developer's plight

In the Sales Tax Review of December, 2007, we have published the order of the Hon'ble High Court at Mumbai in Tax Writ Petition No. 2022 of 2007 filed by the Maharashtra Chamber of Housing Industries (MCHI). Hon'ble High Court has directed that the members of the MCHI should not be treated as 'dealers' liable to tax under the MVAT Act, 2002 in respect of sale of flats on ownership basis under the Maharashtra Ownerships Flats Act, 1963 (MOFA Act), provided such members of MCHI submit the data and documents as mentioned in the Court Order. Thus such members of MCHI have been absolved from registration and also from assessments till the disposal of the petition.

The major issue involved in the Writ Petition is the competency of the State Legislature to enact the definition of Works Contract in the manner which suggests its applicability to the builders/developers, in addition to the contractors. The definition talks about an agreement for carrying out building comma construction.The Government is competent to levy tax on construction (sale of goods involved in construction). Article 366 read with Article 246(2) of the Constitution has authorised it to do so. But power to levy tax on building; i.e., sale of flats is unimaginable. Fortunately, Mr. A. A. Kumbhakoni, Associate Advocate General was, prima facie convinced about this position and, therefore, consented for this interim relief.

The Parliament by an Act No. 18 of 2005 had introduced an identical definition of Works Contract in the Central Sales Tax Act, 1956. It was not challenged then, may be because there happen to be very few inter-State Works Contracts involving building Material, the nature of goods being general. But, had it been challenged then by now it would have been clear whether the Parliament can enact a law under entry 92A of the Union List read with Article 286(3) of The Constitution to levy tax on the agreement for carrying out building. Larsan & Tourbo is before the apex court (SLP No. 17741 of 2007) against the judgment of the Karnataka High Court upholding the imposition of the tax following K. Raheja but even in that case this particular dispute of power to levy tax on inter-State sale of flats is not involved though L & T inter-State works contracts.

Anyway, the intention behind this Editorial is to bring to the notice of the Government the plight of the small developers who are in large number in mofussil areas. They are not members of MCHI. Minimum fees of MCHI is rupees one lakh. They can’t afford to be the member of the MCHI. Unfortunately, they are not protected by the Court Order. On the other hand, no one is now paying them the taxes due to the Court order.

We hope, the Government will protect them.