Pre-completion flat construction under a structured allotment project can qualify as a works contract for VAT liability.

A residential flat construction arrangement entered into before completion of the units, under a structured lease and allotment project with staged sub-lease and buyer-linked payments, is treated as a works contract for VAT purposes when the developer is effectively constructing for prospective allottees. The petitioner's compounding application was treated as supporting the character of the activity. Once the activity fell within the statutory definition of works contract, the challenge based on absence of authority of law under Article 265 could not succeed, and the VAT levy remained within the governing statute.

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Issues: Whether the construction of residential flats undertaken under the lease and allotment arrangement with SIDCUL constituted a works contract liable to tax under the VAT Act, and whether the writ petition could succeed on the plea that the levy was without authority of law.

Analysis: The lease deed and allotment terms showed that the petitioner had undertaken to construct housing units under a structured arrangement with SIDCUL, with staged allotment, tripartite sub-lease, and payment-linked sale of units to prospective buyers. The nature of the arrangement indicated construction for and on behalf of the allottees, not a simple construction on the petitioner's own land. The Court applied the principle that where an agreement for construction is entered into before completion of the flats, the activity answers the description of a works contract. The petitioner's own application for compounding under the VAT scheme was treated as an admission of the character of the activity. The plea based on absence of authority under Article 265 was rejected once the activity was found to fall within the statutory definition of works contract. The impugned orders were also found to be appealable under the VAT Act.

Conclusion: The construction activity was held to be a works contract and the tax levy under the VAT Act was upheld; the writ challenge failed.

Ratio Decidendi: A construction arrangement entered into before completion of the flats, under which the developer undertakes construction for prospective allottees pursuant to a binding project structure, constitutes a works contract and is liable to tax under the governing VAT statute.

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