Consequential Amendments in set off rules

State Government has already passed its budget for 2007-08 but rules have not yet been received with expected amendments. The rate of C.S.T. has been reduced to 3% from 1-4-2007 but retention in set-off u/r. 53(3) to the extent of stock transfers is still 4%. Logically, it should also reduce to 3% since such retention is provided only to compensate loss of C.S.T. on transfers of goods from one State to another otherwise than by way of a sale. As C.S.T. Act is being gradually phased out, the retention of set-off should also move in the same direction and Government should immediately take necessary steps to ensure the parity between the two. Large section of dealers is eagerly waiting for this amendment.

Retrospective effect to amendments on 8-9-2006.

A major chunk of amendments was brought on 8-9-2006 in MVAT Rules, 2005. Barring few exceptions, most of them were made applicable from 8-9-2006 onwards. It must be borne in mind that these amendments were made in order to resolve the teething problems of VAT which were experienced in the first year and a half. Therefore, it logically follows that the amendments made to comfort the dealers in VAT era must be given effect right from the inception; i.e., from 1-4-2005. On an illustrative basis, the following amendments may be considered.

Rule 54(i) as introduced on 1-4-2005 prohibited set-off on purchases of office equipment, furniture, fixture & electrical installation if they are treated as capital assets by the dealer. As a result, electrical installations made even in factories, workshops etc. for running machinery for the purpose of manufacturing were disqualified in set-off rules. The position became absurd when the dealer could claim set-off on purchases of electrical fittings, installations etc. which are charged off to P & L A/c although used in his office premises not connected with manufacturing activity directly but was unable to claim it on the electrical installations made in the main production area. Normally, such electrical installations are capitalized under the group heading ‘Plant & Machinery’. Even then, they still disqualify for set-off. This paradoxical situation is corrected on 8-9-2006 by deleting clause (i) in rule 54 and inserting clause (7A) in rule 53. As per newly inserted rule 53(7A), dealer gets set-off of VAT paid in excess of 4% in case of purchases of office equipments, furniture & fixtures and further, the net effect of the amendments is that dealer gets full set-off on electrical installations whether capitalized or not. Thus, the legislative intention becomes clear so far as policy regards set-off on electrical installation is concerned. Why not allow it right from the beginning? The dealer also faces practical difficulties in segregating such purchases for the period from 1-4-2005 to 7-9-2006. Therefore, it would be in the right spirit to allow such set-off right from 1-4-2005.

So is the case of other beneficial amendments in the rules which ought to have been made effective from 1-4-2005. The Government can definitely take corrective action in this regard while amending rules pursuant to the budget.

Rectification/Revision

The Hon’ble Bombay High Court vide its judgment in the case of M/s. Shiv Shyam Sales Enterprises vs. State of Maharashtra (W.P. No. 312 of 1989 decided on 6-6-2006 by Nagpur Bench) has created a bottleneck in the remedial measures such as rectification and revision. It is held that rectification order needs to be passed by the authorised officer u/s. 62 of the B.S.T. Act within the period of two years from the date of passing of the original order irrespective of the fact whether assessee seeks the rectification or the officer on his own motion desires to rectify the order. Right from the inception of the B.S.T. Act, it has been a settled position that rectification at the behest of the assessee has to be made within the aforesaid period of two years but he has obviously no control over passing of the rectification application order within that period. Hon’ble M.S.T.T. also has been following the same view which was upheld in its old judgment in the case of M/s. Motilal & Co. (App. No. 471 of 1964 dt. 27-6-1967). All of a sudden, there is a bolt from the blue in the form of this recent judgment of Hon’ble Bombay High Court which has made the situation topsy-turvy.

Similarly, it is also incidentally held in this judgment that revision order passed u/s. 57 is not an original order which can be appealed against u/s. 55. This decision has serious implications resulting in gross injustice to the dealers and causing huge wastage of time and money. As per the ratio laid down by this judgment, the dealers will have to approach High Court by way of writ petition against every revision order aggrieved by them. Thus, revision of any order, per se, can be an imminent threat to the dealers leading to many unpleasant consequences such as corruption.