Maharashtra Value Added Tax on Fabric

(read with The Additional Duties of Excise (Goods of Special Importance) Act, 1957

The Government of Maharashtra has issued a notification No VAT-1510/CR 47/Taxation-1. – 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:

At present the entry 45 in Schedule-A provides NIL % of MVAT in respect of items covered under  “The Additional Duties of Excise (Goods of Special Importance) Act, 1957. Fabric, being a tariff item is covered under Chapter 50 to Chapter 60 of the Central Excise Tariff Act and thus enjoys the exemption from MVAT from the whole of the VAT. The entry 45 reads as under:

45- Sugar and fabrics 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

However the notification No VAT-1510/CR 47/Taxation-1 proposes to replace the said entry-45 so as to read as under:

45- Sugar and fabrics 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 but excluding those specified in Schedule-C

Simultaneously item 101 of Schedule C is proposed to be replaced as under:

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

Thus some of the items of textiles have been shifted from Schedule A to Schedule C so as to give the State Government the power to tax the items included of the First Schedule to the Additional Duties of Excise [Goods of Special Importance] Act, 1957.

Legislative History of Excise Duty in lieu of Sales Tax

Maharashtra Value Added Tax on Fabric

(read with The Additional Duties of Excise (Goods of Special Importance) Act, 1957

Schedule A of the Maharashtra Value Added Tax Act 2005 contains about 56 items of commodities which are chargeable to VAT @ NIL %. Entry no. 45 of the said schedule pertains to Sugar & Fabrics as described in column 3 of the First schedule to the Additional Duties of Excise [Goods of Special Importance], Act 1957. Section 3 of the Additional duties of Excise (goods of Special Importance) Act, 1957 authorises the levy and collection in respect of the goods described in the Schedule I to the said Act i.e. AED (GIS) Act 1957 is Act. This Schedule  levies Additional Excise duty on goods falling under Chapter 17,24,51,52,54,55,58,59 and 60) of the Central Excise Tariff Act, 1985. Chapter 51 to Chapter 60 contains Textiles & textiles articles. This levy is in lieu of Sales Tax and is shared between Central and State Governments. The items included, for example are:

1)     Woven Fabric of wools,

2)     Woven Fabric of Cotton

3)     Woven fabric of Synthetic Filament Yarn

The mean rate of duty on items under Schedule I of the AED (GSA) Act 1957 was 8%. However by [Central Excise Notification No. 11/2006-C.E., dated 1-3-2006] the  Central Government  exempted all the goods falling under the First Schedule to the said Additional Duties of Excise (Goods of Special Importance) Act, from whole of the duty of excise leviable thereon under the aforesaid Act. Thus fabric enjoyed exemption from both the excise duty and sales tax. When this exemption was introduced it was widely perceived that the levy of sales tax on fabric was just a matter of time.

This is the duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957. Sometime in 1956, the Central Government decided to designate certain goods which it considered to be goods of special importance in inter-State trade or commerce, as declared goods and having regard to the special importance of those goods in inter-State trade or commerce, to provide for the levy of sales tax on those goods at a uniform rate in place of sales tax levied by the State Governments at varying rates. The Central Sales Tax Act, 1956  was, therefore  enacted. By Section 14 of the said Act, certain goods were declared to be of special importance in inter-State trade or commerce and by Section 15 of the said Act, as originally enacted, a two-fold restriction was placed on the imposition of tax on the sales or purchases of declared goods under sales tax law of any State. The first restriction imposed by the Act was that the tax payable under the State law in respect of any sales or purchases of declared goods inside the State shall not exceed two per cent of the sale price thereof and the second restriction was that such tax shall not be levied at more than one stage. with  the coming into force of   the Central Sales Tax Act, the State would suffer some loss of revenue. It was, therefore, found expedient and desirable to compensate the States for the proportionate loss of sales tax incurred by them on the sales of declared goods inside the State as a result of the restrictions imposed by Section 15 of the Central Sales Tax Act. Therefore, even before Section 15 of the said Act was brought into force, the Central Government decided to enact an Act to provide for the levy and collection of additional duties of excise on certain goods and for the distribution of a part of the net proceeds thereof amongst the States in pursuance of the principles of distribution formulated and recommendations made by the Finance Commission in its report dated September 30, 1957.

The proposal to levy additional duties of excise on the said goods was a part and parcel of the integrated scheme under which sales tax levied at different rates by the States on certain goods was ultimately substituted by the levy of additional duties of excise on such goods and the States were compensated by payment of a part of the net proceeds of the said additional levy of duties of excise on such goods collected during each financial year. To give effect to these proposals, the Additional Duties of Excise (Goods of Special Importance Act,  1957 was enacted and it came into force with effect from December 24, 1957, Section 3 of the said Act provided for the levy and collection of duties of excise on certain specified goods in addition to the duties chargeable on such goods under the Central Excise  Act, 1944. Section 4 of the said Act provides for the distribution of a part of the net proceeds of the additional duties thus collected amongst the States. It was specifically provided that every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sales or purchases of the declared goods be subject as from the first day of April, 1958, to the restrictions and conditions specified in Section 15 of the Central Sales Tax Act, 1956.  Section 15 was later amended to provide for one more restriction and the said restriction was that where a tax was levied under the State Law in respect of the sale or purchase inside the State of any declared goods and such goods were sold in the course of inter-State trade or commerce, the tax so levied shall be refunded to such person. Accordingly, sales tax levied under the State law on sale of any declared goods inside the State, became refundable if such goods were sold in the course of inter-State trade or commerce subject to certain conditions. The commodities covered under this Act are generally  the mill-made textiles, tobacco and sugar. It has been also been provided that the States which levy a tax on the sale or purchase of these commodities after the 1st April, 1958 do not participate in the distribution of the net proceeds.

The additional duties so collected are distributed among the States in accordance with the principles of distribution as formulated by the Parliament and provided in the Act. The Act authorises the payment of additional duties out of the Consolidated Fund of India of which these form part and charging of any expenditure under the Act on the Consolidated Fund of India. The State Legislature can impose sales tax on the GSI items at the cost of foregoing its share from the distributable net proceeds from the Centre from out of the Consolidated Fund of India.

Compiled by:

CA LALIT MUNOYAT


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

[email protected]

98201 93508

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0 Comments

  1. deepak israney says:

    can we get the refund of vat if we buy the yarn in vat & we are selling fabric without vat .if yes ,please let me know the percentage
    rgs
    deepak

  2. ritesh says:

    please let me know what’s the status of vat on fabric. is the vat applicable on fabric? is yet what is the percentage ?

    thanks & regards

    Ritesh

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