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Confederation of Real Estates Developers' Association of India Maharashtra, Builders Association of India Rep By Its Trustee, Mr. D.L. Desai, M/s Prime Property Development Corporation Ltd., Shree Shridharkrupa Builders And Realtors Pvt Ltd Versus The State of Maharashtra Through Ministry of Finance, Commissioner of Sales Tax

2015 (5) TMI 882 - BOMBAY HIGH COURT

Valuation under VAT - deduction of consideration / profit of sale of land - works contracts inter alia of the nature of construction and buildings - Constitutional validity and propriety of notification dated January 29, 2014 - challenge to Rule 58, 58 (1A) and 58 (1B) and the trade circulars 7 T of 2014 and 12 T of 2014 Held that:- The first essential characteristic of MVAT is it is a tax on transfer of property in goods, secondly, uniformity of incidence is also a characteristic of the tax and .....

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rmining the value of a taxable article. The measure for assessing the levy need not correspond completely to the nature of levy, and no fault can be found with the measure so long as it bears nexus with the charge.

While MVAT is a levy on transfer of goods in a works contracts inter alia of the nature of construction and buildings, the stage of collection need not, in point of time coincide with transfer of goods. The MVAT is chargeable with reference to the value of goods being trans .....

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tandard. A standard may be adopted as the measure of levy and may indicate nature of the tax but would not necessarily determine it.

Whether prescription under the provisions according to the contention is inadequate and may be falling short but its incorporation would not be bad or illegal or ultra vires the constitution. In the process, in some cases, if there is any over payment of tax, the provision makes allowance for its refund and would not tantamount to tax on land. Legislatu .....

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on of goods under Rule 58 of the MVAT Rules would let the proper authority to probe into transactions of land dealings by the developers, depending upon facts and circumstances of and evidence in particular case, as it would be open for the competent authority to make proper inquiry and seek details of the transactions and the price at which the property had been purchased. Investigation and inquiries incidental to valuation assessment and the recovery of tax are not precluded or prohibited unde .....

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Mr. V. P. Patkar along with Mr. M. M. Vaidya, and Ms. Manjiri Parasnis For the Respondents : Mr. Sunil V. Manohar, Adv General along with Ms. Geeta Shastri, Additional Government Pleader and Ms. Naira Variava, Special Counsel and Mr. B. B. Sharma, AGP JUDGMENT (Per Sunil P. Deshmukh, J.) 1. Petitioners, in this group of writ petitions, challenge constitutional validity and propriety of notification dated January 29, 2014, issued by Finance Department of State of Maharashtra, pursuant to proviso .....

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rari or an order in the nature of writ of certiorari, quashing and setting aside aforesaid notification dated January 29, 2014 and Trade Circulars dated 21st February, 2014 bearing No. 7 T of 2014 and Trade Circular dated 17th April, 2014 bearing No. 12 T of 2014 and to process applications for determination, as directed to be done in paragraph No. 34 of High Court's order dated 10th April, 2012 in Writ Petition No. 2022 of 2007 and other petitions as well as paragraph No. 121 of Supreme Cou .....

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cation of January 29, 2014 and to allow them to submit revised VAT returns with 'material cost plus gross profit' method and certain other directions to determine value of works contract and to declare that notification of January 29, 2014 to be ultra vires the provisions of MVAT Act 2002 inter alia for want of requirement of previous publication required under section 83 of the Maharashtra Value Added Tax and Rules 58 (1A) and 58 (1B) of MVAT Rules, 2005 and circular 12 T dated 17th Apr .....

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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. (b) amounts paid by way of price for sub-contract, if any, to sub-contractors; (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, .....

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e to the supply of said labour and services: Provided that where the contractor has not maintained accounts which enable a proper evaluation of the different deductions as above or whether the Commissioner finds that the accounts maintained by the contractor are not sufficiently clear or intelligible, the contractor or, as the case may be, the Commissioner may in lieu of the deductions as above provide a lump sum deduction as provided in the Table below and determine accordingly the sale price o .....

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works like construction of buildings, bridges, roads etc. Thirty per cent 6 Construction of railway coaches on under carriages supplied by Railways Thirty per cent 7 Ship and boat building including construction of barges, ferries, tugs, trawlers and dragger Twenty per cent 8 Fixing of sanitary fittings for plumbing drainage and the like Fifteen per cent 9 Painting and polishing Twenty per cent 10 Construction of bodies of motor vehicles and construction of trucks Twenty per cent 11 Laying of p .....

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actor provides for separate charging of tax]. "58 (1A) In case of construction contract, where alongwith the immovable property, the land or, as the case may be, interest in the land, underlying the immovable property is to be conveyed, and the property in the goods (whether as goods or in some other form) involved in the execution of the construction contract is also transferred to the purchaser such transfer is liable to tax under this rule. The value of the said goods at the time of the .....

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ost of land under this sub-rule shall not exceed 70% of the agreement value. (2) The value of goods so arrived at under sub-rule (1) shall, for the purposes of levy of tax, be the sale price or, as the case may be, the purchase price relating to the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract." 4. While there is no amendment to rule 58 (1), by notification dated January 29, 2014, amended rule 58 (1A), rules 58 (1B), (1 .....

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t the time of the transfer shall be calculated after deduction of the cost of the land from the total agreement value. The cost of the land 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 Property) Rules, 1995, as applicable on the 1st January of the year in which the agreement to sell the property is registered. Provided that, after payment of tax on the value .....

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ucted and excess tax paid, if any, shall be refunded." "58 (1B) (a) Where the dealer undertakes the construction of flats, dwellings, buildings or premises and transfers them in pursuance of an agreement along with the land or interest underlying the land then, after deductions under sub-rules (1) and (1A) from the total contract prices, the value of the goods involved in the works contract shall be determined after applying the percentage provided in column (3) of the following TABLE .....

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ework to the Occupancy Certificate. 55% (e) After the Occupancy Certificate NIL % (b) For determining the value of goods as per the Table of clause (a), it shall be necessary for the dealer to furnish a certificate from the Local or Planning Authority certifying the date of completion of the stages referred above and where such authority does not have a procedure for providing such certificate then such certificate from a registered RCC consultant. (1C) If the dealer fails to establish the stage .....

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involved in the execution of a works contract. 5. Grounds of challenge are that the impugned notification and the trade circulars are in express conflict with the observations of the Supreme Court in the case of "Larsen and Toubro Limited V. State of Karnataka and Another" (2014) 1 SCC 708 and other pronouncements of this High Court and the Supreme Court. It is being submitted that amended Rule 58 fails to arrive at true and correct value of goods at the time of incorporation in the w .....

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d, and as such, profit relatable to transfer of land would not be deductible from the total contract value. The Amended Rule 58 (1A) of the MVAT Rules also does not give allowance to deductions on account of consideration for acquisition of FSI / TDR, payments towards eviction of tenants, clearance of encroachment on land. While Rule 58 (1) (h) permits deduction of profit relatable to supply of labour and service, amended rule does not provide for profit relatable to third element, namely, the l .....

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ssues while they purport to answer the questions. According to the petitioners cost plus gross profit method is viable and practicable. 6. The petitioners further contend that Rule 58 (1B) of the MVAT Rules, seeks to enact a wide and arbitrary categorization. Stage wise percentage provided under rule 58 (1B) has no basis, either for stage or for percentage of construction. According to them, percentage of material on which taxes are sought to be levied is on higher side and it is unfair and unco .....

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not the case with the developer. It is further contended that presumptions underlying the table under rule 58 (1B) that work is done on site as per stage given, yet it would not necessarily represent the way construction is carried out, in stages and in the sequences, for, it may be combination of various stages or activities may be simultaneous and as such, the table would not be able to give correct determination of value of work done at the time of entering into an agreement. 7. In the affid .....

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ity in Rule 58 (1A) as indicated in paragraph No. 124 and subject to that validity of Rule 58 (1A) and MVAT Rules has been sustained. It is submitted that it is open for the legislature to devise a method of determining cost of land and that Supreme Court had earlier on upheld the manner of determination of cost of land under Rule 58 (1A). It has further been submitted that introduction of proviso in Rule 58 (1A) under amendment by notification dated 29th January, 2014 (impugned in the present p .....

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ed annual statement of rates. 8. The 2014 amendment also introduces sub rule (1B) to Rule 58 of the MVAT Rules. This sub rule clarifies that the value of goods in a construction contract has to be determined taking into account the stage during which the developer enters into a contract with a purchaser since the activity of construction undertaken by the developer would be a works contract only from the stage the developer enters into contract with flat purchaser. The value addition made to the .....

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nd after taking into account the information by finance department, stages and percentages have been introduced in Rule 58 (1B). It is, thus, submitted that the Rule clearly has nexus with the tax sought to be levied, keeping in mind the principles laid down by the Supreme Court and cannot be said to be arbitrary. 10. Rule 58 (1B), therefore, clarifies the scope of Rule 58 (1A) and ensures that it is the value of the goods only after the works contract is entered into is being levied tax. The ru .....

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2. It is submitted that the amendments to Rule 58 were called for by the dealers themselves, who have made representations to the Department seeking such changes. Representatives of the State have also met with the dealers and developers and have considered their representations. It is being submitted that amendment to Rule 58 is workable and is evident from the number of returns filed for refund claimed under the amended Rule 58 and rely on table given in the reply. It is further submitted that .....

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inguishable from the nature of tax and so long as any standard which maintains a nexus to essential character of levy has to be regarded as valid basis for assessing measure of levy. Further referring to "Builders Association of India V. State of Maharashtra" (2012) 55 VST 504 (Bom), it is submitted that it is a settled legal position that the legislature or its delegate can choose one among several possible methods of computing measure of the tax and so long as the measure chosen is n .....

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ed, the challenge to the circulars is infructuous. The circular merely clarifies that one of the statutorily prescribed method is to be followed. A similar clarification was intended in Trade Circular 14 T of 2012 and that challenge to the same has been negatived by this Court. It is submitted that Trade circular 12 T of 2014 comprises responses to certain frequently asked questions, making reference to the existing provisions of the MVAT Act and Rules and does not contain any direction. It is f .....

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014) 1 SCC 708. According to him, paragraphs No. 115 and 124 of said judgment play pivotal role in the matter. Paragraphs No. 115 and 124 of said judgments read thus - "115. It may, however, be clarified that activity of construction undertaking by the developer would be works contract only from the stage the developer enters into a contract with the flat purchaser. The value addition made to the goods transferred after the agreement is entered into with the flat purchaser can only be made .....

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roperty. The mode of valuation of goods provided in Rule 58 (1A) has to be read in the manner that meets this criteria and we read down Rule 58 (1A) accordingly. The Maharashtra Government has to bring clarity in Rule 58 (1A) as indicated above. Subject to this, the validity of Rule 58 (1A) of MVAT Rules is sustained." 16. The learned senior advocate submits that, Rule 58 (1A) as amended under notification dated January 29, 2014, does not remove the defect noticed in Larsen and Tourbo's .....

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subjected to sales tax / VAT and levy of tax could be directed only to value of goods and not the immovable property and had required such clarity to be brought in the rule. Though insertion of rule 58 (1B) on amendment to Rule 58 ostensibly is aimed at providing clarity as to value of goods to be considered as being transferred in execution of works contract by builder / developer at various stages of construction, however it fails to effectively comply with the directions contained in paragrap .....

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). They further submit that Bombay TMV Rules, 1995 are applicable to vacant lands whereas in the agreement entered into by the developers / builders, subject transfer pertains to developed land. According to them, the provision contemplates that some portion of land may get taxed despite the deductions as are allowed under the provisions and as such, provides for refund. This being so, Rule 58 (1A) does not obviate value of immovable property being taxed. It is contrary to direction of the Apex .....

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ame may be provided at a later stage. Learned senior advocate relies on an extract from said judgment, which is reproduced herein below - "If a person is not liable for payment of tax at all, at any time, the collection of a tax from him, with a possible contingency of refund at a later stage, will not make the original levy valid." 18. According to learned advocates, therefore, proviso to Rule 58 (1A) making the provision for refund would not cure invalidity of the Rule, insofar as it .....

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each other. Having identified the taxable event, tax cannot be levied on a person unconnected with the event, nor the measure or value to which rate of tax can be applied can be altogether unconnected with the subject of tax, though the contours of the same may not be identified." "28. The question of tax on sale of goods may be examined in the same background. The subject of tax being sale, measure of tax for the purpose of quantification must retain nexus with "sale" which .....

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and as such, warrants striking down of the rule, being unconstitutional to the extent it imposes tax on value of immovable property. 21. The Learned senior advocate further contends that there is no general power with the statutory authority to refer to another statutory authority, unless expressly provided in the statute itself. Reliance is placed on "Amia Bala Paul V CIT Shillong (2003) 6 SCC 342, which was a case relating to a valuation report of valuation officer upon an inquiry held by .....

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Learned advocates go on to submit that Rule 58 (1B) fictionally ascertains the value of goods assumed to be transferred in execution of a works contract, depending on the stage of construction. However, according to them, the tax cannot be levied on fictionally prearranged pattern applicable to all cases alike. For said purpose they relied on "Pandit Banarsi Das V. State of Madhya Pradesh" (1955) 6 STC 93. Learned senior advocate submits that it is price of goods deemed to be sold, whi .....

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the construction up to plinth level is likely to be far in excess of 5% of goods used in the entire project. As sales tax is a tax on each transaction of sale, each agreement has to be considered separately for determining value. The stages referred to in Rule 58 (1B), do not accurately measure value of goods transferred. 23. Learned senior advocate, relying on wording of Rule 58 (1) particularly "may be determined", submits that it is open to the assessing authority to adopt any othe .....

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ll not be allowed any other method of arriving at such value, (such as cost plus gross profit method), as the circulars are binding on the authorities and the assessee, would be denied an opportunity to resort to any other method. Consequently, the impugned circular is bad in law. According to the petitioners, the method, as referred to in Pandit Banarasi Das V State of Madhya Pradesh & Others" (1995) 6 STC, 93 would be appropriate method to ascertain value of goods, by arriving at cost .....

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han the ones referred to in the same and as such is ultra vires and bad in law. 24. Mr. Patkar, learned advocate inter alia contends that reasons given by the Government justifying levy are not sufficient and convincing and indicate non consideration of relevant matters. 25. Learned advocate Ms. Parasnis relies upon Queen's Bench decision of Divisional Court in case of "Kruse V. Johnson", to contend that the Division Bench would have a power to review, if it thinks fit to differ fr .....

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d. She contends that incidence at times tends to be on the land or interest in the same and as such, not in conformity with statutory and constitutional requirements and tends to be arbitrary. She also relies on (2006) 4 SCC 517 "State of T. N. V. P. Krshnamurthy". 26. The Advocate General Mr. Sunil V. Manohar leading the arguments for the State of Maharashtra along with other appearing counsel for the respondents submits that while examining the constitutional validity of the law, fun .....

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olding of constitutional validity of amendment to section 2 (24) being in tune with the amendment to Article 366 of the Constitution and further validity of Rule 58 (1A) having been upheld in earlier round of litigation, rationale and the reasons which underwent in considering validity of provisions, apply on all fours to the present case. Present challenge does not require any different approach and / or consideration and as a matter of fact the field having been already circumscribed, nothing .....

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He relies on Five Judge Bench Judgment of the Supreme Court reported in AIR 1980 SC 1088 in the case of "M/s R. R. Engineering Co V. Zilla Prishad Bareilly", wherein the bench has considered as under- "16. It may be, and is often so, that the tax on circumstances and property is levied on the basis of income which the assessee receives from his profession, trade, calling or property. That is, however, not conclusive on the nature of the tax. It is only as a matter of convenience .....

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he name of the tax but to its real nature, its pith and substance, which must determine into what category it falls. Applying these tests, the tax on 'circumstances' will fall in the category of a tax on "a man's financial position, his status taken as a whole and includes what may not properly be comprised under the term 'property' and at the same time ought not to escape assessment." This quotation finds place in the judgment of Malik C.J. in the Full Bench decisi .....

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Committee of Karhal and that Rule 3 framed under section 39 (2) of the Act was invalid. This Court, after referring approvingly to the decision in District Board of Farrukhabad, (supra) particularly to the statement therein that the name given to a tax did not matter and that what had to be considered was the pith and substance of it, observed: A tax on 'circumstances and property' is a composite tax and the word 'circumstances' means a man's financial position, his status as .....

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nagar v. Jugal Kishore that the tax on circumstances and property is fundamentally distinct from and cannot be equated with income tax, that it is not covered by item 82, List I, Schedule 7, of the Constitution and that it is essentially a tax on status or financial position combined with a tax on property. These decisions correctly describe the nature of the tax on circumstances and property. We affirm the view taken therein, especially that the aforesaid tax is not a tax on income. 31. He furt .....

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evident from the Finance Bill, 1978 was to enable the Revenue to collect the legitimate dues of the State from the persons carrying on particular trades in view of the peculiar difficulties experienced in the past and the measure was so enacted to check evasion of substantial revenue due to the State. Trade or business produces or results in income which can be brought to tax. In order to prevent evasion of tax legitimately due on such 'income', Section 44-AC and Section 206-C were enac .....

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not in any way alter the nature and basis of the levy viz., that the tax imposed is a tax on income. It cannot be liable as a tax on purchase of goods. Considered in the light of the practical difficulties envisaged by the Revenue to locate the persons and to collect the tax in certain trades, if the legislature in its wisdom thought that it will facilitate the collection of the tax due from such specified traders on a "presumptive basis", there is nothing in the said legislative measu .....

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c misuse, despite the Dalmia decision has given the impression of being the last sanctuary of losing litigants. In the present case, the levy which is uniform on all sugarcane purchases, is attacked as ultra vires, on the score that the sucrose content of various consignments may vary from place to place, the range of variation being of the order of 8 to 10 per cent and yet a uniform levy by weight on these unequals is sanctioned by the Act. Price of cane is commanded as the only permissible cri .....

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tions of the Administration, traditional practices in the Trade, other economic pros and cons enter the verdict but, after a judicial generosity is extended to the legislative wisdom, if there is writ on the statute perversity, madness in the method or gross disparity, judicial credulity may shape and the measure may meet with its funeral. The Court also quoted the following observations contained in the earlier case - Murthy Match Works Case: "....Even so, a large latitude is allowed to th .....

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lysis courts possess the power to pronounce on the constitutionality of the acts of the other branches whether a classification is based upon substantial differences or is arbitrary, fanciful and consequently illegal. At the same time, the question of classification is primarily for legislative judgment and ordinarily does not become a judicial question. A power to classify being extremely broad and based on diverse considerations of executive pragmatism, the judicature cannot rush in where even .....

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at State Legislature purported to bring within ambit and purview of the expression "sale" under MVAT, an agreement for building and construction of immovable property which is not a works contract and questioned competence of the State Legislature to legislate. As a result, the petitioners contended that the amendments seek to impose a tax on a transaction, which would not be "sale" of goods within the meaning of Entry 54 of the State List under Seventh Schedule to the Consti .....

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ition scheme as well as legitimacy of certain notices had also been challenged. 34. Division Bench of this Court (Dr. D. Y. Chandrachud and R. D. Dhanuka, JJ) under their judgment, have turned down the challenge to the constitutional validity of section 2 (24) as well as Rule 58 (1A) holding them to the constitutionally valid, leaving it open to the determination of the assessing authorities as to whether there is a works contract in given case or not, as it was not possible to provide a compreh .....

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on or would be an exercise in the nature of subordinate legislation. 36. The Division Bench, further observed that value of goods at the time of transfer is to be calculated after making deductions, which are specified under Sub Rule (1). This was permitted to the States as a convenient mode for determining the value of goods in execution of the works contract. 37. And that with the amended definition, cost of land / interest in the land being transferred under the agreement is also required to .....

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t nothing was brought on record to show that Sub Rule (1A) of Rule 58 of the MVAT Rules is an arbitrary Rule. 38. The Division Bench, while turning down challenge to Rule 58 (1A) as was then subsisting, observed in paragraph No. 35 thus - 35. The challenge to Rule 58(1A), may now be considered. The Rule has provided that in the case of construction contracts where the immovable property, land or as the case may be, interest therein is to be conveyed and the property involved in the execution of .....

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orks contract. Sub-rule (1A) stipulates that the cost shall be agreement value. Similarly, the cost of the land is required to be excluded from the total 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 Property) Rules, 1995 as applicable on 1 January of the year in which the agreement to sell the property is registered. The Proviso stipulates that deduction towards the .....

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legislative powers in devising a measure for the tax by excluding the cost of the land. 39. Challenge by the petitioners to the Trade Circular dated 7th February, 2007 and 9th July, 2010 was also negatived. 40. While deciding said writ petition No. 2022 of 2007 and other writ petitions, the Division Bench has taken into account various citations viz., 141 STC 298 (SC) M/s K. Raheja Development Corporation; AIR 1953 Allahabad 700 Radha Raman V State of U.P.; AIR 1958 SC 560 State of Madras V. Ga .....

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2 (2) Bom. C. R. 1 The State of Maharashtra V. Mahavir Lalchand Rathod; (1993) 1 SCC 364 Gannon Dunkerley V. State of Rajashtan; (1999) 5 SCC 725 Veena Hasmukh Jain V. State of Maharashtra; (2000) 6 SCC 579 Hindustan Shipyard Ltd. V. State of A. P.; (2001) 4 SCC 66a Kartar Singh Vs Hari Singh Nalwa; (2006) 3 SCC 1 Bharat Sanchar Nigam Ltd. V. Union of India and (2007) 9 SCC 220 Jayantilal Investments V Madhuvihar Co-op Housing Society. 41. The Division Bench of this Court had considered that in .....

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s also further adverted to that the Supreme Court has also emphasized that there could be cases where the contractor has not maintained proper accounts or the accounts are not found to be worthy of credence by the assessing authority. In such cases, it would be permissible for such legislation to prescribe a formula by fixing a particular percentage of the value of works contract and to allow deduction of amount, which is determined from the value of works contract for the purpose of determining .....

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orcement of composition scheme for the reasons as have been contained in the judgment. 43 The Division Bench in paragraph No. 17 of aforesaid judgment has considered thus - 17. Essentially, what rule 58(1A) does is to provide a particular modality for determining the value of goods involved in the execution of construction contracts where an interest in land or land is also to be conveyed under the contract. The provisions of rule 58(1A) are not under challenge. Where the Legislature has an opti .....

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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 26.9.2012 does no more than specify the mandate of the statute. The Circular h .....

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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 purchase value. The Supreme Court held that the rule was intended to impart uniformity in valua .....

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mmovable property, the land or interest in land is to be conveyed and the property in goods involved is also transferred to the purchaser. Rule 58 (1A) stipulates that the value of the goods transferred shall be calculated after making deductions under sub-rule (1) and similarly, cost of land has to be deducted from the total agreement value. It was further considered that in so far as the cost of the land is concerned, Rule 58 (1A) provides that it shall be determined in accordance with guideli .....

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due regard to all the provisions of the Rules, but this is only for understanding that part of the Rules. 45. Challenge in writ petition (Lodg) No. 2440 of 2012 and writ petition No. 2502 of 2012 inter alia was on the allegation that the circular dated 26th September, 2012 does not give allowance to any other method apart from the ones which are statutorily prescribed for determination of the assessable value of goods, which are transferred in execution of works contract. It was submitted that R .....

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It has been noted that proviso to Rule 58 (1) was enacted to deal with the situation where the Commissioner finds that the accounts of the contractor are not sufficiently clear. 46. A Division Bench at Aurangabad of this Court (R. M. Borde and S. S. Shinde, JJ) under their order dated 3rd March, 2014 had followed aforesaid orders of the Division Bench, observing that whether there exists works contract in the given case and whether the developer or any other person is liable to pay taxes or dues .....

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ed under the Act. 47. The decision of the Division Bench on 12th April, 2012 in writ petition No. 2022 of 2007 and other connected writ petitions, had been taken to the Supreme Court, by the aggrieved petitioners. The Supreme Court has dismissed the challenge to amendment to section 2 (24) of the MVAT Act and rule 58 (1A) of MVAT Rules and had approved the decision rendered by this Court on 12th April, 2012 while deciding Larsen and Tourbo case (2014) 1 SCC 708, observing thus - "123. Sub-r .....

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High Court. The Division Bench of the Bombay High Court found that there was nothing to show that the proviso to the said provision was arbitrary. It held that the Legislature was acting within the field of the legislative powers in devising a measure for the tax by excluding the cost of the land. The Division Bench recorded the following reasons in repelling the challenge to Rule 58(1A). (The Supreme Court had quoted paragraph No. 35 of the judgment of Bombay High Court in writ petition No. 20 .....

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the time of incorporation and does not purport to tax the transfer of immovable property. The mode of valuation of goods provided in Rule 58(1A) has to be read in the manner that meets this criteria and we read down Rule 58(1-A) accordingly. The Maharashtra Government has to bring clarity in Rule 58 (1-A) as indicated above. Subject to this, validity of Rule 58(1-A) of MVAT Rules is sustained." 48. While examining the challenge in the present batch of writ petitions, judgment of this Divisi .....

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value of measure, it may not be considered that it falls foul on mandate of Article 14 and 19 (1) (g) of the Constitution of India and travel beyond the legislative intent of the parent Act. The nature of levy and reading of relevant provisions of the Act together and harmoniously with the rules, do not lead us to a situation where it can be considered that the challenged rules are unconstitutional or invalid. 50. It has been considered in the same that there are several cases in which measure o .....

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with reference to the object of the levy and not with reference to its incidence or machinery. There is a further distinction between the objects of taxation in our constitutional scheme. The object of tax may be an article or substance such as a tax on land and buildings under Entry 49 of List II, or a tax on animals and boats under Entry 58 List II or on a taxable event such as manufacture of goods under Entry 84 of List-I, import or export of goods under Entry 83 of List-I, entry of goods und .....

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he owners of the vehicles themselves." (p.908) (See also: Sainik Motor Jodhpur v. The State of Rajasthan 1962 (1) SCR 517). 29. ….... 30 ….... 31 ….... 32 ….... 33. Since service Tax is not a levy on passengers and goods but on the event of service in connection with the carriage of goods, it is not therefore possible to hold that the Act in pith and substance is within the States exclusive power under Entry 56 of List II. What the Act ostensibly seeks to tax is .....

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Edition, 2012 have also been referred to, that, in respect of charging provisions and machinery provision it must be taken into account that rule of strict construction is applied primarily to charging provision in taxing statute and said rule would seldom have application to non charging provision laying down machinery for its calculation or procedure for its collection and such machinery provisions will have to be construed by ordinary rule of construction effectuating liability imposed by ch .....

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ax is levied. 53. This Court has reproduced paragraphs No. 33 and 135 of the decision in case of "State of West Bengal & Anr. V. Kesoram Industries Limited & Others" AIR 2005 SC 1646, which read thus- "33. We now proceed to enter a deeper dimension in the field of tax legislation by considering the problem of devising the measure of taxation. This aspect has been dealt with in detail in Union of India and others v. Bombay Tyre International Ltd., (1983) 4 SCC 210. Tracing .....

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nature of the tax. A tax has two elements; first, the person, thing or activity on which the tax is imposed, and secondly, the amount of tax. The amount may be measured in many ways; but a distinction between the subject-matter of a tax and the standard by which the amount of tax is measured must not be lost sight of. These are described respectively as the subject of a tax and the measure of a tax. It is true that the standard adopted as a measure of the levy may be indicative of the nature of .....

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bjects of legislation and heads of taxation. They are separately enumerated. (2) Power of 'regulation and control' is separate the distinct from the power of taxation and so are the two fields for purposes of legislation. Taxation may be capable of being comprised in the main subject of general legislative head by placing an extended construction, but that is not the rule for deciding the appropriate legislative field for taxation between List I and List II. As the fields of taxation are .....

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om the measure of tax. While the subject of tax is clear and well defined, the amount of tax is capable of being measured in many ways for the purpose of quantification. Defining the subject of tax is a simple task; devising the measure of taxation is a far more complex exercise and therefore the legislature has to be given much more flexibility in the latter field. The mechanism and method chosen by Legislature for quantification of tax is not decisive of the nature of tax though it may constit .....

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ights or taxes on lands (including mineral bearing lands) by reference to Entry 50 and 49 in List II and lay down the limitations on State's power, if it chooses to do so, and also to define the extent and sweep of such limitations. (5) The Entries in List I and List II must be so construed as to avoid any conflict. If there is no conflict, an occasion for deriving assistance from non-obstante clause "subject to" does not arise. If there is conflict, the correct approach is to find .....

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39;, the term as occurring in Entry 49 of List II, has a wide connotation. Land remains land though it may be subjected to different user. The nature of user of the land would not enable a piece of land being taken out of the meaning of land itself. Different uses to which the land is subjected or is capable of being subjected provide basis for classifying land into different identifiable groups for the purpose of taxation. The nature of user of one piece of land would enable that piece of land .....

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e for the purpose of levying tax to adopt any one of the well known modes of determining the value of the land such as annual or capital value of the land or its productivity. The methodology adopted, having an indirect relationship with the land, would not alter the nature of the tax as being one on land. (8) The primary object and the essential purpose of legislation must be distinguished from its ultimate or incidental results or consequences, for determining the character of the levy. A levy .....

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f 'regulation and control' belonging to the Central Government by reason of the incidence of levy being permissible to be passed on to the buyer or consumer, and thereby affecting the price of the commodity or goods." 54. With reference to several decisions settling the principles to be applied for determining the larger issues, in said judgment paragraph No. 35 of "Gujarat Ambuja Cements Limited & Anr. V Union of India and Anr" reported in AIR 2005 SC 3020, was reprod .....

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e Taxing Authority a duty can be imposed at the stage which the authority finds to be convenient and the most effective whatever stage it may be. The Central Government is therefore legally competent to evolve a suitable machinery for collection of the service tax subject to the maintenance of a rational connection between the tax and the person on whom it is imposed. By Sections 116 and 117 of the Finance Act, 2000, the tax is sought to be levied from the recipients of the services. They cannot .....

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hat the Supreme Court has emphasized in the matters of computation and calculation of tax there has to be more flexibility and latitude to the legislature. Said paragraph No. 23 reads thus - "23. Section 9 is not the beginning and end of the levy of royalty. The royalty has to be quantified for purpose of levy and that cannot be done unless the provisions of the Second Schedule are taken into consideration. For the purpose of levying any charge, not only the charge has to be authorized by l .....

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ct, the computation provision shall give way to the charging provision. In case of doubt or ambiguity the computing provision shall be so interpreted as to act in aid of charging provision. If the two can be read together homogeneously then both shall be given effect to, more so, when it is clear from the computation provision that it is meant to supplement the charging provision and is, on its own, a substantive provision in the sense that but for the computation provision the charging provisio .....

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tation or calculation of the duty liability of the parties like the petitioners there is nothing erroneous if the Legislature takes into consideration and account the price at which the principal manufacturer sells the product or goods to the buyer. That is nothing but a measure of the tax. In other words, that is how the tax has to be computed and measured. Such a provision does not alter or change the character or nature of the duty or tax. The tax or duty remains a tax or duty on production o .....

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elaborately dealt with various aspects involved in respect of taxing statutes which largely hold the field. The Supreme Court in said case has observed thus- "Nature of an excise duty is indicated by the fact that it is imposed in respect of the manufacture or production of an article, the point at which it is collected is not determined by the point of time when its manufacture is completed but will rest on the considerations of administrative convenience and that generally it is collected .....

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the retail sale of an article, if the taxing Act so provides. Subject always to the legislative competence of the taxing authority, a duty on home-produced goods will obviously be imposed at the stage which the authority find to be the most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection, and does not affect the essential nature of the tax. The ultimate incidence of an excise duty, a typical indirect tax, must always be on the consumer, .....

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ce would be brought down to conceptual value. 60. The conceptual nature of the measure of subject of tax occurs as neither the identity of the seller of goods nor the identity of the goods sought to be charged, nor the actual cost charged by the seller is a determining factor. Conceptual value governs the assessment of the levy. 61. New provisions determine the value on the basis of the eliminations and deductions and the value arrived at is charged and chargeable in respect of transfer of goods .....

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mine on the evidence before it and what should be the cost to be taken as value of subject of tax for the purpose of MVAT. 62. This Court is to consider validity of provisions valuing taxable goods for the purpose of charging duty. While enacting a measure to serve as a standard as levy, the legislation may not contour it along with the lines which spell out the character of the levy itself. Viewed from this standpoint, it is not possible to accept the contention that because the levy of MVAT is .....

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) (1A)and (1B) of the MVAT Rules. The value is a measure of tax and Rule 58 provides for determination of value of goods to be arrived at after deductions therefrom, referred under the rules / formulae. Values and items as referred to under Rule 58 (1), 58 (1A) and 58 (1B) are criteria for computing value of subject of tax at various stages as have been referred to under the Rules. Table under Rule 58 (1B) specifies the stages and value at the stages. The computation of value is to be done in ac .....

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iginal principle at the core of the scheme, and has been made more flexible and wider. 64. The first essential characteristic of MVAT is it is a tax on transfer of property in goods, secondly, uniformity of incidence is also a characteristic of the tax and thirdly the collection of tax. MVAT can be imposed on assessable value determined with reference to transfer of goods at the stage as referred to in the table. It is legislature's power to legislate in respect of the basis for determining .....

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value for the purpose of levy must be a value loaded with elements, which generally come along in respect of land dealings. Exclusion of the factors referred to by the petitioners is a matter pertaining to assessment on ascertainment of the value of subject of tax and not to the nature of duty. The standard adopted by the legislature for determining value may possess a broader base than that on which the charging provision proceeds. The value of goods determined under the new provisions may also .....

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rules. 67. The amended provisions define a measure of charge and the standard adopted by the legislature for determining value which may require / press for broader base than that on which the charging proceeds. By now, it is well settled that stage of collection need not in point of time synchronize with the transfer of property in goods for as is being a long standing position that in our country levy has status of constitutional concept while the point of collection is to be located where th .....

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ng stages for the purpose of computation of value of subject of tax. This appears to have been provided in order to have uniformity and to avoid vagaries, disparity or inconvenience from case to case. The same has been incorporated after deliberation and consultation with concerned departments and would not be liable to be termed as arbitrary. 68. Nature of deductions which can be claimed by the assessee as land cost and the profit for the purpose of determining value may be subject matter for c .....

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of goods in a works contracts inter alia of the nature of construction and buildings, the stage of collection need not, in point of time coincide with transfer of goods. The MVAT is chargeable with reference to the value of goods being transferred in a works contract and the value is to be determined in express terms of the provisions. The Courts have always regarded and recognized that measure employed for assessing tax must not be confused with the nature of tax. There is clear distinction be .....

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goods in a works contract. The Supreme Court and the other High Courts have approved and upheld the measure of levy and action under a legislation with the annual value of place prescribing a uniform formula for determination. 70. As referred to above, in earlier challenge, the division bench of this court has considered that Rule 58 (1A) provides that where the construction contract involves transfer of interest in immovable property - land, value of goods in execution of works contract shall b .....

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to be determined by the method and mode as is specified. It cannot be said that it is not a permissible method in view of High Court and Supreme Court decisions referred to herein before. Once it is permissible, it is open for the legislature or its delegates to adopt one of those methods on principle of uniformity. It was held by the Supreme Court that it would be permissible for the state legislature to prescribe a formula for determination of charges and to allow deductions of amount. Provis .....

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bay TMV Rules, 1995. Thus, application of and governance of valuation of lands pursuant to the same, would not be open for reexamination in the challenge in the present batch of petitions. The Government of Maharashtra has introduced the proviso giving an opening to the dealers to prove before the Department of Town Planning and Valuation that the actual cost of land is higher than that determined in accordance with the Annual Statement of Rates (including guidelines) under the Bombay TMV Rules, .....

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February, 2014 referring methods of computation, are clarificatory in nature and do not transgress the contours of Rule 58 of the MVAT Rules. As had been referred to in earlier round of litigation, in such an event, it cannot be said that the impugned circulars are rendered bad or illegal or for that matter unconstitutional. Trade Circular No. 12 T of 2014 dated 17th April, 2014 comprises responses to some frequently asked questions. The circulars clarify the mandate of statute and do not intro .....

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previous publication, cannot be sustained in the facts and circumstances of the case, particularly having regard to that the amendments to Rule 58 of the MVAT Rules, have been introduced by the State Government having been satisfied that circumstances exists for immediate action and as such, it had dispensed with the requirement of previous publication. It has come in the reply of the respondents that the notification clarifies that the Government of Maharashtra was satisfied that the circumsta .....

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ment in the case of "State of West Bengal & Anr. V. Kesoram Industries Limited & Others" AIR 2005 SC 1646, emphasis has been given on that - to be a tax on land, the levy must have some direct relationship with the land and the methodology adopted having an indirect relationship with the land, would not alter the nature of tax and in this case, it being the MVAT. It is to be borne in mind that defining the subject of tax is a simple task and devising measure for tax is far more .....

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pursuant to the same at the stages, as referred to. 77. Division Bench, in earlier round of litigation has already considered that value of goods at the time of transfer is to be calculated according to rules and Rule 58 1A of the MVAT Rules provides for a measure of tax and that the legislature was acting within field of its legislative powers in choosing measure for the tax. This court had further held that where the legislature has an option of adopting one of several methods of determining .....

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he court also considered that Rule 58 (1A) mandates how the value of goods involved in execution of a construction contract at the time of transfer of property is to be determined when the contract involves transfer of land or interest therein. 78. The court had considered thus - "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." This court, referring to (1994) 210 ITR 886 (SC) "Commissio .....

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ez V. State of Kerala" and (1967) 20 STC 290 "Bhawani Cotton Mills Ltd V. State of Punjab" relied on by learned senior advocate, would not hold field in the present matters, for, the MVAT is not directed at all as levy on immovable property. It would not be possible to say that the tax was levied on immovable property because rules provide for an opportunity to give evidence for valuation of subject of tax before the Department of Town Planning and Valuation that the actual cost o .....

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assistance to the petitioners. So is the case in respect of citation in "Amia Bala Paul V. CIT Shillong (2003) 6 SCC 342, especially when the Supreme Court, in its decision in Larsen and Tourbo (Supra) has not considered that the mode prescribed under Rule 58 (1A) is not valid. Reliance on other citations, having regard to the considerations referred to herein above, would not carry forward the case for the petitioners. 81. Reliance by learned advocate Ms. Parasnis on "Kruse V. Johnson .....

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travel beyond the parent act or for that matter alters the character or nature of the tax. We, therefore, do not hesitate to reject the challenge on the ground that the measure provided is beyond the subject for want of nexus to the essential character of levy. It cannot be said that the object underlying rules has no link to and nexus with essential character of the tax being levied. 83. Whether prescription under the provisions according to the contention is inadequate and may be falling shor .....

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