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08 July, 2014

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1% Composition Scheme for Developers in Haryana VAT

1% Revised Composition Scheme For Developers in Haryana - Update

The much awaited draft notification on Composition scheme for Developers and Works contractors have been released by state government on 5th July, 2014. The same has followed the earlier notification increasing the WCT rate to 5% in Haryana as decided in cabinet meetings under the chairmanship of Hon’ble Chief Minister.

(Note: - This draft notification i.e. No. Web 6/H.A.6/2003/S.60/2014 dated 5th July, 2014 and contents hereunder are not effective as on as the same is a draft notification and put up for comments / objections by stakeholder)

The draft notification essentially is characterised by four broad spectrums, these are:-
a)    Insertion of Rule 2(mmmm) in the HVAT Rules which shall govern and introduce the concept of ‘Developer’ as a separate category from Works contractor
b)    Revised Composition scheme for works contractors (other than Developers) pursuant to Rule 49.
c)    New Composition scheme for Developers by insertion of new Rule 49A
d)    Amnesty for Developers i.e. the prescribed developers shall be eligible to opt for Rule 49A retrospectively from 1st April, 2007.
‘Developer’ - Rule 2(mmmm)
e)    `Developer' means a person who is engaged in and undertakes the construction of civil structures, flats, dwelling units, buildings, premises, complexes, commercial or otherwise, whether wholly or partly (either himself or through an authorized person) for sale and transfers them in pursuance of an agreement along with land or interest underlying the land to a buyer, where the value of land or interest underlying the land is included in the total consideration received or receivable;"

New Composition Scheme for Developers (Rule 49A) – Such Developer referred as Composition Developer
A)   Who can Opt this Scheme
A Developer liable to pay tax under the Act, and duly registered may pay, as an option, in lieu of tax payable by him under the Act, by way of composition a lump sum tax.
B)   Rate of Tax & Valuation
Tax shall be calculated at the compounded lump sum rate of one percent of entire aggregate amount specified in the agreement or value specified for the purpose of stamp duty, whichever is higher, in respect of the said agreement. The Developer opting for this scheme here-in-after shall be referred to as the composition developer.
(Note: - The draft notification is silent on the point of taxation)
C)   Other Modalities of the Scheme
a.    The composition developer opting for composition under this scheme, shall not purchase or receive goods from any place outside Haryana to be used in the execution of the contract at any time during the period for which the composition remains in force under this Scheme
b.    Where the goods are purchased or received in course of interstate trade and commerce or transferred from other states or imported from out of India have been used in the execution of the contract, then the composition developer shall pay the tax on their purchase price at the rate/s applicable on the sale of such goods in the State along with interest as applicable under the Act and such tax shall not be adjustable towards his composition tax liability;
c.    Composition dealer shall be treated as non-vat dealer and not eligible to claim input tax credit under section 8 of the Act;
d.    Composition dealer shall not collect any amount by way of tax under the Act;
e.    Composition dealer shall shall not issue `Tax Invoices'
f.     Composition dealer shall retain the originals of all tax invoices and all the retail invoices for all his purchases
g.    Composition dealer shall not be entitled for any refund.

D)   Tax period
The tax period for the composition developer shall be monthly and the payment of lump sum in lieu of tax shall be paid by the composition developer within 15 days of the close of the month. Provided that if a composition developer fails to make the payment of tax in time under this scheme, then he shall be liable to pay interest as per the provision of sub-section (6) of section 14 of the Act
E)   No Adjustment of amount paid to Contractors / Sub-Contractor
Where the composition developer awards any portion of his contract to a contractor or sub-contractor, such composition developer shall not be eligible for any deduction on account of any tax paid by the contractor or the sub contractor under the Act.

Amnesty for Developers
A)   Who Can Opt for and Since When?
A composition developer, whose assessment has not achieved finality, may opt for this scheme with effect    from 1st April, 2007.  
B)   Conditions for Opting
·         To Withdraw all the appeals - The composition developer shall calculate his tax liability according to the rates prescribed here-in-above on the prescribed turnover and shall meet and pay his tax liability voluntarily along with interest and apply to the concerned assessing authority declaring his intention to opt the scheme retrospectively and once the assessing authority confirms the acceptance of his option with retrospective date, the dealer shall henceforth withdraw all his appeals/revision/review/petitions pending before the appropriate authorities or courts and intimate the same to the assessing authority simultaneously.
·         Dropping of Departmental Proceedings - Proceedings initiated by the departmental authorities against such composition developer shall stand dropped, once the composition dealer makes the full payment of his lump sum tax liability as per the scheme and intimate the same with proof of payment to the authority concerned.
·         Structure of Tax Payments (75 – 25) - The composition developer shall pay at least 75% of the tax (with interest) calculated and payable by him after adjusting the tax paid earlier while exercising the option from retrospective period and the balance 25% of the tax (with interest) shall be paid within thirty days of the communication of acceptance by the assessing authority.
·         The assessing authority shall communicate the result of the retrospective option within thirty days of the receipt of the same with prior approval from a Committee comprising of the Joint Excise and Taxation Commissioner (Range) of the concerned range as Chairman, other two members being the Deputy Excise and Taxation Commissioner (ST) in-charge of the concerned district and the concerned assessing authority.

C)   Amount paid shall be forfeited on wrong / false declaration: - If it is found that the composition developer has made a wrong or false declaration or calculation, then the tax paid, if any, with the option shall stand forfeited.

About the Author:
CA Ankit Gulgulia
Author is Practicing Chartered Accountant in New Delhi/NCR and specialising in Indirect Taxes, Corporate Laws and Transfer Pricing. He can be reached at or at +91-9811653975
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