Adv. Kishor T. Lulla, Sangli
(I) Every Local Body Tax (LBT) Practitioner is facing daily disputes with Corporation Authorities for levy of LBT qua goods or qua dealer due to misunderstanding of relevant sections under, “The Maharashtra Municipal Corporation Act”. The relevant sections for dispute in relation to ‘goods’ are section 127(2), 152B and 152P of the Act. The concerned sections for disputes qua dealer/ individual, are S. 2(5A) and 2(16A) of the said Act. In this article I will brief the dispute relating to first part.
Sec. 127 (2) – Taxes to be imposed under this Act.
In addition to the taxes specified in sub-section (1) the Corporation may for the purposes of this Act and subject to the provisions thereof impose any of the following taxes, namely :-
[(aa) a cess on entry of goods into the limits of the City for consumption, use or sale therein to be levied in lieu of Octroi with the previous sanction of the State Government]w.e.f. 31/08/1995
[Provided that, the State Government may, by notification in the Official Gazette, direct the Corporation to levy the cess on the entry of the goods into the City for consumption, use or sale therein, in lieu of octroi] w.e.f. 03/10/2008
[(aaa) Local Body Tax on the entry of the goods into the limits of the City for consumption, use or sale therein, in lieu of octroi or cess, if so directed by the State Government by Notification in the Official Gazette;]w.e.f. 31/08/2009
(II) Section 152B – Incidence of Cess (now L.B.T.)
1. Every dealer whose turnover either of all sales or of all purchases or of all imports made :-
a. During the year immediately preceding to year; or
b. During the year in which the Corporation has decided to levy the cess specified in sub-section (2) of section 127, has exceeded or exceeds the relevant limit prescribed in this behalf, shall be liable to pay the cess under this Act.
Provided that, a dealer to whom sub-clause (a) does not apply but sub-clause (b) applies and whose turnover either of all sales or of all purchases or of all imports first exceeds the relevant limit prescribed in this behalf after the first day of April if the year in which the Corporation has decided to levy the cess, shall not be liable to pay the cess in respect of the goods imported by him into the limits of the city for consumption, use or sale therein upto the time when his turnover of sales or of purchases or of imports as computed from the first day of April of the said year, does not exceed the relevant limit prescribed in this behalf.
2. Every dealer whose turnover, either of all sales or of all purchases or of all imports made during any year commencing on the first day of April, being a year subsequent to the years mentioned in sub-section (1) first exceeds the relevant limit prescribed in this behalf, shall be liable to pay cess under this Act;
Provided that, a dealer shall not be liable to pay the cess in respect of the goods imported by him into the limits of the City for consumption, use or sale therein during the period commencing on the first day of April of the said year, upto the time when his turnover of sales or of purchases or of imports, as computed from the first day of April of the said does not exceed the relevant limit prescribed in this behalf.
(III) Section 152P – Levy of Local Body Tax
Subject to the provisions of this Chapter and the rules, the Corporation, to which the provisions of clause (aaa) of sub-section (2) of section 127 apply, may, for the purposes of this Act, levy and collect Local Body Tax on the entry of goods specified by the State Government by notification in the Official Gazette, into the limits of the City, for Consumption, use or sale therein, at the rates specified in such notification.
(IV) In all the above mentioned sections, you will find the words “ Consumption, Use or Sale therein” which are of prime importance while deciding the liability as well as taxability of L.B.T. The decisions delivered for octroi or cess can be equally applicable for Local Body Tax.
(V) It is held in several cases before High Courts and Apex Court that “where a dealer imports goods within the octroi limits, not for ultimate consumption or sale for consumption within the limits but for the purpose of export, he is not liable to pay octroi on such goods notwithstanding that in the larger sense for purposes of export, he sells the goods within the octroi limits, that is to say, even where the situs of the sale could be fixed within the octroi limit.
In other words “A company was liable to pay octroi on goods brought into local area (a) to be consumed by itself or sold by it to consumers directly and (b) for sale to dealers who resold the goods to consumers within the municipal area, irrespective of whether such consumers brought them for use in the area or outside it. The Company was, however, not liable to Octroi in respect of goods which it brought into the local area and which was re-exported”.
It is also held that “It is not the immediate person who brings into a local area must consume them himself. The act of consumption may be postponed or may be performed by someone else. But so long as the goods have been brought into the local area for consumption, in that sense, no matter by whom they satisfy the requirements of the Act.”
In short, Tax is on the goods bought into the city for the purpose of consumption, use or sale in the city. If the consumption or use is not in the city, then even if the sale is in the city, the goods brought in, cannot be taxed in the city as constitutionally not valid. There may be a situation where the large size packing is brought into the city and then is converted to smaller packings and sent out of the city; the goods do not get consumed, used or sold in the city. Further in case of goods brought into the city for storage and exported out of the city either immediately or after some time, cannot be taxed for the same constitutional reasons.
To sum up: Having regard to the nature and incidence of octroi, unless the octroiable goods are consumed or used or are meant to reach an ultimate user or consumer in the octroi area, no octroi is leviable. The words ‘sale therein’ in the words “consumption, use or sale therein” in the definition octroi, means sale of octroiable goods to a person for the purpose of consumption or use by such person in the octroi area. If sale was intended for consumption or use in the octroi area whether the purchaser actually consumed inside or outside octroi area is irrelevant.
(VI) Recently Hon. Apex Court, in the case of Jet Airways(India) Ltd, in W.P. No. 208 of 2001 on 29th March 2012 held that, “the aircrafts have not entered the municipal limits of Brihan Mumbai for the purpose of use therein i.e. for the purpose of flying within the municipal limits. Assuming that there is some kind of use involved in disembarkation, embarkation of passengers, luggages and fueling, such use is not within the meaning of that term in Section 192 in relation to an aircraft. In any case, even if the word “use” as employed colloquially is applied for such incidental activities referred to above, it cannot be said that the entry is for the purpose of use within the municipal limits since the import into the municipal limits is with the intention of exporting and it is settled law that the use contemplated must be for an indefinite period, in such a way that comes to rest finally and permanently within the municipal limits”.
(Author can be reached at Mob – 9422407979 or on [email protected])