Adv. Kishor Lulla
At present octroi is the main source of revenue of Municipal Corporations in Maharashtra. This is the exclusive State where octroi is levied. In fact it is not levy but it is forcibly collection at the check post. It is the spot of harassment for the traders. The presence of any provision of Law is always absent at the check post. I am doubtful whether any of the officers or traders have read the provisions of octroi! There may be hardly any octroi practitioner or consultant who can legally fight against the malpractices in octroi department. Due to heavy corruption on one side and leakage in octroi on the other side, there was a demand from a class of traders to abolish the octroi. This can save the wastage of diesel and also time consumed at the check posts. Cess is levied in place of octroi in New Mumbai since 01 June 1996. LBT is levied now in most of the Corporations. In the forthcoming G.S.T. also, this Act may not be subsumed.
2. Constitutional Power:
Clause (3) of article 246 of constitution empowers the State legislature to make laws with respect of subject matter enumerated in list II of seventh schedule. Entry 52 of list II of Seven Schedule of the constitution provides for taxes on the entry of goods into a local area for use consumption or sale therein.
3. Birth of LBT:
The powers to levy LBT are derived from section 127(2) (aaa) of the Bombay Provincial Municipal Corporation Act, 1949. In exercise of the powers conferred by sub section (1) of Section 152T and of all other powers enabling it in that behalf, the Government of Maharashtra, made rules vide Noti. No. LBT-0209/CR-65/09/UD-34, dt. 25th March 2010 namely “Bombay Provincial Municipal Corporations (local body tax) Rules, 2010” (Now The Maharashtra Municipal Corporation (Local body Tax) Rules, 2010) and levied LBT in all Corporations of Maharashtra from 21.08.2012. The name of the Act is changed as The Maharashtra Municipal Corporations Act (Act No. LIX of 1949). The concerned sections are sec. 152B to sec. 152 O except 152C in chapter XI–A and sec 152 P to sec 152 T in chapter XI-B. The Act is governed by Urban Development Department. It extends to the areas of Municipal Corporation. Hence if any trader is carrying on business in more than one Municipal Corporations, he has to obtain registration certificate in each such Corporation separately. Without going into the details of litigation by traders, as a student of Law let us study some highlights of LBT. Details can be referred in statute books, web sites of required Corporation. This paper cannot be taken as legal base.
4. Definition of LBT (S. 2 [31A]) w.e.f 31.08.2009:
LBT is another name of octroi and cess. Octroi is collected at check posts. In LBT check posts are supposed to be removed. It is a tax which can be collected by Corporations on the basis of books of accounts like VAT. Any goods which are brought into the Corporation area (import) from outside Corporation area for use, consumption or sale are liable for LBT. Mere physical entry of goods into local area is not sufficient to attract octroi/cess/LBT, as held by Hon’ble Supreme Court in case of M/s Mafatlal industries Ltd vs. Nadiad Nagar palika & Another decided on 1st March,2000 (AIR2000, SC1223, 2000(72) ECC472). List II of the Seventh Schedule of the Constitution pertains to the State list and at serial no. 52, taxes on entry of goods into a local area for consumption, use or sale therein has been incorporated. As per charging sec. 152P, LBT is levied on the entry on the taxable goods. It means goods brought other than for this purposes like storage and packing will not be liable. But intangible or incorporeal goods will be covered. It is a tax on purchase and not on the sale of goods. It is a self assessment account based tax. If goods are purchased inside Corporation area from unregistered dealer under LBT Act and who has imported the goods then also LBT is payable. If any software is downloaded within city limit on payment of a price from a dealer outside the city limit, then it will be treated as a purchases liable for LBT.
It is to be noted that sec. 152P did not provides any specific statutory provisions of payment of LBT by a dealer who is liable to pay under the Act. In fact in every taxing statue there is a provision of payment of tax by specific person/dealer. For e.g. sec. 152A (2) of this Act, sec. 4 of MVAT Act, sec. 4(3) of Entry Tax Act 2002 and sec. 3(2) of Entry Tax on Motor Vehicle Act, 1987. Thus it can be seen that in every taxing statue burden to pay tax is cast upon a particular person/dealer who is liable to pay under the Act, but there is no such specific provisions in LBT Act or Rules made there under.
[The terms import & export as well as purchase price are not defined under the Act.]
5. Goods (S. 2 ):
“Goods” includes animals. LBT is leviable on all movable goods.
6. Importer (S. 2[28A])
“Importer” means a person who brings or causes to be brought any goods into the limits of city from any place outside the area of the city for use, consumption or sale therein.
7. Dealer (S. 2[16A]) :
“Dealer” means any person who weather for commission, remuneration or otherwise imports, buys or sells any goods in the city for the purpose of business or in connection with or incidental to his business and includes factor, broker, commission agent, auctioneer, Central & State Government, Society, Club and A.O.P. As under MVAT Act Port Trusts, Railway etc are also covered to the extent of disposal of goods etc. Non-resident dealers like petrol, diesel and oil companies and their dealers, traders doing temporary business like sale, exhibitions and occasional transactions are also covered. Agriculturist is exempted.
According to me Trusts and Hospitals will not be liable for LBT as they are not covered under the Act.
Exception in the definition of dealer.
Any individuals who imports goods for his exclusive consumption or use and a department of State & Central Government not engaged in business shall not be a dealer.
Even in sec. 152B (1)- incidence of cess (LBT) the words are “every dealer” —- shall be liable to pay tax. This clearly means any student, employee, housewife who are not dealers and do not carry on any business will not be liable to pay LBT.
8. Business (S. 2 [5A]):
i. “Business” includes any trade, commerce, profession, consumption or manufacturer ——carried on with a motive to gain or profit and whether or not any gain or profit accrues——- and whether or not there is a volume, frequency, continuity or regularity in such trade ——. Professionals like Chartered Accountants, Advocates, Architects, Doctors, Tax Consultants and Service Providers are also covered to the extent of import of goods for consumption or use in profession. This will bring taxability on goods like motor vehicle, CCTV, computer etc if purchased from URD in city area or imported from outside LBT area. Registration is also compulsory on the basis of exceeding prescribed limit for registration during the year of notification or preceding year. The dealer is restricted to carry on business, if he is liable for registration, unless he possesses a valid certificate of registration (R.9). The activities of raising of manmade forests or rearing of seedlings or plants shall be deemed to be a business.
ii. Distinction between business and profession :
The constitution of India while ensuring under Article 19(1)(g) to all citizens the right to practice any trade, business or profession has maintained a clear distinction between carrying on a trade or business as against practicing a profession. The reason underlying the distinction is that unlike in a trade or business, a profession is practiced without any underlying profit motive. What a practicing professional renders to his client is his services essentially based on his qualification, personal skill and intellectual capacity. All the learned professions have certain common characteristic like statutory recognition of the profession and adoption by the members a self contained code of conduct with statutory checks and boundaries to ensure professional integrity and character along with competence of the members of the profession so as to inspire confidence of the people in the profession. The Supreme Court also has in several judgements maintained the above cited distinction between a trade and business on one hand and the practice of profession on the other hand. The legality of user of premises is governed by the local laws applicable in various states in respect of Shops and Establishments Act, 1948.
iii. Case law on firm of lawyers :
In V. Sasidharan V/s Peter and Karunakar (1984) 65 FJR 374 (SC), the question for decision before the Supreme Court was whether the office of a lawyer or of a firm of lawyers is or is not a commercial establishment within the meaning of the Kerala Shops and Commercial Establishments Act (34 of 1960). The SC held that it does not require any strong argument to justify the conclusion that the office of a lawyer or a firm of lawyers is not a “shop” within the meaning of section 2(15).”
The Supreme Court has also, in several judgments reiterated this fundamental distinction. In National union of Commercial Employees V/s Industrial Tribunal (1962) 22 FJR 25, the Court held that a firm of solicitors was not an “industry” within the meaning of section 2(j) of the Industrial Disputes Act and that the services rendered by the firm were only in the individual capacity of the partners and very much dependent on their professional equipment knowledge and efficiency.
iv. Case law on private dispensary :
In yet another case of Dr. Devendra M. Surbi V/s. State of Gujarat (AIR 1969 SC 63 6T), the Supreme Court had occasion to examine the definition of “Commercial Establishment” in section 2(4) of the Bombay Shops and Establishments Act, 1948 and construing the word “Profession” appearing in association with the words “Business and Trade” in the said sub section, held that a private dispensary of a medical practitioner did not come within the definition of “Commercial Establishment”.
v. Case law on Chartered Accountant :
One can try by filing writ petition, as not liable as a professional, relying in following two cases. Bombay High Court in A.F. Ferguson & Co vs. State of Maharashtra W.P. No. 1232 of 1995 on 5-5-2006 had categorically decided that the office of Chartered Accountant was not a “business and commercial establishment”. The Court struck down unconstitutional sections of the Bombay Shops and & Establishment Act that included CAs within the definition of commercial establishment. Similar findings were recorded by the Bombay High Court in the case of B. G. Sabne in W.P. No. 1256 of 1992 on 12-9-2006. Chartered Accountants were thus declared by the jurisdictional High Court as “learned professionals” on the same footing as the three traditional professions – church, medicine and law.
9. Registration (R.3)(Sec. 152B- incidence of LBT)
i. w.e.f 20 June 2013 – The limits for registration shall be –
a) in the case of a dealer, who is an importer and the value of all the goods imported by him during the year is not less than Rs. 1 lakh.
b) In any other case, including the case where a dealer has not become liable to pay LBT under clause (a), and the turnover of all his sales or purchases during such year, is not less than Rs. 5 lakh.
The liability for registration accrues even if the limits of turnover are crossed in the immediately preceding year.
ii. Temporary Registration
If a dealer is carrying on a business in the city on a temporary basis, then he shall be liable for temporary registration under the Act & Rules, irrespective of turnover of Sales & Purchases. He has to apply 15 days prior to commencement of such business. VAT registered dealers are deemed to be registered dealers under LBT [R.9(3)]. A dealer having additional place of business in different Corporation limits has to apply individually to respective Corporation Authority.
10. Rate of Tax (S. 152 and R. 23)
Schedule A is for taxable goods (sec. 152Q) and schedule B is for tax free goods. Each Corporation may have their own schedules prescribing rate of tax of various commodities. The rates of LBT are decided by State Government which are usually recommended by the commissioner. As per note mentioned under group IV of schedule A – “Notwithstanding any rate as notified above any concession/rebate in the levy of octroi given by the Government of Maharashtra by order/notifications shall be continued subject to term & conditions mentioned in such respective Government of Maharashtra’s order.”
11. Purchase and Sale Outside Corporation Area:
If the goods imported are not brought in Corporation area and directly sent to godown/ office/ branch and sold directly from outside Corporation limit then LBT is not payable. Proper recording in books of accounts, inward – outward register, delivery challans and dispatch proofs are required. Similarly, if the goods pass through the city limits during the course of movement from one place to another, will not be liable for LBT in the city from which goods are passed. The sale must occasion the movement of goods outside the city limits. If someone from outside the city limits himself presents physically or sends a vehicle and buys goods in the city at the counter of the dealer, and leaves, then this is not sale outside the city limits. Obviously because sale has not occasioned the movement of goods outside the city limits.
Where the buyers purchases within (the city) and transfers goods later outside – it was held that it is sale within (the city) only and not outside.
(Pimpri Chinchwad Mum. Corp. vs Tata Engg & Loco Co. Ltd. [AIR-1992-SC 645] dt. 26.07.2000)
12. Value of the Article S. 2(70C):
“value of the article”, in relation to the goods imported into the city, where “octroi” or “cess” is charged on such goods on ad valorem basic, shall mean the value of the article as mentioned in the original invoice, and include the shipping dues, insurance, custom duties, excise duties, counter veiling duty, sales tax (if any), Value Added Tax (VAT), transport charges, vendor freight charges, carrier charges and all other incidental charges.
13. Presumption and Burden of proof (R.20):
i. If a registered dealer in the area of the City has purchased by goods specified in Schedule A, from any other registered dealer in the area of the City, then for the purpose of proving that he is not liable to pay LBT in respect of such goods, he may furnish to the Commissioner, as and when required by him, a certificate issued by the selling dealer as provided in R.21. If the Commissioner is satisfied, after making such enquiry as he deems necessary, that the certificate furnished is true and correct, he may, at the time of, or at any time before the assessment of LBT payable by the dealer under these rules, make an order to that effect and thereupon it shall be deemed, for the purpose of these rules, that the first mentioned registered dealer is not liable to pay LBT in respect of the aforesaid goods.
ii. Until the contrary is proved, where any goods specified in Schedule A are imported by a dealer or person, into the limits of the City, it shall be presumed that the goods have been imported into the City for consumption, use or sale therein or are for trans-shipment thereof, to any other place outside the area of the City, as the case may be.
14. Invoice – Certificate & Particulars of bill (R. 21& 22) (Sec. 152G)
i) Where a dealer who holds any goods in the area of the City, sells the goods to any other dealer in the area of the City, then the selling dealer shall issue to the purchasing dealer a bill, invoice or cash memorandum containing a certificate.
ii) Every dealer who is required to issue the bill, invoice or cash memorandum in respect of the goods sold or supplied by him, shall specify in the bill or cash memorandum issued by him, the full name and style of business, the address of his place of business and number of his certificate of registration and the particulars of the goods sold and –
a. Where the bill, invoice or cash memorandum is issued by a registered dealer, then the bill, invoice or cash memorandum shall contain a certificate as follows, namely –
“I/we hereby certify that my/our registration certificate under these rules is in force on the date on which the sale of the goods specified in this bill/invoice/cash memorandum, is made by me/us and that the transaction of sale covered by this bill/invoice/cash memorandum, has been effected by me/us in the course of my/our business”.
b. Where the sell price is not less than Rs. 500, the dealer shall also enter in the bill, invoice or cash memorandum the full name and style of business of the buyer (if any), and his address and the number of any certificate of registration held by him.
As per sec. 152G if a registered dealer sales goods to another registered dealer or to any other person exceeding Rs. 10, invoice has to be issued.
15. Liability of LBT in certain cases (S. 152 D) :
Where any goods on which LBT is leviable, are imported into the limit of the City by any person (not being a registered dealer) from any place outside of the City area and sold to a registered dealer, there shall be levied and collected LBT on such goods at the rate fixed by the Corporation, under the rules, from time to time, and such registered dealer shall be liable to pay the LBT so levied,
Provided that no LBT on the same goods shall be levied if such purchasing dealer proves to the satisfaction of the Commissioner that the LBT has been paid earlier on the said goods to the Corporation.
This provision is like purchase tax on URD purchases under BST Act.
There is no bar in collecting LBT from customer. But it cannot be more than the liability to be paid on purchase value. It is also practically difficult.
As per sec. 152F if any person liable to pay LBT, he cannot carry on business unless registered.
16. Additional Stamp Duty (Sec. 149A) Notification dt. 31.08.2009
The stamp duty on the instruments of sale etc on immovable property in LBT city area, be increased by a surcharge at 1% from the Notified date.
17. Exemption in certain cases (R. 28)–
i) No LBT shall be levied on the goods imported into the city by State or Central Government, on production of a certificate from an officer empowered by the Government concerned in this behalf, certifying that the goods so imported belong to the Government and are imported for public purpose and are not used or intended to be used for the purpose for earning profit.
ii) No LBT shall be levied on the goods imported into the limits of the City on behalf of, or an account of State or Central Government, on production of a certificate from an officer empowered by the Government concerned in his behalf, within a period of six months from the date of importation, certifying that the goods so imported belong to the Government and are imported for public purpose and are not used or intended to be used for the purpose of earning profit.
iii) If any goods held by a dealer or a person in the City are moved outside the City for carrying out the processes enumerated in the Explanation to this rule, and are re-imported without effecting any change in condition or appearance, as also the ownership of the goods, the value of the goods moves out, shall be allowed to be deducted from the total value of processed goods reimported and LBT shall be leviable only on the value added i.e. Processing charges, transfer charges, etc.
Provided that, the goods are reimported within a period of six months from the date of export outside the City and the dealer furnishes the information of such export in the returns for the relevant period.
iv) If any dealer in the city imports any goods from any place outside the city for carrying out any of the processes enumerated in the explanation under this rule, on job work basis and proves to the satisfaction on the Commissioner that the goods processed have been exported within a period of six months from their importation, to the same person outside the city and there had been no change in the ownership and in the form of the goods at the time of export, no LBT shall be levied subject to the following conditions namely :-
a. That dealer shows the value of such goods in the return of the relevant period.
b. The dealer pays security deposit, as a guarantee, as may be, determined by the Commissioner in this behalf. However, a dealer importing the goods for processing on regular basis, may make a deposit as standing deposit as may be fixed by the Commissioner from time to time.
Explanation – For this purpose processing shall include –
- Grinding, dyeing, bleaching, painting, printing, finishing, stentering, embroidering, doubling, twisting, metalizing and electroplating;
- Building and mounting of bodies over chassis of vehicles of all kinds.
- Other processes as may be approved by the Commissioner, from time to time.
The decision of the Commissioner in this respect shall be final.
As per decision by Apex Court in the case of Mafatlal Industries Ltd v/s Nadiad Nagar Palika & Another dt. 01.03.2000(AIR 2000 SC 1223, 2000(72) ECC 472), cutting of textile cloth into pieces from 100 meter long cloth & export as per customers requirement does not change the identity of the cloth. In other words cloth remains as a cloth, only size is changed.
v) When any goods held in the City are sold and exported outside the City are received back due to rejection of goods by the purchaser, no LBT shall be levied on such goods, provided that the goods are received back in the City within a period of six months from the date of their export and the dealer proves to the satisfaction to the Commissioner that the sale of such goods was disclosed in the return of the relevant period.
vi) The registered dealer who is exporting the goods outside the territory of India shall be exempt from the levy of the LBT in respect of the value of the goods used for the purpose of such export.
vii) It is to be noted that wherever there are railway stations – the station area (i.e. mal dhakka and the area owned and under the railway authorities administration) is not within the municipal limits, because the railway stations are under the Central Government administration and not under the municipal administration limits. The tax is on goods brought into the city limits for consumption use or sale therein. Hence if goods are only stored or are lying for further dispatch outside the city, are not taxable. Hence, if goods arrived by rail and dispatched out of such station area directly outside the city limits, then those are treated as not brought within the city limits and ultimately not taxable under LBT.
18. Refund of LBT in case of Export (R. 32) :
i) Where any goods which are imported in the City on which LBT has been paid, are exported outside the City by the same person by way of sale or otherwise, then ninety percent of such amount of LBT so paid, shall be refunded to that person on satisfaction of following conditions :-
a) The details of goods imported are given in the relevant return, showing that goods are imported for export, and the return is furnished.
b) LBT on such import is paid with relevant return.
c) Goods are exported within period of six months from date of importation.
d) Relevant Return claiming of refund after export is furnished.
e) The Person when asked by Commissioner, shall prove that goods imported have been exported without making change in the goods, (i.e. in the same form)
Provided that, the Commissioner may allow any dealer who is importing and exporting the goods listed in Schedule A, on his satisfaction, to pay only 10% of the LBT chargeable after obtaining from such dealer a declaration that the goods are to be exported within a specified period.
w.e.f 20 June 2013 –
provided further that any dealer who is importing and exporting the goods in the same calendar months and provide sufficient proofs for that, the Commissioner may allow him to set-off in the next calendar month.
Rule 32(2)(a) vide Notification dt. 06.08.2012
ii) (a) Where the dealer or person has made the payment of tax, after adjustment of refund without prior permission of the Commissioner, the cases shall be taken up for regular assessment.
(b) On such assessment, if it is found that, the dealer or a person who has claimed the refund, in excess of what he is eligible for, then on such differential amount, a penalty at five times of such differential amount found due, shall be levied
(c) Where the dealer or person is eligible for refund and make such claim the Commissioner shall assess the dealer on priority basis within one month from receipt of such application and decide the claim. If the Commissioner fails to decide the claim of refund within two months from the due date of filling of such application, then the dealer or person shall be eligible for interest at 6% of such refund which becomes due, till the date of payment.
19. Return (R. 29) w.e.f 20 June 2013:
1) Every registered dealer shall subject to the provision of the rule furnish an annual return in form EII within 90 days from the end of the year to which such return relates …..
2) Every registered dealer who is not an importer shall be required to file nil return annually.
w.e.f. 25th March 2010
3) Commissioner may specify different periods and dates for different dealers etc.
4) Revised return can be filed before the expiry of one month next, following the last date prescribed for the filing the original return.
5) A dealer doing temporary business shall furnish return in Form EI within specified dates.
20. Payment (R.40)
1) (a) Every registered dealer, unregistered dealer or person other than a dealer liable to pay LBT or penalty or interest or any sum forfeited or the amount of fine shall pay to the Commissioner, due & payable according to the return on or before the 20th day of the month next following the month to which such payment relates. There is no bar for collection of LBT. It is to be charged on purchase value.
w.e.f 20 June 2013-
2) Notwithstanding anything contained in clauses(a) of sub-rule (1) but subject to the provisions of this rule, every registered dealer who is required to furnish annual return in from E-II for the year, under the provisions of sub-rule(1) of Rule 29 shall pay the amount of LBT payable by him each month of the year, on or before the 20th day of next month following the month to which such payment relates :
Provided that the Commissioner may extend due date for the payment of LBT by one month for the first month from which the date of levy of LBT has been notified.
21. Lump Sum Payment (R. 27) as amended vide Notification dt. 06.08.2012:
i. A composition scheme of lump sum payment of LBT is provided for dealers having purchases up to Rs. 10 lakhs per year. It starts with nil tax upto turnover of purchases of Rs. 1 lack and ends with Rs. 20 thousand for turnover between 9 to 10 lakhs. Permission by Commissioner is required by applying in Form R. Payment is to be made within 15 days from the receipt of the order.
ii. Any builder or contractor who undertakes the work of construction within the Municipal limits shall get himself registered with the Corporation under LBT and shall have the option of either paying LBT on the value of the goods imported into the limits of the City for construction or use, or alternatively making the lump sum payment of LBT in accordance with the following norms-
a. For construction up to 4 floors (where the building is without lift)- Rs. 100 per sq. meter
b. For construction up to 7 floors(where the building is with lift) – Rs. 150 per sq. meter
c. For construction high rise building (above 7 floors) – Rs. 200 per sq. meter
Normally it is always on built up area.
The contractor who opts for lump sum payment of tax may make the payment of LBT, in advance to the extent of 50% of such amount due, on applying for grant of commencement certificate for such construction.
iii. Any dealer or person undertaking any work within the area of Municipal Corporation shall have the option of either paying LBT on the value of goods imported into the limits of the City for undertaking such work or alternatively, paying the said tax on lump sum basis at 0.25% of their total amount of contract value.
22. Record (R. 19) (Sec. 152I)
LBT rules provide to maintain only one register in form D for purchases and receipt of goods on transfer basis. It is further provided that the dealer may maintain the said register in computerized
form and in such case he shall be bound to produce relevant documents maintained under the Maharashtra Value Added Tax Act, 2002 when so demanded by the Commissioner for examination.But it is recommended to maintain detailed purchase and sale register by adding separate columns in it, to prove our claims for set off or refund and export or transfer (R. 28&32). Also one should preserve all delivery challans, dispatch proofs, stock register and goods transfer register.
23. Inspection of goods in transit: (Rule 26) (deleted as per noti. Dt. 20 June 2013)
In order to prevent evasion of LBT, the Commissioner may require to stop and keep stationary any vehicle including goods vehicle, and examine the contents of the vehicle and inspect all records related to goods carried in such vehicle, to give name and address of the driver, person in charge, owner of the vehicle and consigner & consignee of the goods, and may require such person concerned to pay the LBT on such goods. The transporter shall be deemed to be owner of goods unless proved to the contrary.
Vehicle is defined in sec. 2(71) as vehicle includes a carriage, a cart, van, truck, hand-cart, bicycle, tricycle, motor car, and every wheeled conveyance which is used or is capable of being used on a street. Commissioner is also empowered with the powers of search & seizure.
24. Assessment (R.33)(Sec. 152S)
The amount of Local Body Tax due from a registered dealer liable to pay shall be assessed separately for each period. The Commissioner may proceed to asses within 5 years from the end of the year. Rule 33 (14) – Assessment case records shall be preserved for 5 years next following the period to which the assessment relates or for three years, next following the completion of the proceedings under the Act, relating to the said period, whichever is later. There seems to be no time limit for completion of assessment. But as per various High Courts pronouncements assessment has to be passed within a reasonable time.
w.e.f. 20 June 2013 –
Provided that no assessment case record shall be preserved by the dealer who shall not receive the assessment notice under sub-rule (1) within one year from the last date of filing the return under rule 29.
There are also provisions of reassessment u/r. 34, rectification u/r. 35 and notice for production of documents u/r. 47. Sec. 152J is for powers of enforcement.
25. Refund (R.44):
Excess amount paid can be refunded only after order in form M is passed by Commissioner. No interest on refund is provided.
26. Withholding of refund (R.45):
i. Where an order giving rise to a refund is the subject matter of appeal or where any other proceedings under these rules is pending and the authority competent to grant such refund is of the opinion that the grant of the refund is likely to adversely affect the revenue , such authority may, with the previous approval of the Commissioner, withhold the refund till such time as the Commissioner may determine,
“Provided that, the Commissioner shall not accord his approval to withholding the refund only, if he is of the opinion that on the conclusion of such appeal, further proceedings or other proceedings, if it becomes necessary to recover the amount of refund in full or in part, then it may not be otherwise practicable or possible so to do in any reasonable period of time:
Provided further that, no order withholding the refund shall be made after the expiry of ninety days from the date of service of the order giving rise to the said refund.
ii. Where a refund is withheld under sub- rule (1), the Commissioner shall pay simple interest @ 12% on the amount of refund ultimately determined to be due to the person as a result of the appeal or further proceeding, or any other proceeding for the period from the date immediately following the expiry of ninety days from the date of service of the order referred to in sub-section (1) to the date of refund.
27. Appearance (R. 54):
Proceedings may be attended by:
i. Relative or person regularly employed by the dealer or person.
ii. Legal Practitioner, Chartered Accountant or Cost Accountant.
iii. A Local Body tax practitioner who possesses the qualifications specified by the Commissioner by general order.
An authorization is to be given by the person or the dealer in Form Q by the person on whose behalf such proceeding is attended. No court fee stamp is prescribed.
28. Interest (R. 48) w.e.f. 20.06.2013
If a dealer liable to pay LBT does not pay the LBT on or before the due date, then he shall be liable to pay simple interest at 2% per month in addition to amount of LBT.
If any LBT is found due as a result of order of assessment passed under this Act, then such dealer is liable to pay simple interest, a sum equal to 2% of such LBT for each month from the first date after assessment period till the date of such order of assessment.
Provided that such interest shall not exceed the amount of LBT due on which such interest is charged.
Explanation – A part of a month shall be counted as one complete month.
Note: As per constitution levy of interest & penalty in substantive. But it seems that Legislatures has not given power to Government for this levy. This issue is challengeable (reference can be made in the case of India Carbon under CST Act)
29. Penalty [Rule 48(1) & (2) Rule 49] (Sec. 152L)
Some of the penalties are as under –
i. If a selling dealer fails to issue to the purchasing dealer, a bill, invoice or a cash memo, a penalty of a sum equal to the amount of LBT may be levied.
ii. In any Proceedings under the Act or LBT rules, if a dealer-
(a) has failed to apply for registration, a penalty of sum not exceeding five times of the amount of the LBT payable may be levied.
(b) has failed to comply with any notice under the Rules, a penalty of sum not exceeding Rs.5, 000/- may be levied.
(c) has failed to disclosed any entry of goods or claimed in accurate deduction, refund or failed to disclose true material fact, a penalty of a sum not exceeding two times of the amount of LBT found payable may be levied.
iii. A penalty for production of false bill, cash memo, declaration or document, shall be equal to the amount of LBT due for first occasion and not exceeding two times the amount of LBT due for second or any subsequent occassion.
iv. A penalty for furnishing false declaration or certificate shall be not exceeding two times the amount of LBT due.
v. A penalty for late filing of return shall be not exceeding Rs. 5,000/- for each return.
vi. A penalty for excess collection of LBT shall be Rs. 2000/- or double the amount of excess collection of LBT, whichever is less, in addition to forfeiture of the LBT collected in excess.
Sec. 152N is for compounding of offences which is not more than ten times and not less than four times of penalty.
Note: For levy of interest the words used are “shall”. As against this for levy of penalty the words used are “may”.
30. Procedural Provisions:
There are provisions of returns, goods returns, payment of tax, interest, penalty, assessment, reassessment, rectification, appeal, enforcement, D.D.Q. Special mode of recovery, provisional attachment, power to withhold refund; notice for production of documents as they are available under MVAT Act.
31. Tariff Value and Fair Market Price (R. 24 & 25):
i. The Commissioner has got power to fix tariff value of the goods, where he is satisfied that the importers are showing lesser value of the goods. The Commissioner shall display such tariff on the notice board of the Corporation and thereafter such rate will be applicable for collection of LBT.
ii. The Commissioner can determine the FMV of goods by giving reasonable opportunity of being heard in cases of :
a. Purchase / Sale Price are less in case of the Transaction between related person.
b. Purchase Price is not ascertainable.
c. Goods have not been obtained by sale or Purchase.
32. Appeals (S. 406 & R. 36 to 38):
If the demand notice is raised by LBT officer, the appeal shall lie to Deputy Com and if demand notice is raised by Deputy Com then appeal shall lie to the Commissioner. Full payment of disputed tax has to be made for entertainment of appeal. The time limit for filling appeal is 15 days. Appeal can be preferred against demand notice. It cannot be done against any order. Like issuance of R.C. or cancellation of R.C. etc. Powers to be exercised by the appellate authority are not specified. Also there are no powers for remission of interest. There is no provision for condonation of delay as well as revision of appeal order. There is no provision of appeal before Tribunal. Appeal in High Court is not affordable to all.
33. Anomalies & Suggestions:
i. The implementation of LBT should be given to VAT authorities. All the provisions of MVAT should be made applicable to LBT. By this, assessment by two authorities will be avoided.
ii. For proper implementation of LBT, there should be a district level committee of trading Organizations, Tax Associations and consumer bodies under the chairmanship of Commissioner who should discuss to solve the common problems of traders, once in a month.
iii. The Rules are not properly worded. There is wide scope for discretion and interpretation. Rates of LBT should be same in all Corporations. A State level committee should be formed to study the anomalies in the LBT Rules.
iv. One full day workshop of officers & traders to be arranged by the Commissioner for smooth implementation of LBT. Majority of the litigations have started due to lack of knowledge and misinterpretation.
v. Details of Act, Rule, Schedule A (taxable goods), Schedule B (Tax free goods), Circulars, Internal Guidelines & decisions in appeal to be displayed on website. (Sec.152Q)
vi. The scheduled goods needs a serious and practical relook; otherwise there will be huge number of applications for D.D.Q.’s. There should be time limit for disposal of D.D.Q’s. (R.31)
vii. This tax should also be subsumed in G.S.T.
viii. FAQ should be published by Corporation by inviting questions from traders, practitioners & consumers.
ix. Check Posts must be removed.
x. A proper check on U.R.D. dealers should be kept instead of harassing the registered dealers.
xi. No LBT should be levied on the professionals like doctors, engineers, architects, advocates, chartered accountants, tax consultants etc. as basically they cannot be called dealers doing business.
xii. As per sec. 152G if a registered dealer sales goods to another registered dealer or to any other person exceeding Rs. 10, invoice has to be issued. This price limit should be enhanced upto Rs. 500/-
xiii. The administrative system should work in such a way that it should not be a golden opportunityto tax evaders due to removal of check post.
xiv. There is exception under the definition of the dealer which is under –
Any individuals who imports goods for his exclusive consumption or use and a department of State & Central Government not engaged in business shall not be a dealer.
Above exception is not usually published and also not implemented by the Corporation. The individuals like students, house wives, Government employees and employees in private firms are not liable to pay LBT if they import any goods of any amount, since they are neither dealers nor doing any business.
Similarly if any person or dealer imports any building material for his residence or if he imports any vehicle for his personal use, he is not liable to pay LBT. (Sec.2 [16A])
xv. Clear provisions for right to claim set-off in the returns should be made. Set off should be allowed on proportionate or ratio method if exports are made out of mixed local and imported purchases. [R. 32(2)(a)]
xvi. As per R.28 (5) the deduction for rejection of goods is allowed in case of export. But the same type of deduction is not available if the rejection is made out of imports.
xvii. List of processing to be increased so as to cover various activities. Commissioner has power to include the required processes from time to time. Meaning of “no change in any condition or appearance of the goods” should be cleared.(R.28)
xviii. The rates, quantum of interest & penalties are exorbitant, which gives wide scope for corruption. (R.48(3), R.48(1&2), R.49, Sec. 152L)
xix. There will be litigations on ‘Value of the Articles’, ‘Purchase Price’, ‘fair market value’, and ‘tariff value’, ‘discounts’ and ‘debit/credit notes’, due to lack of clarity, wide discretion and untrained staff. (Sec. 2(70C), R. 24 & 25)
xx. Procedure of refund is too clumsy. Hardly any chances of getting refunds as under MVAT Act. Interest @ 1% p.m. has to be given on refund.(R.32)
xxi. Why permission of Commissioner is required to pay 10% differential tax who is exporter, on the “satisfaction of the Commissioner?” What is the meaning of “satisfaction of the Commissioner?” As per my information, no Commissioner has given such permission till today.(R.32) Similarly after insertion of 2nd proviso to R. 32 w.e.f. 20.06.2013, if the dealer is eligible for full set-off, the benefit of 1st proviso of obtaining permission of 10% will not be any use.
xxii. The return in Form E- II is complicated. It has to be simplified. The time limit for revised return is before the expiry of one month from the date prescribed for original return. But it should be on the lines of MVAT Rules. (R. 29)
xxiii. Instead of monthly payment for everybody, it should be on the basis of MVAT Rules. (R. 40)
xiv. There seems to be provision like purchase tax under BST Act if purchases are from URD. But this is not correct. Purchases from URD are basically linked with import by URD. So it is difficult to prove for the buyer (R.D.) that registered dealer who is his vendor has not imported the goods. If a goldsmith purchases old ornaments from a customer and obtains a letter from the customer that he has not imported the ornaments, the goldsmith will not be liable to pay LBT. (S.152D)
xv. A circular should be issued mentioning therein that no LBT is leviable simply because office and billing is from inside LBT area but goods have never entered in LBT area. Those are purchased and sold out of LBT area.
xvi. Filing appeal in High Court after making full payment is not affordable. There must be provision of appeal before Tribunal. Also provision of part payment before appeal should be made.(Sec. 406 & R.36 to 38)
xvii. There are various provisions which are incorporated directly under the rules instead of providing under the Act. These provisions can be challenged as ultra vires.
In conclusion, we can say, there is great scope of harassment on one side and evasion on other side and increase in unwarranted litigation. The government itself is an enemy of its own in this regard, had it not been like that, this ‘paper war’ would have satisfactorily ended long back. It would have come to ‘conclusion’ and would have stopped ‘confusing’ the people! There should have been the trend to ‘ease’ the traders, and not to ‘tease’ the traders.
Isues of Local Body Tax for Builders and Developers
i. A lot of problems may arise in case of builders and contractors as provisions and composition scheme are not clear. Detail working has to be made before selecting any method. For example – A builder is constructing a building of seven floor and above, having sanctioned 25000 sq. ft, is liable to pay Rs. 4,65,000/- @ 18.60/- per sq. ft as per R. 27(4).
It is presumed that
- Cost of construction is Rs. 2500/- per sq. ft.
- 50% material is imported.
- Average rate of LBT is 4%.
- So LBT works out at Rs. 12, 50000/- as per regular method.
Hence it seems that lump sum payment method is beneficial. One more benefit is that, once lump sum payment is made, no need to produce details of purchases.
ii. Similarly, many Corporations make it compulsory to pay this amount at the time of sanction of plan. But it should be kept in mind that adoption of this method is the choice of the builder.
iii. Once payment is made as per lump sum method, then it is beneficial to purchases goods from outside LBT area as it may cheaper to the extent of LBT. Since most of the builders may out lump sum payment scheme and therefore will try to purchase goods from outside LBT area, the business of suppliers of inside corporation area may suffer.
iv. As per R. 27(4) the contractor who opts for lump sum payment of tax may make the payment of LBT in advance to the extent of 50% of such amount of due, on applying for grant of commencement certificate for such construction. But there is no provision about the time for balance payment. Similarly if any building is partly constructed on the date of implementation of LBT, there is no provision about the method of payment for non constructed area. According to me architect certificate should be accepted.
v. There seems to be no provision for refund if the quantum of the work reduced finally or if the work of construction is cancelled after the payment of 50% lump sum amount.
vi. Before paying LBT, a builder has to decide whether he will be constructing on his own or he will be sub contracting the work, again entirely or partly. Also he has to decide on whom the responsibility to pay the LBT will be fixed i.e. on him or on sub contractor. This planning has to be made to avoid double taxation as there is no specific provision of exemption for this purpose.
vii. For one project of the builder, five times LBT is charged or levied directly or indirectly. First 1% surcharge at the time of purchase of plot as per Sec. 149A. Secondly on the basis of sq. mtrs on construction area if he opts for composition as per R. 27(4).
Thirdly his sub contractor or any dealer or person undertaking any work will pay 0.25% of total amount of contract value if he opts for composition as per R. 27(5).
Fourthly contractor’s suppliers or vendors will be including LBT if goods are purchased within the LBT area. Lastly again on the sale of shops or flats as per Sec. 149(A). This entire multiple taxation is exorbitant for which special provision of set-off is required.
viii. One can hold another view that LBT is leviable only once either as per R. 27(4) or R. 27(5) because proviso to sec. 152D says that “no LBT on the same goods shall be levied if such purchasing dealer proves to the satisfaction of the Commissioner that the LBT has been paid earlier on the said goods to the Corporation.”
ix. No procedure for application and time of payment is prescribed for lump sum payment of 0.025% as per R. 27(5).
x. The builder is not liable to pay LBT if construction scheme is outside the city area, since the goods never enter into the city area.
xi. If registered agreement to sale with payment of stamp duty is already completed before the implementation of LBT, then so surcharge of 1% is payable as per sec. 149A, if only deed of conveyance is pending. The matter is at present under consideration with the Urban Development.
xii. As per “Exception” in the definition of dealer, any individuals who imports goods for his exclusive consumption or use and a department of State & Central Government not engaged in business shall not be a dealer.
A contractor can accept construction work for the above on labour charges basis. In other words, material can be purchased in the contractee’s name and avoid paying LBT.
(Author is a Advocate from Sangli and may be reached by mail at [email protected])
(Article was First Published on 17.04.2013 and republished on 04.09.2013 with amendments)