CA Mukund Abhyankar
Maharashtra Sales Tax Department , deserves congratulations and thanks from tax payers, consultants and Chartered Accountants for various initiatives of ‘e’ governance, they have implemented under MVAT compliance. Extent and pace of these initiatives have placed Maharashtra as a frontrunner in the ‘e’ governance under sales tax.
Though implementation of E initiatives has been satisfactory to a large extent and deserves appreciation by all, certain problem areas still persist which need improvement from the side of the Department through suitable amendments in respective provisions of MVAT Act.
(A) Inordinate delays in granting of Refunds
1. Huge amount of refunds which are payable to the dealers at large are lying with the Department due to lack of support from Mahavat system. From FY 2008-09 onwards, Form 704s have been filed electronically and data for dealer wise sales is available in the database of the Department. In spite of this huge lists of unmatched input tax credits are given to refund claimants and CA certified Ledger Extracts in the Books of Accounts of Suppliers are demanded from the dealers. This demand delays granting of refunds to a long period of time for no fault of the refund claimants.
2. Circular on Refunds issued in Oct 10 talks of fast processing in the case of Exporters and Bank Guarantee backed claims. In spite of an obligation agreed by Department itself, to grant refunds in these case as soon as possible without waiting for audit or verification, no refunds are granted for the reasons of unmatched input tax credits.
3. If such delays are continued Industry may find it cheaper to buy from out side Maharashtra suppliers and bear CST at 2% as cost instead of blocking 12.5% towards MVAT by making purchases from Maharashtra based suppliers.
4. To ensure faster actions from Departmental Officer in payment of refunds, suitable instructions may be given in the form of internal circulars. To bring about more transparency and check on the officers involved in the process of granting of refunds, Department website should provide information on the status of refunds processing by way of periodical updates on progress of processing of each of the refund claim filed with the Department. This should not be difficult because all refund applications are filed electronically and each claim application is serially acknowledged. To keep a track on progress of each refund claim should be very easy if periodical updates on processing status are posted by concerned officers on Department website. Such updates which will be in line with similar updates already provided on CBEC website in respect of excise and service tax refunds. These updates will provide great degree of transparency and clarity on the refunds being processed by Departmental officers.
5. A glaring problem in the current system of grant of refunds is in respect of refunds backed by Bank Guarantee from the Dealers. Under this system even if Dealer is prepared to give bank guarantee for full amount of refund applied, amount of refund is reduced by amounts of set off credits that are not supported under Department’s database and dealer is advised to give guarantee for only the reduced amount and refund is also granted for reduced amount. It is submitted that all this process of matching with Department’s database takes long time due to procedural delays and further this exercise of matching does not lead to any final conclusion since this database is amenable for corrections from time to time. Accordingly credits which is are considered as not eligible at one point of time become eligible at next point of time if database is corrected by selling dealers for earlier defects. Huge reductions are made from refund applied for these temporary defects and lot of time is taken for completing procedures.
6. In this respect, reason behind not granting full amount of Refund applied for by the Dealer when claimant has furnished Bank Guarantee for that amount is beyond comprehension. When Bank Guarantee is there, Department is fully secured against any shortcomings that may exist in the refund claim and necessary demand can always be made to the dealer during long period for which Bank Guarantees are valid in favor of the Department.
7. No discretion or verification is necessary from Department’s side atleast in those cases where Department has financial safeguard fully available against possibility of payment of excess refund. Immediate release of refund should be therefore a right of the purchasing dealer and not a favour from Department atleast in cases where Dealer has given full security to the Department.
8. As a relief to Dealers who can mobilize Bank Guarantee following amendments are suggested in Section 51 of the Act , so that at least in cases where full security is available to Department for recovery of excess refund, dealers can expect fast availability of working capital.
9. Amendment suggested in Sec 51(5) of the MVAT Act
Existing Provision
Notwithstanding anything contained in this section, if the dealer has furnished a bank guarantee for such amount, from such bank, for such period and to such authority as may be prescribed, the Commissioner shall grant the refund due under sub-section (2) or (3), within one month of the furnishing of the bank guarantee, irrespective of whether the additional information has been furnished or not.]
Suggested Provision
Notwithstanding anything contained in this section, a dealer may furnish a bank guarantee for an amount not exceeding the amount of refund applied under sub sections 2(a) or 3 (a) and the said guarantee shall be obtained by the dealer from such bank, for such period, in favour of such authority as may be prescribed and upon furnishing of the said guarantee, the Commissioner shall grant the refund equal to the amount of the said guarantee within one month of the date of furnishing of the said guarantee.
Provided however that if it is found as a result of any order passed under this Act that the refund granted under this sub section is in excess of the refund, if any, determined as per the said order, then the excess amount shall be recovered as if it is an amount of tax due from the dealer and the dealer shall be liable to pay simple interest at the prescribed rate per month or part thereof from the date of the grant of refund.
(B) Denial of set off to purchaser for no fault of his own but of the Seller. Harsh Provisions of Sec 48(5) of MVAT Act
1. For claim of set off, a purchaser has to depend upon the tax invoice issued by seller. He has no authority to check whether tax payment on the said invoice is made in the Government treasury or not, more particularly at the time of making purchase. Further, there is no mechanism under MVAT Act, 2002 to check up tax payment by vendor on the goods purchased by the buyer. Therefore, the purchasing dealer is justified in relying upon invoice received by him.
However purchaser is penalized in cases where seller has not paid to the government, tax collected by him from such purchaser, by taking recourse to the provisions of Sec 48(5), which allows authorities to deny credit for tax on purchases in cases where such tax is not actually paid to the Government.
2. In case of Mahalaxmi Cotton Ginning Pressing and Oil Industries, Kolhapur v. The State of Maharashtra & Ors. (51 VST 1). Hon’ble Bombay High Court has examined the provision of section 48(5) of the MVAT Act, 2002. This section provides that if the Government has not received tax from the seller then buyer will not be entitled to set off. Therefore, the authorities are disallowing set off wherever the seller has not paid tax. Though, Hon’ble High Court has upheld constitutional validity of the said section, it is not without responsibility on the department. In para-51 of the above said judgment, Hon’ble High Court has reproduced undertaking given by the Government in respect of set off.
3. Need for an undertaking from the government itself proves the fact that the provisions of this Section are too harsh and create an element of uncertainty about final cost of purchase in the minds of businessmen. Such a harsh provision in VAT is big impediment for ease of doing business.
4. It is submitted that a purchasing dealer should not be made to suffer in respect of atleast those cases of set off credit which relate to genuine purchase transactions conducted with bonafide intentions, so that hanging sword effect of set off denial is not faced by the purchaser for the defaults made by his seller and reasonable certainty about his cost of purchases will be available to him.
5. Certain exceptions should be available to provide relief to an innocent purchaser, which will go a long way in creating an industry friendly environment
6. Accordingly following amendments be made in Section 48(5)
Existing Provision
For the removal of doubt it is hereby declared that, in no case the amount of set-off or refund on any purchase of goods shall exceed the amount of tax in respect of the same goods, actually paid, if any, under this Act or any earlier law, into the Government treasury except to the extent where purchase tax is payable by the claimant dealer on the purchase of the said goods effected by him:
Provided that, where tax levied or leviable under this Act or any earlier law is deferred or is deferrable under any Package Scheme of Incentives implemented by the State Government, then the tax shall be deemed to have been received in the Government Treasury for the purposes of this sub-section.
Suggested provision
For the removal of doubt it is hereby declared that, in no case the amount of set-off or refund on any purchase of goods shall exceed the amount of tax in respect of the same goods, actually paid, if any, under this Act or any earlier law, into the Government treasury except to the extent where purchase tax is payable by the claimant dealer on the purchase of the said goods effected by him:
Provided that, where tax levied or leviable under this Act or any earlier law is deferred or is deferrable under any Package Scheme of Incentives implemented by the State Government, then the tax shall be deemed to have been received in the Government Treasury for the purposes of this sub-section.
Provided further that where the claimant dealer proves to the satisfaction of Commissioner that the tax on purchase of the goods in respect of which set off or refund is not allowed under foregoing provisions of this sub section, pertains to a bonafide transaction of purchase on his part supported by evidences for receipt of the goods and for payment of entire purchase price of the goods to the seller and gives an undertaking to the Commissioner to make good any loss that may arise to the Government due to non recovery of such tax by the Commissioner from the seller of the goods in spite of all efforts taken for the same, the Commissioner shall grant to the claimant dealer amount of such set off or refund.
(C) Wrong Dues of tax arising out of Partial assessment done under Desk Audit under Section 23(5) of the MVAT Act
1. It has been invariably observed that Issue Based Audit Dept. as well 704 Desk in Sales Tax Dept. are issuing notices in Form 603, pointing out certain defects like purchases not matching for input credit or non availability of C declarations etc.
2. Even after requests made in such cases to authorities for issue of notices in Form 301 thereby for assessing the dealer for the whole year, authorities proceed with transaction based assessments that result many times into demands on account of disallowance of input credit, disallowance of C form or levy interest, which demands are actually non-existent if complete assessment for all transactions for the financial year is made. Demands through such partial assessments cast un necessary burden on dealer when he knows that on complete assessment such demands are not sustainable and accordingly makes request for the same to the authorities
3. This is illustrated below with an example
| Particulars | Amount | Amount |
| Demand/Refund Status if complete assessment is made | ||
| MVAT Transactions | ||
| MVAT Sales | 1000000 | |
| MVAT Liability at 12.5% | 125000 | |
| MVAT Purchases at 12.5% | 1500000 | |
| MVAT set off | 187500 | |
| Net Refund due under MVAT adjusted against CST dues | 62500 | |
| CST Sales | 1000000 | |
| CST Liability at 2% agt C Forms | 20000 | |
| Net Refund due under MVAT after adjustment of CST dues | 42500 | |
| Demand/Refund Status when partial assessment under Desk Audit is done for say Mismatch ITC for say Rs. 25000 made. It is assumed that out of Mismatch cases, Dealer could not produce evidences such as Ledger Extracts, Return Copies etc for Rs. 22500 worth of tax credit and is assessed for this amount of ITC not eligible | ||
| MVAT Transactions | ||
| MVAT Sales | Not assessed | |
| MVAT Liability at 12.5% | Not assessed | |
| MVAT Purchases at 12.5% | Not assessed | |
| MVAT set off | -22500 | |
| Net Demand due under MVAT adjusted against CST dues | -22500 | |
| CST Sales | Not assessed | |
| CST Liability at 2% agt C Forms | Not assessed | |
| Net Refund due under MVAT after adjustment of CST dues | -22500 |
4. It is clear from the example that only because of part assessment Dealer is charged for Rs. 22500, though on complete assessment he is entitled for Refund of Rs. 20000 (42500-22500).
5. In such a situation authorities proceed with Part Assessment and appeal can be filed only in respect of these dues. If dealer can not produce any evidences even at Appeal stage, demand is recovered though not really payable if entire picture is taken into consideration
6. It is therefore very much essential to make it obligatory for the authorities to conduct complete assessment when a request there for is made by the dealer in response to the notice sent to him under this sub section
7. Accordingly a Proviso should be added to sub sections 5 (a) & 5(b) of Sec 23 which will require compete assessment to be done for a dealer when request for the same is made by him
8. Section 23 (5) (a)
Existing Provision
During the course of any proceedings under this Act, if the prescribed authority is satisfied that the tax has been evaded or sought to be evaded or the tax liability has not been disclosed correctly or excess set-off has been claimed by any dealer or person] in respect of any period or periods by not recording or recording in an incorrect manner, any transaction of sale or purchase, or that any claim has been incorrectly made, then in such a case notwithstanding that any notice for assessment has been issued under other provisions of this section or any other section of this Act, the prescribed authority may, after giving such dealer or person a notice in the prescribed form and a reasonable opportunity of being heard, initiate assessment of the dealer or person in respect of such transaction or claim.
Suggested Provision
During the course of any proceedings under this Act, if the prescribed authority is satisfied that the tax has been evaded or sought to be evaded or the tax liability has not been disclosed correctly or excess set-off has been claimed by any dealer or person] in respect of any period or periods by not recording or recording in an incorrect manner, any transaction of sale or purchase, or that any claim has been incorrectly made, then in such a case notwithstanding that any notice for assessment has been issued under other provisions of this section or any other section of this Act, the prescribed authority may, after giving such dealer or person a notice in the prescribed form and a reasonable opportunity of being heard, initiate assessment of the dealer or person in respect of such transaction or claim.
Provided however that the dealer may in the course of hearing as aforesaid request for assessment to be made in accordance with the provisions of sub section (2) of this Section for the year to which such transaction or claim pertains, if such assessment is not already made, upon which the prescribed authority shall proceed to assess the amount of tax due from the dealer for the said year in terms of sub section (2) of this Section.
9. Section 23 (5) (b)
Existing Provision
During the course of any proceedings under section 64, if the prescribed authority is satisfied that the tax has been or is sought to be evaded, as provided under clause (a) by any dealer or person, the said authority may, after issuing a notice in the prescribed form and after giving a reasonable opportunity of being heard to such dealer or person, proceed to assess such dealer or person as provided in clause (a) in respect of any such transaction or claim relating to any period or periods and such authority shall, notwithstanding anything contained in section 59, be deemed to have the requisite jurisdiction and power to assess such dealer or person in respect of such transaction of sale or purchase or claim, covered by clause (a) and such assessment proceedings shall, for all purposes of this Act, be deemed to have been transferred to such authority.
Suggested Provision
During the course of any proceedings under section 64, if the prescribed authority is satisfied that the tax has been or is sought to be evaded, as provided under clause (a) by any dealer or person, the said authority may, after issuing a notice in the prescribed form and after giving a reasonable opportunity of being heard to such dealer or person, proceed to assess such dealer or person as provided in clause (a) in respect of any such transaction or claim relating to any period or periods and such authority shall, notwithstanding anything contained in section 59, be deemed to have the requisite jurisdiction and power to assess such dealer or person in respect of such transaction of sale or purchase or claim, covered by clause (a) and such assessment proceedings shall, for all purposes of this Act, be deemed to have been transferred to such authority
Provided however that the dealer may in the course of hearing as aforesaid request for assessment to be made in accordance with the provisions of sub section (2) of this Section for the year to which such transaction or claim pertains, if such assessment is not already made, upon which the prescribed authority shall proceed to assess the amount of tax due from the dealer for the said year in terms of sub section (2) of this Section.
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If a Company is facilitating the Purchase of goods to the seller and if the seller fails to pay VAT, will the Company (Agent) be liable to pay VAT under the Maharashtra VAT Act
The following changes are required:
1) There should be time limit for a authority to dispose of all applications such as registration, appeals, rectifications etc just as they are in place for a dealer to seek registration, pay taxes, file returns, appeals, grant of administrative reliefs etc.
2) The system of conducting a Preliminary Hearing on appeals filed should be done away with and instead they should be conducted in the same manner as Excise/Service tax and income tax appeals are heard.
3) When a dealer has already filled up Annexure J2 why then bill wise details are required for filing Form 501 (Refund Application). It is a waste of time for the dealer and his staff.
4) E-services such as CST declarations aren’t made available in time and applications are rejected merely because of small technical errors. The authorities verify the details from the periodic returns instead of from the latest available Form 704 or revised returns.