1. Updates on MVAT Laws with special emphasis on builders & developers Presentation by CA Rajat Talati, Mumbai on 14.10.2012 rajat@talatico.com organised by J. B. Nagar CPE Study Circle of WIRC

2. Agenda Recent amendments to Maharashtra Value Added Tax Act, 2005 Recent amendments to Profession Tax Act - Maharashtra State Taxation of builders & developers CA Rajat B. Talati, Mumbai2

3. Amendments Maharashtra Value Added Tax Act, 2005 CA Rajat B. Talati, Mumbai3

4. Purchase Tax Sec 6A & 6B - Purchase tax @ 5% on cotton and oil seeds purchased from URD –URD includes persons -farmers. –PT u/s 6B on purchases of oil seeds effective from 1.5.12 –PT u/s 6A on URD purchase of cotton not made effective Registration compulsory when purchase turnover exceeds 5 lacs. –Prescribed limits would also include TO liable to PT – Sec 4(5A) –Till such time exemption from PT –Sec 3(2) CA Rajat B. Talati, Mumbai4

5. Purchase Tax (cont...) The purchase tax is payable in the following circumstances: –Oil seeds so purchased are dispatched by way of stock transfer to places outside the states within India or –Oil seeds so purchased are used in manufacture of –taxable goods and the goods so manufactured are transferred outside the state within India as stock transfer or –tax free goods CA Rajat B. Talati, Mumbai5

6. Purchase Tax (cont...) The rate of purchase tax is equal to the vat applicable to sale of oil seed i.e. 5% (current rate) Purchase tax payable in the month when the contingencies occur Purchase tax paid would also qualify for set off, subject to rule 53 & 54 CA Rajat B. Talati, Mumbai6

7. Purchase Tax (cont...) Is it that purchases from RD & URD put at par? -it would be appropriate to make purchases from registered dealer on payment of vat wherever there is some reduction in the ITC/ set off Is it liable to stk of URD seeds on 30.4.12? CA Rajat B. Talati, Mumbai7

8. Tax Collection at Source Sec 31A – TCS - by –Persons who auctions right to excavates and –Or who is in temporary possession over goods that may be notified Rate to be notified Form 421 to be issued by auctioneer/ person TCS allowed to be adjusted against tax liability of buyer Notification yet to be issued CA Rajat B. Talati, Mumbai8

9. Textile processors Sec 8(3C) –exemption from VAT on value of material transferred in execution of WC effective 15.8.2007 to textile processors –Amendment in ADE wef 8.4.11 –Amendment to MVAT act effective 1.5.2012 provides –reference to ADE as it stood before Finance Act 2011 –Thus w.e.f. 1.5.12 – textile processors – exempted –Therefore taxable bet 8.4.11 to 30.4.12 CA Rajat B. Talati, Mumbai9

10. Penalty provisions Non- Registration in time – Sec 29(2A) –Penalty equal to amt of tax payable –Builders developers?? Saved in view of Admn relief scheme [14T/2012] Late fees of Rs. 5000/- on late filing of returns w.e.f. 1.8.2012. –Penalty u/s 29(8) deleted –Late retns filed upto 31.7.12 penalty applicable CA Rajat B. Talati, Mumbai10

11. Others Appeal stay - on 3 rd adjournment / fails to attend –stay to be vacated subject to payment of 15% of disputed amt or Rs. 15 cr whichever is less –Order of additional part payment is non-appealable order Period for maintenance of sales invoice increased from 3 to 8 yrs (retrospective) and other books of a/cs remains 8 yrs. Dealers not subjected to VAT audit are now supposed to file Annexure J1 & J2 by 29 th June 2012 for the year 2011-12. CA Rajat B. Talati, Mumbai11

12. Others (cont..) First return of a dealer is defined to be quarterly. Natural Gas –defined as fuel –u/r 53(1) retention-3% Stock Transfer retention- retention u/r 53(3) -4% Tax if paid by the claimant dealer & to give credit for the total value of collection certificate received is included in Rule 55 (1), (1b), (3). Submission of Audit report proponed to 30th November. Dealers of PSI can avail ITC on purchases other than raw materials. CA Rajat B. Talati, Mumbai12

13. Taxation of Furnishing fabrics [FF] Sch entry – C- 101(a) – Fabric & Sugar –as defined under Sec14 of the CST Act Sch Entry C- 101(b)- varieties of textiles- notified Both attract VAT @ 5% wef 1.5.2011 T.O. of sales of FF not included in retailer’s composition. So no composition qua that T.O. of sales CA Rajat B. Talati, Mumbai13

14. Taxation of Furnishing fabrics (cont..) Sale of notified FF -exempt – accept at last point –Unless sale made for consumption How to determine – sale for consumption? Trade cir- 16T/25.9.12 –Sales to tin holders – treated as not for consumption – exercise due diligence –If sold to RD with knowledge- mention –sold for consumption on Tax Invoice –If sold to URD –onus on seller to prove not for consumption Inter –state sale of notified FF -taxable CA Rajat B. Talati, Mumbai14

15. Dealers in FF Obtain Registration under MVAT & CST Acts –If TO of sales exceeded Rs 5 L + purchase / sales of taxable goods > 10K before 31.8.12 – ref sec 3(4) Apply within 30 days of 5.9.2012 Otherwise apply within 30days of exceeding limits CA Rajat B. Talati, Mumbai15

16. Hawala Purchases Disallowance of ITCDisallowance of ITC –Circular transactions –Accommodation bills –Affidavit by Hawala operators –Beneficiary Any way out?Any way out? –Counter affidavit –No goods – no tax –Fight out legally – do not file revised return but file appeal BHC – WP – 48(5) casesBHC – WP – 48(5) cases –Mahalaxmi Cotton –Assmt + other promises by State CA Rajat B. Talati, Mumbai16

17. Amendments to Profession Tax Act,1975 E-payment mandatory for all profession tax registered dealer. Mandatory to make E-payment of professional tax before filling of the return. The period of limitation for remaining un-enrolled under Profession Tax Act is restricted to 8 years. Late filing of returns is to attract late fees of Rs.1000/- for returns [w.e.f. 1.8.2012]. Revised return can be filed before notice of assessment or expiry of 6 months from the end of the year; whichever is earlier. CA Rajat B. Talati, Mumbai17

18. Taxation of builders & developers CA Rajat B. Talati, Mumbai18

19. Overview – Brief history Levy of tax – how for legal ? –Tax on immovable property MOFA Act SC – K Raheja Development Corporation Karnataka v/s Maharashtra –Difference in agreements Insertion of definition of w/c under MVAT Act Trade Circular no.12T of 2007 CA Rajat B. Talati, Mumbai19

20. Overview – Brief history (cont..) Challenge by MCHI Interim stay by BHC – 7.12.2007 Final judgment upholding levy – 10.4.2012 Intervening period –Builders not forced for registration –MCHI members to file quarterly information statement CA Rajat B. Talati, Mumbai20

21. VAT Liability – builders & developers - Administrative relief Trade Circular no.14T/2012 dt.6.8.12 Administrative relief will be allowed to the builder / developer for a period exceeding 5 yrs i.e. their registration certificate would be made effective from 20.6.2006 [wherever reqd] –Application for registration is to be made before 16.8.12 [ now extended to 15.10.12] CA Rajat B. Talati, Mumbai21

22. VAT Liability – builders & developers - Administrative relief –Application for Administrative relief is to be made before 31.8.12 [now 31.10.12] along with Proof of filling returns for all past periods [quarterly] Pay Tax & interest + late fee (Rs. 5000/- for each qtr) – attach challan Pay composition amount of Rs. 5000/- for the entire period of delay CA Rajat B. Talati, Mumbai22

23. VAT Liability – builders & developers - Administrative relief In such a case penalty u/s 29(2A) would not be levied - the penalty is otherwise leviable for not getting registered in time- penalty leviable at equal to amt of tax payable Get the accounts audited u/s 61 by a Chartered accountant get upload the audit report in Form 704 for all the past periods by 30.11.2012 –If audit reports are so filed, penalty u/s 61(2) – for late filling of audit report- would not be attracted VAT Liability –builders & developers- Administrative relief CA Rajat B. Talati, Mumbai23

24. Liability – builders & developers - Administrative relief –If applications for registration and the admn relief is not made before the dates given, then the compounding amount would be calculated as under Rs. 5000 + 0.5% of the gross sales tax [i.e. before deduction of ITC] for each month of the delay. Thus for a delay of say, 5 yrs, it would be Rs. 5000/- + (0.5% *60) = Rs. 5000/- + 30% of the gross tax payable. Penalty u/s 29(2A) at 100% of the tax payable would be levied. CA Rajat B. Talati, Mumbai24

25. Post BHC decision Most of builders & developers not registered under MVAT Act – Applications made SLP in SC & interim decision dt. 29.8.12 –Extended the date of payment of tax to 31.10.12 –Interest / penalty not to be paid now. –Those who are yet not registered, may get their registration by 15.10.12 CA Rajat B. Talati, Mumbai25

26. Departmental approach FAQ’s along with circular no. 14T / 2012 FAQ’s on website [first uploaded on 27.8.12] Circular no.17T/2012 – informing about SLP before SC Circular no.18T/2012 – various options / methods for discharge of tax liability by builders. –Cost plus GP method not acceptable CA Rajat B. Talati, Mumbai26

27. Builders’ plight Questions the very levy of tax on sale of flats / shops etc Without prejudice Different methods of calculation not suitable to developers Cost plus GP method results in least tax liability. To file return with annexures? –Is rule amended? –Can admin relief denied? what if there is short / excess payment as per return? –Would admin relief denied? –What about refund? CA Rajat B. Talati, Mumbai27

28. Buyers’ point of view Is this levy payable by him as per agreement? What is the basis of calculation Is ITC deductable from gross liability of the dealer? If yes, should he pass on that to buyer? Is interest / penalty also payable? What about indemnity / BG / FD or escrow amount paid? –When is that encashable / payable –What if liability found payable is less / more than the BG / FD / escrow deposit? Should I really pay? CA Rajat B. Talati, Mumbai28

29. Auditors’ dilema Orders for Admn relief still not passed –Should the dealer be treated as RD –Returns filed as per one of the methods / cost + GP method Any observations? –All methods have issues in implementations –Audit report form For 06-07 & 07-08 – old form? –Manual filing ? Where? –Certain particulars not required in new formats For 08-09 onwards in latest format –With all annexures? CA Rajat B. Talati, Mumbai29

30. Issues Cost + GP method Conceptually acceptable –Circular 17T/2012 dt.26.9.12 denies this as a legitimate method –Clarification to contractors - Some assessment completed based on this method % of GP How to compute –Sq. ft. sold after OC –Sq. ft. – agreement registered after 1.4.10 –Before 20.6.06 –Under construction –Progressive ‘under construction’ calculation CA Rajat B. Talati, Mumbai30

31. Issues Land cost deduction [ for Rule 58(1) & it’s proviso] –How to calculate? –Cost v/s ready recknor –Should it be the same for all flats / should it change every year? –TDR/ premium paid to MCGB? Rule 58(1) –deductions for exps on –Marketing, interest, depreciation & other cost –Solicitor fees, general Admn cost etc Sub-contractor’s payment –If RD – form 407 / 408 not received? –If tax not separately charged & if 407 / 408 not received –URD – sub-contractor CA Rajat B. Talati, Mumbai31

32. Any Queries ???? CA Rajat B. Talati, Mumbai32