by abhishek jain according to a recent verdict by the supreme court the sale of a property that is under construction would be liable to valueadded tax vat the ruling could have farreaching ramifications for the real estate industry as well as property buyers in the case of lt versus state of karnataka the apex court held that the preconstruction agreements for sale of immovable property would qualify as works contract and therefore vat would be payable on the transaction it is likely that the judgement will push the states vat authorities to tax all transactions for properties that are under construction this could also include the real estate transactions concluded in the past few years the judgement was pronounced by a larger bench of the supreme court so the verdict shall be considered the law of the land until it is overruled by a constitutional bench of the apex court though the case related to real estate operations in the southern and western parts of the country the principles enunciated in this judgement are likely to impact the real estate industry throughout the country which in turn would result in higher prices of property it is pertinent to note that this judge ment is merely an interpretation of an existing law so its applicability is likely to be with retrospective effect the state vat authorities may cash in on this opportunity and demand tax dues on past transactions from real estate players by invoking the extended period of limitation while it is not possible to quantify the exact impact of judgement on the real estate industry if implemented with retrospective effect the demand for tax and interest is likely to run into thousands of crores of rupees buy constructed property what this also means is that buyers may be better off purchasing fully constructed property compared with the one under construction till now constructed property has attracted only stamp duty while the one under construction has also invited service tax now the latter will also be subject to vat it would be interesting to see how developers recover the vat and interest from buyers especially for past transactions while the robust contractual documents signed at the time of sale may empower the developer to recover the additional burden of vat from the flat buyer it may not be easy to recover the amount from the buyer if the possession has been handed over there may also be cases where the original buyer has sold the flat to someone else and moved to another location tracking down such buyers will be an additional difficulty besides the valuation itself will be a challenge the supreme court has specifically held that only goods incorporated by the developer after entering into an agreement to sell the immovable property under construction would be subject to the vat levy it will not be easy to compute vat on such a transaction this spells more trouble for an industry reeling from the slowdown in sales rising