Works contract liability for builder-led flat construction upheld where agreement preceded completion and VAT registration was not obtained.

Construction undertaken by a builder under an agreement with landowners and prospective purchasers was treated as a works contract under the U.P. VAT Act because the builder was not the landowner, had received instalments from purchasers, and used those sums for construction. Goods used in the construction were therefore held liable to tax under the VAT law. Reliance on the U.P. Apartment Act, 2010 was found irrelevant to VAT liability, and the principle from the earlier Supreme Court ruling on developer agreements was applied: construction before completion of flats under such arrangements remains a works contract. The registration requirement accordingly applied, and the penalty for failure to obtain registration was upheld.

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Issues: Whether construction undertaken by a builder under an agreement with landowners and prospective purchasers constituted a works contract under the U.P. VAT Act, and whether penalty for failure to obtain registration before commencing such activity was legally sustainable.

Analysis: The revisionist was not the owner of the land and had entered into a builder's agreement for construction of flats, received instalments from prospective purchasers, and used the amounts for construction activity. On these facts, the activity was held to fall within the ambit of a works contract, and the goods used in construction were treated as liable to tax under the U.P. VAT Act, 2008. The reliance placed on the Uttar Pradesh Apartment (Promotion of Construction, Ownership and Maintenance) Act, 2010 was found irrelevant to liability under the VAT law. Applying the principle stated in the earlier Supreme Court decision on developer agreements, construction undertaken before completion of flats pursuant to such arrangements remains a works contract so long as the agreement is entered into before completion.

Conclusion: The construction activity was correctly treated as a works contract, the registration requirement applied, and the penalty for failure to obtain registration was upheld.

Ratio Decidendi: A builder who constructs flats pursuant to an agreement with prospective purchasers before completion of the units carries out a works contract, and failure to obtain the required VAT registration before undertaking such activity attracts penalty under the statute.

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