MVAT ACT 2002 and its Implementation in Maharashtra
The few harsh (?) provisions under MVAT Act 2002 and illegal (?) treatment of State Government of Maharashtra in its Implementation
In this article we will discuss this topic without prejudice.
Penalty provision of Rs.5000/- u/s. 29(8)-
Basic Provision :-Where, any person or dealer has failed to file within the prescribed time, a return for any period as provided in section 20, the Commissioner shall impose on him, a sum of rupees five thousand by way of penalty. Such penalty shall be without prejudice to any other penalty which may be imposed under this Act.
Steps of illegal implementation: - The State Government had issued thousands of notices to the dealers and levied automatic penalty of Rs.5000/- for non-filing of returns by the dealer in prescribed time. No reason was called for late filing. No opportunity was given for the dealer to be heard which is the principle condition before levy of any penalty. Automatic penalty was levied and orders were issued. Recovery proceedings were expedited.
Legal Interpretation by court: - Many aggrieved dealers filed writ petitions in the Bombay High Court in many cases. In the case of Sanjay Dresses v/s. State of Maharashtra: Writ petition No. 1705/2010 decided on 06-10-2010 and Vasu Enterprises Prop. Mukesh R Bhayani v/s. State of Maharashtra: writ petition no. 1451/2011 decided in Bombay High Court the State Government itself accepted the facts that the show cause notice should be given to the dealer. The dealer will be given an opportunity to be heard and then after a reasoned order will be made to levy the said penalty,
Once the department itself accepted above facts the court had given immunity to the dealers.
The department reaction on Court view: - The state government of Maharashtra is very smart. It had frozen the said harsh provision and introduced the same as mandatory late fee of Rs.5000/- to be paid before filing the e-returns which had not been filed in time by the dealer. Also the late fee payment is automatic. Without which the e return will not be uploaded.
Recovery of taxes of input credit from innocent dealerís sec.48 (5).
a. Basic Provision:- For the removal of doubt it is hereby declared that, in no case the amount of set-off or refund on any purchase of goods shall exceed the amount of tax in respect of the same goods, actually paid, if any, under this Act or any earlier law, into the Government treasury except to the extent where purchase tax is payable by the claimant dealer on the purchase of the said goods effected by him :
Provided that, where tax levied or leviable under this Act or any earlier law is deferred or is deferrable under any Package Scheme of Incentives implemented by the State Government, then the tax shall be deemed to have been received in the Government Treasury for the purposes of this sub-section.
b. Steps of illegal implementation: - The State of Maharashtra raided the accused dealers and took their affidavits about non-filing of returns and non-payment of collected taxes. Then they displayed the list of such accused dealers a number of times. Good step. However there after the department had scrutinized the returns of those dealers who had made purchases from those accused dealers and the department forced those innocent dealers who may or may not be aware of the fact that those dealers from whom they made purchases are bogus and irrespective of the fact that those bogus dealers were holding valid RC while making the sales to those innocent dealers. The department forced the innocent dealers, who had already paid the VAT to such bogus dealers, again to make payment of those VAT which are not paid by the accused dealer to the treasury and not filed the returns.
Also asked the innocent dealers to prove the genuineness of all such purchases which could not be called in normal course of business under the principle of calling for source of source. Also the department forced the innocent dealers to pay the VAT with interest and penalty u/s. 29 and accept the liabilities twice by filing the e-returns. Even prosecution steps were also taken against those innocent dealers.
No cross examination of accused dealer was made available to the innocent dealers in the principle of natural justice.
c. Legal interpretation by court:- Many aggrieved dealers filed writ petition to Bombay High Court. The Bombay High Court decided in the case of Mahalaxmi Cotton Jinning Mills v/s. State of Maharashtra & others: Writ petition no. 33/2012 decided on 11/05/2012 and some other cases that the dealers who claimed input credit of VAT had to prove the genuineness of those purchases.
But the department was directed to use its own machinery to recover those dues of bogus dealers from themselves only in place of harming the innocent dealers. And to return the payment of VAT made by the dealers against the disallowance of input credit from the purchases made from bogus dealers proportionately from the recovery of the vat from accused dealers.
d. The department's reaction on the courts view: - The State Government of Maharashtra is wise as usual. It did not react on the decision of the court. It is not made known to the dealers in Maharashtra about what recovery measures have been taken to recover the vat from accused dealers. How much amount had been recovered from those accused dealers? How much amount of those recovered from accused dealer have been apportioned and paid back to the innocent dealer. No information of any kind about this had be displayed on the mahavat site. On the contrary the department issue the circular no. 8T of 2012 dated 21/06/2012 about the implementation of the denial provision about the input vat credit to the dealers.
VAT on Builders and Developers
a. Basic Provision:-
Definition of sales sec2 (24) saleî means a sale of goods made within the State for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge; and the words ìsellî, ìbuyî and ìpurchaseî, with all their grammatical variations and cognate expressions, shall be construed accordingly;
Explanation- For the purposes of this clause,-
(a) a sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in section 4 of the Central Sales Tax Act, 1956 (74 of 1956);
(b) (i) the transfer of property in any goods, otherwise than in pursuance of a contract, for cash, deferred payment or other valuable consideration;
(ii) the transfer of property in goods (whether as goods or in some other form) involved in the execution of a 13[14[works contract including], an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property;]
(iii) a delivery of goods on hire-purchase or any system of payment by installments;
iv) the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(v) the supply of goods by any association or body of persons incorporated or not, to a member thereof for cash, deferred payment or other valuable consideration;
(vi) the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating),where such supply or service is made or given for cash, deferred payment or other valuable consideration;
15[(vii) * * *]
shall be deemed to be a sale.
b. Steps of illegal implementation: - After the decision of K. Raheja decision of 2006 the state of government of Maharashtra made changes in the definition of sales under MVAT Act to bring the developers and builders in to the net of vat regime. The government had made such provision that if a person books a flat from the builders or developer he is entering into a contract with the developer & builder under works contract. Accordingly the developer or builder will recover vat from the flat purchaser and pay into the state government treasury. Irrespective of the fact that the developer of builder is ultimately selling a flat which is an immovable asset to the purchaser. And according to the constitution of India articles, no immovable property can be taxed by any state government. However in case if a purchaser buys a flat after completion from the builder or developer, no tax will be levied since it is a sale of immovable property. Meanwhile the state government had issued a notification and gave 1% composition tax rate for builders and developers from 01/04/2010.
c. Legal interpretation by court: - After the decision of K. Raheja the state of government of Maharashtra was very much alert to implement those provisions to tax the builders and developers at the booking stage under works contract tax irrespective of the fact that ultimately it is a sale of immovable property. The issue of taxation of builders was discussed in many cases throughout India from time to time till date and all those decisions have been tagged together at Supreme Court larger bench for final interpretation. Those pending decisions are of K. Raheja v/s. State of Karnataka: (2005) 141 STC 298 (SC). And L & T ltd. v/s. State of Karnataka: (2008) 17 VST. 460 (SC) and Maharashtra Chambers of Housing Industries (MCHI): Writ petition no. 2022 of 2007Development Corporation.
The important decision of vat on builders and developers are as follows-
1. Maharashtra Chambers of Housing Industries (MCHI): Writ petition no. 2022 of 2007 Development Corporation.
2. K. Raheja v/s. State of Karnataka: (2005) 141 STC 298 (SC).
3. Gannon and Dunkerly v/s. State of Rajasthan: (1993) 88 STC 204 (SC)
4. Builders Association of India v/s. Union of India: (1989) 73 STC 370. (SC).
5. Builders Association of India v/s. State of Karnataka: (1993) 88 STC 248(SC).
6. Association Reality Pvt. Ltd. v/s. State of U.P.: (2007) 8 VST 738 (SC).
7. Larson & Toubro Ltd. v/s. State of Karnataka: (2008) 17 VST 460 (SC).
Meanwhile Bombay High Court upheld the move of state government of Maharashtra to levy tax on builders and developers in the decision of Maharashtra Chambers of Housing Industries (MCHI): Writ petition no. 2022 of 2007 Development Corporation. Irrespective of the fact that the taxation of vat by state to builders and developers is still pending at the larger bench of Supreme Court for decision and the law of Supreme Court is law of land and binding on all lower courts.
d. The departments reaction on the Court view:- The state government of Maharashtra was very much pleased with Bombay High Court decision in the case of Maharashtra Chambers of Housing Industries (MCHI): Writ petition no. 2022 of 2007 Development Corporation. The State Government immediately issued a circular 14T dated 06/08/2012 without giving sufficient time and ignoring the 3 holidays in between (which did not give the minimum required time of 7 days to implement any circular as is normally required) and asked all the builders and developers to get registered under MVAT before 16th Aug 2012 and pay all the taxes from 20/06/2006 till date with interest and penalty before 31/08/2012 and then only they can be granted administrative relief for predated registration and to avail input credit of cement, steel and building material used in construction activity. The state government did not look into the fact that the issue, whether the developers or builders are to be taxed under vat regime, is yet to be decided in the Supreme Court larger bench. And the Bombay High Court decision of Maharashtra Housing had also been admitted and tagged by the Supreme Court for final decision with K. Raheja and L & T decision of similar issue. Thereupon, again the builders and developers challenged the circular T-14 at Supreme Court. The Supreme Court stayed the circular 14Tby its interim order dated 23/08/2012 that the builders or developers will get registered up to 16th Oct 2012 under MVAT Act and will pay the arrears of vat till 31st Oct 2012. No interest and penalty is required to be paid till date. The state of government will keep all those vat payment in a separate account till the final decision of larger bench of Supreme Court. No corrosive steps will be taken against the builder or developer till date. The state government will return the vat amount paid by the builders and developers with interest, if the decision of larger bench of Supreme Court goes in favor of builders and developers any time in future. Let us hope that the state government will obey at least this interim relief given by Hon. Supreme Court.
Interest on Refund
a. Basic Provision:- Section 52 Where, [***], refund of any tax becomes due to a registered dealer, he shall, subject to rules, if any, be entitled to receive, in addition to the refund, simple interest at the prescribed rate on the amount of refund for the period commencing on the date next following the [last date at the period to which the refund relates and ending on the date of the order sanctioning the refund] or for a period of twenty four months, whichever is less. The interest shall be calculated on the amount of refund due to the registered dealer in respect of the said period after deducting therefrom the amount of penalty, sum forfeited and interest, if any, charged in respect of the said period and also the amount of refund, if any, [adjusted towards any recovery under this Act, any earlier law], or as the case may be, under the Central Sales Tax Act, 1956 (74 of 1956). If, as a result of any order passed under this Act, the amount of such refund is enhanced or reduced, as the case may be, such interest shall be enhanced or reduced accordingly. If the interest is reduced, then the amount granted in excess shall be recovered as if it is an amount payable under this Act.
[Provided that, interest under this section shall not be granted towards any [***] refund granted under section 51]
Explanation.- For the purposes of this section, where the refund of tax, whether in full or in part, includes any amount of refund on any payment of tax made after the date prescribed for making the last payment in respect of the said period, then the interest, in so far as it relates to the refund arising from such payment, shall be calculated from the date of such payment to the date of such order.
Section 51. Grant of refunds:-
(1) Where a registered dealer has in any return, fresh return or revised return shown any amount to be refundable and has not undertaken to adjust such amount against the amount due as per any [***] return in accordance with section 50, the commissioner shall, on an application made by the dealer and subject to rules, and the other provisions of this Act, grant refund of such amount to the said dealer.
[Provided that, the Commissioner may, subject to such conditions and restrictions as may be prescribed, reduce the refund and grant only part of the refund claimed in such application].
(2) [(a) The registered dealer may, after the end of the year to which the return, fresh return or revised return relates, make an application in the prescribed form for grant of refund of the amount claimed refundable as aforesaid. The Commissioner may, [on receipt of the application] call for such additional information from the dealer, as he may think necessary. The refunds relating to all the periods contained in one year may be granted by a single order.]
[(b) **********] Provided that, the said dealer may apply in the prescribed form to the Commissioner at any time after the end of the year to which the refund relates for grant of the said refund and the Commissioner may subject to rules including rules relating to bank guarantees grant such refund: [* * *]
(3) (a) Notwithstanding anything contained in sub-section (2), if a dealer is,
(i) an exporter within the meaning of sub-section (1) or sub-section (3) of section 5 of the Central Sales Tax Act, 1956; or
(ii) a unit specified in the Explanation to sub-section (3) of section 8 ; or
(iii) a holder of a Certificate of Entitlement under any Package Scheme of Incentives except the New Package Scheme of Incentives for [Tourism Projects 1999; or],
[ [(iv) **********]
(v) the Canteen Stores Department or the Indian Naval Canteen Services,] then he may apply in the prescribed form to the Commissioner after filing the return for grant of refund relating to the period covered by a return, fresh return or revised return.
[Explanation.- For the purposes of sub-clause (i), the expression ìexporterî shall means a registered dealer whose turnover of exports during such period as may be prescribed, is not less than such percentage of the total turnover of his sales as may be prescribed in this behalf.]
[(b) The Commissioner, on receipt of the said application, may require the dealer to furnish such bank guarantee for such amounts from such banks, for such periods and to such authorities as may be prescribed.]
[ [(4) Save as otherwise provided in this section, the Commissioner shall grant the refund under this section within eighteen months from the end of the month containing the date of the receipt of the application for refund:
Provided that, where a dealer has filed an application for refund under this section on or before the 31st March 2011, then, notwithstanding anything contained in sub-section (4) as it existed prior to the date of commencement of the Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 2011, the commissioner shall,-
(a) in respect of the periods ending on or before the 31st March 2010, grant the refund to such dealer on or before the 30th September 2011, and
(b) in respect of the periods beginning with the 1st April 2010 and ending on the 31st March 2011, grant the refund to such dealer on or before the 30th June 2012.]
(5) Notwithstanding anything contained in this section, if the dealer has furnished a bank guarantee for such amount, from such bank, for such period and to such authority as may be prescribed, the Commissioner shall grant the refund due under sub-section (2) or (3), within one month of the furnishing of the bank guarantee, irrespective of whether the additional information has been furnished or not.]
(6) (a) If before the grant of refund under this section, a notice for assessment covering the period to which the return relates is issued or if any proceedings under sub-section (3) or sub-section (4) of section 64 are initiated in respect of the period to which the return relates, then,
(i) if the dealer has not furnished a bank guarantee then no refund under this section shall be granted; and
(ii) if the dealer has furnished a bank guarantee then an amount equal to the guaranteed amount shall be refunded.
(c) If it is found as a result of any order passed under this Act that the refund granted under this section is in excess of the refund, if any, determined as per the said order, then the excess amount shall be recovered as if it is an amount of tax due from the dealer and the dealer shall be liable to pay simple interest at the prescribed rate per month or part thereof from the date of the grant of refund.
(7) No refund under this section shall be granted unless an application as provided is made and no application under this section shall be entertained unless it is made within [eighteen months] from the end of the year containing the period to which the return relates.]
b. Steps of illegal implementation: - The state government of Maharashtra has made such provisions in section 51 and 52 of MVAT Act 2002 that the dealers will be only eligible for interest on refund if only assessment is made. No interest will be given on any refund under any desk audit, business audit or refund audit.
c. Legal interpretation: - So for no dealer have challenged these illegal provisions in any court of law. In fact any audit or assessment u/s 22 or 23 or 24 of MVAT Act or assessment is the procedure to determine the tax liability of the dealer ultimately. Only different sections as above have been given. In case any result of any of above audit or assessment turns in refund it should be coupled with interest in the principle of natural justice. At least the large industrialist who are receiving sizable amount of refund should challenge those provisions of interest on refund and it may be prayed for sure that the court will decide the issue on merits.
d. Departments reaction on court view:- Since no body had challenged these illegal provisions of interest on refund in any court of law, the state government also kept mouth shut by utilizing the interest free refunds of dealers over periods to come and come. Why should government worry to issue those genuine refunds so early?
Purchase Tax on certain items
a. Basic Provision:-
Section 6A (1) :- There shall be levied a purchase tax on the turnover of purchases of cotton purchased, directly or through a commission agent, from a person who is not a dealer or a dealer who is not a registered dealer if,- a. The cotton so purchased are dispatched outside state, to any place within India, not by reason of sale, to his own place of business or of his agent; or b. The cotton so purchased are used in manufacture of- i. tax free goods; or ii. Taxable goods, and the goods so manufactured are dispatched outside the state, to any place within India, not by reason of sale, to his own place of business or of his agent.
(2) The rate of purchase tax shall be equal to the rate of sale tax set out against the aforesaid goods in SCHEDULE Cíí.
Section 6B. (1). There shall be levied a purchase tax on the turnover of purchases of oilseeds purchased, directly or through a commission agent, from a person who is not a dealer or a dealer who is not a registered dealer, if-
a. The oil seeds so purchased are dispatched outside the state, to any place within India, not by reason of sale, to his own place of business or of his agent; or,
b. The oil seeds so purchased are used in manufacture of- i. Tax free goods; or ii. Taxable goods, and the goods so manufactured are dispatched outside the state, to any place within India, not by reason of sale, to his own place of business or of his agent.
(2) The rate of purchase tax shall be equal to the rate of sales tax set out against the aforesaid goods in SCHEDULE Cíí.
b. Steps of illegal implementation: - In the state of Maharashtra, since independence of India the Bombay Sales Tax was in force. In the year 01/10/1995 the state government decided to introduce VAT on certain products. Thereupon full-fledged MVAT Act 2002 was designed in the year 2002 but it was implemented on and from 1st April 2005 in place of BST Act. VAT means to pay sales tax on every value addition made by each dealer at each stage. Therefore, to tax on purchases was not required to be introduced. However, the state government is very wise as usual to levy taxes and target the innocent dealers. Accordingly a experimental concept introduced of taxation or purchases of cotton and oil seeds items. By doing this the government have re-introduced the old BST provisions, old wine in new bottle.
c. Legal interpretation in court of law:- Since this provision is very recent and it is against the concept and taxation of value addition under MVAT Act a time will come when it will also be required to be challenged. Otherwise a day will come when the state government will introduce the said purchase tax on all commodities and indirectly will club the BST Act and MVAT Act together.
d. Departmental reaction on court view:- Since no legal friction had been created yet in any court of law the government is literally free to make any twist and changes in the MVAT Act as per its sweet will and wims.
However it is now required for each individual staying in the state of Maharashtra that the state government implementation of corrosive provisions must be agitated at every stage.
Because from the all above facts it is clear that justice is still remained in India. Let us hope so for the best.
Otherwise every lay man staying in Maharashtra will be targeted and we could not say anything other than