Builders Cannot Charge Labour Cess Or Work Contract Tax from Homebuyers: Haryana RERA

The Haryana Real Estate Regulatory Authority (HARERA) has recently reiterated that builders cannot recover labour cess or work contract tax from homebuyers. The authority also directed Ocean Seven Buildtech Pvt. Ltd. to pay interest to buyers for the delay in handing over flats in its Expressway Towers project in Sector 109, Gurugram.

Chairman Arun Kumar observed that such charges cannot be passed on to buyers. “The allottee is neither an employer nor a contractor, and labour cess is not a tax but a fee. Thus, the demand of labour cess is completely arbitrary, and the complainant cannot be made liable to pay any labour cess,” the authority said.

"The respondent shall not charge labour cess as well as work contract tax from the complainant-allottee," it added.

The order was passed while deciding four complaints filed by homebuyers seeking possession and delay compensation.

The buyers had booked flats in the affordable housing project for a total sale consideration of about Rs 26.26 lakh to Rs 26.29 lakh. Apartment Buyer's Agreements were executed with three buyers between 2017 and 2019. No agreement was executed in one case.

The buyers alleged that the developer delayed possession and demanded additional amounts, citing increased construction costs. They refused to pay the additional demand and approached the authority.

Under Clause 1(iv) of the Affordable Housing Policy, 2013, such projects are required to be completed within four years from the date of approval of building plans or the grant of environmental clearance, whichever is later. In the present case, environmental clearance for the project was granted on November 30, 2017. The authority therefore held that the due date for handing over possession would fall on May 30, 2022, after factoring in the six-month extension granted by the state during the Covid-19 period.

The authority noted that the developer had not handed over possession within this stipulated timeline.

It accordingly directed the builder to pay interest at 10.80% per annum on the amounts paid by the allottees from May 30, 2022 until a valid offer of possession is made, plus two months after obtaining the occupation certificate or actual handing over of possession, whichever occurs earlier.

The authority also directed the builder to hand over possession of the flats and execute the conveyance deeds in favour of the buyers within three months after obtaining the occupation certificate.

On the issue of other charges, HARERA clarified that labour cess cannot be recovered from homebuyers. It further held that work contract tax is not applicable to allottees.

The authority also observed that VAT, where it is legally payable, may be recovered only on an actual and pro-rata basis, and only with supporting proof of payment.

With regard to power backup and related charges, the authority said such charges may be recovered only on the basis of actual consumption, in line with the DTCP office order dated January 31, 2024.

HARERA further observed that any benefit arising from a reduction in tax or from input tax credit under Section 171 of the CGST and HGST Acts must be passed on to buyers.