Ordinance No. VI of 2006

The Government of Maharashtra has by and large adopted the route of ordinances to carry out any amendments probably to avoid any debate on the provisions in the State Assembly. A cursory look at the said ordinance sends tremors to the dealers reminding them of the complications under the B.S.T. Act. So far simple MVAT Act may turn out to be complicated, cumbersome bulky piece of legislation in no time.

The Government as usual has assumed the powers to issue notifications to grant exemptions to various dealers such as CSD, Indian Naval Canteen Services, MTNL, BSNL, State or Central Government, Electricity generation or transmission companies, telephone service providers etc. The notifications are not yet out and it is not known what conditions will be imposed through them. The construction contracts also will be notified by the Government. The oral assurances given to retail oil dealers such as petrol pumps to keep them outside VAT can be put into black and white since the powers to issue such notifications are granted u/s. 41. Thus, ‘Notification Raj’ will emerge in near future. Dealers in Maharashtra have bitter memories about notifications due to their untimeliness, arbitrary and unpractical conditions and consequences. Time to come will demonstrate whether VAT regime makes any difference in this situation. But one thing is sure that notifications will definitely breed litigation.

There are certain welcome amendments as well such as dispensing away with Sales Tax Deduction Account Number and Annual Return for T.D.S. as also fresh registration for change in place of business, permission to file separate returns for different places or divisions etc.

The implications were discussed at length at our seminar on 15-7-2006. I had raised a point regarding alignment of entry tax rates under the Maharashtra Tax on Entry of Goods Into Local Areas Act, 2002 with MVAT Act, 2002. The said amendment is carried out through this Ordinance. It means that local VAT rates and entry tax rates will be the same from 1-4-2005. If a dealer has already paid entry tax at a higher rate, he will have to claim refund thereof. The said Act and Rules thereunder do not clearly prescribe the provisions for refund although it can be broadly stated that provisions under the local Sales Tax Act will apply to such refunds. This aspect may be clarified by the Department.

No refunds without applications

MVAT Act, 2002 has introduced the system of filing applications (Form No. 501) for claiming refunds. It is not sufficient to file returns showing refunds. The return should be followed by an application in Form 501. It is now provided that no refunds would be granted if the said application is not filed within three years. The period for serving a notice for assessment (for years up to 31-3-2008) has been extended from 4 years to 6 years. Thus, it appears that more leverage is granted to the department whereas dealers are expected to have strict compliance. The Constitutional validity of such provisions also needs to be checked. Can the Department deny the refund outright for a procedural lapse on the part of the dealer ? One has to test the validity only in the Court of Law, if it is challenged by an affected dealer.

Annual Return for TDS

Rule 40(d) of the MVAT Rules, 2005 makes it obligatory for employers to file an annual return for TDS deducted and paid during the year in Form No. 405 within three months from the end of the year. Although the Ordinance No. VI of 2006 has dispensed away with this obligation, the dealers will have to file the return for the year 2005-06. The said return is to be filed with the Joint Commissioner of Sales Tax (Adm.) in whose jurisdiction the employer is situated. However, it is a common experience that Sales Tax authorities are not aware of this provision and decline to accept the return. The Commissioner of Sales Tax may issue directives in this respect. It is also not clear whether the dealers are still required to file the same in view of the amendment effective from 20-6-2006. The annual return was to be filed on or before 30-6-2006 and thus, the amendment was made before the due date for filing return. There is a confusion amongst the dealers whether the amended provisions would apply to financial year 2005-06 or not. The Commissioner of Sales Tax may clarify this aspect urgently.

Time-barred defect notices

The VAT return branch has been over-exerting in finding faults in the VAT returns and sending defect notices. It is seen, by and large, that the defect notices are served on the dealers beyond the period of four months prescribed u/s. 20(1)(b). The dealer or his representatives take a plea that defect notice is served beyond the prescribed time and therefore, may be cancelled. However, the concerned VAT officers refuse to accept their faults and on top of it, advise the dealers to file fresh returns. They also suggest that failure to file fresh returns may result in inviting an audit u/s. 22. This is clearly a threat to the dealers although the officers themselves have not performed their duties within time.

Secondly, the defects pointed out by the said branch are many a times very trivial and do not require a fresh return. But still, the officers insist that fresh return be filed since correction in the return in his possession is not possible due to the fact that figures therein are already fed to the computers. Can they not devise a system by which the corrections in the returns in pursuance of the defect notices also can be incorporated ? Instead, they want the dealers to go through the bigger exercise of filing fresh returns for some silly errors.

The problem is still grimmer in respect of returns for the year 2005-06 since the VAT return forms have been substituted w.e.f. 1-4-2006 and the fresh returns are to be filed in new forms whereas original returns were filed in the old forms. The new forms (221 to 225) are more complicated and there is a likelihood of committing still new errors. Thus, the unending process of defect notices will go on.

Interestingly, the officers state that such defect notices are sent in order to inculcate good habits in the dealers to make them file correct, complete and self/consistent returns although they themselves do not perform the duties within the time-frame given.