From : Mr.

/ Mrs __________________________( Flat Buyer ) Address:______________________________________ _____________________________________________ _____________________________________________ Date : To, M/s _____________________(Builders) _______________________________ _______________________________

Re: Purchase of Flat No.___________ in your__________________Building vide Agreement of Sale dated _____________ Sub: Your Demand of VAT in respect of above flat

Dear Sir,
I am in receipt of your demand notice for VAT payable in respect of my above referred flat, which is not supported by a proper tax invoice / debit note as stated in Circular no 14T issued by the Commissioner of Sales Tax, Maharashtra. The Tax Invoice / Debit Note have to be duly supported by calculation of VAT payable on my flat duly certified by your VAT auditor so as to enable me to verify the correctness of the same.

Without prejudice to above, I have to submit as under, you are well aware that I have entered into an agreement for purchase of above flat. I have never engaged you to execute a works contract of construction of flat on my behalf. As per the terms of aforesaid agreement, the entire process of construction is undertaken at your behest and I as a flat buyer have neither any control nor any say in the matter of construction, which is being done at
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your sole discretion, direction, specifications, costs and consequences. I am only entitled to get possession of the flat after completion of construction.

You are well aware that levy of VAT in Maharashtra on under construction flat has been subject matter of great litigation. Excerpts from various decisions of the Courts are briefly quoted hereunder:

Under construction Flats - Issue well settled in Builders Association of Indias case 73 STC 370 (S.C.) A works contract presupposes the existence of two parties to the contract for construction of tenements and the construction should be carried out under a contract for construction and not for self, which has been highlighted in Builders Association of Indias case 73 STC 370 (S.C.). Also, no license has been given under Entry 54 of the State List to levy tax on sale of immovable property.

One needs to refer to the judgment of the Supreme Court in the case of Builders Association of India 73 STC 370 to understand the essential features of a works contract. It has been held that ordinarily unless there is a contract to the contrary, in the case of a works contract the property in the goods used in the construction of a building passes to the owner of the land on which the building is constructed, when the goods or materials used are incorporated in the building. The contractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till the final bill is prepared for the entire work.

It cannot be said vis a vis the Builder and the Flat buyer the property in the goods (building material) do not get transferred to the Flat buyer, who remains uninterested in acquiring an interest in the building material and he continues to be interested in receiving possession of the flat on the promised date and built according to the specifications promised in the Agreement, a right conferred on flat buyer by MOFA.

It Is Important To Note That The Rights Are Created In Favour of the Purchaser In The Flat And Not In The Material Used In The Construction, which is required to hold a contract to be in the nature of a works contract. While the Court is right in holding that the constitutional validity of the provisions of the MVAT Act, 2002, as amended, is not contingent upon any other statutory regulation of apartments under cognate legislation in the State of Maharashtra, as held in K. Rahejas case, the provisions of KOFA / MOFA are not relevant in deciding the nature of the contract and the Bombay High Court despite stating that it has decided the issue of constitutional validity independently, appears to be at least influenced by the provisions of MOFA, which is not in accordance with the law laid down in K.Rahejas case. MOFA, 1963 cannot be used as an instrument to deem / convert contracts for Sale of Immovable property into works contracts, which is to be decided in general law on an application of the principles laid down in Builders Association of India 73 STC 370 (S.C) on a case to case basis. In the absence of facts of any particular case being on record, the observations in the context of MOFA cannot be construed as laying down the law for all contracts merely on the basis of certain clauses in the Agreement forced to be incorporated by virtue of MOFA, 1963. Merely on the basis of certain clauses in the Agreement, the High Court cannot decide the transactions in question (Zunaid Enterprises v. State of Chhatisgarh 50 STC 1, 7 (S.C.) ) and hence, it would be improper to presume that the MCHI judgment has done so.

The observations in the context of MOFA do not constitute the Ratio Decidendi and would not be binding or have judicial precedential value as regards deciding the nature of the contract. To substantiate this contention, I draw your kind attention to para 31 of the MCHI judgment: Further the constitutional validity of the provisions of the MVAT Act, 2002, as amended, is not contingent upon any other statutory regulation of apartments under cognate legislation in the State of Maharashtra. We have, however, considered the effect of the provisions of the MOFA since they were pressed in aid on behalf of the Petitioners. The constitutionality of the MVAT Act, 2002 must be determined by interpreting the statutory provisions of that Act as they stand. Having considered the issue of constitutional validity, the Petitioners have been unable to displace the presumption of constitutionality that must ordinarily apply to all legislation.

Recent decisions of Honble Bombay High Court given on 3010-2012 (the same day that MCHI and Builders Association of Indias writ petitions were dismissed for trying to claim some relief in Calculation of VAT) in the Writ Petition No. 2405 OF 2012 (Ashok R. Gokani & Anr, both Flat buyers) and WP 8121 of 2012 (Marathi Bandhkam Vyawsayik Association), it has been held that the relevant Trade Circulars directing payment of tax on all Agreements to Sell without any exception if the construction was going on, are not binding on the Assessing Officers. The issue as to whether a particular contract constitutes a works contract or involves an element of a works contract is a matter which has to be decided on the facts of the individual case if it is raised by the assessee in accordance with the provisions of the Maharashtra Value Added Tax Act, 2002. The learned Advocate General appearing on behalf of the State of Maharashtra has, on instructions, conceded to this position. As expected, the Court ruled that it would not be either appropriate or proper for the Court to make a generalized determination without having regard to the facts of the particular case. Thus, you as a developers are free to challenge the stand as evidenced in the Trade Circular 14T of 2012 Tax dt. 6/8/2012, issued by the Commissioner of Sales on the ground that you are not engaged by me to construct the building and the agreement cannot be construed as works contact. So VAT department cannot claim tax from you, as of now pending determination of the vexed question.
Further under the MVAT Act, 2002 only the dealer registered on the date of transaction of sale, can collect tax from the buyer. Kindly send copy of your VAT Registration certificate as evidence of your registration.

Moreover, I have paid full stamp duty to the State Govt, through the Collector of Stamp duty who treated the above Agreement as Conveyance of Immovable property and levied full stamp duty on market value of flat under construction, now the same State govt. viz Sales Tax Department cannot assess the same agreement as Works contract and levy VAT on the same. If it is works contract, it would be a works contract for all purposes for both the Acts MVAT Act and Bombay Stamp Act, 1958.

I request you to, instead of demanding VAT from me and coercing me to pay up under the threats of interest and penalty by VAT Dept., honestly contest the levy of VAT before the assessing officer as provided in the Bombay High court decisions cited above and get the matter decided on merits, whether VAT is at all payable on above referred agreement of sale.

Thanking You, Your Faithfully, x Your esteemed Flat Buyer