Query No. 1

1. Whether the Term "Used in same form / or used as it is " has significance under the provisions of MVAT Act, 2002?

2. How to compute tax liability on goods such as steel bars, angles, plates, girders etc. which are for making grills, windows, doors or other structural or fabrication work? What is the tax rate? 4% or 12.50%?

3. How to compute tax liability on goods such as aluminium sections, bars angles, plates, composite panels etc. which are used for making grills, windows, doors or structural or fabrication work? What is the tax rate? 4% or 12.50%? Whether there will be difference in tax rate, if the aluminium sections used are powder-coated or anodized?

Please give me your precious opinion on the above-mentioned queries raised to you. Please do the needful.

Dhiraj Ashok Shah

Reply

1. The term ‘used in same form or used as it is’ has no much significance under MVAT Act, 2002. However if after processing also the goods put to use can be said to be in the same form etc. it can be said that there is no manufacturing. If no manufacturing then the item will be taxable at same rate as the tax on purchase. Even if two or more things are put together but still if there is no manufacturing then the item will be taxable as per their respective original form.

2. In my view when out of bars, grills/windows are supplied in works contract it will be taxable at 12.5% and not @ 4%.

3. The reply to this query is same as above in (ii)above. Even if the aluminium sections are powder coated or anodized it will not make any difference.

Query No. 2

One of my client is in business of Mining work of Silica Sand. The mines of silica sands are into Maharashtra State. The dealer is having his branch/processing unit at Karnataka. The dealer transfers silica sand to his Karnataka branch (Branch transfer against 'F' Form). The dealer also having sale of silica-sand into Maharashtra State (Both Local & Interstate).

1. Whether he is eligible to claim full set-off on goods used in mining activity? Goods used in mining activity are such as mining equipment / excavators spares parts, High Speed diesel (HSD) for generators and excavators and mining equipment’s other consumables and stores etc.

2. Out of total turnover the quantum of Branch transfer outside the State is 90%.

3. Whether the goods used in mining are liable for reduction under Rule 53(3) of the MAVT Act, 2002, in respect of branch transfer outside the State? If reduction is applicable then in which proportion? Because there is no bifurcation of goods, consumables used for mining of local sales or OMS Branch transfer.

Please give me your precious opinion on the above-mentioned queries raised to you. Please do the needful.

Dhiraj Ashok Shah

Reply

1. Set off under MVAT Act, 2002 is available on all purchases subject to conditions of reduction and negative list. You may refer to Rules 53 and 54 for complete details. If you are not adversely affected by above Rules, you will get full set off on mining equipments. On HSD you cannot get set off since it is in negative list of Rules 54(b). For other items also you refer to Rule 53 and 54, more particularly Rule 53(6).

2. Even if branch transfer is 90% still you can get set off on equipments if not hit by any other sub-rule of Rules 53/54.

3. Since the set off is to be reduced on corresponding taxable goods, the reduction for branch transfer should be applied to the purchases, which form part of goods, transferred. In my opinion the reduction cannot apply to equipments as they will be capital goods and capital goods are specifically excluded from reduction. The parts and other goods etc. also cannot be subject to reduction as not falling in the category of "corresponding" purchases.

Query No. 3

We have finalized the Books of Account for the financial year 2006-07 of few dealers who are covered by Sec. 61 of the MVAT Act, 2002. We have conducted the VAT Audit and finalized the VAT liability too. We are in a position to submit the VAT Audit report in Form No. 704. But the referred circular suggests that your office is going to revise the Form 704 extensively.

• Whether Form 704 will be revised for the financial year 2006-07? If yes by what date?

• Whether we should wait for revised Form 704 and not to submit the report in present Form 704?

• Suppose if few dealers have already obtained the VAT Audit Report in Form 704 from the VAT Auditor and submitted the same to the VAT authority; what will be their position on revision of Form 704 by your office on future date?

We hope that a trade circular on this subject will serve the purpose at large.

Mandar S. Lele

Reply

Till the audit form is revised the VAT Auditor can give report in current form and can be submitted to department. There cannot be any difficulty out of it. The new form will apply after the date of change in form, unless any speaking provision is made for retrospective effect. If so made then Department will issue guidelines for audit reports already submitted and in my opinion the audit reports already filed will be saved from submission of fresh audit reports.

Query No. 4

My client ‘A’ is a dealer in cement under VAT. He purchases cement from dealer ‘B’ who is E.C. Holder (Exemption unit). ‘A’ purchases cement from ‘B’ at Rs. 200/- and selling goods at Rs. 195/- After some months "A’ receives credit notes as under from ‘B’

1. Rate Difference

2. Cash Discount

3. Quantity Discount

4. Pref. Discount

5. Exclusive Discount

6. Special Incentives

There is no specific agreement with ‘A’

So kindly explain the VAT position? Also whether tax is to be paid on the incentives or not.

P. S. Jain

Reply

From given description it cannot be ascertained as to whether the above credit notes reduce the purchase price. The position will normally depend upon the treatment given by vendor. If vendor has considered the credit notes as reducing his sale price, correspondingly it will also reduce your purchase price. In such case the margin on which you will be liable to pay tax as per Rule 57(2) will increase. If the vendor does not treat the credit notes as reducing his sale price then your purchase price will remain as it is and in such case credit notes will not make any difference.

Query No. 5

1. One of my clients is a fresh Chartered Accountant who has obtained COP in January 2006. He has applied for Professional Tax Enrolment in the month of May 2006 under Entry No. 2 and got registered but Registering Authority has put the Professional Tax Levy for the year 2005-06 also without giving two years exemption which was available in the year of obtaining COP (Certificate of Practice). The exemption is removed of two years in the State Budget, 2006-07 which is effective from 1-4-2006. Therefore the Authority is write justifiable in leaving professional Tax Levy for the year 2005-06 & 2006-07.

2. One of my clients is a co-cooperative housing society , which has given a contract of Rs. 15 lakhs for major repairing work of the society to civil contractor, but work is done partly in the year 2006-07 and partly in the year 2007-08. Is the WCT TDS provisions will applicable to them and if applicable what will be rate of deduction? and who the payment is to be made?

3. One of my clients has applied for MVAT registration under voluntary registration scheme and opted for composition scheme as retailer. But when he has started his activities he followed normal MVAT provisions i.e. charging VAT separately and issuing Tax Invoice as his customers were requiring invoice showing seperately Tax Paid Invoice and not inclusive invoice. Now, which form he has to file to inform Sales-tax Authority for switching from Composition Scheme to normal MVAT provisions from the beginning of registration itself?

Hope, you will do the needful in the matter and oblige.

Reply

1. As rightly stated by you the schedule is amended from 1-4-2006. As COP holder, the C.A. becomes liable to tax in 2005-06 where exemption of first two years was available. In my opinion he will be governed by the position of 2005-06 and shall not be liable for 2005-06 and 2006-07. You can file appeal against above E.C..

2. The TDS is deductible if the society is paying more than Rs.10,00,000/- to the contractor in one year, otherwise not. The amount deducted is to be paid in Form 405 in bank where sales tax is accepted. The rate will be 2% if contractor is registered dealer, otherwise 4%.

3. There is no such specific form. You can write a letter on your letter head and can inform about withdrawal from the scheme.

Query No. 6

As per the Budget speech of 2007 Textile Processors are exempted from Tax Liability. So whether my client has to charge as per Matushree Judgment for the Accounting year from April 2007 onwards and what is the rate of Tax for that as in Washing & Dying only Chemical is used and whether he is liable under MVAT Act please guide us.

SAP Associates

Reply 6

Though in budget speech exemption is announced for Textile processes no provision effectuating the said proposal is still brought in the Act/Rules. Unless the actual provision is notified it is difficult to know the scope of it.