INTRODUCTION

The system of Value Added Tax (VAT) has been implemented, in the State of Maharashtra, w.e.f. 1st April, 2005.

INCIDENCE AND LEVY OF TAX

As per the provisions of Maharashtra Value Added Tax Act, 2002 (MVAT), a dealer is liable to pay tax on the basis of turnover of sales within the State. The term dealer has been defined u/s. 2(8) of the Act. It includes all person or persons who buys or sells goods in the State whether for commission, remuneration or otherwise in the course of their business or in connection with or incidental to or consequential to engagement in such business. The term includes a Broker, Commission Agent, Auctioneer, Public Charitable Trusts, Clubs, Association of Persons, Departments of Union Government and State Government, Customs, Port Trusts, Railways, Insurance & Financial Corporations, Transport Corporations, Local authorities, Shipping and Construction Companies, Airlines, Advertising Agencies and also any corporation, company, body or authority, which is owned, constituted or subject to administrative control of the Central Government, any State Government or any local authority.

However an agriculturist, educational institution and transporters shall not be deemed to be a dealer (subject to fulfilment of conditions).

Dealers liable to pay Tax: – [Sec. 3]

1. The dealers, holding a valid registration certificate under the earlier laws, whose turnover of either of sales or purchases exceeds the specified limits during the financial year 2004-05, shall be deemed to be registered dealer under MVAT Act and shall, therefore be liable to pay tax w.e.f. 1st April, 2005.

2. The dealers, holding a valid registration certificate under the earlier laws, whose turnover of either of sales or purchases has not exceeded the specified limits during the financial year 2004-05, but who have opted to continue their registration certificate (by applying to assessing officer in specified format), shall also be deemed to be registered dealer under MVAT Act and shall, therefore be liable to pay tax w.e.f. 1st April, 2005.

3. New dealers, whose turnover of sales exceeds the prescribed limits during any year, commencing on or after 1st April, 2005, are liable to pay tax from the date on which such limit exceeds.

4. A successor in business of any dealer shall become liable to pay tax on and from the date of succession.

5. A dealer, applying for voluntary registration, shall be liable to pay tax from the date of registration.

6. The Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 2012, provides for liability to pay tax of certain dealers on the basis of turnover of purchases (of specified goods in newly inserted sections 6A and 6B).

Registration [Sec. 16, R 8]

Every dealer, who becomes liable to pay tax under the provisions of MVAT, shall apply electronically for registration to the prescribed authority, in Form 101, within 30 days from the date of such liability.

Turnover limits for the purpose of Liability/Registration
[Sec. 3(4)]

It may be noted that while the total turnover of ` 1,00,000/- and ` 5,00,000/- is in respect of Turnover of Sales (which includes all sales whether tax free or taxable), the turnover limit of ` 10,000/- is in respect of taxable goods whether purchased or sold.

Both the conditions have to be satisfied for the purposes of liability/registration under this category. [Sec. 3(4)]

Documents required for the purposes of Registration

Documents to be submitted at the time of verification of application for registration:

(Note: Copies of documents must be self-attested and are subject to verification from the original)

A. IN CASE OF FRESH REGISTRATION

1. Proof of constitution of business (as appropriate):

2. Proof of permanent residential address* (Please provide at least 2 documents out of the following documents):

1. Copy of passport.

2. Copy of driving licence.

3. Copy of election photo identity card.

4. Copy of property card or latest receipt of property tax of Municipal Corporation/Council/Gram Panchayat as the case may be.

5. Copy of latest paid electricity bill in the name of the applicant.

3. Proof of place of business

1. In case of owner: Proof of ownership of premises; viz., copy of property card or ownership deed or agreement with the builder or any other relevant documents.

2. In case of tenant/sub-tenant: Proof of tenancy/sub-tenancy like copy of tenancy agreement or rent receipt or leave and licence or consent letter, etc.

3. Copy of Electricity Bill

4. Proof of Bank Account

A leaf of cancelled cheque of the current bank account in the name of business (trade name).

4. Two latest passport size photographs of the applicant **

5. Copy of Income Tax PAN Card (in case of Proprietary business: PAN of Proprietor; in case of partnership business: PAN of partnership firm and of all partners; and in case of registered company: PAN of the company; in case of HUF: PAN of HUF and Karta, etc.).

6. Challan in original showing payment of registration fee: As per new procedure, the amount of fees is payable through a bank draft to be deposited with the registering authority along with the application. The bank draft shall be prepared, for applicant in Mumbai, in the name of "Bank of Maharashtra A/c. MVAT", and in case of other places in the name of "State Bank of India A/c. MVAT.

The fees payable for voluntary registration is ` 5,000/- while for others it is ` 500/- only. (Payment of fees of ` 500/-, wherever applicable, may be paid through court fee stamps also.)

B. REGISTRATION IN CASE OF CHANGE IN CONSTITUTION OF THE DEALER

1. Proof of change in constitution (e.g., if proprietary dealer converted to partnership firm then copy of Partnership deed, etc.).

2. Copy of latest return-cum-challan.

3. Pay order/demand draft for payment of fees.

4. PAN of new firm.

5. Proof of permanent residential address.

C. REGISTRATION IN CASE OF TRANSFER OF BUSINESS

1. All documents from 1 to 6 given in 'A'.

2. Copy of transfer deed.

3. Copy of latest return-cum-challan of the original dealer.

* In case of partnership firm, proof of residence has to be provided for all the partners, in case of body corporate, proof of residence of applicant.

** In case of partnership firm, photographs of only applicant partner need to be submitted. In case of corporate bodies, the details of place of residence and PAN, etc. shall be required to be furnished only for the signatory to the application.

Further, in case of Voluntary Registration, it is necessary that the applicant dealer is having a current bank account and such dealer has to be introduced by a registered dealer.

In addition to payment of fees, as mentioned above, a dealer seeking Voluntary Registration, on or after 16th August. 2007 but before 1st May, 2011, has to be make an advance payment of ` 25,000/-. This advance may be adjusted by the dealer against tax, interest or penalty, if any, payable during the year of registration or in the immediate succeeding year. Any amount remaining unadjusted after the end of the 2nd year shall be refunded. From 1st May, 2011 this advance payment of ` 25000/- shall be treated as security deposit with the Department. It cannot be adjusted against tax payable or other liability of the dealer. The newly inserted sub-section (2A), in section 16, provides that the amount of security deposit shall be refundable to the dealer on such conditions, restrictions and within such time as may be prescribed. It further provides that the security deposit shall be forfeited if there is no compliance of such conditions, restrictions and time limit.

[For the time being, the amount of fees as well as the amount of advance payment/ security deposit has to be made by way of bank draft, drawn through a nationalised bank, to be deposited with the registering authority at the time of verification of application for registration]

RATE OF TAX: [SECS. 5 & 6] AS PER SCHEDULES

Tax payable by a dealer: – [Sec. 4]

A dealer is liable to pay tax on the turnover of sales of goods, (and turnover of purchases of specified goods, in sections 6A and 6B) within the State, as per the rates specified in the schedules. The tax so payable for any tax period shall be reduced by the amount of input tax credit (set off) for which the dealer is eligible during the same tax period.

Introduction of the Concept of ¨Purchase Tax¨ :– (Sections 6A and 6B)

These newly introduced sections [vide The Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 2012] provide for levy of purchase tax on purchase of cotton and purchase of oil seeds in certain specified circumstances. The rate of purchase tax shall be same as provided in Schedule ‘C’.

Tax Period

Tax Period in relation to a dealer may be a calendar month, quarter (a period of three months; i.e., April to June, July to September, October to December and January to March) or six months (prescribed period of six months; i.e., April to September and October to March).

FILING OF RETURNS AND PAYMENT OF TAXES

Every registered dealer shall be required to file correct, complete and self-consistent return, in prescribed form, by the due date. [Sec. 20, Rules 17 to 20]

Periodicity and due date:–

For the periods commencing from 1-4-2008

Due date for filing returns:

Note: The returns, whether monthly, quarterly or six monthly have to be uploaded in electronic format only. A grace period of 10 days, from the end of due date, has been provided for uploading e-returns vide Trade Circular Nos. 16T of 2008, dated 23-4-2008 and 31T of 2008, dated 8-9-2008.

Tax Liability for the purpose means aggregate of taxes payable by a registered dealer, in respect of all places of business within the State of Maharashtra, under the Central Sales Tax Act and MVAT Act after adjustment of amount of set off claimed.

As per Rule 17 of MVAT Rules, the Commissioner of Sales Tax is empowered to determine periodicity for different classes of dealers. Accordingly, the Sales Tax department determines, from time to time, periodicity of returns of all dealers and the same is made available on its website (mahavat.gov.in). The dealers are required to file return as per the periodicity determined by the department. If there is any mistake in it, the dealers are required to approach the concerned officer for correction in it. It may be noted that failure to file return as per prescribed periodicity, within the prescribed due date, attracts mandatory late fees of
` 5,000/- per return, w.e.f. 1st August, 2012. (Earlier, there was a provision to levy penalty @ ` 5,000/- per return.)

The Commissioner of Sales Tax, Maharashtra, vide Trade Circular No. 19T of 2012, dated 9th November, 2012, has clarified that if the due date falls on Sunday or Public Holiday then the compliance made on next working day immediately following the said Sunday or Public Holiday shall be considered as sufficient compliance within the prescribed time period for all the purposes of the Act.

E-return Annexures: The dealers, who are not required to file audit report in Form 704, have to furnish certain information through E-return Annexure. It has to be submitted by all the dealers (who are not liable for VAT audit, u/s 61) for relevant financial year. The due date for submission of E-return Annexures is within three months from the end of financial year (i.e., by 30th June). It may be noted that the return for the period ending March (whether monthly, quarterly or six monthly) can be filed only after uploading the said E-return Annexure. Accordingly, the due date for filing such return, in such cases, shall get extended up to 30th June. (Ref: Trade Circular No. 3T of 2012 dated 27th Feb., 2012.) This extension of due date, for last return of the financial year, is applicable only for submission of that return. The payment, if any, has to be made as per the prescribed due date/s, as mentioned above according to the applicable periodicity.

Return Forms and Payment of Tax

From 1st April, 2009, all dealers, whether required to file monthly, quarterly or six monthly returns, have to submit their returns in electronic format only.

There are separate return forms prescribed for various categories of dealers, i.e., Form Nos. 231 to 235. A dealer has to use appropriate form as may be applicable to him. All these forms have to be submitted electronically within the prescribed due date.

A dealer shall first make payment of tax due into the Government treasury through challan Form No. 210, (Form MTR-6 for payment of CST dues), and thereafter upload the return in appropriate form as may be applicable. A grace period of 10 days has been permitted for uploading of e-returns but the tax due, if any, has to be paid within the prescribed due date.

It may further be noted that it is now mandatory for all the dealers to make payment of taxes electronically.

In case of delayed payments, interest is payable @ 15% p.a. Such interest is mandatory and shall be paid before filing of return.

Refunds of any period can be adjusted in the return/s for subsequent or any other period/s within the same financial year. As per the provisions of MVAT, refund cannot be adjusted against liability of the subsequent year; i.e., refund cannot be carried forward to the next financial year. However, the Commissioner of Sales Tax has powers to permit carry forward of refund of one financial year to the subsequent financial year. Accordingly, circulars have been issued from time to time. The refunds relating to financial years 2005-06 and 2006-07 were permitted to be carried forward to subsequent financial year (without any monetary limit/s).

The refunds for financial year/s 2009-10, 2010-11 and 2011-12 were also permitted to be carried forward to immediate succeeding financial year/s, subject to a ceiling of Rupees One Lakh.

A recent amendment to section 50(2) of MVAT Act, vide L. A. Bill No. XI of 2013, provides that for the period commencing on or after 1st April, 2012, a dealer whose refund claim in a year is Rupees Five lakhs or less, may carry forward such refund to the return or revised return for immediate succeeding year to which such refund relates. Thus, excess credit if any (up to Rupees Five Lakhs) in the return/s for period ending 31st March, 2013 can be carried forward to the next financial year.

Revised Returns

According to the amended provisions, if a dealer needs to file revised return/s, there may be three specified circumstances for which the conditions are as follows:

1. At his own – to rectify any mistake or omission – within 10 months from the end of financial year in which such tax period falls or before receipt of notice for assessment, whichever is earlier,

2. Due to Audit Report u/s 61 – to reflect the differences if any arising due to audit findings – within thirty days from the due date for submission of audit report,

3. Due to Intimation u/s 63 – where the dealer agrees with the observations contained in the intimation issued by the Department - within thirty days from the date of service of such Intimation.

It has further been provided that any such person or dealer cannot furnish more than one revised return under each of aforesaid clauses (a) to (c) and such revised return may include revision of original return or revised return filed earlier. [Sec. 20(4)]

INPUT TAX CREDIT (ITC) (SET OFF):– [Sec. 48, Rules 51 to 56]

Eligibility: – All registered dealers, whether manufacturer or traders, are eligible to take full set off of the taxes paid on inputs; i.e., Value Added Tax paid, within the State of Maharashtra, on purchases of Raw Material, Finished Goods and Packing Material, or any goods debited to profit and loss account.

Entry Tax: – The amount of entry tax, paid by a registered dealer on the goods the sale of which is liable for VAT under MVAT, will be eligible for full set off.

ITC on Capital Goods: – Tax paid on certain items of capital goods (defined) such as machinery, components, parts and spares, etc. are also eligible for full set off. (On certain other items of capital assets such as furniture and fixtures, office equipments, etc. set off is admissible, subject to retention @ 3%, w.e.f. 8-9-2006)

ITC on Miscellaneous Goods: – The amount of Vat paid on purchase of miscellaneous goods, debited to Profit & Loss A/c. (such as printing and stationery, repairs, sales promotion, etc.) also eligible for full set off.

ITC on Fuel: – Tax paid on purchase of goods, which is used as fuel, shall be eligible for set off, in excess of 3%.

Reduction in set off: The amount of set off, available to a registered dealer, shall be reduced to the extent as provided, under the following circumstances: -

1. 3% of the purchase price of respective goods, if taxable goods used as fuel.

2. 2% of the purchase price of respective goods, if taxable goods used in manufacture of tax-free goods. [No such reduction, if tax free goods so manufactured (covered by Schedule 'A’) are exported out of India].

3. 2% of the purchase price of respective packing material used in the packing of tax-free goods.
   (No such reduction, if such tax free goods is covered by Schedule 'A’ and the same are exported out of India.)

4. 2% of the purchase price of respective goods, if taxable goods sent to any other State in India as Branch Transfer or on Consignment. (The rate of reduction, in this cluse, is now 4% w.e.f. 1st April, 2012).
   (No such reduction if such branch transferred goods is received back in the State within a period of 6 months whether after processing or otherwise).

5. Specified percentage of set off, if taxable goods used in Works Contract for which the dealer has chosen to pay tax under the Composition Scheme. (Reduction @ 4% of purchase price in respect of goods used in notified construction contracts, and, @ 36% of eligible amount of set off in case of other contracts).

6. In case of Liquor, sold by dealers holding Liquor Vendor Licence in Form FL-II, CL-III, and CL/FL/TOD/III, as per formula, if the actual sale price is less than MRP. (Kindly also refer Notification No. 1511/CR-57/Taxation-1 dated 30-4-2011)

7. In case of dealers, whose total receipts on account of sale are less than 50% of total gross receipts of business then set off restricted to corresponding purchases, which are sold within 6 months from the date of purchase. In case of hotels and clubs covered by this Rule, in addition to set off on goods sold as above, the set off will be available on capital assets and consumables pertaining to kitchen and service of foods and drinks. In case of manufacturer of goods (not a job worker) covered by this Rule, set off can be claimed on plant and machinery and its PCA and packing materials only in respect of period of first 3 years from effective date of certificate of registration.

8. In case of closure of business, the set off on goods held in stock (other than capital assets), on the date of closure, to be disallowed and accordingly be reduced fully.

9. 3% of the purchase price of office equipment, furniture & fixture treated by the claimant dealer as capital assets. This is not applicable to dealer who leases these goods.

10. 2% of purchase price of goods which are used in the distribution or transmission of electricity (including the goods treated as capital assets), if the claimant dealer is holding a licence for transmission or distribution of electricity under the Electricity Act, 2003.

Wherever such reduction in set off is required to be done, it shall be done in the tax period in which such contingency arises.

If, for the purpose of reduction of set off, wherever required, it is not possible to identify the corresponding purchases then proportionate reduction on FIFO basis.

Condition for grant of set off

1. Set off to be allowed only to a registered dealer.

2. A valid Tax Invoice is must to claim set off.

3. Proper maintenance of account of all the purchases in a chronological order stating therein the date on which the goods so purchased, the name and registration number of the selling dealer, tax invoice number & date, the amount of purchase price paid and the amount of tax paid separately.

4. The set off on eligible goods, purchased on or after 1st April, 2005, has to be claimed in the tax period in which the goods has been purchased (entered in the books of account).

5. In case of newly registered dealers, set off can be claimed on the goods (including capital assets) purchased before the date of registration, within the same financial year, provided that the goods so purchased is not sold or disposed of before the date of registration. (Effective from 8-9-2006)

6. Tax on earlier transaction is received in Government Treasury.

No set off:- No set off, under any Rule shall be admissible in respect of:

1. Purchase of passenger motor vehicles and parts components and accessories thereof unless the dealer is engaged in the business of trading in motor vehicles or transferring the Right to Use (Leasing).

2. Purchase of motor spirit (specified) by any dealer other than a dealer in motor spirit.

3. Purchase of Crude Oil, used by an oil refinery for refining.

4. Any purchase of consumables or capital assets by a job worker (pure labour job), whose only sales are waste or scrap of goods obtained from such labour job.

5. Any purchase made by a dealer holding Entitlement Certificate under a Package Scheme of Incentives. (Such units are entitled for refund of tax paid on purchases).

6. Any purchase of goods of incorporeal or intangible nature other than:

i. Import Licences, Export Permits/Licences or Quota, DEPB, SIM Cards and DFRC.

ii. Softwares in the hands of a trader in Softwares.

iii. Copyrights, if resold within 12 months from the date of purchase.

Except above, all other intangible goods are debarred from set off.
 

7. Tax paid by way of works contracts in the erection of immovable property (other than plant & machinery).

8. Purchases of building material used in the erection of immovable property (other than plant & machinery). However, a contractor, who undertakes construction of immovable property by way of works contracts, is eligible to claim set off on purchase of such goods.

9. Office Equipments, Furniture & Fixtures, Electric Installations, etc., (treated as capital assets), purchased during the period from 1-4-2005 to 7-9-2006. (Such assets, if purchased on or after 8-9-2006, are eligible for set off subject to retention @ 4% or 3% as the case may be). It may further be noted that

10.  Small dealers/retailers, hoteliers, caterers, bakers, mandap decorators etc., opting for Composition Scheme, u/ss. 42(1), 42(2) and 42(4) of MVAT Act, are not entitled for any set off.

11. There is no set off of CST paid on interstate purchases.

12. There is no set off for any other taxes paid such as excise duty, import duty, service tax, octroi or such other levy or levies.

13. In case of hotelier, the set off on capital assets is prohibited where such capital assets are not pertaining to sale or service of food/drinks.

Credit C/f and Credit B/f: – If during a tax period (month/quarter/six months) the tax on total turnover of sales is less than the amount of input tax credit, then such excess amount of credit may either be adjusted by the dealer against his tax liability under the CST Act for the same period or may be c/f to the next period. The unadjusted credit c/f of one period shall become the credit b/f for the next period. The excess credit may be carried forward in this manner till the end of the accounting year. The balance, if any, thereafter shall be claimed as a refund in Form 501 from the department, within a period of eighteen months from the end of the year for which it relates.

Goods Return, Debit/Credit Notes: – Sections 63(5) and (6) of the MVAT Act provides that the amount of goods returned during any period shall be reduced from the total turnover of sales/purchase of that period in which the goods returned, provided that the goods has been returned within a period of six months from the date of sale or purchase thereof as the case may be. Similarly other debit and credit notes, which are in the nature of increasing or reducing the sale price and/or the purchase price shall be given effect in the month in which such debit/credit note has been entered in the books of account of the dealer. Thus the amount of set off, for that period, shall get increased or reduced to the extent it related to purchase return and debit/credit notes having impact on the purchase price of goods.

Exports: – Exports are treated as zero-rated. Thus no tax is payable on export of goods out of India. However full set off is available of input tax paid on purchases, from within the State of Maharashtra, used in such exports. As there are no concessional forms under MVAT, the exporters may have to claim refund of the VAT paid on their purchases (inputs).

However, the trading exporters (who were earlier purchasing goods against Form 14B), may purchase such goods against Form H of CST Act, provided all other conditions of section 5(3) of CST Act are fulfilled.

Interstate Sales: – The transactions of interstate sales and inter-state movement of goods are governed by the CST Act. Thus the tax on such sale is levied according to the provisions of CST Act. Such transactions are not liable for VAT. However full input tax credit is available for the value added tax paid in Maharashtra. (Except in case of branch transfers/consignments, where there will be retention @ 4% or 3% or 2% as the case may be).

TAX INVOICE

Essential ingredients of a Tax Invoice: – Under the scheme of VAT, the most important document is tax invoice. A registered dealer is entitled to claim set off only on the basis of a valid tax invoice. Set off is not available on purchases effected through a bill or cash memorandum. A 'Tax Invoice’ is must to claim input tax credit (set off). To be a valid tax invoice, section 86(2) provides that it shall contain the following particulars: –

i. The word Tax Invoice in bold letter at the top or at a prominent place.

ii. Name, Address and Registration Number of Selling Dealer.

iii. Name, Address and Registration Number of the Purchasing Dealer.

iv. Serial Number and Date.

v. Description, Quantity and Price of the Goods sold.

vi. The amount of tax charged, to be shown separately.

vii. Signed by the selling dealer or a person authorised by him.

viii. A declaration u/r. 77(1).

BILL OR CASH MEMORANDUM

Section 86(6) requires every registered dealer to issue, at his option, either a Tax Invoice or Bill/Cash Memorandum, for every sale made by him.

(Issue of bill/cash memorandum or Tax Invoice, as the case may be, is mandatory for each transaction of sale exceeding ` 50/-).

The dealer, choosing to issue Tax Invoice must comply with the requirements prescribed in sec. 86(2), enumerated above.

The dealers, who have opted for Composition Scheme u/ss. 42(1), 42(2) or 42(4), are not entitled to issue a Tax Invoice. Such dealers shall issue a Bill or Cash Memorandum.

A bill or cash memorandum should be serially numbered, dated and signed by the dealer or his servant or manager. Such bill or cash memorandum shall contain such particulars as may be required/as may be prescribed. It shall also contain a declaration as provided u/r. 77(3).

A duplicate copy of all such bills/cash memorandum or Tax Invoice is required to be preserved for a period of three years from the end of the year in which sale took place. (Recently amended provisions provide for preservation of such records for a period of eight years).

COMPOSITION SCHEMES

Section 42 provides for Composition Schemes for various classes of dealers, as may be notified by the State Government from time to time. The dealers opting for such composition schemes shall pay tax at such rates, with such conditions, as may be prescribed in the scheme. Accordingly, the Government of Maharashtra has notified different types of composition schemes for following classes of dealers: –

(1) Restaurants, Clubs, Hotels and Caterers (2) Bakers (3) Retailers and (4) Dealers in 2nd Hand Motor Vehicles and (5) Dealers, who are in the business of giving on hire (leasing) of mandap, shamiana, tarpaulins, etc.

WORKS CONTRACTS

There is no separate Act governing works contract transactions, all such transactions are now taxable as deemed sales under the MVAT Act. The rate of tax, on such deemed sales of goods, used in the execution of works contract, shall remain same as prescribed in the aforesaid schedules to the respective goods. However the sale price of such goods has to be determined in accordance with the provisions contained in Rule 58 of the Maharashtra Value Added Tax Rules, 2005.

Accordingly the value of the goods, at the time of the transfer of property in the goods (whether as goods or in some other form) involved in the execution of works contract, has to be determined by effecting the following deductions from the value of entire contract in so far as the amounts relating to the deduction pertain to the said works contract: –

1. Labour and service charges for the execution of the works contract.

2. Amounts paid by way of price for sub-contract, if any, to sub-contractors.

3. Charges for planning, designing and architect’s fees.

4. Charges for obtaining on hire or otherwise, machinery and tools for the execution of the works contract.

5. Cost of consumables such as water, electricity, fuel used in the execution of works contract, the property in which is not transferred in the course of execution of the works contract.

6. Cost of establishment of the contractor to the extent to which it is relatable to supply of the said labour and services.

7. Other similar expenses relatable to the said supply of labour and services, where the labour and services are subsequent to the said transfer of property.

8. Profit earned by the contractor to the extent it is relatable to the supply of said labour and services.

Provided that where the contractor has not maintained accounts which enable a proper evaluation of the different deductions as above or where the Commissioner finds that the accounts maintained by the contractor are not sufficiently clear or intelligible, the contractor at his option or, as the case may be, the Commissioner may in lieu of the deductions as above provide a lump sum deduction as provided in the Table below and determine accordingly the sale price of the goods at the time of the said transfer of property.

WORKS CONTRACT – SALE PRICE

TABLE

• The percentage given in the Table should be applied on total contract price after deducting the price on which tax is paid by sub-contractor. It is also provided that if any tax is separately charged by the contractor as per terms of contract then the deduction should be after excluding such separate tax.

• The value of goods so arrived at under Rule 58 (1) shall, for the purposes of levy of tax, be the sale price or, as the case may be, the purchase price relating to the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.

• The dealer, opting to pay tax as per the above scheme, is entitled to take full input tax credit; i.e., full set off of MVAT paid on purchases eligible for setoff.

Deduction from sale price for cost of land [Rule 58(1A)]

1. In case of a construction contract involving conveyance of land or interest therein along with property in goods, the sale price of goods subject to tax shall be determined after deducting cost of land.

2. The cost of land shall be determined as per value determined for payment of stamp duty as per ready reckoner applicable as on 1st day of January of the year in which the agreement to sell the property is registered.

3. Further, deduction for cost of land shall not exceed 70% of the agreement value.

4. The deduction u/r. 58(1) shall be made after deducting cost of land as per rule (1A).

5. No deduction for cost of land is applicable for payment of tax by way of composition.

WORKS CONTRACT – COMPOSITION SCHEME

Section 42(3) provides for a Works Contract Composition Scheme, whereby a dealer, at his option, may choose to pay tax @ 5% on Construction Contracts (as notified) or in case of other contracts @ 8% on the total contract value. (After deducting therefrom the amount paid towards sub-contract, if any.)

However, in respect of such (other) contract/s, where the dealer has chosen to pay tax by way of composition @ 8% , the amount of set off available on inputs will be restricted to 64% of the total amount of set off for respective goods used in such contract/s.

In case of construction contracts (notified), where the dealer has chosen to pay composition @ 5% (w.e.f. 20-6-2006), the set off on inputs is available subject to retention @ 4%, as provided in Rule 53.

Such retention/reduction shall not apply to set off on capital assets, the goods, the property in which not passes in the execution of works contract. (w.e.f. 8-9-2006)

Sub-section (3A) is inserted w.e.f. 1-4-2010 to empower State Government by issue of notification to provide composition scheme for registered dealer who undertakes construction of flats, dwellings or buildings or premises and transfer them in pursuance of an agreement along with the land or interest underlying the land. Accordingly a Notification has been issued providing for a composition scheme of 1% without entitlement for any setoff.

Notes:

1. A dealer, executing works contract, whether chooses to pay tax u/r. 58 or under the composition scheme, u/s. 42(3), is entitled to issue tax invoice in respect of all such sales effected by him by way of execution of works contract, by charging tax separately in such tax invoice.

2. A dealer (contractor) is free to chose either sale price method or composition scheme, as he may deem fit, qua each contract. There is no requirement of any prior approval, etc.

3. The relationship between the contractor and sub-contractor is considered as that of principal and agent. Thus, the responsibility for payment of tax is joint and several. It has been provided, therefore, that liability to pay tax may be discharged either by the main contractor or the sub-contractor. If the main contractor chooses to pay tax on the entire contract, he may issue a declaration and certificate (in Forms 406 and 409) whereby the sub-contractor shall not be liable to pay tax on the portion of work undertaken by him. Similarly where the sub-contractor undertakes to pay tax, he shall issue a declaration and a certificate, (in Forms 407 and 408), to the main contractor regarding payment of taxes made by him on his portion of works contract. Thus the main contractor will be liable to pay tax only on the difference.

CONSTRUCTION CONTRACTS

The Government of Maharashtra, vide Notification No. VAT. 1506/CR-134/Taxation-1, dated 30-11-2006, has notified the following works contracts to be the 'Construction Contracts’ for the purposes of clause (i) of the Explanation to sub-section (3) of section 42 of the Maharashtra Value Added Tax Act, 2002:–

A. Contracts for construction of, –

(1) Buildings, (2) Roads, (3) Runways, (4) Bridges, Railway overbridges, (5) Dams, (6) Tunnels, (7) Canals, (8) Barrages, (9) Diversions, (10) Rail tracks, (11) Causeways, Subways, Spillways, (12) Water supply schemes, (13) Sewerage works, (14) Drainage, (15) Swimming pools, (16) Water Purification plants and (17) Jettys

B. Any works contract incidental or ancillary to the contracts mentioned in paragraph (A) above, if such work contracts are awarded and executed before the completion of the said contracts.

WORKS CONTRACT – ONGOING CONTRACTS

In respect of contracts, which have entered into and commenced before 1st April, 2005 and continued thereafter, the dealer is required to discharge his tax liability, under the MVAT Act, in accordance with the provisions of earlier law (i.e., old Works Contract Tax Act). Thus the dealer shall be liable to pay tax on such ongoing works contracts at the rate/s prescribed (or as per the old composition scheme, if so adopted) under the earlier law. And such a dealer shall not be entitled for any set off on purchases of goods used in the execution of such on-going works contracts.

WORKS CONTRACT – TDS PROVISIONS

Section 31 provides that the Commissioner may, by notification, require any dealer or person or class of dealers or persons (hereafter referred as 'the employer’) to deduct tax on such amount payable on the purchases effected by them, as may be notified.

All such employers shall have to: –

1. Deduct tax, at prescribed rate, from the amount paid or payable to a contractor during a given period.

2. Deposit the amount so deducted with the Govt. treasury within 21 days from the end of month in which such tax deducted or required to be deducted. (Challan Form 210)

3. Issue a certificate of deduction of tax, immediately, in Form 402.

4. Maintain necessary records in prescribed format, Form 404.

5. Submit Annual Return in Form 405 within three months from the end of year to which return relates.

Notes:

1. The TDS provisions are applicable only to specified employers.

2. A contractor, awarding sub-contracts, is not required to deduct TDS from such sub-contractor/s.

3. TDS provisions are not applicable in respect of works contract liable to tax under the CST Act.

4. TDS not required to be deducted where the amount or the aggregate of the amount payable to a dealer by
   such employer is less than ` 5 lakhs during the financial year.

5. TDS is required to be deducted on the amount paid/payable in respect of works contract. Thus TDS not to be deducted on taxes (whether VAT or service tax) charged separately by the contractor.

6. No TDS on advance payments, however TDS on such advances to be deducted at the time when such advance is adjusted towards the amount payable.

7. A contractor can apply in Form 410 for a certificate of no deduction of tax at source if the contract is not a works contract.

Employers notified for the purposes of TDS

RATE OF TDS

TDS has to be deducted @ 2% if the contractor is a registered dealer under MVAT Act, otherwise @ 5% w.e.f. 1st April, 2012 (earlier the rate was 4% up to 31-3-2012).

TAX ON RIGHT TO USE GOODS (LEASING AND HIRE CHARGES)

Earlier the tax on leasing was payable under the provisions of Maharashtra Tax on Right to Use Goods Act. But now, as there is no separate Act, all such transactions of deemed sale shall be liable to tax under MVAT Act at the same rate of tax as prescribed in the aforesaid schedules.

DETERMINATION OF SALE PRICE IN CERTAIN CASES

Sale of Food by Residential Hotels (Rule 59)

Rule 59 provides for determination of taxable turnover of sales/service of food & drinks in case of residential hotels charging composite amount, for lodging and boarding, which is inclusive of breakfast, lunch, or dinner or any such combination.

The turnover in such cases has to be determined by applying specified percentage on the amount of such composite charges.

Reduction in Sale Price in certain cases

1. If a dealer has chosen not to collect tax separately from its customers, the tax payable by him on the turnover of sales shall be calculated by reducing from the turnover of sales an amount arrived at through the following formula:– [Rule 57 (1)]
   Sale Price * Rate of Tax/(100+Rate of Tax)

2. In case of a dealer selling goods, originally manufactured by a dealer enjoying exemption under the Package Scheme of Incentive, and the tax is not recovered separately in his purchase invoice, the taxable turnover shall be determined by reducing from the sale price, the amount of purchase price paid in respect of such goods including the price of goods used in the packing if packing is charged separately. [Rule 57(2)]

3. In case of sale of goods under any hire purchase agreement or any system of payment by instalments, component of interest, as specified in agreement [Rule 57(4)].

SALE/PURCHASE OF GOODS BY PSI UNITS

PSI Units: – The units enjoying benefits, whether by way of exemption or deferral, under the Package Scheme of Incentives may continue to enjoy the same. However they will now have to effect their purchases by paying full tax and claim refund of such tax paid on their purchases. (There are no concessional forms, such as BC Forms, etc., which were available earlier under the Bombay Sales Tax Act/Rules).

Resale of goods purchased from PSI Units: – As the units, enjoying exemption, do not charge tax on their sale, the subsequent dealer will not be in a position to take input tax credit. It is provided, therefore, that such subsequent dealer shall pay tax under the reduced value method; i.e., reducing the sale price by the amount of purchase price. Thus the tax is calculated on the amount of value addition only. Such a dealer, reselling goods purchased from PSI unit, shall make an additional declaration, as prescribed in Rule 77(2A), in his Tax Invoice or bill or cash memorandum as the case may be.

MAINTENANCE OF ACCOUNTS

Section 63(1) requires, every dealer, liable to pay tax under the MVAT Act, and any other dealer who is required to do so by the Commissioner, to maintain a true account of the value of goods sold or purchased by him.

Sections 63(2) and (3) empowers the Commissioner to give direction to any dealer or any class of dealers to maintain accounts and records in such form and in such manner, as may be directed by him in writing.

Section 63(4) requires every dealer to keep all his accounts, registers and documents relating to his stock of goods, purchases, sales, delivery of goods and payments made or received towards purchase or sale of goods, at his place of business.

Section 63(5) requires goods return claims to be made in the period (month, quarter, six months) in which appropriate entries are made in the books of account.

Similarly section 63(6) requires that the effect of all such debit notes or credit notes, which are in the nature of increasing or decreasing either sale price or purchase price of goods, shall be taken in the return for the period in which entries for such debit/credit notes are taken in the books of account.

Rule 68 requires every registered dealer to preserve all books of account, registers and other documents pertaining to stocks, purchases, dispatches and delivery of goods and payments made towards sale or purchase of goods for a period of not less than six years from the expiry of year to which they relate.

AUDIT OF ACCOUNTS

Section 61 of MVAT Act requires certain dealers/persons to get their accounts audited by an accountant, within the prescribed period from the end of the year. The report of such audit is required to be furnished in a prescribed format. The provisions contained in the Act and Rules in this regard are reproduced below for the attention of members.

"61(1) every dealer liable to pay tax shall:

a. If his turnover of sales or, as the case may be, of purchases, exceed or exceeds rupees sixty lakhs (w.e.f. 1-5-2010) in any year, or

b. If he is a dealer or person who holds licence in: -

i. Form P.L.L. under the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966, or

ii. Form B-RL under the Maharashtra Manufacture of Beer and Wine Rules, 1966, or

iii. Form E under the Special Permits and Licence Rules, 1952, or

iv. Forms FL-I, FL-II, FL-III, FL-IV under the Bombay Foreign Liquor Rules, 1953, or

v. Forms Cl-I, CL-II, CL-III, CL/FL/TOD III under the Maharashtra Country Liquor Rules, 1973,

vi. PSI unit holding certificate of entitlement (from 1-5-2010)

Get his accounts in respect of such year audited by an Accountant, within the prescribed period from the end of that year, and furnish within that period a complete report of such audit, in the prescribed form, duly signed and verified by such accountant and setting forth such particulars and certificates as may be prescribed.

Explanation: For the purposes of this section, "Accountant" means a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 or (w.e.f. 15-8-2007) a Cost Accountant within the meaning of Cost & Works Accountants Act, 1959).

(2) If any dealer liable to get his accounts audited under sub-section (1) fails to furnish a complete report of such audit within the time as aforesaid, the Commissioner may, after giving the dealer a reasonable opportunity of being heard, impose on him, in addition to any tax payable, a sum by way of penalty equal to one-tenth per cent of the total sales.

Provided that the dealer fails to furnish such report within the aforesaid period but files it within one month of the end of the aforesaid period and the dealer proves to the satisfaction of the Commissioner that the delay was on account of factors beyond his control, then the Commissioner may condone the delay.

Explanation: Explanation–II (w.e.f. 1st May, 2011) provides that for the purposes of section 61, an audit report shall be deemed to be “complete audit report” only if all the items, certification, tables, schedules and annexures are filled appropriately and are arithmetically self-consistent.

Sub-section 2A (inserted w.e.f. 1st May, 2011) further provides that where a dealer, liable to file audit report u/s 61, knowingly furnished the audit report which is not complete, then the Commissioner may, after giving a reasonable opportunity of being heard, impose on him, in addition to any tax payable or any other penalty leviable under section 61, a sum by way of penalty equal to one-tenth per cent of the total sales

(3) Nothing in sub-sections (1) and (2) shall apply to Departments of Union Government, any department of any State Government, local authorities, the railway administration as defined under the Indian Railways Act, 1989, the Konkan Railway Corporation Limited and the Maharashtra State Road Transport Corporation constituted under the Road Transport Corporation Act, 1950."

"Rule 65. The report of audit under section 61 shall be in Form 704." The auditor is required to download latest version of Form 704 from the website.

"Rule 66. The report of the audit under section 61 shall be submitted electronically within nine months and fifteen days from the end of the year to which the report relates." The due date for uploading audit report, in Form 704, for the financial year 2012-13 shall be 15th January, 2014.

Submission of Form 704

i. The dealer is required to submit "Statement of submission of Audit Report in Form 704" along with this statement, the dealer is also required to submit the following documents:

a. A copy duly signed by VAT auditor as well as dealer, of an acknowledgment generated after uploading of Form 704.

b. Part I of the Audit Report along with certification duly signed by the Auditor.

(Copy of Balance Sheet, Profit & Loss Account, Trial Balance, other Audit Reports, etc. not required to be submitted)

ii. The aforesaid documents shall be submitted

a. to the concerned LTU Officer, if the dealer is Large Tax Payer;

b. to the "Desk Audit Cell" in the Office of the Joint Commissioner of Sales Tax (Business Audit) in Mumbai if the dealer is not Large Tax Payer.

c. in the rest of the State to the concerned LTU Officer, if the dealer is Large Tax Payer, and in any other case to the Joint Commissioner of Sales Tax, VAT (ADM).

(Please refer Trade Circular No. 27T of 2009, dated
1-10-2009.)

In order to ascertain whether any person or dealer is required to get his books of account audited under the MVAT Act, the followings will have to be examined/determined: –

I. For clause (1)(a): –

1. Whether the person is a dealer within the meanings of section 2(8) of MVAT Act.

2. If a dealer, then whether he is liable to pay tax under the provisions of MVAT Act. A useful reference may be made to section 3 of MVAT Act in this regard.

3. If the dealer is covered by the provisions of section 2(8) as well as section 3, then it is immaterial whether the dealer has taken registration or not. Thus even an unregistered dealer may also be liable to get his books of account audited. The only criteria to be checked are whether the turnover either of sales or purchases exceeds the limit of ` 40 lakhs (` 60 lakhs w.e.f. 1-5-2010) during a financial year.

If all the three criteria discussed above are fulfilled then such a dealer shall get his books of account audited as per the provisions of section 61 and shall submit the report of audit accordingly. It may be noted that for the purposes of section 61 the term 'Turnover of Sales’ and 'Turnover of Purchases' have to be examined carefully. The same are defined u/s. 2(33) and 2(32) respectively. A useful reference may also be made to the definition of 'Sale' ‘Sale Price’ and ‘Purchase Price’ as given u/s. 2(24), 2(25) and 2(20) respectively.

It may also be noted that for the purposes of section 61 ‘Turnover of Purchases’ will include all purchases of goods within the State of Maharashtra whether it is trading goods, raw material, packing material, fuel, consumables, capital assets and/or purchase of goods in any other form say by way of expenses debited to Profit and Loss A/c. such as Printing & Stationery, Repairs and Maintenance, etc. Likewise 'Turnover of Sales' shall also include, apart from normal sales, any sale or disposal of capital assets, scraps etc.

II. Clause (1)(b) of section 61 requires every person, whether a dealer or not, holding Liquor Licence of any of the categories as described in (i) to (v) above and PSI unit holding certificate of entitlement to get his books of account audited. Thus all those persons, irrespective of the amount of turnover of purchase or sales during a year, will be required to get their books of account audited and submit the report of audit accordingly.

III. Clause (1)(c) has been inserted, w.e.f. 1st May 2010, providing for compulsory audit of accounts of all those dealers who are holding Entitlement Certificate in respect of any Package Scheme of Incentives of the Government of Maharashtra, irrespective of their turnover of sales or purchase during a financial year. (This clause is applicable for audit of accounts for financial year 2010-11 and onwards.)