TMI Blog2014 (9) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the court be justified in directing that the same option of composition should be allowed to agreements which were registered prior to April 1, 2010. By issuing such a direction the court in the exercise of its jurisdiction under article 226 would be legislating by directing the delegate of the Legislature to extend the ambit of the composition of scheme beyond what was provided in the scheme. That is impermissible. There is no merit in the challenges which have been addressed by the petitioners before this court. We hold in consequence that the circulars dated August 6, 2012 and September 26, 2012 are not ultra vires. We have also come to the conclusion that the composition scheme is not ultra vires in imposing a condition to the effect that it shall cover all agreements registered after April 1, 2010. During the course of the hearing we have been informed by counsel appearing on behalf of the petitioners that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;, 'buy' and 'purchase', with all their grammatical variations and cognate expressions, shall be construed accordingly; Explanation (ii) provides that for the purpose of this clause, sale would include: (ii) the transfer of property in goods whether as goods or in some other form involved in the execution of a works contract including, an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property; As a result of the amendment, the State Legislature brought within the field of taxation under the Maharashtra Value Added Tax Act, the transfer of property in goods involved in the execution of a works contract including, inter alia, agreements for building and construction of immovable property. The constitutional validity of these provisions together with those of rule 58(1A) of the Rules framed under the Act was challenged in a batch of writ petitions before this court. The challenge in those cases also involved the validity of a trade circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 under the Maharashtra Value Added Tax Act, 2002 (for short, 'the 2002 Act') as amended vide section 2(24) with effect from June 20, 2006 on or before October 31, 2012, the coercive process for recovery of tax, interest or penalty shall remain stayed. This shall however not preclude the assessing officer to complete the assessment. (iii) The above payment of tax by the concerned developers shall be subject to the final decision in the matter before this court. (iv) In case the amendment in section 2(24) of the 2002 Act is held to be unconstitutional and the tax so deposited/paid by the developers is ordered to be returned by the State Government to the developers, the same shall be returned along with interest at such rate that may be ordered by the court finally at the time of disposal of the matter. The Supreme Court has directed by way of an interim arrangement that coercive process for recovery of tax, interest and penalty shall remain stayed in the case of those develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 option. The circular then states as follows: Some queries have been received regarding liability to be worked out on cost plus basis, i.e., cost of material and profit as per balance sheet. It is now clarified that no method apart from those statutorily prescribed and mentioned above in the rules will be admissible. Section 42 of the Maharashtra Value Added Tax Act, 2002, provides for composition of tax. Sub-section (3) of section 42 provides for composition in respect of a dealer liable to pay tax on sales effected by way of transfer of property in goods involved in the execution of a works contract. Under sub-section (3) a provision is made for the payment of a lump-sum by way of composition, subject to the restrictions and conditions that may be prescribed, of an amount equal to (i) five per cent of the total contract value of the works contract in the case of a construction contract; and (ii) eight per cent of the total contract value of a works contract i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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; (c) charges for planning, designing and architect's fees; (d) charges for obtaining on hire or otherwise, machinery and tools for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel used in the execution of works contract, the property in which is not transferred in the course of execution of the works contract; (f) cost of establishment of the contractor to the extent to which it is relatable to supply of the said labour and services; (g) other similar expenses relatable to the said supply of labour and services, where the labour and services are subsequent to the said transfer of property; (h) profit earned by the contractor to the extent it is relatable to the supply of said labour and services: The proviso to sub-rule (1) however stipulates that where the contractor has not maintained accounts which enable a proper evaluation of the different deductions as specified above, or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 legislative intent that the method prescribed by rule 58(1) is not the only permissible method. It would be perfectly open to the assessee to provide his computation of the assessable value on the basis of the actual cost of the material supplied coupled with a profit element and the cost plus method is a recognized method of valuation. Rule 58(1) does not preclude an assessee while filing returns from taking recourse to the cost plus method. The circular dated September 26, 2012, to the extent to which it stipulates that no other method than what is statutorily prescribed would be permissible is contrary to rule 58(1); (iii) The amended provisions of section 2(24) came into effect from June 20, 2006. The composition scheme which has been notified on July 9, 2010, under section 42(3A) should therefore be extended with effect from June 20, 2006 and the notification of the State Government to the extent to which it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Division Bench dated April 10, 2012 Reported as Maharashtra Chamber of Housing Industry v. State of Maharashtra [2012] 51 VST 168 (Bom).. In these circumstances, the composition scheme which applies to agreements which have been registered after April 1, 2010 should equally apply to agreements which were registered prior to that date. In response to the submissions which were urged on behalf of the petitioners, the learned Advocate-General urged the following submissions: (i) The provisions of rule 58(1) including the deductions that are specified in clauses (a) to (h) are in conformity with the judgment of the Constitution Bench of the Supreme Court in Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204 (SC); [1993] 1 SCC 364. The proviso to rule 58(1) is similarly in accordance with the observations of the Supreme Court insofar as it provides that in those cases where the accounts of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 section 2(24) of the Maharashtra Value Added Tax Act, 2002 which defines the expression sale were amended with effect from June 20, 2006 so as to bring within the fold of value added taxation, the transfer of property in goods involved in the execution of a works contract including, inter alia, an agreement for building or construction of immovable property. The expression sale price is defined in section 2(25) to mean the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the seller in respect of goods at the time of or before delivery. The expression turnover of sales is defined in section 2(33) to mean the aggregate of the amounts of sale price received or receivable by a dealer in respect of any sale of goods made during a given period after deducting the amount of, (a) sale price, if any, refunded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue 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 obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; (h) profit earned by the contractor to the extent it is relatable to supply of labour and services. The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. The Supreme Court held that the value of the goods involved in the execution of the works contract would have to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 after making the deductions under sub-rule (1) and the cost of the land from the total agreement value . In so far as the cost of the land is concerned, rule 58(1A) provides that it shall be determined in accordance with the guidelines appended to the annual statement of rates prepared under the provisions of the Bombay Stamp (Determination of True Market Value of the Property) Rules, 1995 as applicable on January 1, of the year in which the agreement to sale is registered. Rule 58(1A) incorporates not the entirety of the Stamp Duty Rules, 1995 but only the guidelines which are appended to the annual statement of rates prepared under the provisions of the Rules of 1995. Now, undoubtedly in understanding the guidelines, it would be open to the assessing authority to have due regard to all the provisions of the Rules but this is for understanding that part of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 was a provision which altered substantive rights or was merely procedural. The Supreme Court noted that rule 1BB merely provided a choice amongst well known and well settled modes of valuation and even in the absence of rule 1BB it would not have been objectionable, nor would there be any legal impediment, to adopt the mode of valuation embodied in rule 1BB, namely, the method of capitalization of income on a number of years purchase value. The Supreme Court held that the rule was intended to impart uniformity in valuations and to avoid vagaries and disparities resulting from the application of different modes of valuation in different cases where the nature of the property is similar. The Supreme Court held that rule 1BB was essentially a rule of evidence as to the choice of one of the accepted methods of valuation. The next aspect which needs to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of assessees who fulfil the conditions which are spelt out in the scheme. In Union of India v. Parameswaran Match Works [1975] 1 SCC 305, a Bench of four learned judges of the Supreme Court laid down the governing principles of law in the following observations: . . . In the matter of granting concessions or exemption from tax, the Government has a wide latitude of discretion. It need not give exemption or concession to everyone in order that it may grant the same to some. As we said, the object of granting the concessional rate of duty was to protect the smaller units in the industry from the competition by the larger ones and that object would have been frustrated, if, by adopting the device of fragmentation, the larger units could become the ultimate beneficiaries of the bounty. That a classification can be founded on a particular date and yet b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the court be justified in directing that the same option of composition should be allowed to agreements which were registered prior to April 1, 2010. By issuing such a direction the court in the exercise of its jurisdiction under article 226 would be legislating by directing the delegate of the Legislature to extend the ambit of the composition of scheme beyond what was provided in the scheme. That is impermissible. But it is sought to be urged that those agreements registered after April 1, 2010 and those which have been registered prior to that date fall in the same category and it would be open to the court under article 226 to direct the State Government to extend the same benefit. In support, reliance was placed on the judgment of the Supreme Court in D. S. Nakara v. Union of India [1983] 1 SCC 305. Now Nakara [1983] 1 SCC 305, was a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating 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 error or omission on the part of the regional transport authority which had resulted in gross discrimination between one class of permit holders whose routes overlapped with the notified routes. In this background, the Supreme Court held that the State cannot take recourse to inadvertence the result of which was to cause a glaring discrimination. The Supreme Court therefore held that it was open to the court to remove the cause of discrimination by placing the petitioners in the same class as those who had enjoyed favourable treatment by inadvertence on the part of the regional transport authority. This judgment of the Supreme Court would not really advance the case of the petitioners any further because evidently that was a case where there was an inadvertent act on the part of the authority as a result of which 19 persons whose routes overlapp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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