2015 (5) TMI 882 - HC - VAT and Sales Tax

Valuation under VAT - deduction of consideration / profit of sale of land - works contracts inter alia of the nature of construction and buildings - Constitutional validity and propriety of notification dated January 29, 2014 - challenge to Rule 58, 58 (1A) and 58 (1B) and the trade circulars 7 T of 2014 and 12 T of 2014 Held that - The first essential characteristic of MVAT is it is a tax on transfer of property in goods, secondly, uniformity of incidence is also a characteristic of the tax and thirdly the collection of tax. MVAT can be imposed on assessable value determined with reference to transfer of goods at the stage as referred to in the table. It is legislature s power to legislate in respect of the basis for determining the measure of tax. The computation being made strictly in accordance with the express provisions under the rules, there is no warrant for confining the value as sought to be submitted by the assessee. It is open for the legislature to adopt any basis for determining the value of a taxable article. The measure for assessing the levy need not correspond completely to the nature of levy, and no fault can be found with the measure so long as it bears nexus with the charge. While MVAT is a levy on transfer of goods in a works contracts inter alia of the nature of construction and buildings, the stage of collection need not, in point of time coincide with transfer of goods. The MVAT is chargeable with reference to the value of goods being transferred in a works contract and the value is to be determined in express terms of the provisions. The Courts have always regarded and recognized that measure employed for assessing tax must not be confused with the nature of tax. There is clear distinction between subject matter of tax and the standard by which amount of tax is measured. The two elements are described as subject of tax and measure of tax. The levy of tax is defined by its nature and the measure of tax may be assessed by its own standard. A standard may be adopted as the measure of levy and may indicate nature of the tax but would not necessarily determine it. Whether prescription under the provisions according to the contention is inadequate and may be falling short but its incorporation would not be bad or illegal or ultra vires the constitution. In the process, in some cases, if there is any over payment of tax, the provision makes allowance for its refund and would not tantamount to tax on land. Legislature does not intend to levy tax on matters other than as are intended under the enactment. Even in case of undervaluation, after determination, till such time overpayment would be towards the tax on goods so long as land value is not revalued and it would continue to tax on goods up to this time, its nature being MVAT over and in excess on taxable value. Only on redetermination, in a particular case if amount is to be refunded, it cannot be said to be bad for being tax on land. Valuation of goods under Rule 58 of the MVAT Rules would let the proper authority to probe into transactions of land dealings by the developers, depending upon facts and circumstances of and evidence in particular case, as it would be open for the competent authority to make proper inquiry and seek details of the transactions and the price at which the property had been purchased. Investigation and inquiries incidental to valuation assessment and the recovery of tax are not precluded or prohibited under the scheme of the rules and there need not be any specific provision for the same, however, with a rider that said investigation or inquiry would not be necessary on vague and general grievances. - Decided against assessee.

Summary

Issues Involved:
1. Constitutional validity of the notification dated January 29, 2014, and Trade Circulars under the Maharashtra Value Added Tax (MVAT) Act, 2002.
2. Method of determining the value of goods in works contracts under Rule 58 of the MVAT Rules.
3. Provisions for deduction of land cost and other expenses under the amended Rule 58.
4. Validity of Trade Circulars and their compliance with the Supreme Court's directions.
5. Legislative competence and the measure of tax under the MVAT Act.

Detailed Analysis:

1. Constitutional Validity of the Notification and Trade Circulars:
The petitioners challenged the constitutional validity of the notification dated January 29, 2014, and Trade Circulars dated February 21, 2014, and April 17, 2014, issued under the MVAT Act. They argued that these amendments and circulars were in conflict with the Supreme Court's observations in "Larsen and Toubro Limited V. State of Karnataka and Another" and other judgments. The petitioners contended that the amended Rule 58 failed to accurately determine the value of goods at the time of incorporation in the works contract and indirectly taxed immovable property along with goods.

2. Method of Determining the Value of Goods:
The petitioners argued that Rule 58 (1A) compelled the determination of land cost based on guidelines from the Annual Statement of Rates under the Bombay Stamp (Determination of True Market Value of Property) Rules, 1995, which did not account for various costs related to land. They also contended that Rule 58 (1B) introduced arbitrary stage-wise percentages for determining the value of goods in construction contracts, which did not reflect the actual value of goods transferred at different stages.

3. Provisions for Deduction of Land Cost and Other Expenses:
The respondents defended the amendments, stating that the Supreme Court had upheld the validity of Rule 58 (1A) and that the amendments provided a clear method for determining the cost of land. They argued that the proviso to Rule 58 (1A) allowed dealers to prove that the actual cost of land was higher than the value determined by the guidelines, ensuring that the tax was directed at the value of goods and not immovable property.

4. Validity of Trade Circulars:
The petitioners challenged the Trade Circulars, arguing that they restricted the methods for determining the value of goods and were ambiguous. The respondents countered that the circulars were clarificatory and did not introduce new conditions or restrictions. They argued that the circulars aimed to ensure compliance with the MVAT Act and Rules and provided guidance for uniform application.

5. Legislative Competence and Measure of Tax:
The respondents argued that the legislature had the competence to devise a method for determining the value of goods in works contracts and that the measure of tax had a nexus with the subject of the tax. They cited various judgments to support the validity of using a standard measure for tax assessment, emphasizing that the measure of tax need not correspond completely to the nature of the levy as long as it maintained a nexus with the essential character of the tax.

Conclusion:
The High Court dismissed the petitions, upholding the validity of the notification and Trade Circulars. The Court found that the amendments to Rule 58 and the Trade Circulars were consistent with the Supreme Court's directions and provided a clear and uniform method for determining the value of goods in works contracts. The Court also held that the legislative competence to devise a measure for tax assessment was beyond question and that the provisions under the MVAT Act and Rules were neither arbitrary nor unconstitutional. The petitioners' challenges were found to be unsustainable, and the writ petitions were dismissed with no order as to costs.