C.A. Prem T. Chhatpar

Judgments of the Bombay High Court in the case of Marathi Bandhkam and Ashok Gokani (Flat buyer)  vindicate my stand that the MCHI judgment had merely decided the constitutional validity of the amendment made to the definition of sale and not whether a particular contract is a works contract or not, which is required to be determined by the Assessing authorities on the facts of each case. The very Trade Circulars based on which Builders either paid up tax or recovered tax from the poor flat buyers have been held to be not binding on Assessing authorities who have to exercise their quasi judicial functions to decide independently on the basis of facts on record whether a particular contract for Building construction is a works contract or not.

In a matter relating to constitutional validity, the Court considers all eventual possibilities in general and whether the amendment made has crossed the constitutional boundaries and cannot decide on particular contracts in vacuum when facts are not placed on record via assessment / DDQ proceedings. K.Raheja’s case has been distinguished by various Courts both under Service tax as well as Sales Tax on the basis of facts, and it does not follow as a matter of principle, that merely because construction was going on, it can be said to be at the behest of the Flat buyer.

+Further Update on 19.04.2015

Further to the article published in August 2012 titled VAT on booking of Flats under construction – A big question mark and the subsequent judgments delivered by the Bombay High Court in the case of Ashok Gokani and Marathi Bandhkam delivered on 30/10/2012. ITwo more judgments which vindicate my stand that no tax is payable on Agreements to Sell as commonly understood as per Maharashtra model (as distinct from the K.Raheja model prevalent in Karnataka) are as follows-

  1. M/s. Iravanshi Builders and Developers Vs. The Commissioner, Commercial Tax (Uttarakhand High Court), Appeal No Commercial Tax Revision No. 7 of 2014, Dated.- April 23, 2014
  1. Prain Nagnath Paldewar & Others Vs. The State of Maharashtra & Others (Bombay High Court At Aurangabad), Writ Petition No. 5039 of 2011, Date: 3rd March, 2014 

While I agree that there are adverse observations in the SC judgment in the case of Larsen & Toubro and the judgment seems to suggest that even Agreements to Sell are “works contracts”, the very judgment also states in para 121 of the judgment (reproducing para 34 of the Bombay High Court judgment in the case of MCHI) that whether a contract is a works contract or not would depend on the facts of each case.

Download Judgment

Marathi Bhandhkam Vyawsayik Association Vs. State of Maharashtra  (Mumbai High Court) – Writ Petition NO.8121 of 2012 – Dated – 30.10.2012

Mr. Ashok R. Gokani and another Vs. State of Maharashtra (Mumbai High Court) – Writ Petition (L) NO.2405 of 2012 – Dated – 30.10.2012


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January 2021