VAT on developers' works contracts cannot include land value; assessment and revisional orders based on that approach were set aside.

VAT on developers' works contracts could be levied only on the value of goods transferred in execution of the contract, not on the value of immovable property or land. The earlier Division Bench ruling had also read down Rule 25(2) to conform to the constitutional requirement and directed corresponding changes. Applying that position, assessment and revisional orders founded on inclusion of land value in the taxable turnover were to be set aside. Where only notices had been issued, proceedings could continue in accordance with the legal position already declared.

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Issues: Whether the inclusion of land value in the taxable turnover for levy of VAT on developers was sustainable, and whether the assessment and revisional orders based on that approach were liable to be interfered with.

Analysis: The petition was covered by the earlier Division Bench decision which held that VAT could be levied only on the value of goods transferred in the course of execution of the works contract and not on the value of immovable property. The earlier decision also read down Rule 25(2) to the extent necessary to conform to the constitutional requirement and directed the State to make corresponding changes. On that basis, the assessment and revisional orders founded on the impugned approach were required to be set aside, while notices already issued could be proceeded with in accordance with the legal position declared.

Conclusion: The challenge succeeded to the extent that the impugned orders were liable to be set aside, and the writ petition was disposed of in line with the earlier decision, with liberty to proceed further in accordance with law where only notices had been issued.

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