VAT on Developers: Value of Goods Transfer Only

The Division Bench held that provisions seeking to charge VAT on developers beyond the value of goods transferred in a works contract were unconstitutional. VAT should be based on the value of property transfer after the sale agreement with buyers, excluding the value of immovable property and actions before the sale agreement. Rule 25 (2) was upheld but must be interpreted narrowly. The Bench set aside assessment and revisional orders based on circulars, directing fresh orders to align with the judgment. The judgment clarified VAT provisions on developers, emphasizing taxation only on goods transfer value and excluding immovable property value from calculations.

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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 in relation to charging VAT on developers.

Analysis:
The writ petition challenged the constitutionality 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, which included the value of land for VAT on developers. The Division Bench held that any provision seeking to charge sales tax beyond the value of goods transferred in a works contract would be unconstitutional. The tax should be computed on the value of property transfer after the agreement for sale with buyers. The deductive method must specify all deductions to ensure taxation only on the value of goods transfer. The value of immovable property and actions before the sale agreement should be excluded. VAT on developers should be based on the value of goods at the time of incorporation in works, not on immovable property transfer. The Bench upheld Rule 25 (2) by interpreting it narrowly and directed the State Government to align the Rules with the judgment.

The Division Bench disposed of the writ petitions by setting aside assessment and revisional orders based on circulars from the Excise and Taxation Commissioner. Fresh orders were to be passed following the legal principles outlined. Where only notices were issued, authorities were allowed to proceed and decide in line with the interpretation provided. The writ petitions were partly allowed under these terms. The present writ petition was also disposed of similarly, with no costs awarded.

In conclusion, the judgment clarified the constitutionality of VAT provisions on developers, emphasizing taxation only on goods transfer value in works contracts. It directed authorities to align with the legal principles outlined and set aside previous assessment and revisional orders based on circulars. The judgment aimed to ensure fair and lawful application of VAT rules in Haryana, providing clarity on the taxation of developers and the exclusion of immovable property value from VAT calculations.

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