Pre-completion development agreements can amount to works contracts, triggering VAT and registration obligations on construction activity.

Construction undertaken for a prospective purchaser under a pre-completion development agreement was treated as a works contract where the arrangement was a package deal, construction continued after the agreement, and consideration was payable in instalments. The presence of a termination clause for breach did not change that character. On that basis, the activity attracted liability to pay VAT on materials used in execution of the works contract, and the corresponding obligation to register under the Punjab Value Added Tax Act, 2005 was affirmed.

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Issues: Whether the appellant's activity of constructing flats under agreements entered into before completion amounted to a works contract so as to attract liability under the Punjab Value Added Tax Act, 2005 and the corresponding registration and tax consequences.

Analysis: The parties did not dispute that a works contractor is liable to pay VAT on material used in execution of the works contract and that registration would follow from such liability. The decisive question was whether the development agreements entered into by the appellant before completion of construction created a works contract. The Court applied the settled principle that where a developer undertakes construction for a prospective purchaser under a package arrangement, with construction continuing after the agreement and consideration being paid in instalments, the arrangement remains a works contract until the agreement is entered into after construction is complete. A contractual clause permitting termination on breach does not alter that character.

Conclusion: The appellant's activity was held to be a works contract and the liability to register and pay tax under the Act was affirmed.

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