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28 Jul 2015

Rule 25 of Haryana VAT Rules 2003, amended so as to exclude the cost of land in case of valuation of builder/developer

Recently, our DYK team has published DYK no. 384 where we have dealt with the case of Punjab and Haryana High Court in CHD​ ​Developers v. State of Haryana & Ors.​ (TS-147-HC-2015(P&H)-VAT​)​ where Rule 25 of Haryana VAT Rules was challenged on the premise that levy of VAT on value of land was ultra vires the powers of State Legislature.

Earlier in the Haryana VAT Rules 2003, Rule 25 only provides for deduction on account of labour and other service charges in case of works contractor, and no deduction was available to the developer/builders of Haryana on account of cost of land.

However, on 23rd July, vide notification no. 19/ST-1/H.A.6/2003/S.60/2015, HVAT amendment rules have been issued, and rule 25 has been amended thoroughly. These rules have come up with a retrospective effect from 17/05/2010.

Vide these amended rules, it has been made clear that in case of builder/developer, where land is also transferred along with other property in goods, the deduction of 25% (in case books are not maintained, standard deduction is allowed in place of deducing the actual values of service portion) shall be allowed after deducting the cost of land.

The amended rule 25, also provides methods of determining the cost of land, the summary of the same is provided herewith-

  1. Cost of land shall be highest of the following-
    • Where separate conveyance/sale deed of the land has been executed between the developer and the intended purchaser, the consideration amount of land stated in that deed; or
    • Where separate conveyance/sale deed of the land has not been executed for transfer of land between the developer and the intended purchaser and transfer of land is mentioned in the conveyance deed of the constructed unit, then the value of land in the value of composite works contract shall be determined on the basis of notified circle rates of land prevailing at the time of execution of agreement between the developer and the intended purchaser
  2. In case the cost of land is not ascertainable as above, then the same shall be calculated @ 40% of the total value of contract, in case of commercial construction and 25% in other cases.
  3. If only a part of the total area to be constructed is being transferred, the charges towards the cost of land shall be calculated on a prorate basis through the following formula:
    • Proportionate super area multiplied by Value of land as determined in this sub rule divided by Total plot area multiplied by Floor Area Ratio

For details, you may refer the Notification no. 19/ST-1/H.A.6/2003/S.60/2015.