INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
of the contract price per day/week, subject to a cap of around 5% to 10%. To ensure com - pliance with the time schedule, the owner may require the contractor to furnish a corporate 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, per - formance bank guarantees and retention pay - ments are typically sought from contractors to ensure performance. However, in cases where there is a perceived risk regarding the financial standing of the contractor, the owner may nego - tiate 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 infrastruc - ture projects developed under a PPP model. It is also common to penalise delays in perfor - mance 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 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, failing which dis -
pute resolution may be invoked by the disputing party. However, in procurement contracts involv - ing sale of goods, an unpaid seller has a lien under Indian law, on undelivered goods. Once delivered, 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 occu - pied 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 connections from the utility company. VAT has been subsumed by GST, which is pay - able on the leasing, licensing or transfer of development rights of land (at 18%), and on the transfer of under-construction property. Leasing of residential apartments for residential use is exempt from GST. 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 property. 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 8. Tax 8.1 VAT and Sales Tax
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