High Court Invalidates Inclusion of Land Value in VAT for Developers

The Division Bench of the High Court declared Explanation (i) to Section 2(1)(zg) of the Haryana Value Added Tax Act, 2003 and Rule 25(2) of the Haryana Value Added Tax Rules, 2003 as ultra vires to the Constitution of India for including land value in VAT on developers. The Bench emphasized that VAT should be based on the value of goods in works contracts and not on the transfer of immovable property. Assessment and revisional orders based on circulars were set aside, with authorities directed to issue fresh orders adhering to legal principles. The writ petition was disposed of accordingly, with no costs awarded.

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Issues:
Challenge to the validity of Explanation (i) to Section 2(1)(zg) of the Haryana Value Added Tax Act, 2003 and Rule 25(2) of the Haryana Value Added Tax Rules, 2003 regarding the inclusion of land value for VAT on developers.

Analysis:

The Division Bench of the High Court addressed the challenge to the validity of Explanation (i) to Section 2(1)(zg) of the Haryana Value Added Tax Act, 2003 and Rule 25(2) of the Haryana Value Added Tax Rules, 2003. The petitioners sought a writ of mandamus declaring these provisions ultra vires to the Constitution of India as they included the value of land for charging VAT on developers. The Bench emphasized that any tax charged should not exceed the value of transfer of property in goods after entering into an agreement for sale with buyers. It was highlighted that the deductive method for calculating tax should have a residuary clause to cover all situations comprehensively. The Bench clarified that the value of immovable property and any actions done before the agreement of sale should be excluded from the agreement value. VAT should be levied on the value of goods at the time of incorporation in works contracts, not on the transfer of immovable property.

Regarding the disposal of writ petitions, the Division Bench set aside assessment and revisional orders passed by authorities based on circulars issued by the Excise and Taxation Commissioner. The Bench allowed the petitions partly, directing the concerned authorities to set aside assessment and revisional orders and to pass fresh orders in line with the legal principles discussed. In cases where only notices for assessments were issued, the competent authority was permitted to proceed and pass orders considering the interpretations provided. The present writ petition was disposed of in similar terms, with no order as to costs.

In conclusion, the High Court's judgment clarified the principles governing the calculation of VAT on developers and the exclusion of land value. It emphasized the need for a comprehensive deductive method and directed authorities to adhere to legal principles while passing assessment orders.

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