Sales Tax Review

August  2006

Important Trade Circulars

No.VAT/MIA-10/Adm-5/06/20   

Mumbai, DT.1^st August, 2006

Trade Cir-18 T  of 2006

Gentleman/Sir/Madam,

Introductory:

1. This office had earlier issued the above-referred three Trade Circulars, enumerating the procedure for grant of provisional refund for part of the period/periods pertaining to the financial year 2005-06. The first circular explains the general  procedure for grant of refund under the first proviso to sub section (2) of Section 51 of Maharashtra Value Added Tax Act, 2002 (hereinafter referred to as “the Act”) in respect of refunds to be granted for part of the year 2005-06.  Revised instructions were issued in the second circular for early grant of provisional refund.  The second circular is applicable only in respect of refunds claimed in the returns for the periods ending up to 30 November 2005 where these returns are filed on or before 6 January 2006. The following three categories of dealers were eligible for refund as per the second Circular: -

1. An exporter within the meaning of sub-section (1) of Section 5 of the Central Sales Tax Act, 1956.
    

2. A unit specified in the Explanation to sub-section (3) of section 8 of the MVAT Act, i.e., SEZ Unit etc.
    

3. A unit under any Package Scheme of Incentives.

2. The third Trade Circular was issued to facilitate early claim of refund by the dealer other than the three categories of dealers mentioned in Para one above except the dealers who have obtained a certificate of registration for the first time on or after 1^st April 2004. These dealers are unable to claim timely refund because the periodicity of the returns in their case does not warrant early disbursal of refunds. Accordingly, it was provided that,

1. The package scheme dealers who were otherwise required to file quarterly returns were allowed to file monthly returns for the months of January, February & March 2006.
    

2. All dealers other than retailers under composition who were required to file a six monthly returns for the period ending on 31^st March 2006 were permitted to file quarterly returns for the quarters ending December 2005 & March 2006

3. Applicability of this Circular:
   
   Refund under this circular shall be granted only to those dealers whose returns are correct, complete and self-consistent and  application for refund in form 501 is made on or before 31-07-2006 and the return claiming the refund is  filed with the Return Branch and the form 501 is submitted to  the concerned Refund Granting Authority. The criteria mentioned in this circular are also applicable to all the cases wherein the refund claims are pending. Needless to state that the option for claming the refund as per the third circular by filing the return otherwise than as per the regular periodicity was optional. This circular also aims to cover all those dealers who have not exercised their option as per the third circular.

4. Application for Refunds
   
   The application for the refund is to be made in Form 501 appended to the Maharashtra Value Added Tax Rules, 2005 [hereinafter referred to as ‘the Rules’].  For dealers situated in Mumbai, the application is to be made to the Officer-in-charge of VAT Refunds [Joint Commissioner, Refunds], Vikrikar Bhavan, Mazgaon, Mumbai-400 010.  For dealers situated outside Mumbai, the application should, at present, be made to the Officer-in-charge of VAT refunds in the jurisdictional Sales Tax Office.  The Annexure to the Form 501 provides details regarding the purchases made and details regarding the suppliers.  This information should, as far as possible, be provided in both hard copy as well as a soft copy format, which may be submitted along with the application in Form 501.  Any refund under this circular will, of course, be subject to the dealer making an application in Form 501.

5. Additional Information
   
   Section 51 of the Act authorises the departmental authorities to ask for additional information [other than that provided in Form 501] before grant of refund under section 51. The departmental authorities may, at their option, depending upon the individual case, decide to either conduct a refund audit or call for additional information or grant a refund without calling for any additional information.
    

6. Adjustment of refund for the subsequent year 
   
   Although the law provides for compulsory claiming of the refund at the end of the Financial Year, it is possible that due to lack of clarity, (it being the first year of VAT system), some dealers, instead of claiming the refund in the last return filed for the financial year 2005-06, might have adjusted it in the return filed for the subsequent period during financial year 2006-07. Considering the facts that, 2005-06 was the first year of VAT, it is now decided to permit such adjustment for the first year as a special case. Also, the dealers who have filed their claim of refund for period /periods of last year (2005-06) may, at their option, withdraw their claim of refund & adjust the said refund in any return to be filed for the current financial year (2006-07).
   
   It is to be noted that this facility is provided only for the current year & the year-end refund of the financial year 2006-07 will not allowed to be adjusted in the subsequent year and must be claimed for actual refund. 
    

7. Grant of Refund:
   
   Refund under this circular shall be granted only to those dealers whose returns are correct, complete and self-consistent and  application for refund in form 501 is made on or before 31-07-2006 and the return claiming the refund is  filed with the Return Branch and the form 501 is submitted to  the concerned Refund Granting Authority. The refund under this circular is to be granted to the extent indicated below:

1. The dealer in whose case the total refund for the financial year 2005-06  is less than Rs. 1,00,000/- (Rupees one lakh) shall be granted 100% of the refund without Bank guarantee or  without a precondition of prior refund audit.
   (Refund audit to be conducted in due course).
    

2. Their could be cases wherein the refund can not be granted only because all the declarations under C.S.T. Act, pertaining to the Financial year 2005-06 are not received. In all such cases, the dealer’s assessment under the C.S.T. Act is to be completed on top priority. Subject to the demand arising out of such assessment under the C.S.T. Act, the balance refund is to be granted immediately. C.S.T. assessment in all such cases must be completed, as far as possible, by around 15^th September 2006 to facilitate timely grant of the residual refunds.
    

3. All the refund claim of the S.E.Z. units shall be granted by 31 August 2006 after completing the refund audit.
    

4. in case of P.S.I. units & exporters, who have  been granted a refund for any period / periods of financial year 2005-06 after completing the refund audit & the audit has not shown substantial discrepancies, then 100% of the refund claims of the balance period will be granted without the precondition of prior refund audit. It is to be noted that the P.S.I. units or exporters who have not claimed/ received any refund for any period of 2005-06, shall be granted refund only after completing the refund audit for the year 2005-06.
    

5. In case of a P.S.I. dealer who holds the entitlement certificate for part of an industrial undertaking through investments in an expansion unit & whose productions from the old and expansion investments are identifiable, (i.e. production facilities are separate), then in such cases, the refund shall be granted only in respect of purchases proportionate to the production of the expansion unit in the total production. Cases in which the investment in  expansion unit does not result in identifiable (separate) production capacity but strengthens/ upgrades the existing technology, product quality or  quantity, purchases entitled to refund shall be worked out in proportion to the new (PSI) investment in the total investment.
    

6. In all other cases, the refund shall be granted to the extent of 90% of the refund claim without prerequisite of Bank Guarantee or the precondition of prior refund audit. (Refund audit to be conducted in due course).
    

7. In any case, if the dealer furnishes a Bank Guarantee equal to 20% of the refund claim, then 100% of the refund claim shall be granted within 15 days from the date of furnishing of the said Bank Guarantee.
    

8. The refund claim of all dealers except the dealers act sr. no. 7(c) above shall be granted before 30 September 2006.
    

9. The refunds of P.S.I. units & Exporters for the 1^st Quarter of the current year, i.e., April 2006 to June 2006 shall be granted, subject to fulfillment of conditions of the Act & Rules, upto 30 September 2006, after completing the refund audit.
    

10. In case a Bank guarantee is required to be furnished, the same is to be furnished for a period of 24 months inclusive of a claim period of 2 months.  

8. This circular cannot be made use of for legal interpretation of provisions of law, as it is clarificatory in nature.  If any member of the trade has any doubt, he may refer the matter to this office for further clarification.
    

9. You are requested to bring the contents of this circular to the notice of all the members of your association.

Yours faithfully, 

(B.C.KHATUA)
Commissioner of Sales Tax
Maharashtra State, Mumbai.