2020 (2) TMI 599 - HC - VAT and Sales Tax

Demand of VAT u/s section 5/6 of the TN VAT Act, 2006 - petitioner s father had settled an immovable property along with an existing house in favour of the petitioner and her sister in the year 2004 - the impugned order has been passed without following principles of natural justice and without actually examining whether indeed the petitioner has rendered any works contract as has been confirmed the impugned order - HELD THAT - The intention of the State Legislature was to levy and collect stamp duty at 1% was on the cost of the proposed construction or the value of construction or the consideration specified in the agreement whichever was higher relating to proposed construction of building at the stage of construction and not thereafter. Expression building included any unit proposed to be construct - It was not intended to cover situation where the building was already constructed. In the facts of the case, it is evident that there was indeed a sale of flat/apartment by the petitioner and therefore stamp duty payable would have been under Article 23 of the Schedule-I to the Indian Stamp Act, 1899. The truncated valuation of UDS in the land for payment of stamp duty and registration of Construction Agreement on payment of stamp duty at 1% 1% registration in the case of built up unit was not intended under the Stamp Act, 1899 - There was no works contract by the petitioner exigible to tax under the provisions of the TN VAT Act, 2006. At best, such a tax liability would have been payable only by the 3rd respondent and not on the petitioner. The issue needs proper examination - appropriate action ought to have been taken only by the authorities under the Stamp Act, 1889 under Section 47 A of the Stamp Act, 1899, in accordance with law and not from the petitioner under the provisions of the TN VAT Act, 2006 - the impugned order demanding tax under the provisions of the TN VAT Act, 2006, is unsustainable. Petition allowed.

Summary

Issues:
Challenge to VAT demand under TN VAT Act, 2006 based on works contract tax liability; Violation of principles of natural justice in passing the impugned order.

Analysis:
The petitioner challenged an intimation and order demanding VAT under section 5/6 of the TN VAT Act, 2006. The petitioner's father settled an immovable property with a house in favor of the petitioner and her sister. Subsequently, an agreement was made with a third party to develop an apartment, where the third party retained 4 units and the petitioner and her sister were to receive 8 units. The petitioner sold one unit before obtaining the completion certificate, triggering the VAT demand. The petitioner argued not being a dealer and not liable for tax under the Act, emphasizing that the third party should be liable for the works contract tax. The petitioner contended that the order lacked natural justice and failed to confirm if any works contract was executed. The court considered the transactions and concluded that the petitioner did not engage in a works contract, as the flat was fully constructed before the agreement was signed.

The court highlighted that at the time of signing the agreement, there was no proposal for construction, and the building was already completed, awaiting the completion certificate. Stamp duty was paid on the construction agreement, but it was deemed incorrect as it applied to proposed constructions, not completed ones. The court emphasized that the VAT liability, if any, should be on the third party, not the petitioner. The court suggested that actions should have been taken under the Stamp Act, 1899, rather than the TN VAT Act, 2006. Consequently, the court quashed the VAT demand order, allowing authorities to investigate and collect tax from the appropriate parties under the law.

In conclusion, the court found the VAT demand unsustainable, quashed the intimation and order, and directed authorities to collect tax from the third party and property buyer lawfully. The writ petitions were allowed with no costs, and connected miscellaneous petitions were closed.