Recent Developments in MVAT Act. CA HemantPatki.

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1 Recent Developments in MVAT Act CA HemantPatki. Amendment to Section 32A As per the amendment, the Commissioner can now recover the amount shown payable in the Audit report in form 704. It is provided in the amendment applicable from 1 May 2013, if the Auditor has made a recommendation in respect of a sum payable orthe interest payableand the dealer has accepted the recommendations then the said dealer shall pay the same within thirty days from the date of service of the notice issued by the Commissioner. Interest is payable as if the payment is due as per periodical returns. Explanation.-For the purposes of this section and section 32, the Commissioner shall not recover dues which are rupees one hundred or less This amendment has given a tool in the hands of Sales Tax Department and the efforts of the Department to issue assessment notice and pass assessment order to recover the dues shown in 704, will now be saved. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 14 Parameters The Sales Tax Department has formed EIU [ Economic Intelligence Unit ] which is in full gear. The data uploaded and received from various sources such as form 704, refund applications, J1 & J2 filed by non audit dealers, C forms data received from Central Repository is processed by the EIU and various reports in excel form are generated. The probable tax loss is also calculated and given to various officer to issue notices and verify the records of the dealers. If dealer fails to comply, then assessment orders are passed. Some of the Parameters are 1. Sales Suppression:- If the figure in J1 shown by selling dealer is less than the figures shown in J2 by corresponding purchasing dealer, then notice is issued to seller for the shortfall which is called as sales suppression 2. Excess Set off claimed:- In the situation discussed at Sr 1 above the purchasing dealer is issued a notice for excess set off claimed 3. Amount as per Central Repository for C forms issued is more than the Interstate purchases shown in the Audit Report / returns:- In such a situation sales are estimated and tax is proposed 1

2 4. Set off claimed from Returns Short filers / Return Non Filers :- This list is published on Mahavat Website and accordingly set off reduction is proposed 5. Set off claimed from Hawala / TIN Cancelled Dealers:- List of Hawala dealers is published and updated from time to time. The details of cancellation of TIN is also available on website. Accordingly the set off on purchases from such dealers is denied. In near future the list of 14 parameters will reach about 40 parameters. Additional information will be procured from Income Tax, Excise, Customs Departments also. Carry forward of Refund For the period commencing 1st April2012, a dealer eligible for refund up to 5 lakhs, can carry forward the same to the return for immediate succeeding year. Validity of Section 48(5) Mahalaxmi Cotton Ginning Pressing and Oil Industries D. Y. Chandrachud, J. decided on 11 May, 2012 in WP 33/2012 This petition challenged the validity of Section 48(5) High Court declared Section 48(5) as valid and also upheld the validity of form 501 and mismatch reports generated by the department based on annexures J1 &J2. A plea of hardship cannot result in the invalidation of a statutory provision in a fiscal enactment which is otherwise lawful. The high Court observed 1. As far as possible the Section should be held valid. 2. It is the privilege of the legislature to make Laws, give concessions and put conditions. 3. Set off is not a right of a dealer 4. Dealer is not agent of State for collection of tax. 5. If you are unable to fulfil the conditions, then don t claim the set off. 6. The set off will be available only if the tax is actually paid by the supplier in Government treasury. 7. Tax invoice & declaration on tax invoice that the collected tax will be paid in Government treasury are the additional requirements for claiming set off. 8. The system of Sales Tax department based on data received from returns and form 704 is reliable and the allowance of set off based on their system is proper. 9. The State government and the sales tax authorities shall abide by the assurance and statement recorded in the judgment. 2

3 The Department has provided the following methodology & assurances If the supplier is a genuine dealer, but there has been a short filing of taxes or returns, Assessment or recovery will be initiated against the selling dealer. Where the selling dealer has not filed returns, an order of assessment will bepassed. If the selling dealers pays taxes, set off will be granted to purchaser in assessment, appeal or in review. The system of tax collection, assessment and refunds can move towards a more objective and transparent process with the deployment of electronic and digitised processes. Corrective action shall be taken to allow an additional claim of input tax credit to a claimant dealer even where it has been initially disallowed by the Department. At the end of each financial year, the Sales Tax Department will reconcile the data on its system and inform the dealer about the input tax credit which may have become available on reconciliation, allowing the claimant dealer to seek an additional claim of refund to the extent of his input tax credit so matched in such cases The Department shall, during the course of the current year set up a Dealer Information System and Dealer Ledger account showing the status of the taxes collected and paid. In the event of no returns having been filed by the Defaulter, the corresponding set off will be denied In the case of short filing, Set off will be granted pro rata to the tax paid In the case of sales not shown in return by selling dealer, the entire set off will be denied to purchasing dealer. As far as possible, the Sales Tax Department will recover the tax from the dealer who purchases from the Defaulter. However, the Sales Tax Department will retain the option of denying a set off and of pursuing all selling dealers in the chain until recovery is ultimately made from any one of them. 3

4 The full machinery of the Act will be invoked by the Sales Tax Department wherever possible against Defaulters with a view to recover the tax from them, Once there is final recovery (after exhaustion of all legal proceedings) from the Defaulter, in whole or part, a refund will be given (after the end of that financial year) to the extent of the recovery. This refund will be made pro rata if there is more than one dealer who was denied set off; Refund will be given by the Sales Tax Department even without any refund application having been filed by the dealers, since the Sales Tax Department will reconcile the payments, inform the dealer of the recovery from the Defaulter concerned and grant the refund; Details of Defaulters will be uploaded on the website of the Sales Tax Departmentand dealers denied set off will also be given the names of the concerned Defaulters No set off will be granted on the Hawalapurchase TIME FOR 501 Regulating the process of refunds is as much within the province of a legitimate tax enactment and the legislature is within its power in requiring a refund to be applied for within a reasonable period. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Penalty U/s 29(3) Now the Department is proposing penalty u/s 29(3) in almost all cases. The judgment of Tribunal in the case ofanusuya Auto Press Parts P.Ltd.,VAT S.A.192 of 2011, decided on will come to our rescue. In this case, the CST Assessment order resulted in dues on account of non receipt of C ofmrs. Penalty equal to 100% of tax was levied u/s 9(2) of CST Act read with 29(3) of M Vat Act. The appellant contended that he had produced 'C' forms out of the disallowed claim. This implies that the claim in return against C form was not a misclassification of taxable sales. The appellant contended that he has not wilfully misclassified the claim at concessional rate of CST.After due efforts the missing 'C' could not be collected and hence the additional CST has resulted. Tribunal held that penalty u/s 9(2) of CST Act read with section 29(3) of VAT Act, was not justified. 4

5 Reduction in Penalty U/s 61(2) Though the provision does not specifically permit reduction in penalty for late filing of Audit report, the tribunal took a helpful view in the case ofsupertron Electronics Ltd.,App of 2010, decided on In this case, Audit reports under MVAT Act for and were due to be filed before the same were filed on and respectively for two years. Penalty u/s 61(2) was therefore levied at Rs /- and Rs /- respectively. The main reasons for late filing of report were 1. The matter whether non CA can do the audit was pending in High COurt and Supreme Court. 2. There was shifting of place of business and records. 3. Chief accountant left the job. 4. The accounting software was changed. The appellant conteded that inview of Supreme Court judgment in the case of Hindustan Steels Ltd 25 STC 211 and view of Bombay High Court judgment in the case of Ankit International decided on , and in view of the word "may",used in the section 61(2), the penalty is a discretion of the authority. Moreover there is no loss of revenue as the appellant had filed all the returns in time. Considering the facts the Tribunal reduced the penalty Penalty u/s 61(2) from Rs /- and Rs /- to Rs /- and Rs /-. Please note that about 1/3 penalty is finally retained, which is also a huge amount. Local Sale / Interstate Sale or Export? Sale to ONGC at Nhava Sheva - Held as Local Sale Eng.Marine Corporation,S.A.441to 445 of 2005, decided on The appellant effected sales of wooden pallets to ONGC. The Pallets were delivered at Nhava Sheva base which were required for carrying helium gas cylenders to bombay High.It was contended by the appellant that the sale is covered by section 5(1) of CST act i.e.export as Bombay High is outside the territory of India and pallets were required to carry the goods to Bombay High. It was argued that sale is not local or interstate or export. The same may be treated as outside State. The Tribunal held that, after considering the judgment of Pure Helium (I(ndia) Ltd. S.T.Ref. no. 15 decided on , the sale is within the state and local taxes are applicable. For Export, foreign destination is required. 5