Query regarding goods
purchased from exempt units:
-
Can a reseller purchasing the goods from
exempt unit can resell the same goods and pay the tax only on gross profit?
OR
-
Who is eligible to pay tax only on Gross
Profit, on the goods purchased from exempted units? What is the taxability
of the same goods for the intermediaries till it reaches the final consumer?
CA. Hasmukh Savla, Panvel.
Reply
Under the Maharashtra Valued
Added Tax Act, 2002, the exemption mode for the entitlement certificate holder
has been continued. The basic intention is that the original price of the
exempted unit should not get taxed in the chain of transactions, right from
exempted unit till consumer. The provisions are so made that the original sale
price charged by exempted unit remains out of the taxation net. Accordingly we
can say that in case of subsequent dealers the tax is payable on the gross
profit of respective subsequent dealer. E.g., the exempted unit might have
sold the goods at Rs.100. The immediate purchaser may sale the same at Rs.
150. At this point he pays tax on Rs. 50. The next purchaser might have sold
the goods at Rs. 200. He will also make profit of Rs. 50 and he is liable to
pay tax on Rs. 50. So this addition made on the original value of the exempted
unit will get taxed and basic value will always remain out of the taxation
net. For this purpose the Government has provided Rule 57(2) for taking
deduction from the sale price of respective subsequent dealer. By applying
this rule the deduction for original value will be available and tax will be
payable on the profit margin. Accordingly, it can be said that the tax is
payable on the gross profit by all the subsequent purchasers and sellers in
the chain of transactions till consumer.
One of my clients is buying
colour xerox machine for Rs. 40 lakhs. As per agreement with "Xerox Ltd."
every month as per meter reading and number of printout made, around 30% of
the colour xerox receipt has to be paid to them and balance 70% would be kept
by my client and for this all the colour toner would be supplied by the Xerox
Ltd.
In short my client will do
colour xerox work and out of total receipt of a month, 30% has to be paid to
the Xerox Ltd. and for this colour cartridge and toner would be supplied by
them. Paper would be purchased and used by my client only.
My query where we charge 4%
or 12.5% for this Works Contract work. Xerox Ltd. is saying that they would
deduct 20% from the total bill amount and would charge 12.5% on the 80% of the
Bill amount. We do not agree with them and we are of the opinion that 4% VAT
is applicable.
Other leading dealers like
Reliable Xerox etc. are charging 4% only on colour xerox. Our main job work is
colour xerox work. Please offer your valuable opinion and oblige.
Arun R. Sahu
Reply
The basic issue is about rate
of tax under Works Contract. As settled down for all these years, under Works
Contract, there is sale of goods in the same way as a normal sale. If on
normal sale of the colour cartridge and toner the tax would have been payable
at 4% then under Works Contract also the the tax should be at 4%. There is no
any different tax rate system for Works Contracts and the rate applicable for
a normal sale of the said goods will also apply to sale under Works Contract.
Therefore, in your query the important issue is rate of tax on colour
cartridge and toner. You have not clarified this aspect, neither given
sufficient material to decide the rate of tax as per MVAT Act. In any case,
you can find out the same from relevant entries in Schedule C and if the
colour cartridge and toner are covered by any of the entries in Schedule C
then the rate of tax will be 4%. If this is not the case then the rate of tax
will be 12.5%.
The second issue is that, you
have said about deduction of 20%. In our opinion, from 1-4-2006, on this Works
Contract the deduction should be at 25% as residuary contract. So on the
balance value the tax will be at 12.5% or 4% as discussed above.
Though not stated in query
the nature of transaction is also required to be determined in your case;
i.e., whether it is Works Contract or not. If the supply of toner etc. is
without any service portion it may be considered as normal sale without
attracting deduction towards labour portion. You may examine this issue also.
