Meaning of ‘Sale’ under Notification

Notification issued under sec. 8(5) of the MVAT Act, 2002, allowing concessional rate of tax on sales to certain specified persons such as State Government Central Government Electrical Under-takings etc., calls for further clarification. The said notification begins with as expressions "Sales of Goods by Registered Dealer" which conveys a meaning that only ‘sale’ as understood under the "Sale of Goods Act, 1930" is covered. However, the legal interpretation thereof shall invariable cover even deemed sales such as Works Contract, Lease etc. in view of the definition of ‘sale’ u/s. 2(24) of the MVAT Act, 2002. The dealers have certain confusion in their minds whether work contract entered into with such persons would attract their concessional rate of tax i.e., @ 4%. The dealers opting for composition may not be able to claim the benefit of the notification. However, dealers paying the tax as per the provisions of rule 58 will be able to claim the benefit. Deemed sale in the nature of ‘Transfer of Right to use any Goods for any purpose’; i.e., lease also should be eligible for benefit. The Commr. of Sales Tax may issue a Circular to clarify the position to this effect in respect of all similar notifications of above nature.

Profession tax on VRS

The Sales Tax Dept. has finally reconciled with the legal position regarding taxability of VRS compensation amount under Profession Tax Act by issuing a Corrigendum vide Circular No. 19T of 2006 dt. 18-8-2006. I had raised an alarm against the earlier Circular No. 26T of 2005 dt. 15-10-2005 which was clearly contrary to the ratio laid down by the Bombay High Court decision in the case of Reserve Bank of India Employers vs. C.S.T. In spite of the judgment, the Commr. of Sales Tax had directed to treat the lump sum amount as well as instalments paid over future period as taxable during those years.

The recent Circular has at last correctly spelled out the legal position. However, there are certain issues which need clarification. The learned Commr. of Sales Tax has stated that "An employer shall be responsible for payment of profession tax only for the period up to which an employee is under actual employment with him."

The said position ought to have been explained with an illustration. The expression covers a meaning that the compensation amount paid or payable shall be treated as salary for the said year in which the employee retire and profession tax has to be paid upto the month of his resignation. In normal circumstances, the said amount of compensation will exceed the highest slab and rate of profession tax will be
"Rs. 2,500/- payable at Rs. 200/- p.m. from March to January and Rs. 300/- for the month of February". It is not clear how this mode of payment is viable when the employee retires in the middle of the year. He is no more in the employment thereafter and the entire liability of profession tax need to be paid in the same month after reducing the tax already paid during previous months. This point needs to be clarified further.

Issues relating to VAT Audit

We are in receipt of the latest Circular No. 26T of 2006 dt. 18-9-2006 resolving many issues arising out of VAT Audit. The effort definitely deserves a compliment since most of the issues have been dealt with and a solution is provided. There are certain aspects which have escaped attention.

1. A case where dealer has failed to apply for TIN has been considered in Point No. 5. It is stated that Audit Report for the entire period covering the URD period as well can be prepared. However, it has not considered the repercussions on the dealers buying from such dealers during the URD period. For a technical error on the part of such selling dealer, the buyer may not be able to claim set-off. The selling dealer does not have the right to collect the taxes separately in the invoice in URD period. But it is most likely that such dealers in the natural course of business have continued collecting the taxes and have issued the bills mentioning the old R.C. No. although is has been automatically cancelled on failure to file an application for TIN. It is extremely difficult for the buying dealer to verify whether the seller has applied for TIN in time. The Commr. of Sales Tax has also time and again reiterated that no administrative relief will be given to such dealers. In such a situation, what is the precaution that needs to be taken by the buying dealer’s. The C.S.T. may kindly explain.
    

2. In Point No. 24(a), it is explained that the unadjusted set-off/refund claimed in March is not to be adjusted in returns pertaining to the year 2006-07. However, the Trade Circular No. 18T of 2006
   dt. 1-8-2006 relating to procedure for claiming refund has allowed the dealers to adjust the refund in the succeeding year; i.e., 2006-07 as a matter of concession granted only for the refunds pertaining to the year 2005-06.

Therefore, the above explanation in Point No. 24(a) appears to be contradictory. The Commr. of Sales Tax may kindly explain this discrepancy.

Revised rules – Long awaited

It is expected that MVAT Rules would undergo radical changes with retrospective effect being a response to various representations made by our Association and other professional bodies as well as trading community. However, the revised rules are not yet received to take any corrective action for the year 2005-06. How long the dealers and practitioner should wait for them? It is high time that ice gets broken soon.

Dealers are also waiting eagerly for notification specifying construction contracts liable to composition @ 5% as per the amended section 42(3)(a). The contract which are obliviously known as contraction contracts too cannot take benefit of lower rate of composition in absence of the said notification. They will be liable to composition @ 8% until the date of such notification. Therefore, Government should urgently issue the required notification.