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M/S Ats Infrastructre Ltd. Thru' Auth. Signatory T. Goyal v. State Of U.P. Thru' Principal Secretary, I.F.T.R. & Others - WRIT TAX No. 1749 of 2006  RD-AH 20636 (6 December 2006)
Civil Misc. Writ Petition (Tax) No. 1749 of 2006
Hon'ble Sushil Harkauli J.
Hon'ble Pankaj Mithal, J.
The basic challenge in this writ petition is to the circular dated 15th December 2005, issued by the Commissioner, Trade Tax, U.P., enclosed as Annexure 18 to this writ petition.
The basic facts are that the petitioner is a builder. He has got a land on lease from NOIDA for constructing flats for prospective purchasers referred to in the agreement as 'registrants' of the petitioner. A show cause notice has been given to the petitioner dated 30.10.2006 by the Assistant Commissioner, Trade Tax, Sector I, NOIDA, copy of which has been enclosed as Annexure 19 to this writ petition. The notice indicates that it is proposed to treat the construction of the flats being undertaken by the petitioner as 'Works Contract' because the agreement between the petitioner and its 'registrants', which have been entered into before the date of completion of the construction and which provide advance payments in instalments to the petitioner by the 'registrants'.
Apparently, following the decision of the Supreme Court in the case of K. Raheja Development Corporation Versus State of Karnataka, (2005) 5 SCC 162, the circular dated 15th December 2005 has been issued by the Commissioner, Trade Tax. The circular apparently interprets the decision of the Supreme Court correctly but there is one ambiguous part in that circular, which says that if the agreement between the builder and the prospective purchaser has been entered into before the date of completion of the construction, it will be treated as a 'work contract'.
Prima facie, the decision of the Supreme Court referred above, does not lead to the above conclusion.
As far as, we have been able to understand the decision of the Supreme Court, it will apply to cases where the construction is being done by the builder, who may be the owner of the land, "for and on behalf of" the prospective purchaser. Construction "for and on behalf of" purchaser would be a 'work contract' in view of the decision of the Supreme Court. Whether the construction is "for and on behalf of" the purchaser is basically a question of fact to be determined by the fact finding tax authorities, having regard to the totality of facts and circumstances of each individual case.
The mere fact that the agreement for sale of the flat as a completed unit has been entered into before the date of actual completion, by itself is not the conclusive factor. Further, the mere fact that the agreement between the builder and the prospective purchaser provides that if the prospective purchaser backs out and does not get the sale deed executed ultimately, the advance instalments or its part or the earnest money or security will stand forfeited is also not by itself a conclusive factor. The reason is that this kind of an agreement providing for future sale and charging advance sale consideration or charging earnest money or security could also be entered into after the completion of the construction and if such agreement entered into after the completion of construction provides for forfeiture of the earnest money or security or the advance sale consideration or its part, it would not make the transaction of 'work contract'.
Therefore, the only factor which is left and which can be said to be a conclusive factor as to whether agreement between the builder and the prospective purchaser, when entered into before the completion of the construction, and whether charging advance sale consideration or not, and whether providing for forfeiture or not will amount to a 'work contract' only if the entirety of facts show that throughout the process of construction, the title to the super-structure or its various parts at various stages of construction continues with the prospective purchaser.
If the facts and circumstances show that the title to the super-structure does not vest at all in the prospective purchaser till the super-structure is transferred by a registered sale deed to the prospective purchaser, in that event, the transaction would not be a 'work contract'. We, therefore, direct that if the petitioner submits its reply to the show cause notice dated 30.10.2006 before the assessing authority, the assessing authority will read the circular of the Trade Tax, Commissioner dated 15.12.2005 in the above light and will thereafter record reasoned findings, which may be enclosed along with the counter affidavit to be filed by the standing counsel within six weeks. The petitioner will submit its reply, if not already submitted, within two weeks from today, along with certified copy of this order.
Dated : December 6, 2006
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