Preferential location charges are service consideration, not works contract value, so VAT cannot be imposed on them.

Preferential location charges and floor rise charges collected by a builder for buyer-specific location, floor or view preferences are consideration for a taxable service under the Finance Act, 1994, not part of the actual construction cost or works contract value under the Karnataka Value Added Tax Act, 2003. Because these charges are distinct from construction receipts and are already treated as service consideration, they cannot also be included in taxable turnover for VAT. The petitions were allowed, the impugned orders were set aside, and the levy of VAT on these charges was held unsustainable.

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Issues: Whether preferential location charges and floor rise charges collected by a builder form part of the taxable turnover under the Karnataka Value Added Tax Act, 2003, or are only consideration for a taxable service under the Finance Act, 1994.

Analysis: Preferential location charges and floor rise charges are charged for the buyer's preference in respect of location, floor and view, and are not part of the actual cost of construction. Such charges are specifically treated as a taxable service under section 65(105)(zzzzu) of the Finance Act, 1994. The definition of works contract under section 2(37) of the Karnataka Value Added Tax Act, 2003 covers construction-related consideration, but does not bring within its scope preferential location charges, which are distinct from the construction cost. Once these charges are treated as service consideration and taxed accordingly, they cannot be subjected to VAT under the KVAT regime as part of works contract receipts.

Conclusion: The claim for exclusion of preferential location charges and floor rise charges from KVAT tax was accepted, and the levy under the KVAT Act was held unsustainable.

Final Conclusion: The petitions were allowed, the impugned orders were set aside, and the assessee's challenge to VAT on preferential location charges succeeded.

Ratio Decidendi: Preferential location charges collected by a builder for buyer-specific locational advantages are consideration for a taxable service and not part of the works contract value liable to VAT.

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