge of flat not received to buyer. & No Sale Deed is done.

    Under which section/ act Maharashtra Govt amended that Builder & Developer have right to collect 1% VAT on Sale Agrrement or Under construction registered Agrreement. If. Not clearfy

    Under this circumstances Can Buyer knock the door of Court for Said refund. even Agreement is registered or not.

  11. vswami says:

    The write-up says: “There should be a works contract in the first place and as held in K Raheja’s case, the provisions of MOFA /KOFA are not relevant in deciding the nature of the contract.”
    MOFA and KOFA obviously refer to the special enactments, in force, respectively in Maharashtra and Karnataka. Both the State Acts are, by and large, in all material respects, identical /similar. They are intended to regulate and govern the activities of construction and sale of ‘units’ of a building called “flats’. They have been specially enacted with the stated twin objectives.  
    As spelt out in the preamble itself, the Act has two primary and fundamental objectives, namely:
    to entitle ‘purchaser’ of a flat, –
    (a) to become its ‘owner’, with a ‘marketable title’, and  
    (b) to make it ‘heritable’ as also, more importantly,  ‘transferable’. 

     B) And to enable the purchaser to obtain loan for acquiring it.
    To put it succinctly, but for the special enactment, purchaser of an apartment cannot claim the status of its ‘owner’, with marketable title, his rights and interests would not be heritable or transferable, and would not be eligible to obtain a loan by offering it as security.

    In Karnataka, unlike in Maharashtra, mostly it is another type of ‘units’ that are constructed and sold. This is known as ‘apartment’, not ‘flat’. Construction and sale of apartments is regulated and governed by the special enactment; in Karnataka it is called the Karnataka Apartment Ownership Act (KAOA).
    The objectives of the KAOA are identical to those of KOFA. 

    The characteristics of both types of property in the form of units of a building,-flats and apartments, are  per se comparable; but entirely distinct from the characteristics of independent buildings, constructed and exclusively owned by individuals.    
    A study of the Act (MOFA or KAOA), in one’s considered view, even on the first blush itself, should help in infallibly understanding that, – what is envisaged is a transaction of ‘sale’ and ‘purchase’ of ‘unit’, in the absolute sense, and within its legal meaning . As such, in one’s conviction, there is no room whatsoever to read anything into the law, which will have the effect of / be tantamount to rewriting and differently construing it. To put it more precisely, in respect of a transaction of sale and purchase of a flat/apartment, so long as it is evidenced by proper supporting documentation, any attempt at introducing into it any such alien concepts as ‘deemed sale’ and ‘works contract’, it could be validly urged, is a non-starter. If so, in respect of any such transaction of sale of a flat/apartment, entered into and acted upon under a properly framed structure and recitals of a contract agreement, so long as they are strictly in line with the law, the levy of VAT or Service Tax should not conceivably arise.
    As noted herein before, the write-up makes a mention that, “as held in 
    K Raheja’s case, the provisions of MOFA /KOFA are not relevant in deciding the nature of the contract”. Nonetheless, it is imperative to closely and mindfully  study the court’s judgment for an independent understanding and ascertaining  how exactly/ to what extent the court has , if at all, based its decision after going into and considering  inter alia  the  correct position in law, having special and due regard to the special law applicable to flats / apartments. 
    As is not an uncommon experience, many times courts are not assisted, as actively as possible or ideally desired,  by representing  counsels,  so as to enable the courts to decide any point of issue keeping in sharp focus  all such aspects , be of facts or law, in the correct or better perspective. If so, then the need to do so becomes imperative in the further proceedings, if any open.  According to information, the apex court has yet to go into the main points of issue, though covered by court decisions, and deliver its final verdict.  As such, it can only be expected that in the pending proceedings all possible arguments would come to be advanced, and based on / in due consideration thereof the final opinion of the apex court would be formed and made known.
    An attempt has been made above, simply to touch upon the most crucial aspects requiring be examining and dealing with. 
    Of course, there are several others which would be of equal relevance, if not greater.  For identifying and knowing them insightfully, and getting a grip incisively, the expert / useful material available in plenty, besides in other sources, in public domain, especially in the related blogs, could be of help/assistance. So also an analytical study of the subject laws aimed at in the two of published articles-(2003)(4)KLJ 1 and (2005)(5)KLJ 17.   
    In the previous comments @vswami above, some additional viewpoints have been put forth.  They could come to rescue  in the event, and in those cases,  where any transaction , for reasons such as inadequacy or incompleteness of supporting  documentation,  there is scope for regarding it as not one of sale and purchase within the four corners of the law.

  12. Anup Rai says:

    I got an under constructed house transferred to our name on 18th January, 2012 from a third party (not directly from Builder—Jaypee). First buyer has paid approx Rs 13 lacs before June 2010 without service tax, as service tax was not applicable at that time. Further payment made by the first buyer include service tax, I paid 13 lacs plus other amount paid by him to the first buyer, including the service tax paid by him and got the under constructed house transferred ( by endorsement) to me paying the transfer fee to the builder. Now after transfer, builder has deducted service tax on 13 lacs also, which pertains to the amount paid by the first buyer before June 2010.

    Please tell me whether service tax is payable on the prior payments (before the amendment in the act pertaining to service tax for construction of house property)

  13. Shilpa says:

    I need your opinion on the following:
    We booked the flat in March 2007 and are presently staying in the same flat since May 2008. We have received a notice from our developer regarding payment of VAT and interest thereon form 20.06.06 till date @ 15% p.a.
    There was a specific mention of the need to pay the turnover tax if the same was made liable by the Statutory authority and that too within seven days of the notice in the agreement with the developer. However , there was no mention about the retrospective interest payable @ 15% in the agreement. Can the developer demand the VAT amount in 7 days
    ? Also whether the interest part is to be borne by him or can he pass on the liability to the flat owners ( buyers).

  14. Yogesh says:

     My aggrement is done on March 2010 in Pune  and I got possession in April 2012.Now 2 days back builder gave me demand letter of VAT for 3% of agreement cost also he gave me 7 days time period and after that there will 24% interest per annum if the TAX not paid.I want to the real status of this VAT and if VAT is applicable how much it can be…Please guide me waiting for positive response

  15. vswami says:

    A Rejoinder:

    The purport or intended purport of the last of the comments/ rejoinders posted by the learned Advocate, to one’s mind, – despite being a novice in the subject, but to the best of understanding of the VAT law as a common man, wprt the crucial concept of ‘works contract’ on which the law is founded, – are, to say the least, not at all understood or decipherable.

    May be, ‘experts’ on the subject, of whom the commentator sounds to be one, have an altogether different perspective and understanding of the law.

    Be that as it should, one personally but in all sincerity believes, primarily based on common sense, that there could be no scope for any doubt or reservation whatsoever, on what, among others, the write-up says:

    “To constitute a “works contract”, there should be two parties to the contract which should be for construction of Flats, etc on behalf of the contractee under a contract for construction and not for self. The transfer of property in goods should take place immediately upon appropriation of the goods to the contract.”

    To put it in one’s own words, the concept of ‘works contract’ itself necessarily implies that at the point in time when the construction (works) is being carried on,there must be a duly executed ‘contract’/ agreement in place and it ought to be a ‘contract’/agreement with a third party for on whose behalf the works is so carried on.
    In the case of a building of ‘flats’ meant for ‘sale’, as is envisaged under the special enactment in force in many of the States,regardless of who constructs the building-(that is, he be the land owner himself (in his own name or through an outside agent), or he be an outside developer (as is normally the case under a JDA)),- levy of VAT, as one could imagine ,cannot conceivably arise, until such time a contract agreement for sale (to sell) has been entered into with one or more prospective buyers. Further, such levy of VAT could only be limited to the portion of the works (construction) as is properly apportionable/ attributable to the contract (agreement to sell)already entered into and in force at any given point in time.

    For a better appreciation of these viewpoints, let anyone consider a case (though rare-to-come- across)where no agreement to sell is entered into until after the construction has been completed fully, so that the property (comprising the land and building (of flats)) is lawfully ready for ‘sale’ / ‘final conveyance’.In such a situation,the point of poser that perforce arises is whether or not levy of VAT could at all be attracted? Of course, on the premises set out/line of thinking as above,the answer could only be “NO”.

    To make it amply clear: This add-on is mainly intended to clarifying one’s own thoughts on the subject. Albeit,it is now left to the truly knowledgeable experts, desirably those with an intensive experience in the field, to come out with their individual or collective viewpoints, especially in case they happen to be different in any material respect.; so as to be of help to the visitors of this site.


    Material incorporated in the contract by a builder on the land of the owner is a deemed sales of the such material to the owner by principle of accreation, since the construction is being done on behalf of the owner of the land, This is the basic principle behind the taxation of works contracts. It is immaterial when the builder receives his consideration from the owner. The incidence of taxation in works contract arises when the goods are incorporated in the contract (i.e when the deemed sales takes place), and not when the payment is received. Refer to Gannon & Dunkerley vs State of Rajsthan(1993) 1 SCC 364

    It leads to conclusion that in a works contract VAT is leviable only on the deemed sales of material incorporated and once its paid the owner of the land at the time of sale of the flats no deemed sales of the goods incorporated in the contract takes place to the prospective buyers, what is sold by the owner of the land is the immovable property on which vat cannot be levied.

    However, one should understand that concept of deemed sales in a works contract  is subject to contract to contrary thats why it is important to understand the terms of each contract before deciding on the taxability of the works contracts and whether there is JVA or any other agreement nothing can be decided in abstract. 

  17. vswami says:

    “The example has not been given in reference to any particular type of contract, but to explain that there cannot be plurality of deemed sales in a works contract.”

    This add-on , by way of self-clarication, is seen to bring out the ‘inteded’ purport of ‘the example’.

    From a pragmatic point of view, however, having regard to the common practice (referred as JVA) largely /invariably in vogue, any contract giving rise to ‘plurality of deemed sales in a works contract’ spoken of can, at best, be taken just a hypotheticqal one.

    Be that as it should, anyway, I personally remain enlightened by the clarification kindly provided.


    @ vswami

    The terms of every contract is very important, the question whether there is a deemed sales in a works contract or not, cannot be answered in abstract. It has to be decided in the light of facts of each case and the terms of each contract.

    The example has not been given in reference to any particular type of contract, but to explain that there cannot be plurality of deemed sales in a works contract.

    For better understanding of the concept of deemed sales one should read the full text of the Judgements in Gannon & Dunkerley, Builders association cases etc.

  19. vswami says:

    @Amit BaJAJ

    “”Suppose builder ‘A’ enters into a contract with ‘B’ for constructing flats on the land of B. In such case Builder will be making deemed sales of the material incorporated in the contract at the time of incorporation to ‘B’.”


    As is the common practice, broadly understood by one, the contract of agreement  between developer and land owner is invariably styled as a ‘joint development agreement. Under such an arrangement , during the construction period,  to the point of  its completion,  the developer is acting as a ‘licensee’ , with permission /rights  to develop and carry out the construction, subject to his payment of agreed consideration to the land owner, in the form of monies plus allotment /reservation/giving possession  of some of the units  to land owner on completion ,. If so, under such an arrangement, the developer would not be in receipt of any consideration ; for that matter, never  before completion. In such a situation, and on that premise,  one is left with a grave doubt about the possibility under the law of such an arrangement being TREATED AS A SALE, so as to attract levy of VAT,; IN ANY CASE UNTIL SUCH POINT IN TIME WHEN THE  DEVELOPER  STARTS ENTERING INTO AGREEMENTS OF SALE WITH OUTSIDE PARTIES.

    The learned professional may wish to clarify so as to make it clear what is his understanding of the law, if it is by any chance contrary  to the impromptu  reaction briefly set out  herein. OR SHOULD HE HAVE IN HIS CONTEMPLATION ANY OTHER TYPE OF AGREEMENT BETWEEN LAND OWNER AND DEVELOPER.

  20. M.S.Rajaram,Pondicherry says:

    Works contract is to be clearly defined distinguishing it from the commercial activity.Any one cannot himself engage labour for construction work of his dwelling unit;nor supervise its technical execution.Here he obtains the help of a person accustomed in the field. He contract him for a consideration to act on behalf of him in his efforts of construction. The proxy for action is to be distinguished from a commercial contractor,a realtor,who sells and makes profit out of such sales.Here he is to part with his sales commission in the form of tax to Govt.VAT cannot be applied in constructions for own use.

  21. vswami says:

    @kk The comment is ostensibly intended only for the writer; may be, at best, for the publisher as well. It is too brief to be understood or serve any purpose for the subscibers-users of the website at large. kk will do well to post at least briefly his points of comment.

  22. Rahul says:

    Request your opinion on the following.  Agreement Feb 2010 when building was 84% complete (architect certificate).  Possession July 2011.  Builder has taken 1% VAT and put that amount in FD.  Still no clarity on whether VAT is applicable or not.  Builder holding on to the FD.  What should be step forwards.  Thanks,.  Rahul

  23. Mr. Suresh Vidhate says:

    There is no need to Vat for booking Flat or any construction complete or under contraction because Gov. is recovering Registration charges, Vat & Service Tax, that means government is recovering Three time charges from Public. Tax on Tax is not applicable as per central Governments rule

    Suresh Vidhatte


    I think the most important thing which every one seems to forget is that deemed sales in a works contract is also subject to contract to contrary as has been held in Builder’s Association(supra) case, If it is stipulated in the contract that no transfer of property in goods incorporated in the contract will take place to the prospective buyer/ contractee during the construction period, then there should be no deemed sales.

    Whether a contract is a works contract or not has to be decided on the basis of facts of each case.

    Another basic thing which should be kept in mind is that there cannot be more than one deemed sales in a single works contract.

    Suppose builder ‘A’ enters into a contract with ‘B’ for constructing flats on the land of B. In such case Builder will be making deemed sales of the material incorporated in the contract at the time of incorporation to ‘B’.

    Thereafter at the time of selling the flats to the prospective buyers, B cannot be asked again to pay VAT on the material incorporated in the construction of flats, since on the material incorporated tax has already been paid by A and It cannot be said that B is now again making the deemed sales of material incorporated in the construction of flats to the prospective buyers. What B is selling is the immovable property.

    Facts of each case has to be seen before asking any builder to pay tax on the basis of Judgement of Bombay HC as mentioned above in the article.

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