Court rules developers & builders as works contractors subject to VAT on flat sales, excluding land value.

The court determined that developers and builders are works contractors subject to VAT on agreements with flat purchasers. It ruled that the method of VAT valuation cannot include land value, upholding Rule 25(2) by excluding immovable property value. The court found Section 42 and Section 9 of the Act, along with Rule 49, valid. Despite an alternative remedy of appeal, the court examined the vires of challenged provisions. Ultimately, the court partially allowed the writ petitions, setting aside assessment orders and directing the State to amend rules, emphasizing the optional nature of the composition scheme.

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Issues Involved:
1. Whether developers and builders are works contractors and whether agreements between them and prospective purchasers authorize the State to impose VAT.
2. Whether the method of valuation of VAT can include the value of land.
3. Validity of Section 42 and Section 9 of the Haryana VAT Act read with Rule 49 of the Haryana VAT Rules.
4. Whether the alternative remedy of appeal would debar the Court from entertaining the writ petitions.

Issue-wise Detailed Analysis:

1. Developers and Builders as Works Contractors:
The court examined whether developers and builders fall under the category of works contractors and whether agreements between them and prospective purchasers for constructing and selling flats authorize the State to impose VAT. The court referred to multiple precedents, including the landmark cases of *Larsen & Toubro Ltd.* and *K. Raheja Development Corporation*, concluding that developers and builders do indeed fall under the definition of works contractors. The court noted that the essential conditions for sustaining the levy of tax on goods deemed to have been sold in execution of a works contract were fulfilled in building contracts. Thus, the agreements between developers/builders and flat purchasers to construct flats and sell them with some portion of land involve an activity of construction covered under the term "works contract."

2. Method of Valuation of VAT Including Land Value:
The court addressed whether the method of valuation of VAT on such agreements can include the value of land. It was argued that the provisions of Explanation (i) to Section 2(1)(zg) of the Act and Rule 25(2) of the Haryana VAT Rules were ultra vires the Constitution as they allowed for the inclusion of the value of land in the taxable turnover. The court observed that the value of immovable property and any other thing done prior to the date of entering into the agreement of sale must be excluded from the agreement value. The value of goods in a works contract should be the value at the time of incorporation in the works, and VAT should be directed to the value of goods at the time of incorporation, not the transfer of immovable property. Consequently, Rule 25(2) was upheld by reading it down to exclude the value of immovable property, and the State Government was directed to amend the rules accordingly.

3. Validity of Section 42 and Section 9 of the Act and Rule 49 of the Rules:
The court examined the validity of Section 42 of the Act, which provides for joint and several liability of the contractor and sub-contractor for the tax. The court found that this provision safeguards the interest of the revenue and is not arbitrary or unreasonable. Regarding Section 9 and Rule 49, which pertain to the lump sum tax under the composition scheme, the court noted that the scheme is optional and provides administrative convenience. The court upheld these provisions, stating that once a dealer opts for the composition scheme, they cannot question the method of determining tax liability under these provisions.

4. Alternative Remedy of Appeal:
The court considered the preliminary objection regarding the maintainability of the writ petitions on the ground of alternative remedy. The court acknowledged that ordinarily, the availability of an alternative remedy would debar the court from entertaining the writ petitions. However, given the primary challenge to the vires of certain provisions of the Act and Rules, the court found it necessary to examine the issues raised. The court cited exceptions to the rule of alternative remedy, such as when the provisions of the statute are challenged as ultra vires or when the highest authority has taken a particular view on a question of law.

Conclusion:
The court partly allowed the writ petitions, setting aside the assessment and revisional orders passed by the authorities, with liberty to pass fresh orders in light of the legal principles enunciated. The court directed the State Government to amend the rules to exclude the value of immovable property from the taxable turnover. The court also upheld the validity of Section 42 and Section 9 of the Act and Rule 49 of the Rules, emphasizing that the composition scheme is optional and provides administrative convenience.

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