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APPENDIX F
Sales tax on works contract under the MVATA 2002 and Rules
The MVTA 2002 provide for levy of tax on the value of goods transferred in the course
of execution of works contract. Section 2(24) explains the term ‘works contract’.
Accordingly, ‘works contract’ includes any agreement for carrying out for cash, deferred
payment or other valuable consideration, the building, construction, manufacture,
processing, fabrication, erection, installation, fitting out, improvement, modification,
repair or commissioning of any movable or immovable property.
The MVATA 2002 provides for two alternate methods for discharging tax liability. Each
of the methods is discussed herein below.
Tax payable as per provisions of the MVATA 2002
Tax at the applicable rate is payable only on the value of the goods (sale price) which
are transferred in the course of execution of works contract.
The rate of tax payable would be at par with other normal sales.
For the purpose of taxation the turnover of sales would be equal to the total
consideration received or receivable for the works contract.
‘Sale Price’ liable to tax is to be worked out after reducing the deduction as
admissible under the Act. Rule 58 of the MVAT Rules provide for deduction as
follows:
labour and service charges for the execution of works
amount paid by way of price for sub-contract
charges for planning, designing and architects fees
hire charges for machinery and tools
cost of consumables such as water, electricity, fuel used in execution of works
contract
cost of establishment of the contractor to the extent to which it is relatable to
supply of labour and services
other similar expenses relatable to supply of labour and services
profit earned by the contractor to the extent it is relatable to the supply of
labour and services
If for any reason, proper evaluation of different admissible deductions as above
cannot be done, the dealer can claim lump sum deduction as provided in the TABLE
given below.
TABLE
Sr. Type of Works contract *Amount to be deducted from the
No. contract price (expressed as a
percentage of the contract price)
(1) (2) (3)
1 Installation of plant and Fifteen per cent.
machinery
2 Installation of air conditioners Ten per cent.
and air coolers
3 Installation of elevators (lifts) Fifteen per cent.
and escalators
4 Fixing of marble slabs, polished Twenty five per cent.
granite stones and tiles (other
than mosaic tiles)
5 Civil works like construction of Thirty per cent.
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buildings, bridges, roads, etc.
6 Construction of railway coaches Thirty per cent.
on under carriages supplied by
Railways
7 Ship and boat building including Twenty per cent.
construction of barges, ferries,
tugs, trawlers and dragger
8 Fixing of sanitary fittings for Fifteen per cent.
plumbing, drainage and the like
9 Painting and polishing Twenty per cent.
10 Construction of bodies of motor Twenty per cent.
vehicles and construction of
trucks
11 Laying of pipes Twenty per cent.
12 Tyre re-treading Forty per cent.
13 Dyeing and printing of textiles Forty per cent.
14 Annual Maintenance contracts Forty per cent
14 Any other works contract Twenty five per cent.
* The percentage is to be applied after first deducting from the total contract price, the
quantum of price on which tax is paid by the sub-contractor, if any, and the quantum of
tax separately charged by the contractor if the contract provides for separate charging of
tax.
In addition to deductions as provided under Rule 58, no tax would be payable under
the MVATA 2002 in respect of sales covered by Section 8(1) which are in the nature
of:
sales outside the State;
sales in the course of import or sales in the course of export;
sales in the course of inter-State trade or commerce.
Under the Act, the liability of the contractor and the sub-contractor is joint and
several. Between the contractor and the sub-contractor, the liability can be discharged
either by the contractor or the sub-contractor. The claim for exemption from payment
of tax in the case of contractor or the sub-contractor, as the case may be, needs to be
supported by a certificate in Form 406 and 408 or 407 and 409, as applicable.
The works contractor making payment of tax as per provisions of the Act is eligible
for set-off of all goods including capital goods purchased for use in execution of
works contracts.
Tax payable under composition option
The works contractor liable to pay tax has an option to pay composition in lieu of tax
payable under the provisions of the Act. Composition option in the case of works
contractor can be said to be a simplified system for discharging the tax liability.
The contractor is free to opt for the composition on contract to contract basis. This
means that a contractor may decide to pay composition for some of the contracts and
pay tax as applicable in respect of other contracts. As the choice to discharge the tax
liability under either of the option is given to the works contractor, no prior
permission is required to be obtained from the Sales Tax Department.
Under the composition option the dealer is liable to pay composition on total contract
value reduced by amount payable towards sub-contract. Amount payable towards
sub-contract means the aggregate value of the goods on which tax has been paid and
the amount of tax paid thereon or sub-contract value on which tax by way of
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composition is paid and the amount of composition paid thereon. Rate of composition
payable is -
5% in the case of a notified construction contract
8% in the case of any other contract
The works contractor making payment of tax under composition option is eligible for
set-off of all goods including capital goods purchased for use in execution of works
contracts. However, the set-off admissible would be reduced by the fraction of 16
divided by 25. In other words set-off admissible would be 64% of total set-off.
Other related provision relating to works contracts
Works contractors including those paying tax under composition option can issue
‘Tax Invoice’. As such, the purchaser would be eligible for set-off, if otherwise
admissible. In the ‘Tax Invoice’ tax / composition amount has to be shown
separately.
Works contract are subject to provisions of deduction of tax at source. The broad
features of TDS scheme are given below.
The obligation to deduct tax at source has been cast on the notified
‘Employers’. No such deduction where the amount or aggregate of the
amount payable to a dealer is less than Rs.5 lakhs during any year.
Rate of TDS is 2% if the contractor is registered under the MVATA 2002 and
4% in any other case.
No TDS on the amount of tax / composition indicated in the invoice.
No TDS on sales falling u/s 8(1) of the MVATA 2002
No TDS by principal contractor from payment made to sub-contractor
No TDS on payments received in advance. However, tax has to be deducted
when such advance payment is adjusted.
Amount of tax deducted to be deposited by the Employer within the specified
time limit.
Employer to issue TDS certificate in the prescribed form 402.
Works contractors can adjust the amount of TDS based on the certificate
issued by the Employer.
Employer obliged to maintain register of TDS in Form 403, file quarterly
statement in Form 405 and annual TDS return in Form 405.
Works contractor can obtain Certificate from the Department, if no tax needs
to be deducted by the Employer or if the deduction is to be kept limited to
specified monetary limit. Employer to discharge his liability to deduct TDS,
accordingly. (Application to be made in Form 410 and certificate of no
deduction in Form 411).
In respect of on-going works contract, the dealer is liable to pay tax as per the
provisions of the MVATA 2002. However, quantum of tax payable, including
exemption from tax in respect of specified sales, would not be more than that would
have been payable under earlier Act. In case the dealer opts to pay tax in accordance
with the provisions of the earlier Act, he would not be eligible for set-off on purchases
effected on or after 01.04.2005.
Dealers registered under the Maharashtra Works Contract Act but not registered under
the BST Act to apply for registration under the MVATA 2002 within 30 days from
the appointed day. RC would be effective from 1.4.2005.
Checks to be considered during the VAT audit:
Under the MVATA 2002, even though rate of tax payable on goods involved in the
execution of works contract is identical, certain provisions are applicable only to works
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contracts involving supply of goods as well as services. As such, it would be essential to
ascertain that the contracts which are claimed to be works contracts are in fact works
contracts and not sale contracts or service contracts. Conversely, if any of the works
contracts have been treated as sale contracts and tax liability has been discharged
accordingly, there may not be any material impact on tax liability of the seller, however,
in such a case, there would be non-compliance as regards WCT TDS by the awarder of
the contract. Other check points can be as follows:
Check whether tax liability is being discharged under composition option
o If yes, check whether the contract is construction contract or other contract
o Check whether deduction towards sub-contractors turnover has been correctly
claimed
o Check correctness of rate of composition
o Check details of WCT TDS deductions, whether supported with TDS certificates
or not and check whether any turnover of sales which should have been disclosed
in the returns has not been disclosed
o Where the turnover has been declared, check whether tax liability has been
discharged in time.
o In case the tax liability is being discharged by the contractor or sub-contractor, as
the case may be, check whether the sale is supported by appropriate declaration
form.
Check whether tax liability is being discharged as per provisions of MVATA 2002
o If yes, check the method adopted for claiming admissible deductions based on
accounts, records and contract documents
o If the contractor has opted to claim lump sum deduction as per the TABLE given
in Rule 58 check correctness of the type of contract and percentage of deduction
claimed
o Also check correctness of deduction claimed towards sub-contractor’s turnover.
Sub-contractor should be a dealer registered under the MVATA 2002 and should
have paid tax or composition, as the case may be
o Check correctness of exclusions claimed on account of deemed inter-State sales,
sales outside the State and sales in the course of import or export
o Check correctness of computation of taxable turnover of sales and tax paid
thereon. If no tax has been paid check whether the class of goods are tax-free or
exempted from tax
o In case the tax liability is being discharged by the contractor or sub-contractor, as
the case may be, check whether the sale is supported by appropriate declaration
form
o Check details of WCT TDS deductions, whether supported with TDS certificates
or not and check whether any turnover of sales which should have been disclosed
in the returns has not been disclosed
o Where the turnover has been declared, check whether tax liability has been
discharged timely
In respect of ongoing works contracts, in case the dealer has discharged tax liability as
per provisions of the earlier Act, check whether the contract is an on going works
contract as defined in sub-section (g) of section 96 and check eligibility of exemptions
/ deductions claimed. Also check whether tax payable has been computed correctly
and verify that no set-off has been claimed on purchases made on or after the
appointed day.
Incentives under the MVATA 2002
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With a view to encourage development of the backward region of the State, the
Government has been giving various incentives to industrial units set-up in the notified
backward areas of the State. Package Scheme of Incentives covered under the MVATA
2002 include:
1979, 1983, 1988 or 1993 Package Scheme of Incentives introduced by the Industries,
Energy and Labour Department
Package Scheme of Incentives for Tourism, 1993
New Package of Incentives for Projects, 1988 introduced by the Home and Tourism
Department
Power Generation Policy 1998 introduced by Industries, Energy and Labour
Department
Sales tax incentives:
Sales tax incentives can be in the form of exemption from tax or deferment of tax payable
to Government. In line with national consensus in this regard, sales tax incentives have
been discontinued from January 2000. Even though, no new incentives have been new
granted since then, the Government has decided to continue the benefit of incentives
granted earlier. However, the facility of effecting purchases of raw materials etc. at nil
rate against prescribed form has been discontinued and the dealers are required to make
purchases on full payment of tax. The Act provides for refund of tax paid on purchases,
however, such refund is restricted to amount equal to set-off otherwise admissible.
Broad features of sales tax incentives under the MVATA 2002:
Units availing exemption benefit
o Sale of manufactured goods by the unit would continue to be exempted from tax.
No incentive in respect of works contracts and leasing transaction
o Only the value addition done at the subsequent stages of sale would be liable to
tax. The methodology for computation of deduction of the amount not liable to
tax has been prescribed in Rule 57
o Facility of purchases at nil rate against Form BC would be withdrawn
o Eligible units would be given refund of amount equal to set-off on raw materials
as defined in rule 80 and entry tax paid
Units availing deferment benefit
o Sale of manufactured goods by the unit would continue to be liable to sales tax as
applicable. No incentive in respect of works contracts and leasing transaction
o Subsequent sales would be liable to sales tax as applicable with the benefit of set-
off
o Facility of purchases at nil rate against Form N-15-EC would be withdrawn
o Eligible units would be given refund of amount equal to set-off on raw materials
as defined in rule 80 and entry tax paid
o Amount of tax deferred would the gross amount of tax payable
o Units availing of the incentives by way of deferment may, at its option,
prematurely pay in place of the amount of tax deferred by it, an amount equal to
the net present value of the deferred tax, as may be prescribed. On making such
payment the deferred tax shall be deemed to have been paid
Other important points relating to sales tax incentives:
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Sales tax incentives can be availed only in respect of the class of goods specified in
the Eligibility / Entitlement certificate. The same is also true in the case of units
availing the benefit under expansion mode.
Sales tax incentives can be availed till the end of the eligibility period or until the
sanctioned monetary limit is exhausted, which ever is earlier.
Calculation of CQB of the dealers availing the benefit of exemption from tax:
Particulars CQB
Turnover of sales under the MVAT A sum equal to the amount of sales tax
Act of the goods specified in the which would have been payable
Eligibility Certificate
Turnover of inter-State sales of the - A sum equal to 4% of the turnover of
goods specified in the Eligibility sales
Certificate - If the goods are generally liable to CST
at a rate lower than 4%, a sum equal to
such lower rate
- A sum equal to 1% in the case of a
Mega Project
Notes:
- Inter-State sales not supported by Form C not eligible for exemption
- ‘Sale’ includes the sale by a depot, head office or selling agent of the dealer
Calculation of deferred payment of tax by the dealers availing the benefit of
deferment of tax payable:
Particulars CQB
Turnover of sales under the MVAT A sum equal to the amount of sales tax
Act of the goods specified in the payable
Eligibility Certificate
Turnover of inter-State sales of the A sum equal to the amount of central sales
goods specified in the Eligibility tax payable
Certificate
Note:
- The amount to be deferred would be gross amount of tax payable without
adjustment of set-off or refund
Check to be considered during the VAT audit:
Confirm eligibility to avail the benefit
Also confirm that the benefits have been availed only in respect of class of goods
specified in the Eligibility Certificate
Check correctness of ‘sale price’
Check correctness of classification of goods and rate of tax payable thereon including
rate of tax payable on CST sales not supported by Form C / D
Check correctness of exemptions or reduction in rate of tax as claimed in the return
Check correctness of set-off claimed and amount of set-off relating to raw materials
Check correctness of computation of CQB / Tax deferred
Check correctness of status of CQB / Tax deferred as shown in the return
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Deduction of tax at source
Broad features of the scheme:
Section 31 of the MVATA, 2002 provides for deduction of tax at source, by any dealer or
person or class of dealers or class of persons, from the amount payable on purchases other
than purchases covered under section 8(1) of MVATA 2002. This provision would be
applicable to notified persons or dealers and the amount of tax to be deducted would be
notified.
Sub-clause (b) of sub-section (1) of section 31 provide for deduction of tax at source by
notified employers on amount payable by them towards works contract awarded by them.
Vide Notification dated 1.4.05 the amount to be deducted is 2% of the amount payable if
the contractor is registered under MVATA 2002 and 4% in any other case. The class of
employers obliged to deduct tax are as follows:
1. The Central Government or any State Government
2. All Industrial, Commercial or Trading undertakings, Company or Corporation of the
Central Government or of any State Government
3. Port Trusts
4. A Company registered under the Companies Act, 1956
5. A local authority, including a Municipal Corporation, Municipal Council, Zilla
parishad and Cantonment Board
6. A Co-operative Society including a Co-operative Housing Society
7. A registered dealer under the MVATA 2002
8. An Insurance or Finance Corporation or Company and any Bank
9. Trusts, whether public or private
Other silent features of TDS scheme are as under -
No TDS on the amount of tax / composition indicated in the invoice.
No TDS on sales falling u/s 8(1) of the MVATA 2002
No TDS by principal contractor from payment made to sub-contractor
No TDS on payments received in advance. However, tax has to be deducted
when such advance payment is adjusted.
If no tax is deducted by the Employer, still he is liable to pay TDS as
applicable
Tax has to be deducted even when the amount payable is not actually paid but
credited to ‘suspense account’ or any other account
Works contractor can obtain Certificate from the Department, if no tax needs
to be deducted by the Employer or if the deduction is to be kept limited to
specified monetary limit. Employer to discharge his liability to deduct TDS,
accordingly. (Application to be made in Form 410 and certificate of no
deduction in Form 411).
Obligations of employer:
Employers have to obtain Sales Tax Deduction Account Number, which
should be quoted in all related documents such challan, statements and returns
etc.
Amount of tax deducted to be deposited in Form 210 by the Employer by 10th
of the following month. Interest is payable for late payment.
Employer to issue TDS certificate in the prescribed Form 402.
Works contractors can adjust the amount of TDS based on the certificate
issued by the Employer.
Employer obliged to maintain register of TDS in Form 403, file quarterly
statement in Form 405 and annual TDS return in Form 405.
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Adjustment of TDS against tax payable:
Amount of tax deducted and paid to the State Government would be treated as payment
of tax on behalf of employer. However, no adjustment of TDS can be claimed in the
return unless the certificate of TDS is received. WCT TDS credit can be adjusted against
tax payable as per return. Refund can be claimed of excess credit, if any. However, such
refund can be claimed in the return for the month of March.
Checks to be considered during a VAT audit of the contractor:
The employer has an obligation to deduct TDS even if the contractor is not registered
under the MVATA 2002. Scrutiny of annual TDS return filed by the employer would be
of help in tracking works contractors who may be liable to obtain registration under the
MVAT Act. Thus, TDS provisions serve the purpose of possible tax evasion by the
contractor.
In respect of works contractors registered under the MVAT Act, this provision helps in
checking timely payment of tax and checking undisclosed turnover of sales, if any.
Accordingly, possible check points can be -
Check correctness of WCT TDS credit claimed in the return with reference to
WCT TDS certificates.
Check whether TDS has been wrongly deducted on part of the consideration
not liable to tax and thus resulting in excess credit.
Check whether corresponding tax liability has been discharged.
If yes, verify correctness of tax liability discharged.
If tax liability has not been discharged fully, ascertain whether tax is due but
not paid.
Checks to be considered during a VAT audit of the Employer who is a dealer
registered under the MVATA 2002:
Keeping in view the objective of TDS provision, during the course of audit of the
Employer who is a dealer registered under the Act, possible check points can be –
Check whether the Employer has awarded any works contracts.
If yes, check whether tax has been deducted correctly
If yes, check whether the same has been deposited in time
Check compliance with regard to maintenance of TDS register, filing of
statement and filing of return.
If no tax has been deducted, ascertain the reasons thereof. Possible reasons for
non-deduction can be
o Certificate of non-deduction received from contractor
o The Employer is a principal contractor and the works contractor is a sub-
contractor
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Entry Tax
In Maharashtra entry tax is levied under two separate enactments as follows:
o The Maharashtra Tax on Entry of Motor Vehicles into Local Area Act, 1987
o The Maharashtra Tax on Entry of Goods into Local Area Act, 2002
The class of goods covered under the above said Acts are –
o Vehicles which are liable for registration in Maharashtra under Motor Vehicles
Act
o High Speed Diesel Oil
o Aviation Turbine Fuel
o Aviation Gasoline
o Any other kind of Motor Spirit
o Bitumen
o Light Diesel Oil
o Naphtha
o Low Sulphur Heavy Stock
o Kerosene – Non-PDS
o Furnace Oil
The rate of entry tax on motor vehicles is 12% and rate of entry tax on other goods is
equal to rate of tax applicable to similar goods under the MVATA 2002.
Under Rule 52 of the MVATR 2002 entry tax paid under both the Entry Tax Acts is
eligible for set-off. Further, section 50 of the MVATA 2002 provides for adjustment
of entry tax payable under the Maharashtra Tax on Entry of Goods into Local Area
Act, 2002 against balance refundable, if any.
Checks to be considered on a VAT audit under the MVATA 2002
o Check correctness of entry tax paid and its eligibility for set-off under the Act.
Particularly check whether the class of goods eligible for set-off and if found
eligible whether set-off admissible is full or partial
o Check correctness of the amount of entry tax payable under the Maharashtra Tax
on Entry of Goods into Local Area Act, 2002 with reference to returns under the
said Act
o Check whether the adjustment of entry tax payable claimed in the return under the
MVATA 2002 is equal to amount of entry tax payable as per return under the
respective Act.
Composition Schemes
In order to reduce the burden of maintaining detailed records by dealers as well as
restrict the number of dealers under VAT system of taxation, the MVATA 2002 provides
for a simplified system of accounting for VAT. This is called the Composition Scheme.
The scheme is available to
Resellers selling at retail,
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Restaurants, eating houses, hotel (excluding hotels having gradation of ‘Four Star’
and above), refreshment rooms, boarding establishments, factory canteens, clubs
and caterers
Bakers
Dealers of second-hand passenger motor vehicles
Notification issued in this regard explain all the details including rate of composition,
computation of turnover of sales liable to tax, terms and conditions subject to which the
benefit of composition can be availed. General features of the composition scheme are:
Dealer to opt for payment under composition, if he so desires
Option once exercised would continue till the end of the financial year
Existing dealers opting for composition to send intimation in the relevant
prescribed form appended to the Notification
Dealers applying for registration under the MVATA 2002 to indicate composition
option in the application for registration and make an application in the prescribed
form.
No separate R.C. Number for composition dealers.
Amount of composition payable cannot be recovered separately. Accordingly,
composition dealers cannot issue tax invoice.
Single dealer eligible to claim composition under more than one scheme or for a
particular activity of the business
Composition dealers are not eligible for set-off on certain class of purchases
which are specifically excluded.
Apart from special composition schemes as above, the Act provides for composition
scheme for a contractor executing works contract. Works contractor opting to pay tax
under composition option can opt to pay composition on contract to contract basis.
Moreover, the works contractor can issue tax invoice and recover the amount composition
payable. Further, the contractor is also eligible for set-off. For further information on
composition scheme for works contractors, please refer to separate note on the subject.
Highlights of other composition schemes are as follows:
Composition scheme for resellers selling in retail:
For the purpose this scheme, a retailer is a dealer when at least 90% of the turnover of
sales is from goods sold to persons who are not dealers. The scheme is not available
to:
o a manufacturer
o an importer
o a dealer who effects inter-State sales or purchases or receives goods from
outside the State on stock transfer basis
Whether you are a retailer is a question of fact. In any dispute, the Commissioner of
Sales Tax, or an officer appointed by him, will decide. You will be allowed to make
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out your case before the Commissioner, or the person appointed to here your
arguments, but his decision is final.
Class of goods excluded from the scheme – Turnover of sales / purchases not to be
considered for calculation of composition
o Foreign liquor, Country liquor and liquor imported in India
o Drugs covered by Entry C 29
o Notified motor spirits viz. High Speed Diesel, Petrol, Aviation Turbine Fuel
and Aviation Gasoline
Turnover liable to composition
o Turnover of sales including turnover of tax free goods
Deduct
o Turnover of purchases including turnover of tax free goods and tax paid on
purchases
Calculation of turnover to be made for a period of six months
Composition amount
o 5% for retailers whose aggregate of the turnover of sales of goods covered by
Schedule A and goods taxable at 4% is more than 50% of the total turnover of
sales
o 8% in other cases
Conditions:
o Not to collect tax separately
o Not entitled to claim set-off in respect of the purchases corresponding to any
goods which are sold or resold or used in packing of goods
o Dealer having previous year turnover of sales – Turnover not to exceed Rs.50
lakhs
o Dealers not having previous year turnover of sales – Composition for first
Rs.50 lakhs only
o The turnover of purchases is reduced by the amount of every credit of any type
received from the vendor
o Taxable goods resold are purchased from registered dealer
o Purchases of tax free goods may be from RD or URD
o Any other purchases from URD are meant only for packing of goods resold
In respect of the six monthly return starting from 1.4.2005, for calculating the excess,
5/6th of the turnover to be considered instead of entire turnover of sales for that
period
The reason for considering 5/6th of the turnover of sales is to indirectly grant set-off
of stock held as on 31.03.2005
Composition scheme for Restaurants, caterers etc:
Class of dealers covered
o Restaurants, Eating house, Refreshment rooms, Boarding establishment,
Factory canteen, Clubs, Hotels (Other than four star and above) and Caterers
Class of sales covered
o Food and non-alcoholic drinks
served for consumption in any restaurant etc
served for consumption in the immediate vicinity of any restaurant
etc
Supplied by way of counter sale
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Served for consumption at any other place other than restaurant etc.
or by a caterer
Composition payable at 8% (10% in the case of an unregistered dealer) of the
turnover of sales.
Where the dealer is also serving alcoholic drinks, tax payable on sales of alcoholic
drinks will not be considered for composition
Conditions:
o dealer not to collect tax separately
o dealer not entitle to claim set-off in respect of the purchases corresponding to
any goods which are sold or resold or used in packing of goods
o Dealer not to issue tax invoice
Composition scheme for Bakers:
Applicable to sales by manufacturer of bakery products
Composition payable at 4% (6% in the case of an unregistered dealer) of first thirty
lakh rupees of total turnover of sales of goods including bread in loaf, rolls, or in
slices, toasted or otherwise, whether manufactured by the baker himself or imported
in the State
Conditions:
o The claimant dealer should be certified by the Joint Commissioner
o The claimant dealer not entitle to claim set-off in respect of purchases
corresponding to any goods which are sold or resold or used in packing of
goods
o Eligibility - for an existing registered dealers – turnover of bakery products
including bread not to exceed Rs. 30 lakhs in the previous year
o Eligibility - for a newly registered dealers - concession available for first
Rs.30 lakhs
o Turnover in excess of first thirty lakhs rupees taxable at the applicable rate
o Can not issue tax invoice
Composition scheme for dealers of second-hand passenger motor vehicles:
The dealer should be a registered dealer whose principal business is of buying or
selling of motor vehicles
Available to sales of second-hand passenger motor vehicles whether or not sold after
reconditioning or refurbishing
Composition at 12.5% on 15% of the sale price of the vehicle
Conditions:
o The claimant dealer should be certified by the Joint Commissioner
o The selling dealer to prove that entry tax, if payable, has been paid on the said
vehicle or the vehicle is registered in the State of Maharashtra
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o The claimant dealer shall not be eligible for set-off of tax paid or payable or
entry tax paid or payable, on purchases of second-hand motor vehicles
Checks to be considered on a VAT audit:
Check eligibility with reference to respective scheme and confirm that all related
conditions are fulfilled. In respect of retailer particularly check that
o The turnover of purchases is reduced by the amount of every credit of any type
received from the vendor
o Taxable goods resold are purchased from registered dealer
o Purchases from URD are meant only for packing of goods resold
In case dealer has opted for composition for part of his business check whether
records of sales purchases are adequate for computation of turnover of sales and
admissible set-off
Check correctness of computation of turnover of sales with reference to admissible
deductions and exclusions.
In case of retailers and bakers check whether the turnover is within the prescribed
turnover limit. If the turnover has crossed the specified turnover limit check whether
tax liability has been discharged on the turnover in excess of the specified limit
In respect retailers check whether turnover of sales liable to tax at 5% has been
worked out correctly
Check correctness of rate of composition applicable
Verify correctness of computation of set-off. Particularly, check whether set-off has
been claimed on the class of goods not eligible for set-off
Check invoices / bills issued and confirm composition has not been recovered from
customers and the dealer and also confirm that no tax invoice has been issued.
Set-off on stock held on the appointed day
Section 48 of the MVATA 2002 read with Rule 51 of the MVATR 2005 provide for
granting set-off of tax paid under earlier law on purchases of goods which are treated as
capital goods and the goods which are held in stock as on the appointed day. Broad
features of the set-off scheme are follows:
Class of goods eligible for set-off:
o Goods held in stock on the appointed day which are intended for resale. Set-
off can be claimed irrespective of the date of purchase of such goods.
o Capital goods held in stock on the appointed day which have been purchased
on or after 1.4.2003
o Goods taxed under other than BST Act and where tax is charged separately are
also eligible for set-off e.g. works contract tax, lease tax, entry tax
Class of dealers not eligible for set-off:
o Manufacturers eligible for set-off under the provisions of the BST Act and
Rules made there under are not eligible for set-off
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Quantum of set-off admissible:
o Tax paid purchases - set-off of sales tax only – No set-off of TOT, SC and
RST
o Tax inclusive purchases – as per calculation u/r 44D
o Other Acts - Works Contract Act, Lease Tax Act and Motor Spirit Tax
Act, set-off only of the amount of tax paid separately
o Set-off of the amount of entry tax under both of the Entry Tax Acts
Other related provisions:
o Dealers to file stock declaration in the prescribed form with the assessing
officer under the BST Act. Last date for filing stock declaration was
extended up to 15.09.2005.
o Set-off can not be claimed unless the stock declaration is filed.
o Full amount of set-off on trading goods can claimed in the month in which
the stock declaration is filed.
o Set-off claimed on trading goods to be revered, if the goods are not resold
on or before 31.12.2005.
o Set-off on capital goods held in stock can be claimed in the month in
which the asset is sold.
Checks to be considered on a VAT audit:
Check correctness of the stock declaration with reference to stock records and books
of accounts.
Check the method adopted for arriving at the value / quantity of goods purchased in
Maharashtra.
Check eligibility to claim set-off and the amount of set-off amount computed.
Check that no set-off has been claimed under earlier law in respect of any goods
which are held in stock as on the appointed day.
Check correctness of set-off claimed in the return with reference to stock declaration
filed.
In respect of purchases inclusive of tax, check whether the same are supported by
Form 31.
Check whether all the trading goods on which set-off has been claimed have been
resold on or before 31.12.2005. If no, check whether set-off has been revered.
Check the methodology followed for identification of goods which remained unsold
and the corresponding purchases and set-off amount.
In respect of set-off on capital goods check stock declaration and resale invoice.
Check whether there are any contingencies under which set-off claimed earlier
requires to be adjusted.
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