j b nagar cpe scm of wirc of icai recent amendments in mvat, setoff, vat on builders by ca deepak...

J B Nagar CPE SCM of WIRC of ICAI Recent Amendments in MVAT, Setoff, Vat

on Buildersby

CA Deepak ThakkarSenior Partner

PHD & Associates, CAsMumbai

10 April 2013

4 May 2013 1CA Deepak Thakkar

PHD & Associates

“Mah. Tax Laws (Levy & Amendment) Act 2013”

vide Mah. Act # 8 of 2013 dt 20 Apr 2013 (passing L.A. Bill # 11 of 2013 dt 5 Apr 2013)

available on website on 4 May 2013

Effective date: As notified by State Govt.

& different dates may be appointed for different provisions;

Sec. 2 to 13 & 15 i.e. all sections wef 1 May 2013 &

Sec. 14 reg Sch. A-34(b) qua ‘milk..’ wef 1 Apr 2005

CA Deepak Thakkar PHD & Associates 24 May 2013

Mah. Act # 8 of 2013 wef 1 May 2013: ReturnsSr.# Section

reference & effective date

Gist of amendment Remark / Issue

1 Sec. 20(4)(b) & (c) amended from 1 May 2013

If any discrepancy is pointed out (b) in Vat Audit Report or ( c) in business audit, then instead of revising return for a particular period, dealer may file a single revised return for entire year

*‘Revision only once’ continue;

Identifying transaction & period…not reqd; Saving in interest payability; Int from 21 Apr or 15 Jan or 15 Feb?; Non

2 Sec. 20(6) amended from 1 May 2013

Late fee of Rs. 5000 is payable in case of late filing of VAT & CST Returns. Whole or part of such late fee can be waived, prospectively or retrospectively, under certain circumstances, issuing Notification

Builders & Developers; Retrospective amendments; Late Regn granted by Dept then?


Mah. Act # 8 of 2013 wef 1 May 2013 : Assessment

Sr.#

Section reference & effective date


3 Sec. 23(1) first proviso amended from 1 May 2013

If a Registered dealer fails to file return, for any period, within prescribed time then the Commissioner may pass an assessment order to the best of his judgment without issuing any notice. Such ex-parte assessment order shall stand cancelled (automatically) as soon as the dealer files return for the said default period;

Dealer shall not apply for cancellation of such unilateral ex-parte assessment order; Dept may assess again under any other provision


Mah. Act # 8 of 2013 wef 1 May 2013 : Tax PaymentSr.# Section

reference & effective date


4 Sec. 32A inserted wef 1 May 2013

Tax liability finally pointed by Vat Auditor and which is accepted by the dealer, either fully or partly, will be recovered by serving a demand notice.Such payment is required to be made within 30 days from the date of service of notice by the Commissioner;On such tax payable, interest is also payable as provided u/s 30(2) from 21 Apr or 15 Jan or 15 Feb or dt of receipt of notice?;

Expln: The dues of Rs. 100 or less shall not be recovered by Commissioner; This applies to Sec. 32 & 32A, i.e. such dues may be as per return / order / audit report


Mah. Act # 8 of 2013 wef 1 May 2013 : Exemptions

Sr.#



5 Sec. 41(5) amended from 1 May 2013

Scheme of Taxation of Liquor:

Notification # VAT 1511/ CR 57/

Tax-1 dt 30 Apr 2011 issued u/s

41(5) to grant Exemption to

Specified Registered Dealer of

tax on sales of Liquor, subject to

conditions notified:

Sale of ‘wine’ also may be

taxed in the lines of ‘liquor’;

Notification awaited;

Presently ‘Wine’ covered by Sch. D-3A taxed @20% as per Vat system i.e. pay vat on sales & claim setoff on its purchases;Post amendment wine & liquor may get same tax treatment;


Mah. Act # 8 of 2013 wef 1 May 2013 : C/f of Refund

Sr.#



6 Sec. 50(2); ‘Proviso’ added from 1 May 2013

Refund of Rs. 5 lakhs or less, in a year, for the period from 1 Apr 2012, may be, carried forward to immediate succeeding year for adjustment against dues payable. If in next year there is refund then? Default in appln 501?

Presently, refund of Rs. 1 lakh or less, is permitted to be carried forward to the subsequent year, by issuance of a Trade Circular, every year.


Mah. Act # 8 of 2013 wef 1 May 2013 : Early RefundSr.#



7 Sec. 51(3)(a)(iii) amended from 1 May 2013

Mega Units holding Identification Certificate under Package Scheme of Incentives 2001 & 2007, entitled to apply for refund soon after filing return / revised return

8 Sec. 51(3)(a)(vi) inserted from 1 May 2013

Dealer, whose Interstate Sales turnover in previous year is in excess of 50% of his total turnover, entitled to apply for refund soon after filing return / revised return

Such provision in clause (iv) prevailed till 1 May 2011;Refund appln for PY or CY? Or both?


Mah. Act # 8 of 2013 wef 1 May 2013 : Authorised Representative for MVAT Proceedings

Sr.#



9 Sec. 82(1)(b) amended from 1 May 2013

‘Company Secretary’ eligible to appear before any authority, including the Tribunal

Hitherto, relative / employee / CA / STP / legal practitioner / Cost Accountant are eligible; LA reqd. for each proceeding


Mah. Act # 8 of 2013 wef 1 May 2013; Sch.Entry

Sr.#

Schedule Entry & effective date

Existing Entry Amendment / Remark / Issue

10 Clause (b) of Sch. Entry A-34 substituted, retrospectively from 1 April 2005

Milk, i.e. animal milk in liquid form is taxfree;If served for consumption then taxable;Condensed milk is taxable;Milk containing any ingredient & sold under a brand name is taxable

If milk contains milk fat, milk powder or solid non fat then also it is taxfree, since 1 Apr 2005


Mah. Act # 8 of 2013 wef 1 May 2013 : Definitions

Sr.#



11 Sec. 2(15A) amended from 1 May 2013

Definition of ‘Motor Spirit’ u/s 2(15A):means HSD oil, ATF Duty paid & Bonded, Aviation Gasoline Duty paid & Bonded and Petrol and other notified products

*The word ‘and’ has been substituted for ‘or’; Technical amendment

Other products may be notified in future.

Notification No. VAT 1506/CR-135/Tax 1 Dt. 30 Nov 2006 amended on 15 Mar 2007 already covered the same for tax reduction for Oil Companies and exemption for petrol pumps, issued u/s 41(4).


Mah. Act # 8 of 2013 wef 1 May 2013 : Definitions

Sr.#



12 Sec. 2(17A) amended from 1 May 2013

Definition of ‘Petroleum Products’ u/s 2(17A):means superior kerosene oil(SKO), LPG, furnace oil, LDO, Naptha and LSHS and other notified products.

*The word ‘and’ has been substituted for ‘or’ ; Technical amendment

Other products may be notified in future.

Negative set off rule 54(b): No set off on motor spirits unless resold/interstate sale or stock transfer/ Exports[ Setoff granted on HSD Oil in Gupta Metallics & Power Ltd. Vat Appeal # 55 & 56 of 2010 dt 21 Dec 2010 MSTT]


Notfn No. VAT 1513/CR 46(1 to 6)/ Taxn1 dt. 30 Mar 2013 effective from 1 April 2013: Goods made Taxfree or tax free period extended


Schedule Entry

Goods Description Rate upto 31 Mar 13

Rate wef 1 Apr 13

Remark/ condition

A-2 Braille Watches (components & Parts thereof already specified in Sch. Entry A-2)

12.5% NIL Notification of aids & implements used by Handicapped persons expanded

A-4 (C)

Rice Bran 5% under Entry C-

49 from 1 Apr 2010

NIL Sch. Entry C-49 deleted & exclusion sub-clause (ii) from A-4 (c) removed



Schedule Entry


Rate wef 1 Apr 13

Remark/ condition

A-9A (a) Paddy, rice, wheat and pulses in whole grain, split or broken form

NIL NIL till 31 March

2014

Taxfree when sold from 1st May 2006 to 31 Mar 2014 (Exemption extended)

A-9A (b) The flour of wheat & rice including atta, maida, rawa and suji whether sold singly or in mixed form;


2014

..do..

A-9A (c) The flour of pulses including besan when sold singly and not mixed with flour of other pulses or cereals


2014

..do..


Schedule Entry


Rate wef 1 Apr 13

Remark/ condition

A-27A Hand Pumps used for pumping water

5% under Entry C-42

NIL Sch. Entry C-42 deleted which read as “Hand Pumps, Parts & Fittings” & New Entry A-27A inserted.

A-36(1) Judicial. Non-judicial stamp papers, Court fee stamps when sold by Govt. Treasuries or Authorised Vendors

Non-judicial stamp paper when sold

by Govt. Treasuries were taxfree u/e A-36

NIL Sch. Entry A-36 substituted & recasted from 1 April 2013

A-36(2) Postal items like envelopes, post cards, etc. when sold by Govt.

NIL u/e A-36 NIL ..do..

A-36(3) Philatelic material such as Postal Stamps, Postal Envelop, Postal Stationery, Pigeonogram, Rocketgram and First Day Cover.

5% u/e C-76 as Printed Material

NIL ..do..



Schedule Entry


Rate wef 1 Apr 13

Remark/ condition

A-51 (i) Papad except when served for consumption

NIL NIL till 31 March 2014

Taxfree when sold from 1st May 2006 to 31st March

2014 (Exemption extended)

A-51 (ii) Gur NIL NIL till 31 March 2014

..do..

A-51 iii) Chillies, turmeric and tamarind whole, powdered or separated but excluding Chilly seed and tamarind seed when sold in separated form;


..do..



Schedule Entry


Rate wef 1 Apr 13

Remark/ condition

A-51 iv) Coriander seeds, Fenugreek and Parsley (Suva) whole or powdered;


Taxfree when sold from 1st May 2006 to 31st March


A-51 v) Coconut in shell and separated kernel of coconut, other than copra


..do..

A-51 vi) Solapuri chaddars; NIL NIL till 31 March 2014

..do..

A-51 vii) Towels; NIL NIL till 31 March 2014

..do..

A-51 viii) Wet dates, NIL NIL till 31 March 2014

..do..

Notfn No. VAT 1513/CR 46(1 to 6)/ Taxn1 dt. 30 Mar 2013 effective from 1 April 2013:Goods made Taxfree or tax free period extended


Schedule Entry


Rate wef 1 Apr 13

Remark/ condition

A-59 Raisins & Currants NIL NIL till 31 March

2014

Taxfree when sold from 1 June 2010 to 31 March


A-62 Water Meters sold to local bodies

12.5% NIL Water meters sold to other persons still taxable @ 12.5%



Schedule Entry


Rate wef 1 Apr 13

Remark/ condition

B-1 Articles made of Precious Metals of fineness 50% or more, whether or not containing Diamond, Pearls, Precious Stones, … (i.e. Jewellery & articles of precious metal)

1% 1.10% upto 31 March 2014

(a) Rate enhanced only for 2013-14; (b) Embroidery or Zari material u/e. C-105; Industrial goods & tools u/e. C-53A taxable @ 5%

B-2 Gold, Silver, Platinum, Osmium, Palladium, Rhodium, Ruthenium, and alloys thereof

1% 1.10% upto 31 March 2014

(a) Rate enhanced only for 2013-14;

B-3 Diamonds

(Notfn No. VAT 1513/CR 46(7)/ Taxn1 dt. 4 April 2013

1% 1.10% upto 31 March 2014

(a) Rate enhanced only for 2013-14;

(b) Pearls, precious stones… continue @ 1% u/e. B-3

(c) Imitation Jewellery, beads, hairpins & its parts & components continue@ 1% u/e B-4

Notfn No. VAT 1513/CR 46(1 to 6)/ Taxn1 dt. 30 Mar 2013 effective from 1 April 2013: Goods whose tax rates have been increased


Schedule Entry


Rate wef 1 Apr 13

Remark/ condition

C- 108(1) (b)

Tea in leaf or powder form including instant tea.

5% from 1 Apr 2010

to 31 Mar 2013

5% upto 31 Mar 2014

(a) 5% continued for 1 more year;

(b) coffee beans & seeds, cocoa pod, green tea leaf and chicory continue @5% u/e. C-23

C-31A Excavators covered under CETH 8429 5200 & are not liable for Registration under the Motor Vehicles Act, 1988

12.5% 5% New Sch. Entry C-31A inserted

C-53A Industrial goods & tools made of Diamond, Gold, Silver, Platinum, Osmium, Palladium, Rhodium, Ruthenium, and alloys thereof, if any

1% u/e B-1 5% New Sch. Entry C-53A inserted

Notfn No. VAT 1513/CR 46(1 to 6)/ Taxn1 dt. 30 Mar 2013 effective from 1 April 2013: Goods whose tax rates have been maintained / reduced / increased

Notfn No. VAT 1513/CR 46(1 to 6)/ Taxn1 dt. 30 Mar 2013 effective from 1 April 2013: Goods whose tax rates have been maintained / reduced / increased


Sch. Entry


Rate wef 1 Apr 13

Remark/ condition

C-101(a) “Textile articles for industrial use” specified in Entry 9 of Notification which are covered by CETH 5901, 5902 & 5903

5% on Certain Notified products covered by CETH 5802, 5804, 5806, 5905 & 5906

5% on certain products inserted from 1 Apr 2013

It covers coated textile fabrics , tyre cord fabric, etc…. Refer Notification;

C-101(b) Varieties of textile & textile articles as notified is expanded & also modified w.r.t. CETH 5901, 5902, 5903, 5907

5% on Certain Notified products covered by CETH 5309 to 6006

5% Notfn No. CST1413/CR 48/ Taxation 1 dt 30 March 2013 exempts Interstate Sale of Furnishing fabric to dealer or non-dealer… (Form ‘C’ not needed? Budget Speech vs Sec. 8(5) of CST Act)

C-107(8) Automated Implantable Cardiac Defibrillators (AICD) added in the list of notified medical devices & implants.

12.5% 5% Notification listing 39 entries, added 40th Entry


Schedule Entry


Rate wef 1 Apr 13

Remark/ condition

E-1 Unmanufactured tobacco whether sold under brand name or not

NIL u/e A-45A

12.5% CETH 2401 covers such products; Sch. Entry A-45A deleted & D-12 substituted from 1 Apr 13

E-1 Beedi 5% u/e. C-12(b)

12.5% Beedi leaves continue @ 5% u/e C-12(a)

D-14 Cigar & Cigarettes 20% u/e D-12

25% Sch. Entry D-12 recasted & D-14 inserted.

D-12 Tobacco, manufactured tobacco and products thereof (other than Beedi, unmanufactured tobacco, Cigar & Cigarettes)

20% 20% No change



Schedule Entry


Rate wef 1 Apr 13

Remark/ condition

E-1 Powders, tablets, cubes, crystals and other solids or liquids from which non- alcoholic beverages & soups are prepared

5% u/e.C-107(11)(g)

12.5% Processed, semi-processed or semi-cooked fruits and vegetablesincluding fruit jams, jelly, pickle, sauce, porridge, marmalade, cottagecheese (paneer), honey, preserved fruits, fruit squash, fruit paste, fruit drink, fruit juice, vegetable juice, squashes, syrups, cordials, whether or not sold in frozen state or in sealed container continue @5% u/e. C-107(11)(e) (if served for consumption then @12.5%)



Schedule Entry


Rate wef 1 Apr 13

Remark/ condition

E-1 Paver blocks 5% u/e. C-3 12.5% Bricks & roofing tiles continue @ 5% u/e. C-

3

E-1 Medicinal products capable of being used as Cosmetics or Shampoos

5% u/e C-29(a)

12.5% Mosquito repellents continue @ 12.5%; Drugs continue @ 5% u/e. C-29(a)

Section 42 for Composition Scheme

Dealers in second hand motor vehicle eligible for composition scheme, expanded to include ‘Tractors’

Composition @ 12.5% on 15% of Sale

Price of Vehicle.

Dealer shall apply in Form-5 & be certified by J.C. of ST; to fulfil all conditions of Notification


Tax Invoice for claim of Setoff on Purchases (Sec. 86)

‘Tax Invoice’ is must to claim setoff;

Parameters of Tax Invoice:

1. Words “TAX INVOICE” in bold at the top or prominent place

2. Tax Invoice Number & Date.

3. Seller’s Name, Address, VAT TIN # (Effective Date)

4. Buyer’s Name & Address: VAT TIN # must from 1 May 2010

5. Goods Description, Quantity, Rate & Net Amount.

6. ‘Tax’ amount must be shown separately.

7. Certificate of continuing RC, as prescribed u/r. 55.

8. Sign of Dealer / Authorized Person.

9. Preserve ‘Tax Invoice’ & Accounting records for next 8 years; and till final order passed if any proceedings initiated (Rule 68)

(earlier it was for 6 years)4 May 2013 25

CA Deepak Thakkar PHD & Associates

4 May 201326

Mahalaxmi Cotton Ginning Pressing & Oil Ind. Kolhapur & Ors vs. State of Mah. WP # 33 of 2012 dt 11 May 2012 (2012) 51 VST 1 (Bom) (Dr. D.Y. Chandrachud JJ & R.D. Dhanuka JJ)…Setoff allowability...

Supreme Court dismissed the SLP filed by Mahalaxmi Cotton(SLP (Civil) # 10081 of 2013 dt 25 Feb 2013)

Timex Art Décor Pvt. Ltd. Vs St of Mah. WP# 8898 of 2012 dt 25 Mar 2013 Dr. D.Y. Chandrachud J & AA Sayed JJ): Whether & at what stage the State should carry out

assessment of hawala dealers cannot be decided in this case; Petition dismissed

------ Issues Challenged in BHC by Petitioner/Dealer:1. Constitutional validity of setoff Sec 48(5) of MVAT Act2. If validity of Sec 48(5) upheld, then the words “actually paid”

be read down to mean “ought to have been paid”3. Challenge the Order of Assessment4. Seeking mandamus to the State to recover tax from the

vendor, of which setoff is claimed5. Consequential Orders for Setoff & Refund

CA Deepak Thakkar PHD & Associates 26

4 May 201327

Mahalaxmi Cotton Ginning Pressing & Oil Ind. Kolhapur & Ors vs. State of Mah. WP # 33 of 2012 dt 11 May 2012 (Bom) (Dr. D.Y. Chandrachud JJ & R.D. Dhanuka JJ)…Setoff allowability...

BHC’s Observations & Commitment by State:At Para 50: During hearing, Court has been informed by the State that corrective action shall be taken to allow an additional claim of setoff to a claimant dealer even where it has been initially disallowed by the Dept. following steps are being taken to promote greater transparency & efficient handling of claims for setoff:(a) At the end of each FY, Dept will reconcile data on its system & inform the Dealer about available setoff allowing claimant Dealer to seek additional claim of refund(b) During FY 2012-13, Dept shall set up a Dealer Information System (DAS) (or DIS???) & Dealer ledger account showing status of tax collected & paid on web portal to facilitate process off grant of additional claim of setoff


4 May 201328

Mahalaxmi Cotton Ginning Pressing & Oil Ind. Kolhapur & Ors vs. State of Mah. …Setoff allowability...

At Para 51: The State tendered Statement of Steps to be taken against defaulting sellers:(i) Dept will identify defaulters i.e. non payers, short payers or who did not disclose sales(ii) Setoff will be denied to purchasers where seller has defaulted by not filing return or not disclosing sales; in case of short filing, setoff will be granted pro-rata to tax paid(iii) Dept will recover tax from the Dealer who purchases from the defaulter; Dept will retain option of denying setoff & pursuing all sellers in the chain until recovery is ultimately made from any one of them(Para 51-2-d) at pg 66 & 67)


4 May 201329

Mahalaxmi Cotton ..dt 11 May 2012 (Bom)…Setoff allowability... BHC’s Observations & Commitment by State:

At Para 51(3): The State tendered Statement of Steps to be taken against defaulting sellers:(iv) Full machinery will be invoked against defaulters & after final recovery, in whole or part, refund will be given to claimants to the extent of recovery in pro-rata to all who were denied setoff, after end of FY.At Para 51(4): Dept will give refund without any application since it will reconcile tax payments & inform dealer of recovery from defaulter concerned & then grant refundAt Para 51(5): details of defaulters will be uploaded on website & purchasers who are denied setoff will be given names of concerned defaultersAt Para 51(6): The above steps do not apply to Hawala transactions, in which case no setoff will be grantedAt Para 51(7): Purchasers are not prevented from adopting such remedies as are available in Law against the defaulters


4 May 201330

Mahalaxmi Cotton ..dt 11 May 2012 (Bom)…Setoff allowability

Conclusion at Para 52: Case highlights complexity of the issue with which the Legislature & tax administrators are grappled with

BHC’s Decision at Para 53 & 54:(1) Constitutional validity of Sec 48(5) is upheld(2) Limitation period of 18 months to file Refund application u/s 51(7) is valid;

(Sachins Impex vs St of Mah. WP# 10816 of 2012 dt 22 Mar 2013 Dr. D.Y. Chandrachud J & AA Sayed JJ; Assessing Officer directed to expedite completion of assessment)

(3) Right to obtain setoff subject to prescribed conditions is lawful(4) Assurance placed before the Court by the State Revenue of the steps to

recover tax from defaulting seller; State Govt & Sales Tax Authorities shall abide by the Assurance & Statement recorded in this judgment

(5) Order of Assessment is subject to remedy of Appeal to pursue remedy available in Law

Trade Circular # 8T dt 21 June 2012: Explains matching of data of buyer & seller, confirmation about tax paid into Treasury, etc before grant of setoff / refund;

Matching Data for FY 2012-13 available online? Auditor’s duty??

CA Deepak Thakkar

PHD & Associates 30

4 May 201331

Documentary evidence to prove genuineness of purchases…

1. History & background of Buyer2. Buyer is a RD since long, filing Returns, paying

taxes & assessed regularly under BST Law & MVAT Law

3. Purchases effected in regular course of business from Supplier, either directly or through agent

4. Supplier is RD having TIN (Check on Website)5. Received goods (Challan/Stock records)6. Received “Tax Invoices” as per Law7. Purchase transaction recorded in books of A/c8. Payment made vide a/c payee cheque/payorder/

DD9. Bank statements reveal debit of such payments10. Ledger A/c of supplier reflects all transactions


4 May 201332

…Documentary evidence to prove genuineness of purchases

11. Setoff is claimed as per MVAT Law, supported by Docs; if disallowed, it means double taxation, hence invalid.

12. Under Mvat Law, no provision / machinery to ascertain payment of tax on each transaction / goods, by either supplier or supplier of supplier

13. Confirmation, Returns, Challan from Supplier, if available14. Not committed any offence under MVAT Law / IPC15. Principle to levy Vat / Tax be followed; Onus on Dept.16. Check List of suspicious dealers who has issued false bills

without delivery of goods, put up on Dept Website by DC Vigilance A-1, 8th Floor, Mazgaon, Mumbai;

Dated May 2012, giving Name & TIN of such dealers17. Obtain Certificate of Tax Clearance / Dues, for Self as well

as from Supplier (u/r 43 & 44 r/w sec. 32(8) in Form 415 & 416 on application in Form 414 of MVAT)


4 May 201333

Survey of URD (Un-Registered Dealers (Sec. 66)

1. Survey Dept given powers by Commr2. Purpose to identify URD3. General notice to a class of dealers or Special

notice to a particular dealer for furnishing data of sales or purchases

4. Commr may call for details & particulars of Services provided by Public Utilities, Banks & Financial Institutions

5. Survey results may be published such that it does not disclose identity of any particular URD

6. Survey proceedings in case of a particular URD ends at a point of knowledge that said URD is not liable for registration or he gets registration


Vat on Builders & Developers…..

Sale of Unit after completion of Construction: Not taxable

Works Contract vs Contract for Right in immovable property during

construction phase

SC ruling in K Raheja’s case under Karnataka VAT Act (5-5-

2005) 141 STC 298

Amendment to the MVAT Act – effective 20 June 2006

Trade circular No 12T of 7 February 2007: K.Raheja Decision applicable in

Maharashtra -trigger point of controversy

MCHI Challenged Constitutional validity of amendment & Circular BHC ruling in MCHI & Ors (10-4-2012) 51 VST 168 - Constitutional validity

upheld; Assessing Officer to decide taxability Determination of SP of Goods involved in Works Contract Formula under Rule 58 of MVAT Rules vs Charging Provisions Consequences of Failure of Computation Mechanism Is Rule 58 Directory or Mandatory?


….Vat on Builders & Developers…..


Cost Benefit Analysis for Construction Industry- Option to pay tax as per Vat Provisions or Composition Scheme @ 5%

Composition Sch. @ 1% on agreements regd. after 1 Apr 2010 Issues for Construction Industry post MCHI ruling by BHC –

Registration, Tax Computation, Returns, Interest, Penalty, Vat Audit, Vat TDS, Refunds, etc

Grant of Regn & Adm Relief to Developers (Trade Cir# 14T dt 6 Aug 2012); SC directed to pay Tax & extended dates till 31 Oct 2012

Trade Cir # 18T dt 26 Sept 12 clarifying non-admissibility of Cost + Profit method & filing of online Annexure – BHC uphelds Circular; Further challenged at SC?

SC LB reheard the matter in L&T & K.Raheja case in Mar 2013; Decision expected shortly; MCHI matter?

Composition Scheme for Construction Contracts


5% Scheme for new construction contracts w.e.f 20 June 2006

New Construction Contracts notified by Govt. e.g. buildings, roads, bridges, dams, etc. for tax @ 5% of total contract value

Setoff on materials available, in excess of 4% of the Purchase Price (Rule 53(4)(b))

Setoff on capital assets available subject to Rule 53(6) & Rule 53(7A)

1% Scheme for sale of flats w.e.f. 1 April 2010 Flats, dwellings, buildings or premises transferred with interest in

land vide agreements, during construction w.e.f. 1 April 2010 Benefit of this scheme can be availed only by Registered dealers for

agreements registered on or after 1 April 2010 Composition sum=1% of Agreement Value or SDV, whichever is higher,

payable upfront on registration of document No setoff All agreements registered from 1 Apr 2010 will have to be

mandatorily governed by this scheme No Tax on sale of flats, etc. after completion of construction


The tax positions discussed hereunder is without prejudice to the proposition that the tax levy may fail wholly or partially in certain circumstances discussed in previous slides

Where substantial work has been sub-contracted by a developer, the composition scheme would prove to be fatal/costly, more so, when the agreement value is higher, of the property located in developed area on account of high cost of land. Since in the composition scheme, no deduction is available for the cost of the land, it would not be preferred over value determined under Rule 58.

Where substantial work has been completed prior to sale of property, the composition scheme will be a costly affair

However, in a given case where actual liability pursuant to Rule 58 computation is significantly higher, then the composition scheme can be opted

Under Vat option, full setoff; Under Composition option, either reduced setoff or no setoff

Composition Scheme – Cost Benefit Analysis


Promotors & Builders Asso. filed SLP # 17738 & 17709 of 2012 and MCHI filed SLP (Civil) #21934 of 2012 dt 4 July 2012 before SC; Tagged with L&T (K Raheja’s) matter for LB hearing by SC!! Interim relief by SC: Regn before 16 Oct 2012 & Pay only Tax before 31 Oct 2012

Registration: Whether to obtain registration? Tax collection & Setoff: only by RD Trade Cir # 14T dt 6 Aug 2012 for Grant of ADM Relief to Developers:

Regn Application till (6 Aug) 16 Oct 2012 & attend on next day No pre-regn visit to POB of Developers & grant regn on same date Delay for regn beyond 5 yrs will not be treated as an attempt to evade tax File Returns, pay Tax for URD period & apply for ADM Relief till (31 Aug) 31

Oct 2012; JC shall grant & pass Adm Relief Order in 2 days without hearing dealer (Para 2f & 2g)

Upload all Returns alongwith tax (interest & Penalty stayed by SC) (Para 2k); Late fee Rs. 5,000 per return payable?

Compounding fee for all URD periods at Rs. 5,000 only; Normal Compounding fee Rs. 5,000 + 0.5% of Gross Sales Tax Liability arising during URD period, for each month of delay in Regn. (Office Order # IMC10.07/Adm Relief/URD/Adm-4/B-1020 dt 18 Apr 2007 (Para 2f).

Return periodicity: Quarterly (Para 2i); Return Form 233 (Para 2j)

Issues for Construction Industry, post BHC & SC ruling


Penalty for late/Non-Regn u/s 29(2A) wef 1 May 2012 @ sum = tax payable, will not be attracted (Para 2L)

Dept will initiate penal actions if regn is not obtained & returns not filed (Para 2n)

FAQ raised & replied by Dept; 16 FAQs; Booking dt (Allotment Letter) qua Agreement dt;

Tax levied when Installment due or received, whichever earlier (FAQ # 2/7/9)

Mere advances from buyers, without executing agreement for sale? Reply: “There is no tax liability”. (FAQ 13)

Method of tax payment cannot be changed till completion of a particular Project (FAQ 15); Project vs Contract??

Tax Computation: as per Vat Provisions & Composition Schemes

Returns: Option of Vat or Composition, once selected & return filed, cannot be changed by revising returns ( NCC SMC Unity (JV) Vat SA # 127 of 2010 dt 4 Feb 2012, MSTT, B-I)

Issues for Construction Industry, post SC & BHC ruling


Interest @ 1.25% p.m & Additional Interest @ 25% of addl tax payable after receipt of Intimation in Form 604 issued u/s 63(7) (FAQ#12/16)

Late Fees: Rs. 5,000 per return u/s 20(6) effective from 1 Aug 2012 Vat Audit: Penalty for late/Non-audit, u/s 61(2) @ sum = 0.1% of Total

Sales; To avoid said penalty upload Vat Audit Report for all periods upto FY 2011-12 by 30 Nov 2012 (Para 2’o’): said due date extended till 15 Jan 2013 vide Trade Circular # 1T dt. 4 Jan 2013

Vat TDS: by Contractee @ 2% if Contractor is RD, else @ 5% of Total CV (@4% upto 31 Mar 2012); Quantum of such TDS shall not exceed quantum of tax payable towards such WC (s.31(b)(i))

Refunds: To Contractor or Contractee? Online application in form e-501 within 18 mths (3 yrs, upto 30 Apr 2011) from end of relevant yr

Issues for Construction Industry, post SC & BHC ruling


Cost of land shall be determined as per Guidelines to Stamp Duty Ready Reckoner (SDRR)

Cost if zero, still deduction available? Cost, if more than value as per SDRR, allowable? SDRR Land rate given per square mtr, whether to apply directly

to area of each unit or area of plot & then to apply to each unit proportionately?

SDRR Land rate given for FSI 1:1 which shall be enhanced by 40% if TDR loaded on said land

TDR cost can be added to land cost? Corpus fund, rent, etc given to existing occupants in

redevelopment project can be added to land cost? SDRR Land rate is issued as on 1st Jan every year which is

applicable to agreements registered in that calendar year

Issues for Land Value Deduction u/r 58(1A)

CA Deepak [email protected]

022-2682 008398202 98225


j b nagar cpe scm of wirc of icai recent amendments in mvat, setoff, vat on builders by ca deepak...

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