CA Lalit Munoyat

Ever Since the rate of excise duty on fabric under Additional Duties of Excise (Goods of Special Importance)(AED-GSI)  Act, 1957 was lowered to NIL % w.e.f._01-03-2006 it was widely perceived by the Textile Industry (Fabric) that the levy of state VAT on fabric is now just a matter of time, particularly when this AED levy on fabric was in lieu of state sales tax (VAT). However, the State Government just could not levy VAT on Fabric because though the rate of AED-GSI was lowered to NIL%, the items of fabric continue to remain listed in the Schedule to the AED-GSI ACT. What is the importance of this listing in Schedule to the AED-GSI Act 1957 ?.

MVAT Act 2002 contains 5 Schedules which prescribe rate of VAT on the products liable to charge of VAT.

Schedule A contains products which are FREE from VAT. Entry No. 45 of this Schedule  A evolved as under

S.N. Effective Date ENTRY -45: SCHEDULE A Rate of Tax
1. 1-04.2005 To 31.01.2006 Sugar, fabric and tobacco as described from time to time in column 3 of the First schedule to the Additional Duties of Excise [Goods of Special Importance], Act, 1957. NIL %
2. 1.02.2006 To 31.03.2007 Sugar, fabric and tobacco as described from time to time in column 3 of the First schedule to the Additional Duties of Excise [Goods of Special Importance], Act, 1957. NIL %
3. 1.04.2007  To 31.03.2010 Sugar, fabric and tobacco as described from time to time in column 3 of the First schedule to the Additional Duties of Excise [Goods of Special Importance], Act, 1957. NIL %

So we now know because of the condition attached to Entry-45 . The State government had no power to levy VAT on Fabric so long as the same was listed in AED-GSI Act 1957.

However the Government of Maharashtra issued a notification No VAT-1510/CR 47/Taxation-1.- dated 10th March 2010 under THE MAHARASHTRA VALUE ADDED TAX ACT, 2002 to amend, with effect from the 1st April 2010 the SCHEDULE “A” and “C” appended to the said Act as follows:

Schedule “A”

Entry-45– Sugar and fabric as described from time to time in column 3 of the First schedule to the Additional Duties of Excise [Goods of Special Importance], Act, 1957 (58 of 1957) but excluding those specified in schedule ‘C’. (From 01-04-2010 to Date)  Rate of Tax  NIL %

Schedule “C”(before amendment)

Entry-101– Varieties of sugar, tobacco, textile and textile articles as may be notified from time to time by the State Government in the Official Gazette.(From 01-04-2005 To 31-03-2010)

Rate of Tax   4%.

Schedule “C” (After amendment)

 

Entry-101(a)-Fabrics and sugar as defined from time to time, in section 14 of the Central Sales Act, 1956. (01-04-2010  to Date)Rate of Tax 4%
Entry-101(b)- Varieties of Textile and Textile Articles as may be notified from time to time, by the State Government, in the Official Gazette. (01-04-2010  to Date)Rate of Tax 5%

 

At this time a hue and cry was made that the State Govt. has levied VAT on Fabric. This conclusion was drawn by the textiles traders from the amended Entry-45 of Schedule A. A plain reading of the amended Entry-45 suggested that “Decleared goods” have been removed from Entry-45 of Schedule A and included in Entry-101(a) of Schedule “C” which attracted a VAT of 4%. Fabric is a declared good under section 14 of the Central Sales Tax Act 1956 and therefore perceived to be liable to VAT @ 4%. The confusion was so profound that the Commissioner of Sales Tax Maharashtra State, Mumbai had to issue TRADE CIRCULAR  Date: 17.03.2010  No. VAT/AMD-1010/ 1C/1Adm-6 Trade Cir. No.11T of 2010 to clarify  that the fabrics & sugars which were tax free prior to issue of this notification continue to remain as tax free.

More Confusion to follow

However the Finance Bill 2011 introduced in Lok Sabha on 28th February, 2011 compounded the confusion when it introduced Clause 75 of the Bill seeking to amend the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957 in the manner specified in Thirteenth Schedule so as to take out sugar and textile from the purview of the said Act to enable the States to levy VAT on those goods, by omitting the following:-

(a)     All items of Sugar

(b)    All items of Textiles

Now every one was eagerly awating the Budget Proposals of the Maharashtra Government pertaining to MVAT on Fabrics. With the enactment of the Finance Act 2011 w.e.f. 01-05-2011, the Maharashtra government increased the rate of VAT on declared goods from 4% to 5% and this rate of 5% is listed against Fabric in Entry 101(a) of Schedule “C”.

FINAL CONCLUSION: ANY VAT ON FABRIC w.e.f. 01-05-2011 ?:  NO , FABRIC STILL FREE FROM VAT : REASONS:

The reasons that Fabric is still Free from MVAT can be found from The Maharashtra ACT NO. XV OF 2011 dated 21st April 2011. Let us analyse the provisions of this ACT. Chapter VI contain amendments to Maharashtra Value Added Tax Act 2002. Clause 19 amended Entry-45 of Schedule “A” so as to read as under

S.N. Effective Date ENTRY -45: SCHEDULE A Rate of Tax
1. 1-05.2011 till Date Sugar and fabric as described from time to time in column 3 of the First schedule to the Additional Duties of Excise [Goods of Special Importance], Act, 1957 (58 of 1957) as it stood prior to the date on which the Finance Act 2011 comes into force, but excluding those specified in schedule ‘C’. NIL %

1)      By the above amendment the position of Entry-45 of Schedule A has been restored to its original position which was as under:

Schedule “A”

Entry-45– Sugar and fabric as described from time to time in column 3 of the First schedule to the Additional Duties of Excise [Goods of Special Importance], Act, 1957 (58 of 1957) but excluding those specified in schedule ‘C’. (From 01-04-2010 to Date)Rate of Tax  NIL %

2)      By default, all the items of Fabric are included in Entry-45 of Schedule “A” which attracts no VAT.

3) Whichever items of Fabric the government wants to tax are carved out from the Entry-45 of Schedule “A by way of a notification and the same are included in Entry No. 101(a) of Schedule “C” and on doing so, these items becomes taxable @ 5%, being the highest rate of tax on Declared Goods.

4)      One such notification was VAT 1510/CR 47A/Taxation-1 dated 17-03-2010. The said Notification states that w.e.f. 1st April 2010 the following goods more particularly described in SCHEDULE appended hereto , TO BE FABRICS, forthe purposes of Sub Entry (a) of Entry 101 of Schedule C:

1)            Terry toweling and similar woven terry fabrics of any textile materials other than cotton.

2)            Tulles and other net fabrics of cotton

3)            Tulles and other net fabrics of other materials

4)            Handmade Lace

5)            Narrow Fabric consisting of Warf without weft assembled by means of an adhesive (bolducs)

6)            Textiles Wall covering

7)            Rubberised textile fabric

5) Except the above items of Fabrics, no other items of Fabrics are taxable to MVAT as they have not been notified for the purposes of Entry 101(a) of Schedule “C” and therefore they still enjoy the protection of Entry-45: Schedule “A”

Compiled By:

CA Lalit Munoyat

B.Com.(Hons.), CS., FCA, DISA

munoyat@gmail.com 98201 93508

Maharashtra Vat On Fabric – Fresh Confusion Part – II – VAT @ 4% / 5% is Chargeable On Fabric w.e.f. 1st April 2010- Know How?

Related Downloads-

Maharashtra Tax Laws (Levy, Amendmend and Validation) Act, 2011 with Date of effect Notification for provisions of certain sections

List of declared goods

NOTIFICATION-MVAT-2010-007

NOTIFICATION-MVAT-2010-005

List of declared goods

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