FREQUENTLY ASKED QUESTIONS (FAQs)

DELHI TAX COMPLIANCE ACHIEVEMENT SCHEME, 2013 (DCS)

(by Rakesh Garg, FCA)

Q1. What is DCS under the Delhi VAT?

DCS is a “Scheme” notified under the Delhi Value Added Tax Act, 2004 (DVAT Act), which draws powers from newly inserted section 107 under the Act with effect from 12.9.2013. Notification is annexed in Appendix A. The section 107 reads as, ‐

“107. Amnesty Scheme(s) ‐ Notwithstanding anything to the contrary contained in this Act and Rules thereto, the Government may by notification in the official Gazette, notify amnesty scheme(s) covering payment of tax, interest, penalty or any other dues under the ‘Act’, which relate to any period ending before 1st day of April, 2013, and subject to such conditions and restrictions as may be specified therein, covering period of limitation, rates of tax, tax interest, penalty or any other dues payable by a class of dealers or classes of dealers or all dealers.”

Purpose of this Scheme is two fold:

(i) To achieve the self compliances by the dealer: Dealer (including trader, manufacturer, works contractor, builder, leasing company, etc.) or any other person, such as contractee, (hereinafter referred as “declarant”), who has not paid due taxes under the DVAT Act or under the Central Sales Tax Act, 1956 (CST Act, in short) as specified in the respective Statute, may pay tax under DCS. Further, the time of default is immaterial for the purpose of this Scheme; and

(ii) To resolve disputes: Where dispute in relation to tax, interest and penalty is pending before any higher forum, such as the Objection Hearing Authority, the DVAT Tribunal, the Delhi High Court or the Supreme Court, the declarant may resolve his dispute under this Scheme by paying tax and interest stated in the assessment order. He will get immunity from payment of interest from the date of order till the date of declaration, and penalty in relation to such tax. The dispute might pertain to the DVAT Act, CST Act, or the erstwhile repealed Acts, that is, the Delhi Sales Tax Act, 1975 or the Delhi Sales Tax on Works Contract Act, 1999 or the Delhi Sales Tax on Right to Use Goods Act, 2002 or the Delhi Tax on Entry of Motor Vehicles into Local Areas Act, 1994.

General Scheme of the DCS:

(i) Where assessment order/notice of assessment has not been issued, the declarant shall pay only tax; and he will get immunity from interest, penalty and prosecution, and

(ii) Where the order/notice has been issued by the Department, the declarant shall pay tax and interest as stated in such order/notice. He will get immunity from payment of interest from the date of notice till the date of declaration, penalty and prosecution under the Act.

Q2. Who can declare tax dues under DCS?

As per Clause 2(1)(d) of the DCS, following persons may declare their tax dues:‐

(i) Dealers not registered under the Delhi VAT Act and/or CST Act;

(ii) Dealers registered under the Delhi VAT Act and/or CST Act and assessment of tax in respect of tax dues has not been made;

(iii) Dealers registered under the Delhi VAT Act and/or CST Act and assessment of tax in respect of tax dues, with or without penalty, has been made;

(iv) Persons, who were liable to deduct tax at source under section 36A of the Act, but failed to deduct TDS as specified.

(v) Dealers, who were registered under the erstwhile Delhi Sales Tax Act, 1975 or the Delhi Sales Tax on Works Contract Act, 1999 or the Delhi Sales Tax on Right to Use Goods Act, 2002 or the Delhi Tax on Entry of Motor Vehicles into Local areas Act, 1994, and their disputes/objections/appeals for the period up to 31.3.2005 are pending before any higher forum.

Q3. What is the meaning of “Tax Dues” and how would it be calculated?

As per Clause 2(1)(d) of this Scheme, the term “tax dues” under the DCS means the tax payable by the declarant under the DVAT Act, CST Act or erstwhile Acts which have been repealed under the DVAT Act on 1.4.2005. Tax dues, however, shall be calculated in the manner stated in Clause 3 of the DCS, discussed later in Chapter‐2 of this FAQ. Thus, the term “tax dues” consists of the following taxes due or payable for the period stated below, which have not paid, fully or partly, till 31.8.2013, under the: ‐

(i) DVAT Act for the period from 1.4.2005 to 31.3.2013;

(ii) CST Act for the period from 1.4.2005 to 31.3.2013;

(iii) CST Act for the period up to 31.3.2005;

(iv) Erstwhile Delhi Sales Tax Act, 1975 for the period up to 31.3.2005;

(v) Erstwhile Delhi Sales Tax on Works Contract Act, 1999 for the period up to 31.3.2005;

(vi) Erstwhile Delhi Sales Tax on Right to Use Goods Act, 2002 for the period up to 31.3.2005;

(vii) Erstwhile Delhi Tax on Entry of Motor Vehicles into Local areas Act, 1994 for the period up to 31.3.2005;

(viii) DVAT Act by a person, who is liable to deduct tax at source under section 36A of the Act.

As per explanation 1, “tax dues” includes the amount of tax assessed in terms of notice of assessment or assessment order issued under any of the afore‐stated Acts, whether pending in objection/revision before the objection hearing authority (OHA) or in appeal/ revision before appellate authority/Tribunal or any higher Court, including writ petition and special leave petition.

As per explanation 2, where a notice of assessment or assessment order has been issued to a person in respect of some default(s), the term “tax dues” shall also include tax dues relating to default(s) not covered in the notice of assessment or assessment order for the same tax period.

As per explanation 3, this Scheme does not cover cases of notice of assessment of penalty issued under any of the relevant Acts without having any relation to tax deficiency.

Q4. Can a dealer, who is not registered with the DVAT Department, make declaration under DCS?

Yes. However, such dealer will be required to take registration under the DVAT Act prior to filing of the declaration under this Scheme. Likewise, where the declarant is a person who was required to deduct TDS under section 36A, he shall obtain TAN Number, if not already obtained. [Clause 4(8)]

Q5. Will a declarant referred to in Q4 get immunity from payment of penalty for not having taken registration earlier or not filed the return?

Yes. Beside interest and penalty, immunity would also be available from any other proceeding under the DVAT Act and Rules for non‐registration. [Clause 5(1)]

As per proviso to Clause 4(5) of the Scheme, where an unregistered dealer has made declaration, such dealer shall obtain registration and pay net tax for the period from 1.4.2013 to the date of registration. He shall furnish return in Form DVAT‐16 for that period along with proof of payment in Form DVAT‐20 to the designated authority at the time of furnishing of declaration under this Scheme. Such a dealer shall be eligible for immunity under Clause 5 for late payment of such tax and non‐filing of return.

Q6. Can an assessee, to whom notice of assessment u/s 32 of the Act has been issued, file declaration under DCS for some other issue of the same tax period?

Yes. In terms of Clause no. 2(1)(d) of the DCS, the tax dues, in respect of which any notice of assessment has been issued, may be declared under the Scheme. The dealer may also file declaration in respect of those issues which have not been dealt in the notice of assessment. In this case, the dealer would get immunity from payment of interest as well.

Q7. Can a dealer, to whom notice of assessment or the assessment order has been issued and matter is pending before the higher Authorities or the Courts, file declaration under DCS?

Yes. In terms of Clause no. 2(1)(d) of the DCS, “tax dues” includes the amount of tax assessed in terms of notice of assessment or assessment order issued, whether pending in objection/revision before the objection hearing authority (OHA) or in appeal/revision before appellate authority/Tribunal or any higher Court, including writ petition and special leave petition.

Dealers on whom assessment order has been issued under the erstwhile Delhi Sales Tax Act, 1975 or the Delhi Sales Tax on Works Contract Act, 1999 or the Delhi Sales Tax on Right to Use Goods Act, 2002 or the Delhi Tax on Entry of Motor Vehicles into Local areas Act, 1994 for any period up to 31.3.2005, may also declare tax dues under the Scheme.

Q8. Can a declaration be made under this Scheme in respect of input tax credit (ITC) wrongly availed/claimed?

Yes. Such amount would be covered under the definition of “tax dues”, and hence a declaration may be made in respect of wrongly claimed/availed ITC.

Q9. Can a party, against whom an inquiry, investigation, audit or special audit is pending, or against whom an enforcement survey has been carried out, make a declaration under the DCS?

Yes. There is no bar from filing of declaration in such cases.

Q10. Whether the scope of DCS covers those cases where penalty has alone been imposed, without creating any demand towards tax deficiency?

As per explanation 3 of Clause 2(1) of this Scheme, tax dues does not cover those cases where notice of assessment of penalty has been issued without having any relation to tax deficiency. For example, where notice of penalty alone is issued under section 33 for late filing of Returns or other documents or for non‐maintenance of stock records, etc. Such cases would not be covered under the scope of DCS.

Q11. Can a dealer, who has made inter‐State sale against Form C, declare the tax dues in respect of missing Forms C?

Yes. The dealer may declare such amount where he is not expecting Forms C from the purchasing dealers. By declaring the tax dues under DCS, he would get immunity from payment of interest and penalty.

Q12. Whether a person, who has paid VAT/CST for a particular period but failed to file his return, may take the benefit of DCS Scheme so as to avoid payment of penalty for non‐filing of return?

No. Under DCS, a declaration can be made only in respect of “tax dues”. Where no tax is pending, but return has not been filed, it does not come under the ambit of the Scheme. However, the Authorities may be grant relief to the dealer or remit his penalty under second proviso to section 86(2) of the Act [or section 74(7) of the Act] since there would certainly exist some reasonable cause for not filing of return inspite of paying tax.

[Clause 3 of the DCS]

Q13. What is the manner of calculation of tax dues by the dealers, other than works contractors?

The declarant has to first decide the relevant tax period for which he wants to declare the tax dues. In Form DSC‐1, he shall state the commodity wise turnover and the rate of tax applicable on that date. For example, the declarant is dealing in Desi Ghee, whose rate of tax in March 2010 was 5%; and 12.5% in March 2013. In such a case, applicable tax rate under this Scheme would depend upon the tax period for which the declarant is making the declaration.

Q14. What is the manner of calculation of tax dues by works contractor, other than builders?

They shall pay tax dues @3% if their total turnover, which would include the amount of labour and services as well. Therefore, the works contractor will not be eligible for any type/nature of deduction from his total turnover; and thus, the tax would be of the nature of lump‐sum tax.

Q15. What is the manner of calculation of tax dues by the works contractor, being builders?

Transactions of builders may be divided in two parts: ‐

(i) Activity carried by the builder for the land owner, that is, determination of value of works contract for the land‐owner where consideration has been received by the builder in the form of land : Here the value of land shall be determined as per newly inserted Rule 3(1A) of the DVAT Rules;

(ii) Activity carried on by the builder for the intended buyer (booking of property/unit before completion of construction by the builder): Builder has two options, namely ‐

(a) Pay tax @1% of total consideration, including the value of land, receivable/received from the intended buyer; or

(b) Pay tax @ 3% of total turnover (including value of labour and services) as reduced by the value of land. In such cases, value of land shall be determined in accordance with the newly inserted Rule 3(3) & (4) of the DVAT Rules.

It may be noted that the Government has amended Rule 3 of the DVAT Rules. This Rule facilitates the works contractor to determine their taxable turnover. The amended Rule has laid the manner of calculation of value of land and labour & services by the works contractors comprehensively. Amended Rule 3 is appended with this FAQ in Appendix B.

Q16. There appears to be some ambiguity in Clause 3 of DCS in relation to computation of tax by the works contractors. Is it correct?

As already stated in Q1, General Scheme of the DCS is :

• Where assessment order/notice of assessment has not been issued by the Department, the declarant shall pay tax only. The declarant shall get immunity from payment of interest and penalty;
• And where such order/notice has been issued, the declarant shall pay tax and interest stated in the order/notice. He will get immunity from payment of interest from the date of notice till the date of declaration, and penalty under the Act.

However, in case of works contractors, there appears to be some drafting issue, as under

Sub‐Clause (3) of Clause 3 dealing with works contractors begins with the phrase, “Notwithstanding anything contained in Sub‐Clause (1) or (2) of this Clause”. Sub‐Clause (1) of Clause 3 is applicable where order/notice has not been issued; and Sub‐Clause (2) is applicable where order/notice has been issued to any dealer.

Therefore, reading Clause 3 as a whole, it appears that the works contractors may get the immunity even for that interest, which is stated in the order/notice; which certainly would not be the intention of the Government. Nevertheless, Form DSC‐1 has been framed in accordance with the General Scheme, already discussed.

Therefore, this anomaly needs suitable amendment or necessary clarification.

Q17. What is the manner and time of payment of tax dues under DCS?

The declarant shall pay at least 50% of the declared tax dues along with declaration in Form DSC‐1 by 31.1.2014, and submit proof of such payment to the designated authority. Remaining tax dues shall be paid by the declarant on or before the 21.3.2014. [Clause 4(3) & (4)]. It may be noted there is no bar in paying entire declared tax dues in one installment on or before 31.1.2014.

Q18. Can the declarant adjust the amount of input tax credit as per section 9 of the Act in relation of such tax dues declared under DCS?

No. Though there are no specific provisions in this regard; but looking at the manner of calculation of tax dues and declaration in Form DSC‐1, it is clear that input tax credit cannot be adjusted against payment of tax dues under DCS. Accordingly, entire tax dues under the Scheme shall be paid in cash through the normal e‐payment method.

Q19. Can the declarant adjust his ‘excess tax credit’ or ‘carry forward amount’ from the tax dues under this Scheme?

No. There are no provisions for such adjustment and, thus, entire amount shall be paid by the declarant in cash. He shall not be entitled to adjust his carry forward amount as per the Returns, if any. For example, a declarant, who has carry forward amount of Rs. 10 lacs as on the date of declaration, declares the amount of tax dues of Rs.12 lacs under this Scheme. In such a case, he shall pay entire Rs.12 lacs in cash, without adjusting the carry forward amount of Rs.10 lacs.

Q20. Whether the amount of tax dues paid under DCS would be eligible as input tax credit (ITC) to purchaser of goods (transferred by declarant through invoice or debit note?

No. The amount paid by the declarant under DCS cannot be transferred to the purchaser of goods or any other person. Therefore, amount paid under DCS is not eligible as input tax credit under the DVAT Act.

Q21. What will be the consequences where a declarant fails to pay balance declared amount of tax dues by the 21.3.2014?

As per Clause 7 of the Scheme, where the declarant fails to pay the tax dues, either fully or in part, after making declaration by him, such balance dues along with interest thereon shall be recovered under the provisions of the DVAT Act.

Q22. Since the scope of DCS is confined in relation to tax dues upto 31.3.2013, what would be the procedure for payment of tax relating to period after 31.3.2013? Are there any specific provisions for unregistered dealers?

As per Clause 4(5) of DCS, any tax which becomes due or payable by the declarant for the tax period from 1.4.2013 and thereafter shall be paid by him in accordance with the provisions of the DVAT Act.

Further, where the declaration has been made by a dealer, who was earlier not registered under the Act, he shall obtain registration and pay net tax for the period from 1.4.2013 to the date of registration; and furnish return in Form DVAT‐16 for that period along with proof of payment in Form DVAT‐20 to the designated authority at the time of furnishing of declaration under this Scheme.

Such a dealer shall be eligible for immunity from interest and penalty under Clause 5 of the Scheme for late payment of such tax and non‐filing of return under the Act.

Q23. What is the step‐wise procedure for making declaration?

1. Compute the amount of tax dues in accordance with Chapter‐1 of the FAQs;

2. If the declarant is not registered under the DVAT Act (either as a dealer or as a TDS deductor), obtain registration. He shall also pay tax and file his returns for the period after 1.4.2013 along with his declaration under this Scheme;

3. As per Clause 5(3), where declaration is made in relation to the tax dues against which objection/appeal/revision is pending before the higher forum, then –

i.  all statutory appeals/revisions pending before quasi‐judicial forums up to the stage of Tribunal shall be deemed to have been withdrawn once the Scheme is opted for;

ii. all matters pending in the High Court and Supreme Court shall be withdrawn by the declarant, and the declarant shall submit the copy of the application filed before the Court for withdrawal along with Form DSC‐1;

4. Fill the declaration in Form DSC‐1 on the web‐site of the Department;

5. Pay at least 50% of amount of declared tax dues through Challan online. It may be noted that declarant may pay even the entire amount of tax dues at this stage;

6. File hard copy of Form DSC‐1 along with Challan to the designated authority on or before 31.1.2014;

7. The designated authority shall suo‐moto issue the acknowledgement in Form DSC‐2 within a period of 15 working days from the date of receipt of the declaration. If it is not received, then designated authority may be contacted;

8. Pay remaining (unpaid) amount of tax dues through Challan online on or before the 21.3.2014;

9. Submit proof of such payment along with a copy of acknowledgement in DSC‐2 (already received at Step No. 7) to the designated authority;

10. Obtain Form DSC‐3 from the designated authority: On furnishing the details of full payment of declared tax dues, the designated authority shall issue an acknowledgement of discharge of such dues within 15 days in Form DSC‐3;

11. A declaration made under this Scheme shall become conclusive upon issuance of Form DSC‐3 by the designated authority.

Q24. After filing of declaration, if a declarant realizes that the declaration filed by him was incorrect by mistake: can he file an amended declaration?

The declarant is expected to declare his tax dues correctly. In case, the mistake is discovered suo‐moto by the declarant himself, the declarant may approach the designated authority, who, considering the facts of the case, may allow amendments in the declaration, provided that the amended declaration, along with proof of payment of short‐paid tax dues, if any, is furnished by declarant before the cut off date, i.e., 31.1.2014. However, it may be noted that amount already paid will not be refunded in terms of Clause 6 of DCS.

Q25. What are the consequences if a declarant fails to pay at least 50% of declared amount of tax dues by the 31.1.2014?

One of the conditions of the Scheme is that the declarant shall pay at least an amount equal to 50% of the declared tax dues on or before the 31.1.2014. Therefore, if the declarant fails to pay at least 50% of the declared tax dues by 31.1.2014, he would not be able to avail the benefit of this Scheme.

Q26. What are the consequences where the declaration is found “false” at a later stage?

(A) Service of Notice:

Where the Commissioner has, for a period beginning from 1.4.2009, reasons to believe that the declaration was false in material particular, he may, for reasons to be recorded in writing, serve notice on the declarant in respect of such declaration requiring him to show cause why he should not be required to pay the tax dues unpaid or short‐paid as per provisions of the Scheme. [Clause 8(1)]

(B) Limitation period for issuance of Notice:

Within one year from the date of declaration. [Clause 8(3)]

(C) Consequences:

As per Clause 8(2), if the Commissioner is satisfied, for reasons to be recorded in writing, that the declaration made by the declarant was substantially false,

(i) he shall within three months of service of notice on the declarant make assessment of tax and penalty under section 32 and 33 of the Act, as if that dealer had never made declaration under this Scheme.

(ii) However, the dealer shall be entitled to the credit of tax paid by him under this Scheme; and

(iii) Such dealer may be proceeded under sub‐section (2) of section 89 of the Act for furnishing of false declaration.

Q27. Clause 8 of DCS prescribes that where the Commissioner has reasons to believe that the declaration made by the declarant was ‘false in material particular’ or ‘substantially false’; he may serve a notice on the declarant in respect of such declaration. What are the attributes of a ‘substantially false’ declaration?

The Commissioner would, in the overall facts of the case, taking into account the reasons he has to believe, take a judicious view as to whether a declaration is ‘substantially false’. The term “substantially false” would be decided in view of facts of the case; and proceeding would be initiated in accordance with the principles of natural justice. To illustrate, a declarant has declared his “tax dues” as Rs. 20 lacs. However, Commissioner has specific information that declaration has been made only for part liability, and the actual “tax dues” are Rs 40 lacs. This declaration might fall in the category of “substantially false”.

Q28. What is the mechanism of appeal against the order of the designated authority rejecting the declaration under Clause 8 of DCS?

The Scheme does not have a specific statutory provision for filing of appeal against the order of rejection of declaration under Clause 8 by the designated authority.

Q29. A declarant pays certain amount under the Scheme and subsequently his declaration is rejected under Clause 8 of DCS. Would the amount so paid by him be adjusted against his liability that may be determined by the department?

Yes. The amount so paid shall be adjusted against the liability of tax and penalty determined by the Commissioner. [Clause 8(2)]

Q30. What are the immunities available to a declarant under DCS?

As per Clause 5 of DCS, upon payment of declared tax dues by the declarant, he shall get following immunities: ‐

1. Penalty or penalties in relation to declared tax dues;

2. Interest, other than the amount stated in the assessment order or notice of assessment, if any, in relation to declared tax dues;

3. Prosecution;

4. Any other proceedings, to the extent of tax dues declared by the declarant;

5. Dealers or Tax‐deductor u/s 36A obtaining registration with the intention of declaring tax dues under this Scheme: ‐

a. No proceeding shall be instituted within 48 hours of securing a registration, provided, the registrant declares his intent of opting under the Scheme at the time of applying for TIN/TAN;

b. Penalty and prosecution for non‐registration by the declarant;

c. Interest for non payment of tax for the period after 1.4.2013 by declarant – Such tax shall be paid at the time of furnishing of declaration under this Scheme;

d. Penalty and prosecution for non‐furnishing of returns in time for the period after 1.4.2013 by the declarant – He shall furnish return in Form DVAT‐16 for that period at the time of furnishing of declaration under this Scheme;

6. To avoid double taxation, if the contractee has declared tax dues, his immediate contractor will also get immunity to that extent, and vice‐a‐versa, as under: ‐

a. In case the declarant being a contractee, who has awarded the works contract under section 36A(1) of the Act, his immediate contractor to whom he has awarded works contract, to the extent of amount declared by the contractee;

b. In case the declarant being a contractor, his immediate contractee who has awarded the works contract under section 36A(1) of the Act;

7. A declaration made under this Scheme shall become conclusive upon issuance of Form DSC‐3, and no matter shall be reopened/reassessed/reviewed thereafter in any proceedings under this Scheme or under the Act before any Authority or Court relating to the period covered by such declaration to the extent of tax dues declared by the declarant;

8. The information gathered vide a declaration under the Scheme shall be kept confidential, and shall not be used except under the Scheme and the same shall not be shared with any other person / government department / agency.

Q31. Where the declaration is rejected under Clause 8 of DCS: will the declarant get immunity under Clause 5 from penalty, prosecution, etc.?

No. Since Clause 8 commences with the non‐obstacle clause “Notwithstanding anything contained in Clause 5 of the Scheme”, such declarant will not be eligible for any immunity.

Q32. What are the drawbacks of DCS? Is there any grey area?

DCS introduced by the Delhi Government is certainly an innovative and futuristic Scheme. It would increase the number‐base of the dealers registered with the DVAT Department; and help in reducing the existing disputes/litigations. However, certain issues are there, which need our attention, as under:

(i) Tax under this Scheme shall be paid by the declarant in cash, and he shall not be entitled to adjust carry forward amount, if any, as per DVAT Return. For example, a declarant, who has carry forward amount of Rs. 10 lacs as on the date of declaration in his DVAT Returns, declares the amount of tax dues of Rs.12 lacs under this Scheme. In such a case, he shall pay entire Rs.12 lacs in cash, without adjusting the carry forward amount of Rs.10 lacs. The Department is of the view that such adjustment will require verification and assessment by the Department; therefore, it is not possible to allow self‐adjustment by the declarant under this Scheme.

(ii) The declarant would not be eligible for any input tax credit (ITC). Department would certainly state that since it is not possible for the Department to verify the genuineness of tax invoices and eligibility of the declarant to claim ITC at the time of disposal of declaration under this Scheme; therefore, the benefit of ITC has not been allowed under this Scheme.

(iii) The Government has stated in Clause 5(5) of the Scheme that the information gathered under the Scheme shall be kept confidential and shall not be used except under the Scheme and the same shall not be shared with any other person / government department / agency. However, if information of declarant come in the knowledge of the Income Tax Authorities through books of accounts of the declarant or otherwise, then certainly, there might be a big issue.

Appendix ‘A’

Notification No.F.3(16)/Fin.(Rev‐I)/2013‐14/dsVI/786 Dated the 20.09.2013

Appendix ‘B’

Rule 3 of the DELHI VAT RULES

[Extracts – Relating to Valuation of Land]

[As amended vide Notification No.F.3(16)/Fin.(Rev‐I)/2013‐14/dsVI/785 dated 20.9.2013]

Rule 3(1):

(1) In the case of turnover arising from the execution of a works contract, the amount included in taxable turnover is the total consideration paid or payable to the dealer under the contract and exclude –

(i) the charges towards labour, services and other like charges; and

(ii) the charges towards cost of land, if any, in civil works contracts, subject to the dealer’s maintaining proper records such as invoice, voucher, challan or any other document evidencing payment of above referred charges to the satisfaction of the Commissioner.

Explanation. – The term “civil works contracts” for the purpose of this rule shall include construction of building or complexes ‐ residential or commercial, bridges, flyovers, dams, barriers, canals, diversions, other works of similar nature, and the collaboration agreements or joint development agreements or similar other agreements/arrangements between the landowner( s) and the contractor(s)/builder(s)/ developers/ collaborators/ similar other persons by whatever name called for construction of complex or property.

Rule 3(1A):

(1A) In case the civil works contract mentioned in sub‐rule (1) are of the nature wherein the agreement executed between the land owner(s) and contractor(s) or similar other agreements/arrangements is of the nature of collaboration or joint development where the contractor(s) constructs the building/units and consideration for the construction is given by the land owner in the form of share in the land with or without additional money exchange, the value of works contract carried out by the contractor(s) for the land owner shall be highest of the following amounts:

(i) Actual value of construction, including profit, transferred by the contractor to the land‐owner in accordance with the books of accounts maintained by the contractor.

(ii) Where proportionate land is transferred by the land‐owner to the contractor by executing a separate conveyance/sale deed, the value stated in the deed for the purpose of payment of stamp duty as reduced by consideration paid by the contractor to the land owner through account payee cheque/ draft/ pay order/ electronic transfer, if any.

(iii) On the basis of circle rate of proportionate area of land transferred by the land‐owner to

the contractor in accordance with the notification under Delhi (Prevention of Under Valuation of Instruments) Rules, 2007 as amended from time to time (hereinafter referred as “circle rates”) prevailing at the time of execution of agreement between them, as reduced by the consideration paid by contractor to the land‐owner through account payee cheque/draft/pay order/electronic transfer, if any.

Provided that where separate circle rates for land and construction have not been notified in respect of certain buildings or properties, then circle rate for land and construction prevailing in that locality for other buildings or properties, in respect of which separate circle rates have been notified, shall be taken for the purpose of determination of value under this sub‐rule.

Provided further that the value of works contract under this sub‐rule shall not be less than the circle rate of construction applicable on the date on which agreement between the land‐owner and the contractor for the construction of property was executed.

Explanations:‐

1.‐ The term “contractor” for the purpose of this sub‐rule shall include the builders, developers, collaborators and similar other persons by whatever name called.

2.‐ The taxable turnover in relation to contractor’s share of construction for activity carried on by him for the intended purchaser shall be calculated separately as per sub rule (1) of this rule.

Rule 3(1B):

(1B) In case of works contract falling under sub‐rule (1A), tax shall be payable at the time of incorporation of goods in the execution of works contract by the contractor.

Rule 3(2): Related to computation of labour and service, hence not given here.

Rule 3(3):

(3) For the purpose of sub‐rule (1), the cost of land, if any, in a civil works contract carried on by the builder for the intended purchaser, shall be determined in the following manner:

(a) Where separate conveyance/sale deed of the land has been executed between the builder and the intended purchaser, the consideration amount of land stated in that deed;

(b) Where separate conveyance/sale deed of the land has not been executed for transfer of land between the builder and the intended purchaser, then the value of land in the value of composite works contract inclusive of land may be arrived at on any of the following basis:‐

(i) Where proportionate land is transferred by the land‐owner to the builder by executing a conveyance/sale deed: On the basis of rate of land arrived at from such deed for the purpose of payment of stamp duty.

(ii) Where clause (i) is not applicable, on the basis of rate of land arrived at by adding the amount paid by the builder through account payee cheque/draft/pay order/electronic transfer to the land‐owner towards the land rights and value of construction transferred by the builder to the land‐owner determined as per sub‐rule (1A).

To illustrate, land‐owner and builder enter into an agreement, where builder would build four units, which would be shared equally between them. In addition, builder pays Rs.1 crore to the land owner. Total construction cost for four flats is Rs.4 crores. Here, builder transfers the value of construction worth Rs. 2 crores [Rs.4 crores divided by two, since 50% share in the construction is transferred to the land‐owner]. In this case, value of land transferred by the land‐owner is: Rs.1 crore + Rs.2 crores = Rs.3 crores; and total value of land transferred by the builder to the intended purchasers for his share of the land shall also be Rs.3 crores (Rs. 1.5 crs. per flat if there are two intended purchasers).

(iii) In all other cases where clauses (i) and (ii) are not applicable, the value of land shall be determined on the basis of notified circle rates of land prevailing at the time of execution of agreement between the builder and the intended purchaser. Provided that where separate circle rates for land and construction have not been notified in respect of certain properties, then circle rate for land and construction prevailing in that locality for other properties in respect of which separate circle rates have been notified, shall be taken for the purpose of determination of value under this sub‐rule.

Provided further that where land has been valued at circle rate and the value of conveyance/sale deed with the intended purchaser exceeds the circle rate, then the difference between the two shall be proportionately divided between the value of land and the works contract (comprising material and services).

For example, in case of composite works contract, circle rate of land is Rs.2 crore and circle rate of construction is Rs.1 crore respectively, and the consolidated value of sale deed (inclusive of land and cost of construction) is Rs.3.60 crores. Difference of Rs.0.60 crore shall be divided in the ratio of 2:1; and thus, value of land for the purpose of this sub‐rule shall be Rs.2.40 crores.

Explanation 1: The term “Builder” for the purpose of this sub‐rule means the person who undertakes the construction of property, either as owner of the land or under an agreement of power of attorney with the land owner or under some other arrangement, and transfers the property to some other person before completion of construction for a consideration, which may be received by the builder either as a composite sum or under separate agreements for land and construction. The term “builder” shall also include the land‐owner(s) who transfers the property to the intended purchaser before completion of construction.

Explanation 2: The term “intended purchaser” for the purpose of this sub‐rule means the person who agrees to buy the property before completion of construction and pays the consideration, in full or part, before such completion.

Explanation 3: For the purpose of this sub‐rule, construction shall be deemed to be completed at the time of issuance of completion certificate by the competent authority, or at the time and in the manner notified by the Government for this purpose.

(c) In the case of works contract of civil nature where the payment of charges towards the cost of land, if any, is not ascertainable in accordance with the preceding clauses of this sub‐rule, the amount of such charges shall be calculated @ 30% of the total value of the contract except in the case of construction of commercial buildings or complexes where it shall be calculated @ 50% of the total value of the contract.

(d) In the case of works contract of civil nature where only a part of the total constructed area is being transferred, the charges towards the cost of land shall be calculated on a pro‐rata basis through the following formula:

Proportionate super area X Value of land as determined in this sub‐rule

Total plot area X Floor Area Ratio

Explanation1.‐ Proportionate super area for the purpose of this clause means the covered area booked for transfer and the proportionate common constructed area attributable to it.

Explanation 2.‐ Floor Area Ratio = Total constructed area/ Total plot Area

Rule 3(4):

(4) In the case of works contract of civil nature where only a part of total constructed area is being transferred, the deduction towards labour, services and other like charges mentioned in sub‐rule (2) and input tax credit under section 9 shall be calculated on a pro‐rata basis.

Rule 3(5):

(5) Where an agreement is executed by the builder with the intended purchaser before completion of construction as referred in sub‐rule (3),

(i) total value of agreement, as reduced by cost of land, and amount of labour, services and like charges, determined in accordance with this Rule, shall be deemed to be taxable turnover of sale;

(ii) tax shall be payable at the time of receipt of consideration, in whatever form or manner, from the intended purchaser in relation to (i) above;

(iii) the builder shall be eligible to deduct labour, services, other like charges in relation to (i) above in the tax period when output tax becomes payable; and

(iv) the builder may claim input tax credit under section 9 in relation to turnover of sale stated in (i) above in that tax period on the basis of separate books of accounts maintained for that property.”