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No Deduction Certificate
The apex court has as early as in the year 1967,
in the case of Bhawani Cotton Mills vs. The State of Punjab reported in 20 STC
290 given a verdict that if a person is not liable for payment of tax at all at
any time, the collection of tax from him with a possible contingency of refund
at a later stage will not make the original levy valid; because if the sales or
purchases are exempt from taxation altogether they can never be taken into
account at any stage for the purpose of calculating or arriving at the taxable
turnover and for levying tax.
The Government, despite this
direct judgment, has time and again made attempts to grab the revenue on the
transactions which are either not liable to tax by the State under its State law
or are liable for lesser amount of tax. This is the reason behind further
judgments of Supreme Court in Steel Authority of India vs. State of Orissa (118
STC 297), Naphtha Jhakri Jt. Venture vs. State of Himachal Pradesh (118 STC
306), Rapti Commission Agency (147 STC 566).
The State of Maharashtra u/s.
31(b)(i) of the MVAT Act, 2002 has scrupulously followed the principles laid
down by the apex court. An employer has been prohibited to deduct tax on
interstate works contract. He can’t also deduct more tax than payable. But, the
question is who will decide the nature of the contract or the quantum of the tax
leviable?
By an amendment effected on
20th June, 2006 to section 31(1)(b)(ii) the Government has made provision to
issue no deduction certificate only in cases of pure labour contracts. No
certificate is contemplated in the case of divisible contract or contract
involving lesser or negligible payment of tax. In fact, we were expecting the
Government to be more pragmatic and make provision for certification even for
the sales covered by section 8 of the MVAT Act, 2002.
All the employers,
predominantly the Government and semi-Government bodies are now deducting the
tax at full rate disregarding the interstate nature of the contract or tax
liability involved in the contract. The Government has not brought into force
section 55 under which the contractors could have obtained an Advance Ruling.
Only provision available is to get the nature of the contract determined under
section 56 or get the sale/purchase price and the taxes applicable thereto
determined under clauses (d) and (e) of sub-section (1) thereof. But, by the
time the Commissioner determines the same, the contract would get over. Further,
even after getting such order from the Commissioner which in all probabilities
will have to be obtained by the contractor on his application, it is doubtful
whether an employer would accept the same since the Commissioner can’t issue any
direction to the employer in the order.
Ironically, non-deduction of
TDS or non payment of the same have been made punishable under section 74 (3)(g)
but excess deduction or unauthorized deduction has not been made punishable. May
we expect Hon'ble Commissioner to look into the matter and recommend necessary
remedies under the MVAT Act?
V.P. Patkar
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