2014 (9) TMI 245 - HC - VAT and Sales Tax

Validity of two circulars issued on August 6, 2012 and September 26, 2012, by the Commissioner of Sales Tax - benefit of a composition scheme notified under section 42(3A) of the Maharashtra Value Added Tax Act, 2002 - Held that - A notification was issued by the State Government on July 9, 2010 under section 42(3A) to provide for a scheme of composition for registered dealers who undertake the construction of flats, dwellings, buildings or premises and transfer them in pursuance of an agreement along with land or interest underlying the land. The composition amount is one per cent of the amount specified in the agreement or of the value specified for the purpose of stamp duty in respect to the agreement under the Bombay Stamp Act, 1958 which is higher. Among the conditions attaching to the composition scheme is a condition which stipulates that all agreements which are registered on or after April 1, 2010 shall be covered under the scheme. What the scheme of composition has done is to make it applicable to agreements which were registered after April 1, 2010. It would not be proper for this court to strike down the provision by which the option of composition has been given to agreements which were registered after April 1, 2010. Nor for that matter, would the court be justified in directing that the same option of composition should be allowed to agreements which were registered prior to April 1, 2010. By issuing such a direction the court in the exercise of its jurisdiction under article 226 would be legislating by directing the delegate of the Legislature to extend the ambit of the composition of scheme beyond what was provided in the scheme. That is impermissible. There is no merit in the challenges which have been addressed by the petitioners before this court. We hold in consequence that the circulars dated August 6, 2012 and September 26, 2012 are not ultra vires. We have also come to the conclusion that the composition scheme is not ultra vires in imposing a condition to the effect that it shall cover all agreements registered after April 1, 2010. During the course of the hearing we have been informed by counsel appearing on behalf of the petitioners that representations have been submitted to the State Government for extending the benefit of the composition scheme to agreements which were registered between June 20, 2006 and March 31, 2010. We clarify by way of abundant caution that this judgment would not stand in the way of the State Government taking an appropriate decision on the representations that have been submitted in that regard. Decided against assessee.

Issues Involved:
1. Validity of Circulars dated August 6, 2012, and September 26, 2012.
2. Application of the Composition Scheme under Section 42(3A) of the Maharashtra Value Added Tax Act, 2002, to agreements registered before April 1, 2010.

Issue-wise Detailed Analysis:

1. Validity of Circulars dated August 6, 2012, and September 26, 2012:

The petitions challenge the validity of two circulars issued by the Commissioner of Sales Tax. The circular dated August 6, 2012, provided administrative relief to developers, including an extension for registration and filing returns. The circular dated September 26, 2012, reiterated the options available to developers for discharging VAT liability and clarified that no method apart from those statutorily prescribed would be admissible for determining the assessable value of goods transferred in the execution of a works contract.

The petitioners argued that Rule 58(1) of the Maharashtra Value Added Tax Rules, which outlines the method for determining the value of goods in a works contract, should not be the only method available. They contended that the circular unduly restricted developers from using other acceptable methods, such as the cost-plus method.

The court held that Rule 58(1) is in conformity with the Supreme Court's judgment in Gannon Dunkerley & Co. v. State of Rajasthan, which outlined permissible deductions for determining the value of goods in a works contract. The court noted that Rule 58(1A), which was introduced with retrospective effect from June 20, 2006, mandates the deductions under sub-rule (1) and the cost of land from the total agreement value for construction contracts involving the transfer of land or interest in land.

The court concluded that the circular dated September 26, 2012, merely clarified the statutory mandate and did not introduce any new restrictions. Therefore, the circulars were not ultra vires.

2. Application of the Composition Scheme under Section 42(3A) of the Maharashtra Value Added Tax Act, 2002, to agreements registered before April 1, 2010:

The petitioners sought the benefit of the composition scheme notified on July 9, 2010, for agreements registered before April 1, 2010. They argued that the cut-off date of April 1, 2010, was arbitrary and discriminatory, and that the scheme should apply retrospectively to agreements registered from June 20, 2006, when the amended provisions of Section 2(24) came into effect.

The court observed that Section 42(3A) was introduced with effect from May 1, 2010, and the composition scheme was notified on July 9, 2010. The scheme stipulated that it would apply to agreements registered on or after April 1, 2010. The court held that in framing a scheme of composition, the State Government, as a delegate of the Legislature, has the discretion to determine the cut-off date. The court emphasized that a composition scheme is a concession and not an amnesty, and the State is not obligated to extend it to all agreements.

The court further noted that the choice of a cut-off date is a policy decision and does not render the scheme invalid. The court referred to the Supreme Court's judgment in Union of India v. Parameswaran Match Works, which held that the government has wide latitude in granting concessions or exemptions and that a classification based on a particular date is permissible unless shown to be capricious or whimsical.

The court concluded that the composition scheme was not ultra vires and that the cut-off date of April 1, 2010, was valid. The court also clarified that the judgment would not prevent the State Government from considering representations to extend the benefit of the composition scheme to agreements registered between June 20, 2006, and March 31, 2010.

Conclusion:

The petitions were dismissed, and the rule was discharged. The court held that the circulars dated August 6, 2012, and September 26, 2012, were not ultra vires, and the composition scheme was valid in imposing a cut-off date of April 1, 2010. The court did not award any costs.

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