Sales Tax Update

Central Sales Tax Amendment Act, 2007

The amendments in the Act are discussed hereinbelow and are all effective from 1-4-2007.

Regarding C form: Major amendments are made to sections 8 of CST Act. Section 8 (1) & (2) are substituted whereas some consequential amendments are made in other sub-sections. The effect of the amendments are as follows:–

1. The rate of tax on sales of goods against C form will be 3% with effect from 1-4-2007 instead of 4%.
    

2. The facility of sales against D form to the Central or State Government is withdrawn w.e.f. 1-4-2007. The Central or State Government are now put at par with normal dealer. Thus if such Government Departments are registered they will be able to issue C form otherwise sales to such Government Departments will be subjected to the tax as specified hereinbelow as sales without C form (Next page).
    

3. The tobacco and tobacco products including cigarettes are removed from the list of Declared goods hence VAT in excess of 4% can be now levied by the States. The State of Maharashtra has amended the Schedule Entries w.e.f. 1-4-2007. Only unmanufactured tobacco and bidies will be exempt from tax under A-45A. All other types of tobacco (i.e. cigarettes, cigars, cheroots, sniff janda, scented tobacco, gutkha, tobacco extracts, and essences including Gini Main will be taxable @ 12.5%.
    

4. Sales of goods against 6 (2) – Sales in Transit. Following the amendments made in section 8 of CST Act consequential amendments are made to section 6(2). Formally obtaining C form for the subsequent sale was compulsory now it is provided that if the sale or purchase of such goods is under the Sales Tax Law of the appropriate State exempt from tax generally or taxable at a rate lower than 3% or it is taxable at the lower rate by notification then C form will not be necessary provided it is proved that subsequent sale is by transfer of documents to title to goods in terms of section 6(2) of CST Act.
   
   Amnesty under Profession Tax Act
   
   The Maharashtra State Finance Minister has while presenting the State Budget announced profession tax amnesty. The details of the scheme are awaited. Kindly watch for the circular or announcement in the newspaper. This amnesty will be under Profession Tax both for liability as registered employer and for liability as persons who are enrolled under Profession Tax Act.
   
   Circulars by the Commissioner of Sales Tax : Rather then referring to notifications and circulars separately I have referred to circulars in chronological order.
    

   Rate of tax on sales of goods with/ without C form
   Nature of goods	Schedule Entry	Vat rate	Cst rate prior to 1-4-2007		CST rate after 1-4-2007
   			Under Form C/D	Without Form	Under Form C	Without Form
   Tax free goods, unconditionally-fully exempt	A	0%	0%	0%	0%	0%
   Precious metals, jewellery and articles  made of precious metals, diamonds,pearls,etc	B	1%	1%	10%	1%	1%
   Declared goods(Iron & Steel, cotton, coal, crude oil,oil seeds etc)	C	4%	4%	8% (Twice the VAT rate)	3%	4%
   Notified goods	C	4%	4%	10%	3%	4% (VAT rate)
   Foreign liquor, country liquor imported liquor, molasses, rectified spirit.	D	20%	4%	20%	3%	20% (VAT rate)
   Other goods which are not covered in any Schedule	E-1	12.5%	4%	12.5%	3%	12.5% (VAT rate)
   Goods notified under section 8(5) of CST Act		As applicable	4% or notified rate whichever is lower	10% VAT rate, whichever is higher	@ 3% or Notified Rate whichever is lower	@ Notified rate
   Interstate sales to SEZ developer/Unit		As applicable	0% against Form 1'	10% or VAT rate, whichever is Higher	0% under Form‘I’	@ VAT rate

   Circular No. 19T of 2007: This is regarding closing stock statement for claiming setoff of goods in opening stock as on 1-4-2005 on account of retrospective amendments.The Commissioner has clarified certain obvious errors made in the Trade Circular No. 5T of 2007 dated 15-1-2007. The dealer is also required to file a revised return along with the revised closing stock statement before
   28-2-2007.
   
   Circular No. 21T of 2007 dated 21-2-2007
   
   This relates to application of resale Tax under the Bombay Sales Tax Act on Drugs & Medicines. This circular clarifies that as the exemption from resale sales tax on drugs & magazine was provided under section 10 itself the notification entry A-146 was redundant. The exemption from resale tax at two places was creating confusion in the minds of the assessing authority and hence a clarification was issued.
   
   Circular No.22 T of 2007 dated 1-3-2007
   
   Yet one more circular is issued for grant of Refund under the MVAT Act. Referring to the earlier 3 Circulars issued in the year 2007 only i.e. 4T of 2007 dated 12-1-2007, 10T of 2007 dated 5-2-2007 & 14T of 2007 dated 8-2-2007 the Commissioner has issued clarifications.
   
   Certain conditions laid down in the earlier circular are relaxed by this circular. It is clarified that all the dealers who have filed returns for earlier years up to 20-2-2007 can also claim refund as per the conditions mentioned in the Circular 4T of 2007 of course subject to the dealers filing Form No. 501 before 12th March, 2007.
   
   For the dealers covered by section 8(3) of MVAT Act i.e. Exporters, the refund can be claimed for any return filed up to 28-2-2007 and form 501 should be filed before 12th March, 2007.
   
   In the Circular 4T of 2007 it was provided that refund would be granted after adjusting CST liability due to non receipt of CST declaration. However a new decision is taken and the dealers who wish to claim the refund for unreceived declaration under the CST Act can do so by furnishing a Bank Guarantee equal to 15% of the refund claim covered by Form 501. This B/G should be valid for 21 months with a further claim period of 3 months. After receiving requisite Bank Guarantee refund granting authority is directed to grant refund to the extent 90% of the refund claimed. It is stated in the Circular the balance 10% of the refund claimed would be granted in due course after completion of refund audit. This provision of B/G of 15% will not apply to the refund which are withheld or unclaimed for reasons other than non production of CST declaration.
   
   As regards PSI unit’s refund it is clarified that such units if they are not eligible for grant of refund in terms of para 3 (d) of Circular 4T of 2007 dated 12-1-2007 they cannot claim the same by furnishing Bank Guarantee.
   
   The refund granting authority are directed to specifically mention the details about amount of refund claimed, amount of refund disallowed, amount of refund approved, refund to be granted and refund actually granted in the order along with details of balance refund due/withheld.
   
   The refund claimants are also directed to submit along with 501 details about Bank A/c such as name of bank, branch and account number along with a cancelled blank cheque. The dealers who have already submitted form No. 501 should submit these details along with cancelled blank cheque on their Letter Head.
   
   Circular No. 23T of 2007 dated 12-3-2007
   
   This circular relates to reservation of the records of the Bill or cash memo on electronic system as per section 86 (5) of MVAT Act 2002 . This sub-section directs the dealer to apply to the Commissioner to permit him to maintain records of bills and cash memo on electronic system as may be approved by the Commissioner. On such permission being granted the selling dealer will be exempted from requirement of printing counterfoils or duplicate of Bills or cash memo
   
   In this circular the Commissioner has clarified that for grant of such permission following conditions will have to be fulfilled:-–

1. Approval will be granted only in cases where number of bills or cash memo issued by the selling dealer in the preceding year has exceed Rs. 10 lakhs
    

2. The selling dealer will have to furnish a monthly abstract in the prescribed format to the authority at the time of grant of approval
    

3. The selling dealer will have to undertake to preserve Bill or Memo in electronic format for 3 years from the end of year which it relates
    

4. The application under this section should be addressed to Administrative officer in charge desk-12, Office of Commissioner of Sales Tax, Mumbai.

Circular No. 24T of 2007

 A corrigendum was issued to the notification of Motor spirit & petroleum products. The original notification dated 30-11-2006 did not distinguish the motor spirit and ‘other petroleum products’ separately. It is now clarified that Sr. No. 1 to 6 of the said notification are Motor Spirit where as Sr. Nos. 7 to 12 of the said notifications are ‘other petroleum products’.

Circular No. 25T of 2007 dated 15-3-2007

This circular explains the notification dated 1-1-2007.This notification reduces the rate of tax to 4% on sales to the following classes of sale subject to the conditions given herein below:–

 

Class of Sales	Conditions
Sales by Regd. Dealer to Central or State Govt. excluding the sales of Motor Spirit  covered by Schedule Entry D-5 to D-10 Motor Spirit   Motor Vehicle   Liquor covered by D-1, D-2 & D-3 NIL	Nil
Sales by a Registered Dealer excluding sales of Motor spirit covered by D-5 to D-10 to Registered Electric Power 1. Goods should be used in generation, Generation Co. transmission or distribution of electricity   Registered dealer holding; licence 2 The Authorized officer should furnish for transmission of Electricity a statement of account of purchase affected in the immediate preceding financial year before 30-04- of the next financial year.   Registered dealer holding licence 3 Purchasing organization should be for distribution of Electricity certified by the Commissioner for the purpose of this notification.	Goods should be used in generation transmission or distribution of electricity   The Authorized officer should furnish a statement of account of purchase affected in the immediate preceding financial year before 30-04- of the next financial year.   Purchasing organization should be certified by the Commissioner for the purpose of this notification.
Sales by RD to MTNL, BSNL, or any 1. Goods purchased should be used in telephone service provider holding generation, transmission, distribution licence under Indian Telegraph Act or or reception of tele communication Indian Wirelss Tel Act to establish, signals. the authorized officer of the maintain & operate telephone service organization should furnish to the up to the subscribers telephone commissioner a statement of purchases connection except motor spirit covered effected in the immediate preceding by D-5 to D-10 of MVAT Act.	Goods purchased should be used in generation, transmission, distribution or reception of tele communication signals, the authorised officer of the organization should furnish to the commisioner a statement of purchase effected in the immediate preeciding financial year before the end of April of the next financial year. The purchasing organisation should be certified by the Commisioner for the purpose of this notification.

Circular No. 26 T /2007 dt. 16-3-2007:

Re set-off under rule 41C and 41E of the Bombay Sales Tax Rules, 1959. A Writ Petition No.1152 of 1991 was filed by M/s. Tata Motors Ltd. before the Bombay High Court challenging the retrospective amendment vide section 19 of Maharashtra Act No. XXIV of 1990 to Rule 41C. By this amendment, set-off u/r. 41C was denied for manufacture of waste goods or scrap goods or by-products. The amendment was applicable for the periods prior to 30-6-1981. The High Court has allowed the petition by its judgment and order dated 31st January, 2007. Similarly, an amendment vide sections 26 and 27 of the Maharashtra Act No. IX of 1989 had been made to Rule 41E for denying set-off on purchases used in the manufacture of waste goods or scrap goods or by-products. This amendment was applicable for the period from 1-7-1981 to 31-3-1988. This was also earlier challenged successfully by the petitioner . The High Court has held that the quantity of iron and steel used by the dealers in the manufacture of iron and steel scrap only will be eligible to get set-off under :rule 41C Hon'ble High Court has made it clear that set-off will be admissible proportionately to the iron and steel used in the manufacture of iron and steel scrap/ waste goods/ by-products. The above observation will be equally applicable to Rule 41E for the period from 1-7-1981 to 31-3-88.

The Commissioner by this circular stated that in the cases wherein the above issue is pending, the departmental authorities should follow the guidelines laid down by the High Court .

Circular No. 27 T of 2007 Dt :23.03.07

In this circular the Commissioner requested all the dealers to calculate and pay in the return/challan itself the interest payable @ 1.25% per month or part there of along with the tax paid after due date. This will save the dealer’s time and efforts for making separate interest payment as well as the department’s time for separate levy of interest and further correspondence.

It is further stated that penalty u/s 29(8) of the MVAT Act is attracted for non filing or late filing of returns. No penalty under this provision will be levied in the cases where full interest is paid suo motu along with the tax in the late return. In all other cases of late return filing, proceedings of levy of interest and penalty will be completed as per law.

Circular no 29T/2007 dt.30-3-2007: Rate of tax on certain essential commodities & articles i.e. Solapuri chaddar and Towel, Lac product, tobacco etc:

Please refer to the earlier issue of ITR Essential commodities covered under some entries of Schedule ‘A’ of Maharashtra Value Added Tax Act, 2002 were tax free up to 31st March 2007 and contra entries of these commodities were to be taxable @ 4% from 1st April 2007 under Schedule ‘C’. Similarly, some entries in Schedule ‘C’ which were taxed @ 4% upto 31st March 2007 were to be taxable @ 12.5% from 1st April. 2007.

By virtue of the amendment to the schedule by Government Notifications dt 29th march 07 the benefit of concessional rate specified up to 31st March 2007 to certain essential commodities & articles; i.e., Solapuri chaddar and Towel is extended up to 30th Sep., 2007. Essential commodities include paddy, rice, wheat, pulses, papad, guo, chillies, turmeric, wet dates, dry Indian Tea etc.

Lac, shellac, and products thereof covered under schedule Entry A-54 were tax-free up to 31st March 2007 and were to be taxable @ 4% from 1st April, 2007.By virtue of amendment to the schedule lac shellac and products thereof are fully exempted from tax without time limit.

Tobacco and tobacco products were covered under entry A-45 and were free of tax. This entry is now amended by removing any reference to tobacco. A new entry namely entry 45A is introduced in Schedule A. This entry covers unmanufactured tobacco and bidis. Unmanufactured tobacco will mean tobacco cleared under heading 2401 of the Central Excise Tariff. Bidis covered by tariff items 2403 1031, 2403 1039, 2403 1090 will also be exempted from tax. All other tobacco products covered by Chapter 24 of the Central Excise Tariff (e.g. Cigarettes, cigar, cheroots, snuff, Jarda scented tobacco, gutkha, tobacco extracts and essences including quimaam) will be taxable @ 12.5%.

Notification on Entry Tax

The State Government has vide Notification dated 17-2-2007 under section 3(1) of Maharashtra Tax on entry of Motor Vehicle into local area Act reduced the rate of tax to 4% on the entry of tractors specifically used for agriculture into local areas. For other motor vehicles the rate of Entry tax is 12.5%.