PROCEEDINGS OF THE AUTHORITY FOR CLARIFICATION AND ADVANCE RULING UNDER SECTION 60 OF THE KARNATAKA VALUE ADDED TAX ACT, 2003 READ WITH RULES 163 TO 165 OF THE KARNATAKA VALUE ADDED TAX RULES, 2005
M/s. CHALET HOTELS PRIVATE LIMITED
JURISDICTIONAL ASSESSING AUTHORITY: ACCT, LVO-20 – Bangalore
ORDER NO.AR.CLR.CR. 4/2012-13
The applicant is a company registered under the KVAT Act, 2003 engaged in the business of construction and sale of residential apartments in Bangalore. The applicant as submitted in the application has opted to pay tax under the composition scheme as provided under Section 15(l)(b) of the KVAT Act, It is submitted by the applicant that construction of residential apartments is undertaken on its own land and the land cost collected from the customers is claimed by the applicant as deduction while computing taxable turnover. The applicant appoints sub-contractors registered under the KVAT Act for constructing the apartments and not claiming any deduction as eligible’ under Section 15. The applicant purchases goods such as sanitary fittings, cement, steel, etc. from registered (dealers within and outside the. State and supply the same to”the registered ‘sub-contractors for use in the works. The applicant further submits that it is not claiming input tax credit on local purchases and in respect of inter-State purchases, tax is being paid by it as per Section 4 of the KVAT Act, 2003 on the purchase value,
2. The applicant has sought clarification as to whether development, construction’ and sale of residential apartments is a taxable transaction under the provisions of the KVAT Act and whether composition tax can be collected.
3. It is the, understanding of the applicant that it is liable to pay VAT on construction and sale of residential apartments at the rate of.4% on the amount received as advances or on issue of invoice, whichever is earlier as specified under Section 7 of the KVAT Act, 2003 towards construction under Section 15(l)(b) of the KVAT Act, 2003 read with notification No. FD 116 CSL 2006(13) dated 31.3.2006 and that the tax paid by the applicant is permitted to be collected from the prospective buyers under Section 9 of the KVAT Act, 2003.’ Copies of two memorandum of understanding entered with the prospective buyers by the applicant are also filed.
4. Sri Venkatramani, CA, duly authorized by the applicant appeared before this Authority and he is heard. He re-iterated the submissions made in the application.
5. The Joint Commissioner of Commercial Taxes (Administration), VAT Division-1, Bangalore vide letter dated 21.B.2012 has submitted his report on the above issue as under:-
(i) From the copies of Memorandum of Understanding filed by applicant, it is seen that the applicant company has agreed to construct apartments for the customers in the land owned by the, applicant company. Since there is transfer of property in goods from the applicant company to customers, these transactions are liable to tax.
(if) The applicant company is also eligible to deduct the value of land cost from the receipts as the land is owned by the dealer company. .
(iii) Since the company is supplying the, goods to the sub-contractors.for use in the execution of construction, payments (labour charges) made to the sub-contractors is rightly not eligible for any deduction.
6. Matter is examined. As submitted by the applicant, it is engaged in development, construction and sale of residential apartments by effecting purchase of goods such as sanitary fittings, cement, steel, etc. from registered dealers located within and outside the State for use in execution of works contract of construction of residential apartment for customers for a consideration. Since this transaction involves transfer of property in goods from the applicant company to its customers, this transaction is liable to tax under the KVAT Act.
7. Further, the applicant has opted for composition of tax under Section 15(1) of the KVAT Act and hence in terms of the notification No. FD 116 CSL 2006 (13), dated 31.3.2006 the applicant is liable to pay by way of composition an amount at the rate of four percent on the total consideration for the civil works contract executed by him (with deduction of value of goods to obtained from outside the State the property in which is transferred in the civil works contract executed on which tax is payable at the rates specified in Section 4). As per rule 139 (3-1) of the KVAT Rules, 2005, the applicant is eligible to deduct any amount collected as tax from the total consideration for the works contracts executed on which he is liable to pay tax, by way of composition and thus is not barred from collecting such amount?
8. Taking the above facts and position of law into consideration, this Authority clarifies as under:
(i) Applicant is. liable to tax under the KVAT Act, 2003 on the transfer of property in goods involved in the execution ojf works contract of construction of residential apartments for customers for a consideration.
(ii) Applicant who has opted for composition of tax under Section 15(1} of the KVAT Act, 2003 is liable to pay by way of composition an amount at the rate of four percent on the total consideration for the civil works contract executed and liable to pay tax at the rates specified in Section 4 on the value of goods obtained from outside the State, the property in which is transferred in the civil works contact executed. The applicant is eligible to collect the amount so payable by him by way of composition and also deduct such amount collected from the total consideration for the civil works contract on which he is liable to pay tax by way of composition.