Shrikant Turalkar , ACS, LL.M.

State cannot levy two different taxes on same transaction under two different statutes.

The Government of Maharashtra has amended the definition of “Sale”under the Maharashtra Value Added Tax Act, 2002 with effect from 20th June 2006 thereby including in the said definition ” the transfer of property in goods involved in the execution of works contract, including an agreement for carrying out for cash or for deferred payment or other valuable consideration, the building , the construction, manufacture, the processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any moveable or immoveable property.” As a result of this amended definition, the builders and developers become liable to pay tax on the sale of their under construction flats to the prospective buyers with effect from 20th June 2006 in respect of the transfer of property in goods involved in  execution of such contracts.

The recent judgment of Bombay High Court in case of MCHI vs. State of Maharashtra has caused further hardship to genuine flat buyers. The Hon’ble Court has upheld the constitutional validity of the amendment made to definition of “Sale”. The Court has also upheld recent scheme of Maharashtra Govt. to levy VAT of 1% on agreement value of flat purchased or 5% of value of accretion made by the Developers over immovable property. The composition scheme of 1% is applicable in respect of agreement registered on or after 1st April 2010. However, set-off or deductions earlier claimed in respect of such agreements will have to be reversed.

As a common man, we are not able to understand how one transaction can be considered as sale of immovable property to levy stamp duty and on other hand it is considered as Work Contract and sale of movable property to levy VAT.

Since, Stamp Duty is exempted on agreement relating to sale of goods under Article 5 of Bombay Stamp Act, 1958, in that case we should get rebate of 1% of VAT paid on agreement value from the amount of Stamp Duty paid. State cannot levy two different taxes on same transaction under two different statutes.

The Court has stated that an agreement which is governed by the MOFA is not an agreement simplicitor involving an ordinary contract under which a flat purchaser has agreed to take a flat from a developer but is a contract which is impressed with statutory rights and obligations. Hence, an agreement to sell a flat within the purview of the MOFA is not an agreement for sale of immovable property simplicitor. The Hon’ble Court has simply ignored the purpose and main object of MOFA is to protect interest of small and illiterate flat buyers from scrupulous developers. Moreover even normal agreement is also governed by the statutory provisions of Indian Contract Act, 1872.

The Hon’ble Court ignored the fact that we as buyer of flat are not buying cement or steel from the developer. We are buying a flat as a whole along with rights to use the premises which is fastened to the earth.


More Under Goods and Services Tax


  1. Ravi says:

    5% VAT on Under construction Flats is ridiculous. At least the percentage of Vat Should be different for Low Cost Housing, MID Cost Housing, High Cost Housing and luxury Housing Depending upon cost. I hate this Country every state wants to raise money but Maharashtra govt is worst.Poor India poor People and Selfish Indians.

  2. Amit Bajaj Advocate says:

    Basic concepts and history about the works contract needs to be cleared. I would suggest to listen starting part of lecture at the below link:

    Under aspect theory a transaction can be subjected to two taxes.

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September 2021