TaxTMI 
TaxTMI 
2014 (9) TMI 245
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....on scheme notified under section 42(3A) of the Maharashtra Value Added Tax Act, 2002, by a notification dated July 9, 2010, in respect of the period commencing from June 26, 2006, in the same manner as extended by the Notification to agreements which are registered on or after April 1, 2010. The proceedings before this court have been instituted by the Builders Association of India and by the Maharashtra Chamber of Housing and Industry on behalf of their members. The Legislature in the State of Maharashtra amended the provisions of section 2(24) of the Maharashtra Value Added Tax Act, 2002, initially by Maharashtra Act XXXII of 2006 and thereafter by Maharashtra Act XXV of 2007. Consequent upon these amendments, the expression "sale" in section 2(24) is defined in the following terms: "(24) 'sale' means a sale of goods made within the State for cash or deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge; and the words 'sell', 'buy' and 'purchase', with all their grammatical variations and cognate expressions, shall be construed accordingly;" Explanation (ii) provides that for the purpo....
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....ayment of tax on or before August 31, 2012. In an interim application filed before the Supreme Court, a stay was sought of the circular dated August 6, 2012 besides an order of restraint against the sales tax authorities from taking coercive steps for recovery of tax for the period from 2006. In an interim order dated August 28, 2012, the Supreme Court noted the statement made by the Advocate-General on behalf of the State that the time prescribed for registration until August 31, 2012 would stand extended until October 15, 2012 and the time for filing of returns would stand extended to October 31, 2012. In view of this statement, the Supreme Court issued the following interim directions: "Having regard to the above statement of the learned AdvocateGeneral, we are satisfied that the following interim arrangement shall subserve the ends of justice: (i) The time for registration by the developers as per clause (1) of the trade circular dated August 6, 2012 shall stand extended up to October 15, 2012 and the time for filing returns by the developers as per clause (m) of the said circular shall stand extended up to October 31, 2012. (ii) In case the concerned developers pay tax unde....
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....cheme developer has to pay five per cent tax on the agreement value. Land deduction is not available. Input-tax credit is available subject to the reduction of four per cent. 2. Actual expense method under rule 58-Under rule 58, the deduction of labour and service charges is available on actual basis. Land deduction is also available. Set-off will be calculated subject to the condition under rules 53 and 54. 3. Standard deduction method under rule 58-Under rule 58, the deduction of land cost will be allowed. Thereafter 30 per cent standard deduction from remaining amount will be available as per proviso to sub-rule (1). Set-off will be calculated subject to the condition under rules 53 and 54. After April 1, 2010 The developers can opt for fourth option also, under this option under section 42(3A), developer has to pay one per cent tax on agreement value. No land deduction and input-tax credit is available." In the circular dated September 26, 2012, the options which were provided to developers for the payment of VAT were reiterated in similar terms. The circular dated September 26, 2012 stipulates that developers would have to discharge their tax liability by selecting one op....
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....l agreements which are registered on or after April 1, 2010 shall be covered under the scheme. Rule 58 of the Maharashtra Value Added Tax Rules provides for determination of the sale price and of the purchase price in respect of a sale by the transfer of property in goods involved in the execution of a works contract. Insofar as is material, the substantive part of sub-rule (1) provides as follows: "58. Determination of sale price and of purchase price in respect of sale by transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.-(1) The value of the goods at the time of the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract may be determined by effecting the following deductions from the value of the entire contract, in so far as the amounts relating to the deduction pertain to the said works contract:- (a) labour and service charges for the execution of the works where the labour and service done in relation to the goods is subsequent to the said transfer of property; (b) amounts paid by way of price for sub-contract, if any, to subcontractors; (....
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....-rule shall not exceed 70 per cent of the agreement value." (The proviso has since been deleted.). Now it is in this background that it would be necessary to consider the submissions which have been urged on behalf of the petitioners. The learned senior counsel appearing on behalf of the petitioners in the petition filed by the Builders Association of India urged the following submissions: (i) The circular dated August 6, 2012 essentially requires compliance of the judgment of this court upholding the constitutional validity of section 2(24) and is unexceptionable. The substantive challenge, however, is to the circular dated September 26, 2012 on the ground that the circular stipulates that no method apart from those which are statutorily prescribed will be admissible for determining the assessable value of the goods which are transferred in the execution of a works contract; and (ii) Rule 58(1) stipulates that the value of the goods at the time of transfer of property in goods involved in the execution of a works contract may be determined by effecting certain specified deductions from the value of the entire contract. The use of the expression "may be" is indicative of the l....
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....itially the proviso to rule 58(1 A) had stipulated that the deduction towards the cost of land shall not exceed 70 per cent of the agreement value, this proviso was deleted by a notification dated July 30, 2012 from its inception which would constitute an acknowledgment that the land cost can extend beyond 70 per cent. The circular to the extent to which it restricts options available to the developers under the statutory rules, would be ultra vires; (iv) There can be no valid distinction between agreements which were executed from June 20, 2006 until March 30, 2010 and those registered after April 1, 2010. Both sets of agreements constitute the same class. Assessment under the composition scheme of the value of the goods transferred in the execution of a works contract is determined at one per cent of the contract value and there is no reason why this should not apply to the period commencing from June 20, 2006 for which such transactions have come into the fold of value added taxation. Moreover, since the amendment which was brought out with effect from June 20, 2006, proceedings were pending before this court and there was no clarity on the issue until the judgment of the Divis....
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....annon Dunkerley [1993] 88 STC 204 (SC); [1993] 1 SCC 364 held this to be a permissible method. Once it is a permissible method, it is open to the Legislature or its delegate to adopt one of those methods on principles of uniformity; (vi) A composition scheme involves a concession or exemption which need not be given to everyone in order to be valid. Under inclusion can never be a ground to set aside a concession. A composition scheme is not in the nature of an amnesty. While providing a scheme of composition, it was legitimately open to the Government as a delegate of the Legislature to prescribe a cut-off date and to extend the scheme to agreements registered on or after that date. Section 42(3A) was introduced by way of amendment with effect from April 1, 2010 and a view was taken to the effect that the scheme should be extended to agreements which are registered after April 1, 2010. That in itself would not render the scheme invalid. Section 42(3A), properly construed, is prospective in nature and it was open to the Government in consequence to apply the scheme of composition with effect from April 1, 2010. The rival submissions now fall for consideration. The provisions of s....
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....e of the goods involved in the execution of a works contract, a more convenient mode would be to take the value of the works contract as a whole and to make certain specified deductions therefrom of the cost of labour and service rendered by the contractor during the course of the execution of the works contract. This would also ensure against an evasion of tax. As the judgment of the Supreme Court indicates, counsel for the contractors submitted that in that event certain deductions would have to be made from the value of the entire contract in order to arrive at the value of the goods involved in the execution of the works contract. After considering the rival submissions, the Supreme Court held as follows (pages 234 and 235 in 88 STC): ". . . The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover: (a) Labour charges for execution of the works; (b) amount paid to a sub-contractor for labour and services; (c) charges for planning, designing and architect's fees; (d) charges for ....
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....ed by a notification dated June 1, 2009, with effect from June 20, 2006. In other words, sub-rule (1A) relates back to the date of the amendment to section 2(24) of the Maharashtra Value Added Tax Act, 2002. Sub-rule (1A) specifically deals with that category of construction contracts in which, along with immovable property, the land or interest in land is to be conveyed and the property in goods involved in the execution of the construction contract is also transferred to the purchaser. Rule 58(1A) stipulates that the value of the goods transferred shall be calculated after making the deductions under sub-rule (1) and the cost of the land from the total agreement value. In other words, in the case of a construction contract where the works contract involves not just an element of transfer of property in goods, but a transfer of land or interest in land, there is a mandate to apply the provisions of sub-rule (1) in computing the value of the goods at the time of transfer. Similarly, the cost of the land has to be deducted from the total agreement value. That the subordinate legislation has made a mandatory provision is evident from the use of the expression "shall be calculated aft....
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....rmity, that a particular method of computation shall be adopted. So long as the method which has been adopted is not arbitrary and bears a reasonable nexus with the object of the legislation, the court would not interfere in a statutory choice made by the Legislature or by its delegate. In the present case, rule 58(1A) mandates how the value of goods involved in the execution of a construction contract at the time of the transfer of property in the goods is to be determined in those cases where contract also involves a transfer of land or interest in land. The circular dated September 26, 2012 does no more than specify the mandate of the statute. The circular has not introduced a condition by way of a restriction which is not found in the statute. Plainly, rule 58(1A) does not permit the developer to take recourse to a method of computation other than what is specified in the provision. Hence the circular dated September 6, 2012 was only clarificatory. In Commissioner of Wealth-tax v. Sharvan Kumar Swarup and Sons [1994] 210 ITR 886 (SC), the Supreme Court dealt with the provisions of rule 1BB of the Wealth Tax Rules, 1957 and the issue which fell for determination was whether that....
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....y seeks to provide an option under which in lieu of the tax which is payable under the provisions of the Act a registered dealer can pay what is described as the composition amount in discharge of the tax liability. In framing a scheme for composition the State as a delegate of the Legislature has to balance numerous considerations including the interest of the revenue, the need to encourage compliance and the burden on the tax administration which is obviated by the introduction of a composition option. A scheme for composition provides an option to an assessee. The assessee is not compelled to accept the option which is provided in the scheme of composition. The composition scheme is not in the nature of amnesty but a provision which has been made by the State acting as a delegate of the Legislature for composition by a registered dealer undertaking the construction of flats or dwelling units. The scheme provides for a rate of tax by way of composition in lieu of the tax payable on the transfer of goods involved in the execution of a works contract. A scheme for composition is, therefore, in the nature of a concession which is granted by the State to a certain class or category o....
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....964, were not given the same concession as the transactions between November 10, 1964 and June 9, 1969 does not mean that the latter concession is unconstitutional. A concession is not a matter of right. Where the Legislature taking into consideration the hardships caused to a certain set of taxpayers gives them a certain concession it does not mean that that action is bad as another set of tax-payers similarly situated may not have been given a similar con cession. It would not be proper to strike down the provision of law giving concession to the former on the ground that the latter are not given such concession. Nor is it possible for this court to direct that the latter set should be given a similar concession. That would mean legislation by this court and this court has no legislative powers." Extrapolating these observations to the facts of the present case, what the scheme of composition has done is to make it applicable to agreements which were registered after April 1, 2010. It would not be proper for this court to strike down the provision by which the option of composition has been given to agreements which were registered after April 1, 2010. Nor for that matter, would....
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....y way of amelioration to those persons whose lands had been resumed by the State. Having regard to the object of the legislation the court held that the exclusion of a certain category of debts would not subserve the object of the law. The judgment of the Supreme Court in Vishnudas Hundumal v. State of Madhya Pradesh AIR 1981 SC 1636, dealt with a situation where holders of stage carriage permits granted under the Motor Vehicles Act, 1939 were operating stage carriages on routes for which permits were granted. A scheme was framed by the State Road Transport Corporation under which certain routes came to be reserved for exclusive operation by the Corporation. Part of the routes on which the petitioners were operating overlapped with the notified routes, as a result of which their permits were curtailed or cancelled by prohibiting them from operating their stage carriages on a portion of the routes which overlapped with the notified routes. The Supreme Court noted that there were other permit holders in the same class whose routes had overlapped with the notified routes in respect of which their permits were neither curtailed nor cancelled. The Supreme Court held that this was an err....