The real estate company - VAT applicability

[Bijay Shrestha]

Respected Experts and friends,

M/s. ABC Company is Real Estate Company located in Maharashtra/Karnataka (Any place). It has owned Land for construction of Apartments. It has received Advance money from various customers towards purchase of Apartments.

The Company has executed Agreement to sell (AOS) with the Customers for sale of Apartments. But it has not entered into any Development agreement/Construction Agreement with the Customers. Because of this reason; the Company is not paying VAT and also not collecting VAT from customers as there is nothing to show that Work Contracts has been awarded by the Customers to the Company .

The Company says it will pay VAT, if any at the time of handing over the possession to the customers.

Is this approach correct to avoid VAT liability under the respective States VAT Act?

If yes, then again what is the logic/legal provision behind paying VAT at the time of handing over the possession?

The Company either construct the Apartment itself or give it to the sub-contractors.

Please kindly suggest.

AI Summary

VAT on construction component: allocate receipts between land and construction to determine VAT liability at time of incorporation.
The construction component of a sale (value of goods incorporated) can attract VAT when customers book flats before completion; taxation is tied to incorporation or contractual transfer timing. Receipts should be allocated between land (VAT-exempt) and construction (VATable); where a single composite price exists, allocation is required and developers often first adjust advances against land value, treating the balance as construction consideration chargeable to VAT, subject to deductions under the relevant VAT law.