Consumer Issues
Don't pay VAT to builders, says Grahak Panchayat

As the last date for paying VAT by developers on flats sold during 2006 and 2010 is nearing, several builders are sending notices and exerting pressure on buyers to cough up the money. However, consumer organisations say the deadline is for builders and flat buyers need not pay the VAT

Several home buyers from Maharashtra are complaining harassment from builders for coughing up more money as value added tax (VAT). Citing a circular issued by the Maharashtra Sales Tax Department, builders are asking flat buyers to pay the additional money before 31st October for their homes bought between 2006 and 2010. However, Pune-based Grahak Panchayat has asked buyers neither to pay any heed to these tactics from builders nor pay any money as VAT.


Following the directions from the Supreme Court, developers who would pay the VAT before 31st October would be exempted from interest and penalty. This has prompted several developers to issue second notices to flat buyers.


Several builders are even exerting pressure and also threatening to charge exorbitant interest rates or take legal action on buyers if he/she refuses to pay the money. That too when the circular issued by the Sales Tax department clearly says the developer has to pay MVAT on his/her profits. Here are the specific points mentioned in the circular under its FAQ section...


From 20.06.2006 to 31.03.2010

1. Composition Scheme U/s 42(3) Under this scheme, the developer has to pay 5% tax on the agreement value. Land deduction is not available. Input tax credit is available to the reduction of 4%.

2. Actual Expense Method U/r 58 Under rule 58, the deduction of labour & service charges is available on actual basis. Land deduction is also available. Set-off will be calculated subject to the condition u/r 53 and 54.

3. Standard Deduction Method U/r 58 Under rule 58, the deduction of land cost will be allowed. Thereafter 30% standard deduction from remaining amount will be available as per proviso to sub-rule 1. Set-off will be calculated subject to the condition u/r 53 and 54.


After 01.04.2010

The developers can opt for fourth option also, under this option u/s 42(3A), developer has to pay 1% tax on agreement value. No land deduction and input tax credit is available.


It further states: “Needless to mention that the developer will be required to make the payment of interest according to the provisions of law.”


Here is a copy of the circular issued by the Sales Tax Department...


Here is a copy of the the Supreme Court order...


On 14 September 2012, Sudhakar Velankar filed a public interest litigation (PIL) in the Bombay High Court. Here are the points mentioned in the PIL…


[A] Once the buyer pays the stamp fee for the transaction of the immovable property, VAT cannot be recovered by the builder from him/her.

[B] Agreement to Sale, of the flat under construction, does not constitute SALE. It does not give the possession of the flat. It does not give the title to the property purchased. It only assures the sale of the property on certain future date and on completion of the construction of the flat.

[C] The instalments paid under the agreement, are not “deferred payment of price” but are “advance payment of agreed price”. The payment creates a charge on the property of the builder, which is not a sale, as defined under MVAT Act.


For those buyers who have been given notices by their builders, here is the “What to do” guideline provided by the Grahak Panchayat...


It is not binding on you to give written reply to the notice, legal or otherwise, of the builder. You have liberty not to respond to the notice and not comply with the demands of VAT amount from the builder.


If you have to respond, you may respond in very precise manner as under...

  • Please write to the builder as an individual. Do not involve the society or condominium in this issue. Individually written letters, however, can be forwarded to the builder in one bunch.
  • Please send the letters in any of the following manners.

-by hand delivery/courier, insisting on receipt with stamp and date.

-By Speed Post. preserve the computerised receipt of the post office.

-By registered post AD.

  • Those who have already written letters on the receipt of first notice might have received the second notice. They should also follow the same course of action.


DRAFT Reply to the notice of the builder for demanding VAT

(Delete the part not applicable to you)









M/s …………………………



Subject: Your Notice/letter for demand of VAT


Dear Sir,


I/We have received your notice/letter dated ………. For payment of VAT amount against flat No…….  in your ………………….. project. In this regard I/We have to write to you as under:


The matter of VAT on Flat is sub-judice with Hon. High Court and till such time that the hon. Court decides the matter, I have no intention to pay tax money.


Your demand of VAT money is not in proper form. Please issue a tax invoice or bill, as the case may be, as required under the MVAT Act. On receipt of your invoice/bill, I will respond appropriately to same.


Further as promised in the registered agreement you have do the following things

1.         Formation of society

2.         Conveyance in favour of society

3.         Return of balance amount after formation of society (as per Grahak Panchayat, Pune and as per Commissioner of co-op society the charges for society formation are just Rs500/- per member hence you return the balance amount with 18% interest)

4.         As per the MSEDC guidelines and as per the information received from Grahak Panchayat Pune the electricity meter charges are just Rs3,000 to Rs10,000 per flat and you have collected Rs……………. Which are very high. Hence please give receipts of payments made to MSEDC and pay the balance amount with 18% interest.

5.         Also as per Flat Ownership Act 1963, you have to form the society within four months from date of registration of the flat agreements by the 60% consumers. But you have not formed the same. And also you have not made conveyance in favour of the society. Hence you are requested to do the needful within 30 days from receipt of this notice otherwise we will take appropriate action against you at your cost.

6.         Also as per the promise made in the agreement you have not provided amenities. Hence you please provide it.

7.         Further as MOFA 1963 you are not to collect the parking charges but you have collected illegally the parking charges of Rs……………… per head. Please return the same within 30 days with 18% interest.


We are giving you 30 days time for above all facts and if you fail to comply then we will take appropriate action against you at your cost.


Thanking you


Yours faithfully

Sign ………………………………… 



Flat buyers, who are under pressure from the builder for paying VAT can also contact Grahak Panchayat at their Pune Office. Grahak Panchayat, 2020, Sadashiv Peth, Tilak Road, Pune 411030 (Opp SP College, above Grahak Peth) on any Monday between 6pm to 7.30pm.




2 years ago

Very informative article.
I made agreement in Sep2009 & got possession in Oct2010. flat was almost ready at the time of agreement. now the builder has filed summery suit with 15% interest to recover 5% VAT.
I want to know the legality of the suit.

[email protected]


3 years ago

We have already paid the amount to the builder and now she is refusing to return the money to us. Please guide us as to what can be done

naina kalyan

4 years ago

i need to know if vat and service tax is applicable in my case. my agreement is dated june 2009 and i have not got poccession till date, although i have made all the payments. the said property is a bungalow scheme in a village(gram panchayat) .


4 years ago

The notice from builder threatens about cancelling the Agreement Sale and approaching the home loan financial institution to make us defaulter.
They also ask about penalty charges and legal threatening.
1. Can they cancel the agreement legally?
2. Can they disrupt the home loan taken by us?


5 years ago

The article is very informative. Will it make sense to send the notice mentioning other problems (instead of VAT)?

I heard that Builder is not ready to share how he has calculated the VAT amount.

jagdish chavan

5 years ago

As usual, very informative article.

Hindustan Unilever delivers yet another solid performance, net profit up 17%

The fast moving consumer goods company has shown that consumer spending is resilient despite a challenging environment 

Hindustan Unilever (HUL), one of the biggest fast moving consumer goods company in the country, has posted yet another solid quarter. Its sales grew by 12% year-on-year (y-o-y). It recorded Rs6310.81 crore net sales for the quarter ended 30 September 2012, when compared to Rs5610.48 crore for the same period a year ago. The exceptional sales were driven by strong growth in the domestic consumer business segment, which grew double digits. Its net profit grew 17% to Rs806.92 crore. This shows that consumer spending isn’t getting majorly affected by inflation.
The Moneylife database showed that HUL’s sales growth has been rock steady over the last eight quarters and not growing slower than 12% y-o-y, which is impressive considering many investors nearly wrote the company off after many years of single digit growth. However, operating profit growth rate has slowed down considerably this quarter, but still quite impressive growing at 18% y-o-y, short of its three-quarter y-o-y average of 26%. This was mainly because the company’s aadvertising and promotion was stepped up by Rs118 crore in the quarter, in a bid to boost visibility of its brands. The impressive performance of the last few years is the reason behind its astoundingly high return on equity, which stood at a whopping 102%. This is also another reason why its valuation is commanding premium numbers, with its market capitalization over 31 times its operating profit. 
Harish Manwani, chairman of HUL commented “In a volatile and uncertain environment, we continue to sustain our growth momentum while steadily improving our margins. Our consistent performance is being driven by a relentless focus on brand building, bigger and better innovations and disciplined execution in the marketplace.”
During the quarter, the domestic consumer business sustained its robust performance growing at 16% with underlying volume growth of 7%. Overall growth in the quarter was impacted by the budget rationalization in the Canteen Stores Department (CSD). Soaps & detergents grew 22%; double digit growth across all segments. Personal products grew 12%; growth stepped up in hair & oral. Oral care registered volume led double digit growth with Close Up buoyed by its re-launch in the quarter and Pepsodent driven by the premium range. Beverages grew 10%; led by premium products such as Bru. Packaged foods grew 10%; driven by key brands such as Knorr and Kissan. 
Despite a solid showing, the stock price dipped 2.14% to end the day at Rs551.75 on the Bombay Stock Exchange (BSE). 


Pratibha Industries reports strong earnings, posts 44% growth in net profit

Pratibha Industries, a company focused on water projects, has posted strong 43% growth in sales while it is aiming to diversify further

Pratibha Industries, a mid-cap infrastructure and EPC company, has reported strong earnings result for the quarter ended 30 September 2012. The company saw its sales grow 43% year-on-year (y-o-y), from Rs290.97 crore to Rs416.91 crore. Its net profit grew by 44% y-o-y to Rs23.63 crore, mainly helped by lower finance costs and higher other income.

The Moneylife database revealed that its quarterly y-o-y sales growth of 43% nearly matched its three-quarter average growth rate of 47%, which is impressive considering the benign infrastructure sector over the last few quarters. Sales growth in the last three quarters has been over 40%—which is a sign of consistency. However, its manufacturing expenses have risen by 41% when compared to the same period last year. This caused the operating profit to grow at a slower pace when compared to its three-quarter y-o-y average of 32%. This is particularly due to rising commodity prices and inflation which has pushed up manufacturing expenses. The company commands a moderate return of networth at 18%. Despite this, valuations remain attractive, with its market capitalisation hovering nearly three times its operating profit.

Shareholding of foreign institutional investors (FIIs) declined marginally, from 15.73% of the total shares outstanding to 15.63%. On the other hand, domestic institutional investors (DIIs) hiked their stake from 5.17% to 5.55%.

The company is mainly focused on water irrigation projects, especially in Maharashtra. It also provides urban infrastructure and construction of buildings. As of FY12 end, its order book stood at nearly Rs5,800 crore, with over 50% of the order book pertaining to water projects. It aims to diversify further to reduce its reliance on water projects. For instance, last year it bagged a real estate project in valued at valued at Rs362 crore from Runwal Homes Pvt Ltd for the civil and structural work of a residential building “Runwal Greens” located at a Mumbai suburb.

The stock ended the day at Rs54.05, or down 0.92% today, on the Bombay Stock Exchange (BSE).


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