Sales Tax Update
 

In the September ITR issue we had detailed about Circulars up to 20T of 2006. Now I give herein below gist of the Circulars issued thereafter till date.

1. Profession Tax Trade Circular No. 21T of 2006 dated 19-8-2006

By this circular the due date for payment of Profession Tax by the Enrolment Certificate holders for the year 2006-07 is extended from 30-6-2006 to 30-9-2006. The facility for exemption for payment of tax for the fifth year by paying lump sum amount of tax for 4 years can be availed but while paying the lump sum amount for 4 years Rs. 200/- per month is required to be paid if such payment is made after 30-6-2006. Therefore the benefit of extended date would not apply to such payments made.

2. Circular No. 22T of 2006 dated 7-9-2006

This circular gives guidelines for summary assessment under section 33(2) of BST Act r/w section 9 of the CST Act up to the year 2004-05. The dealers who have filed annual return for the periods up to 2004-05 on or before 31-7-2006 shall be eligible for summary assessment provided they fall within eligibility criteria of the summary assessment as laid down in this Circular. For the detailed criteria please refer to the Circular.

3. Circular No. 23T of 2006 dated 11-9-2006

This circular explains amendments made to the MVAT Act and allied laws vide Ordinance dated 20-6-2006 which is converted into Act on 5-8-2006. I have already referred to the details in September 2006 ITR issue hence I am not repeating the contents thereof.

4. Trade Circular No. 25T of 2006 dated 12-9-2006

The dealers desirous of obtaining CST registration was directed to apply for Registration before 30-9-2006 so as to have it effective from 1-4-2006. By this circular the earlier circular No. 20T of 2006 dated 19-8-2006 stands corrected to this extent.

5. Circular No. 24T of 2006 dated 12-9-2006

This circular relates to the Judgment in the case of Kone Elevators by Supreme Court reported 138 STC page 32. In view of the Judgment of the Supreme Court the contract involving lifts which were earlier treated as works contract are likely to be reopened. In order to avoid hardship to any dealer with the reopening of the assessment the following decisions are taken:-

1. For all the periods ending up to 31st March, 2006 the activity of manufacture, supply, installation and commissioning of elevators shall be treated as a works contract;
    

2. No cases pertaining to the periods as above shall be reopened only on the basis of the Supreme Court Judgment in the cases of M/s. Kone Elevators (India) Ltd.;
    

3. For the periods from 1st April, 2006 onwards all cases wherein facts are similar to the facts in the case before the Supreme Court, the transactions will be treated as “Sale”. However, if the facts are materially different, i.e. if the thing to be delivered does not have any individual existence before the delivery and also the manufacturer is required to carry substantial obligations for installation and commissioning such as civil construction work etc., which are more than mere incidental works, then such contract will continue to be treated as a works contract.
   
   It is specifically clarified that the circular is issued with prior approval from the State Government.

6. Circular No. 26T of 2006 dated 18-9-2006

This circular relates to VAT Audit report in Form 704 and the issues arising therefrom. The Hon’ble Commissioner has tried to give answer to certain questions in relation to MVAT Audit. The Questions & Answers are as follows:-

Sr.No.	Points	Clarification
1.	A dealer, subjected to Vat Audit, is required to submit the audit report within a period of eight months from the end of the year. Whether any particular officer has been designated to receive all such reports or the same shall be submitted at the returns accepting counter/s?	The Form 704 is to be submitted to the office of the respective Jt. Commissioner in charge of Business Audit.
2.	Some of the dealers have lost their books of account, documents and other records of MVAT & CST in the 2005 floods/natural calamities. Whether the dealer can get copy of such returns from the Department for the purpose of audit? How the auditor should report?	Ordinarily, the dealers and the practitioners retain copies of the returns. However, if in any instance such copies are not retained by the dealer or the practitioner, then these can certainly be obtained from the Returns Branch on payment of copying charges as provided in rule 73(19).
3.	Many dealers (in the year 2005-06) were having two or more different registration numbers. Some of them have been filing separate returns for all such different places of business within the State. Howsoever, they are preparing one consolidated balance sheet. In the circumstances, whether separate audit report for each place of business or one consolidated report covering all the places within the State is to be filed.	If a dealer was having more than one certificates of registration in the year 2005-06 and was filing separate returns for his different places of business, he should now file only a single audit report in Form 704 in respect of all such places of business for which he was filing separate returns in the year 2005-06. If a dealer was holding an entitlement certificate during the year 2005-06, he should file a single audit report in respect of the year 2005-06. Even if the entitlement certificate had expired or was cancelled during the year 2005-06, he should still file a single audit report in respect of the year 2005-06.
4.	In case a dealer has failed to inform the opening of an additional place of business, the registration certificate has thus not been amended to that effect, but the turnover of such place has already been included in the turnover of main place and the taxes have been paid accordingly. Whether any specific report required?	This will be technical non compliance and appropriate disclosure should be made.
5.	All the dealers were required to file an application for TIN before a prescribed date. There are certain cases where the dealer failed to apply in time, resulting in The automatic cancellation of registration. Some of them have taken fresh registration in the month/s of January/February/ March 2006. The question arises about the Vat Audit: Whether, two different audits are required: (a) if turnover in both the periods exceed the prescribed limit? (b) if turnover in the second period does not exceed the limit? (c) if turnover for each period separately does not exceed the limit, but taking the whole year together exceeds? In some of the cases there may be a possibility of URD period also?	Single report for the whole year covering both periods as well as URD period, if any, should be submitted.turnover for the entire year is to be taken into account for determining whether the prescribed limit of Rs. 40 lakhs has exceeded.
6a	Some of the dealers have not claimed setoff on miscellaneous purchases in their respective monthly/quarterly returns but claimed in the last month/quarter of the year. Is it OK?	It may be claimed in the return including revised return for last month/quarter of the year
6b	Being petty amount, the dealer does not wish to claim set-off on items of miscella- neous purchases. And, therefore, has not included such purchases in the total turnover of purchases. Is revised return required to be submitted?	Appropriate disclosure is sufficient. There is no need to file revised returns solely on this ground, i.e., unless otherwise required to file revised return.
6c	Filed monthly returns instead of quarterly or filed quarterly return instead of six monthly returns. Should correct returns be filed now?	These are technical defects which should be disclosed but there is no need to now file appropriate number of returns or revised returns solely on this ground.
6d	The periodicity of returns filed is correct  but a different Form No. (Such as 201 instead of 202 or vice versa) has been used it should require revised return?	These are technical defects which should be disclosed but there is no need to file revised return solely on this ground.
7.	The Vat Auditor is required to report purchases from unregistered dealers of Rs. 10000/- or more. Whether the intention is to get report on each transaction of purchase exceeding the limit or all the purchases, during the year, from each such party where aggregate purchases from a party exceed the limit?	Total party-wise purchases are required to be reported when aggregate of purchases from a single dealer in a year exceeds Rs. 10,000/-, in case of capital assets and inputs only and not in case of purchases of tax free goods and expenses debited to trading payment.
8.	In case of certain works contracts, (using goods liable at different rates of tax), there is a possibility that the tax liability as worked out as per monthly/quarterly returns may differ when calculated on yearly basis.	This appears unlikely. However, if this were to happen in any given case, then the tax liability should be worked out returnwise.
9.	The amount of Working Capital has to be reported in section ‘B’ of Part II, but in case  of multi-State companies, where one consolidated balance sheet is prepared, it may not be possible to workout the working capital employed in the State of Maharashtra?	To be reported as per Balance Sheet along with appropriate footnote.
10.	Section ‘C’ of 704 requires consolidation of returns under the MVAT Act, 2002.  However, certain information asked for may not be available in the copy of returns (being old forms viz., 201, 202 etc.)?	The dealer may ask for true copies of the return from the Department.
11.	Some of the dealers, although holding CST registration, may not have filed CST return (being Nil turnover, following circular No. 15 of 1981). In such cases, whether section ‘E’ should be reported as “Not Applicable”?	Appropriate disclosure should be made.
12.	In section ‘F’, observations have been invited for non-payment or short payment of tax. However, there is no column for stating that amount paid. Thus, whether to that extent the table should be redrafted? Further, whether the information is restricted to VAT returns only or CST return should also be included here?	Tax short paid/not paid should be included in the observation. CST returns should also be included in section F
13.	Sections ‘G’ and ‘H’ are regarding verification of turnover of sales and purchases. Whether the amount to be mentioned here should be as per the books of account or as determined by the Vat Auditor, if the amount determined is not the same as per books?	The turnovers as determined by the Auditor are to be mentioned.
14.	In respect of section G-7.4, it may be necessary to clarify about the exclusion of sales of certain goods such as petrol, etc., in case of petrol pumps. Likewise medicines also.	The turnover of sales of motor spirits and of medicines should be excluded, where appropriate.
15.	In Part I of the report, the auditor has to work out the amount payable as differential tax liability or additional refund to be claimed by the dealer. The Vat Auditor has also to advise the dealer to file revised return(s). In such cases, whether it should be returns for all the periods during the year or the last return only to be revised (giving effect to all the observations together).	The return for the period ending on 31st March, 2006 should be revised to give effect to all of the observations of the Auditor.
16.	Statutory audit report is required to be enclosed to the Audit Report. What statutory audit does it refer to?	Audit reports are required under certain other Acts, such as Income-tax Act, Companies Act, etc. Copies of such audit reports as are issued should be enclosed wherever applicable.
17.	In case of reporting section ‘S’ regarding sales not supported by Sales Tax Declara-tion Forms, what should be disclosed?	Section S should be restricted to CST Act details only.
18.	At section ‘P’ , in case of purchase of ‘C’ Forms resulting in contravention, how to report?	If goods are purchased from other States which are not mentioned in CST RC, then the CST RC needs to be amended with retrospective effect. Appropriate request may be made to the registering authority.
19.	What to do if rules are amended retrospec- tively after audit? How does dealer avail of the consequential benefit?	The Audit report should be correct as on the date of signature of the Auditor. The dealer may file revised return for the month/quarter ending March to claim benefit.
20.	‘Goods returns’ within 6 months of sale is allowable as deduction. Under VAT Law u/s. 63, it is allowed in the period in which it is accounted for, whereas under the CST Act it has to be claimed in the year of sale. Commissioner may please allow adminis- tratively the CST goods returns also as per provision under VAT law in order to smoothen CST returns and audit	Section 63 of the VAT Act would apply mutatis mutandis to the claim of ‘goods return’ under CST Act in so far as the accounting part is concerned.
21.	Composition schemes for retailers, hotels, etc. contains many conditions. If any of the conditions is violated, then it is a contra-vention of the scheme and the dealer is liable to pay VAT instead of lump sum as per composition scheme. In such a case, the  dealer is liable under VAT provisions from the date of contravention and not from 1st April. This needs clarification.	A Trade Circular will be issued to clarify this issue.
22.	Whether all of the provisions and clarifica-tions regarding audit report apply to liquor dealers even if their turnover is below Rs. 40 lakhs.	Yes.
23.	Many employers have not obtained tax deduction account numbers.	It is not necessary to provide the tax  deduction account number.
24 (a)	In section C, at item number 12, the narration reads “unadjusted set-off – refund claimed in March ……..”. Whether this amount is to be claimed in the year 2006-07.	The unadjusted set-off/refund claimed in March is not to be adjusted in returns pertaining to the year 2006-07.
24 (b)	If the dealer has not applied for refund, how he can claim it now?	He may now apply in form 501.
25.	In section G, by number 8(6), it is provided that where the execution of works contract has been entered into before 1st April 2005. The query is whether this description refers to on going contracts.	Yes. The reference is to ongoing works contract where the execution has started before 1st April 2005.

7. Circular No. 27T of 2006 dated 28-9-2006

This circular gives criteria for the selection of cases for summary assessment under the Works Contract & Lease Act.

8. Circular No. 28T of 2006 dated 3-10-2006

With the advent of VAT Audit the designation of the Officers in the Department have changed. The Asstt. Commissioner have become Dy. Commissioner and Dy. Commissioner have become Jt. Commissioner. The Learned. Commissioner has directed that since assessment order under repeal Act are being completed under section 96 of MVAT Act the Dept. authorities are directed to use their respective designations under MVAT Act to maintain uniformity while passing the order under the repeal Act. As an abandoned clarity it is advised that Officers should mention especially in the Appeal and Revision Order old designation of authority, whose order is in appeal and also their new designation in bracket.

9. Circular No. 29T of 2006 dated 3-10-2006

This circular clarifies the issue of payment, challans to be used for the periods prior to VAT Audit. Some of the authorities insisted on payment in respect of past period up to 31-3-2005 in the earlier challans i.e. No.N 25. The Commissioner has on administrative. grounds declared in the circular that such payment for the periods prior to 31-3-2005 can be made either in Form N 25 or in challan in Form No. 210. It is made specifically clear that payments under repealed Act will be accepted even it shows earlier RC No. and period.

10. Circular No. 30T of 2006 dated 10-10-2006

This circular explains the amendments made to Rules under MVAT Rules. The update on Sales Tax for the month of November covers these amendments, therefore contents are not repeated herein.

11. Circular No. 31T of 2006 dated 16-10-2006

The MVAT rules with regards to periodicity for filing of returns were amended. However the amended rules and the trade circular were received late and therefore on administrative grounds it was decided that new periodicity for filing of return will be applicable in respect of all periods starting from 1-10-2006.

12. Circular No. 32T of 2006 dated 18-10-2006

By this circular the last date for filing the said Audit Report in Form No. 704 for the year 2005-06 is extended up to 31-1-2007. This circular further provides that if the revised return is to be filed on account of the discrepancy shown/found in the audit report then the revised return date is extended up to 28-2-2007 and no legal action will be taken against the dealers who abide by the revised deadline. The Hon’ble Commissioner has advised the concerned dealer to provide soft copy of the audit report .

13. Trade Circular No. 33T of 2006 dated 31-10-2006

On this very subject a Trade Circular No. 18T 2005 dated 30-9-2005 was issued. Both these circulars are in relation to administrative relief in respect of Lease of copy right of cinematographic film including video film under the Lease Act. As per the earlier circular the condition for availing adm. relief was that the dealer ought to have obtained MVAT Registration prior to 30-9-2005. It is now clarified by this circular that the adm. relief will be available even if registration is obtained on or before 30-9-2005. Rest of the conditions will continue to apply for grant of adm relief in respect of lease of copy right.

14. Trade Circular No. 34T of 2006 dated 13-11-2006

By this circular the Commissioner has clarified rate of tax applicable on sale of kokam. It is clarified that Kokam would be covered by Schedule entry C-107(1)(e). This entry would cover preserved as well as semi processed foods and the rate of tax will be 4%. It is further clarified that the seed of the kokam food is notified as declared goods under the category of oil seeds and the rate applicable is 4% covered by C-16.

The pulp of fruit of kokam is sold in market in a processed stage. This pulp whether processed or not would be covered by entry C-107-11(e) subject to 4% sales tax.

The peel of the fruit is processed by dipping it and drying thereafter. The final product is called amsool in Marathi. This sale is covered by Schedule E-1 subject to tax @ 12.5%.

15. Circular No. 35T of 2006 dated 13-11-2006

This is the 4th Circular issued regarding taxation of medicine under MVAT Act. This circular is issued in response to the queries raised by the trade. It is clarified that set off in respect of branch transfer would be available as per the previous circular 28T of 2005 dated 20-9-2005; i.e., by reducing 4% on the actual purchase price of the dealer making inter-state consignments.

The claim of set off by the dealer who makes inter-State sale or exports of medicine can be made as per circular 7T of 2005 dated 19-5-2005 i.e. on the tax paid on MRP by the manufacturer or importer .

It is also clarified that even though purchase price definition is amended retrospectively from 1-4-2005 there is no necessity to file revised return for the intervening period.

The dealer who are claiming set off on account of inter-State sale or branch transfer can continue to do so as per the earlier 2 Circulars.

The wholesale, distributors, semi wholesalers or distributors can continue not to show turnover of sale and purchase of medicine in their periodic returns. Only the manufacturers and importers who are liable to pay tax on sale of medicine have to show turnover in relation to medicine.

18. Circular No. 36T of 2006 dated 13-11-2006

The earlier trade circular No. 30T of 2005 issued on 23-9-2005 refers to the disturbance caused by unprecedented floods. The said circular dealt with situation arising out of disturbance caused by unprecedented floods in late July and early August 2005. Certain queries remaining in that respect are replied in the present circular.

It is clarified that guidelines and instructions contained in Trade Circular 30T of 2005 are equally applicable to proceedings under all other acts administered by the Sale tax department including MVAT Act and Repeal Act.

As for the statutory declarations lost or destroyed in floods the dealer will have to provide details of purchaser issuing the declaration forms.

Other Amendments

Amendments made to Schedule Entries

Notification dated 30-9-2006 amends certain entries in Schedules A & C with effect from 1-10-2006. The goods covered by Schedule A9 (a) entries were tax free up to 30-9-2006. This entry included goods like paddy, rice, wheat, pulses, flour of wheat, atta maida, rewa and Suji, flour of pulses including basen etc. All these goods would continue to be tax free for further period of 6 months i.e. from 1-10-2006 to 31-3-2007.

After 1-4-2007 they would be subjected to 4% tax. Schedule entry A-51 had life up to 30-9-2006. This entry covered food and food stuff like papad, gur, chillies, turmeric, coriandar seeds, fenugreek, parsley coconut in shell and separated kernel, Solapuri chaddars, towels etc. All these goods would continue to be tax free for further 6 months i.e. from 1-10-2006 to 31-3-2007.

After 1-4-2007 these goods would individually fall in different entries of Schedule C and would be subjected to 4% or 12.5% tax. as the case may be

Amendment to Notification under Entry C-81 :

The Notification issued under C-81(b) is amended as follows with effect from 1-4-2007:-

1. (1) for entry 11, the following entry shall be substituted, namely:–
   
   11 . 6301 – Blankets, travelling rugs and Solapuri Chaddars
    

2. for entry 13, the following entry shall be substituted, namely –

13. 6304 – Other furnishing articles and towels but excluding the articles of heading No. 9404

Amendments to Notification of Industrial Input dated 30-9-2006

Few entries are included in this Notification after entry 253.

“254.	403	40390	-	Chakka
255	151700%	-	15179090	Gel used for preparing bakery products and bread softner
256	210200%	-	21021020	Baker’s yeast
257	210600%	-	21061000	Soya Protein concentrates
258	281100%	-	28112190	Carbon dioxide excluding dry ice
259	283300%	28332600%	-	Zinc sulphate
260	2833	-	28332940	Manganese sulphate
261	3921	-	-	Other plates, sheets, film, foil and strip of plastics
262	6806	-	68069000	Refractory ceramic fibre used for heat or sound insulation
263	7419	-	74199100	Copper forgings not in finished state
264	7604	-	76042090	Aluminium forgings not in finished state
265	8442	-	-	Lithographic plates
266	8504	-	-	Electrical transformer
267	9602	-	96020090	Empty Capsules for pharma products.”.

Amendment to Notification regarding refund to diplomatic authorities dated 26-9-2006 :

Few of the names of the Organizations are added for being eligible for refund under section 41(1) of MVAT Act .

Under the heading “ (I) United Nations Organisations,” after entry 14, the following entries shall be added, namely:–

“15.	Asian Development Bank (ADB).
16	International Bank for Reconstruction and Development in India (IBRD).
17	United Nations High Commission for Refugees (UNHCR).
18	European Commission (EC).
19	League of Arab States Afro-Asian Rural Development Organization (AARDO).
20	Asian-African Legal Consultative Organization (AALCO).
21	United States Agency for International Development Mission (USAID).
22	International Centre for Genetic Engineering and Biotechnology (ICGEB).
23	International Financial Corporation (IFC).
24	World Bank”.