INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
7.4 Management of Schedule-Related Risk Time is of the essence in construction contacts, with fixed project schedules for key milestones and a tar - get completion date. The project schedule is typically subject to extension of time clauses. In case of any delay, typically delay damages are levied at a small percentage (0.1% to 0.5%) of the contract price per day/week, subject to a cap of around 5% to 10%. To ensure compliance with the time schedule, the owner may require the contractor to furnish a corpo - rate or fund-based performance guarantee. Addition - ally, retention of payments is also common, as noted above. The owner may, at the contractor’s cost, have the contract performed through a third party in case of non-performance by the contractor pursuant to the Specific Relief (Amendment) Act 2018. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance As discussed above, corporate guarantees, perfor - mance bank guarantees and retention payments are typically sought from contractors to ensure perfor - mance. However, in cases where there is a perceived risk regarding the financial standing of the contrac - tor, the owner may negotiate additional security, such as letters of credit, parent guarantees, performance bonds, escrow accounts or third-party sureties. Such additional security is typically required in large infra - structure projects developed under a PPP model. It is also common to penalise delays in performance of work by requiring the contractor to pay damages/ liquidated damages. 7.6 Liens or Encumbrances in the Event of Non-Payment Typically, contractors/designers do not have a lien on a property in the event of non-payment, but delay in payment attracts penal interest. Non-payment beyond a certain threshold of time constitutes an event of default by the owner, leading to suspension of works and termination. The contract usually provides for a mechanism to address disputed payments, fail - ing which dispute resolution may be invoked by the disputing party. However, in procurement contracts involving the sale of goods, an unpaid seller has a lien
under Indian law, on undelivered goods. Once deliv - ered, the unpaid seller has the right to sue for the price of such goods. 7.7 Requirements Before Use or Inhabitation In most states, a building comprising more than a prescribed number of floors can only be occupied after an occupancy/completion certificate has been obtained from the relevant planning authority. There are other approvals that may be required such as fire clearance certificates or permanent electricity con - nections from the utility company. VAT has been subsumed by GST, which is payable on the leasing, licensing or renting of immovable property (typically at 18%); transfer of development rights of land, and on the transfer of under-construction prop - erty. Leasing of residential apartments for residential use is exempt from GST unless the tenant is registered under the provisions of GST laws, in which case the GST will be payable by the tenant under the reverse charge mechanism. GST on transfer of under-construction property varies from 1% to 12% depending on the kind of property, with restrictions on the availability of input tax credit. GST is inapplicable on the sale of constructed prop - erty. The tax burden can be passed on to the buyer commercially. 8.2 Mitigation of Tax Liability In certain circumstances/structures, stamp duty on transfer of immovable property can be lower than typical stamp duty rates for conveyance, for instance where property is contributed by a partner into a part - nership firm. However, such structures must be indi - vidually analysed. 8.3 Municipal Taxes 8. Tax 8.1 VAT and Sales Tax Municipal taxes are calculated based on location, size, age, use and occupation of the property (self- occupied/tenanted). Sometimes, taxes are based on rents received. There are no exemptions for payment
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