1)Introduction:

TheintroductionofValueAddedTax(VAT)byalmostalltheStatesofourcountryis

oneoftheimportantreformsunderIndirectTaxationanditisalsooneoftheright

stepstowardsGlobalisationofIndianEconomy.

MaharashtraStatehasalsointroducedtheVATintheyear2005.Theguidelinesfor

implementingofVATintheStateshadbeenprovidedbytheEmpoweredCommittee

ofFinanceMinistersinWhitePaperissuedon17thJanuary,2005.ThesaidWhite

Paper of Empowered Committee has recommended to have provisions of

CompositionSchemeundertheLocalVATAct.Para2.9oftheWhitePaperprovides,

Small dealer with annual gross turnover not exceeding Rs.50 lakhs, who are

otherwise liable to pay VAT, shall however, have the option for a Composition

Schemewithpaymentoftaxatasmallpercentageofgrossturnover.Thedealers

optingforthiscompositionschemewillnotbeentitledtoinputtaxcredit.

Accordingly,MaharashtraGovernmenthasprovidedfortheCompositionSchemein

Section42oftheMaharashtraValueAddedTaxAct,2002(hereinafterreferredas

MVAT),whichcameintoeffectfrom01/04/05.

InthisarticleanattemptismadetodiscusstheprovisionsofCompositionSchemes

(except Composition Scheme for Works contractor) as provided in section 42 of

MVATalongwithrelevantRulesandNotificationsissuedfromtimetotimeinthis

regard.

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CompositionSchemesundertheMVATAct

Section42ofMVATisanenablingprovision,whichprovidespowertotheState

GovernmenttoissueNotificationforCompositionschemes,onsuchconditionsand

restrictions,whichtheStateGovt.deemsproper.

CompositionSchemeofRetailers

UnderSubsection(1)ofSection42ofMVAT,StateGovt.isempoweredtoissue

NotificationforCompositionSchemeinrespecttodealers,whoareengagedinthe

businessofresellingatretail.

CompositionSchemeforRestaurants,etc.

As per Section 42(2) the State Govt. is empowered to issue Notification for

CompositionSchemesinrespectof:

Eatinghouse,Restaurants,Caterers,etc.,

Liquordealers,

Bakersand

DealerswhoaredealinginsecondhandmotorCar.

CompositionSchemeforWorksContractors

Section42(3)itselfhasprovidedfortheCompositionSchemeinrespectofWorks

Contractorsubjecttocertainconditionsandrestrictionsand

CompositionSchemeforMandapDecorators,etc.

Section 42(4)itself has provided for the Composition Scheme inrespect ofsales

effectedbywayoftransferofrighttousemandaportarpaulin.

WiththisbackgroundIwilldiscussthevariousCompositionSchemesindetails.

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Inpursuancetopowerconferredinsection42oftheMVATAct,MaharashtraGovt.

hasissuedvariousNotificationsfromtimetotime.

3
CompositionSchemeRetailers

Section42(1):

Asperthissubsection(1)ofsection42ofMVAT,theStateGovernmentcanissue

Notification,forNotifyingtheCompositionSchemeinrespectofdealerswhoare

RETAILERS.Notificationcanbesubjecttosuchconditionsandrestrictionswhich

theStateGovernmentthinksproper.

ThissubsectionreadwithRule85,explainsthatforthepurposeofthissub

section,RETAILERSarethosedealerswhose90%ofturnoverofsales(ofanygoods

ormerchandise)ismadetopersonswhoarenotdealers.

Subclause(b)ofthissubsectionfurtherprovidesthatifanyquestionarisesasto

whetheranyparticulardealerisaretailer,thentheofficerinchargeofthecaseshall

refer the question to the Joint Commissioner. The Joint Commissioner who after

hearingthedealermaydecidethequestionandhisorderinthisrespectisfinal.Thus,

averywidepowerhasbeenprovidedtoJointCommissionerhere.Firstofall,the

JointCommissionermayormaynotdecidethequestion.Italldependsuponhis

whims,ifhethinksthatitisnotnecessaryforhimtodecidethequestion,heisnot

boundtodecidethesame.Secondly,itisfurtherprovidedthattheorderofJoint

Commissionerisfinal.Thus,ifinacase,theJointCommissionerdoesnotdecidethe

question then it can impact the concerned dealer badly. Such type of provisions

shouldnotbethereunderanyAct.

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As per sub clause (c) of this subsection, the said Composition Scheme is not

applicabletofollowingtypesofdealer,whois

i)Importer,or

ii)Manufacturer,or

iii)Whohaspurchasedthegoodsfromadealer,whoisnotliabletopaytaxu/s.8(1)

ofMVATActi.e.toadealerwhohaspurchasedthegoodsinthecourseofinterState

tradeorcommerceor

iv)Sellingliquorinretail,(bothCountryaswellasIMFL),exceptasprovidedinsub

section(2)ofthisSection.Theimpactofthisisthatanydealerwhoisselling(andnot

serving)theliquorisnotentitledforCompositionbenefitunderthissubsectioni.e.as

aRETAILER,inrespectofsalesofanyothergoods.Thus,theliquordealercannot

claim the benefit of Composition Scheme in respect of sales of any goods or

merchandise.

Thus, here it is important to note that the benefit of Composition Scheme is not

availabletosuchdealersinrespectofsalesofanygoods.

Notificationissuedason01.06.2005

Inpursuancetopowerconferredundersubsection42(1),Govt.ofMaharashtrahasin

supersessionoftheearlierNotificationissuedfreshNotificationason01.06.2005

andnotifiedtheCompositionSchemeforRetailersatsr.no.(3).ThisNotificationhas

comeintoeffectfrom01.06.2005andforthemonthsofAprilandMay,theprovisions

ofoldNotificationareapplicable.

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SalientfeaturesofthisScheme:

ThebenefitofthisSchemeisavailabletoRetailersonly,

OnlyRegisteredDealersarecoveredbythisScheme,itmeansCompositionscheme

isnotavailabletounregistereddealer(URD)

ThebenefitofCompositionSchemeisnotavailableinrespectofsalesofMotor

Spirits,whicharenotifiedbytheStateGovernmentu/s.41(4)ofMVATAct,2002,

The benefit is also not available to those dealers whose turnover of sales has

exceededRupeesFiftylakhinthepreviousyear;theturnoverlimitofRupeesFifty

lakhsisapplicableonlyonsalessideandnotonpurchasesside.

This limit of turnover of sales is applicable qua dealer and not qua place of

business.Inotherwordstheturnoverlimitisaggregateofturnoverofsalesofallthe

placesofbusinessofadealer.

TurnoverofSales/PurchasesAspercolumnno.3ofthesaidNotification,the

Compositionamountispayableontheexcessofturnoverofsalesovertheturnoverof

purchasesdeterminedasunder

Totalturnoverofsales/purchasesmadebyaRetailerexcludingtheturnoverofresale

ofthefollowinggoods:

a)ForeignLiquor,

b)CountryLiquor,

c)LiquorImportedfromoutsideIndia,

d)DrugscoveredbyScheduleEntryC29(fortheperiod01.04.2005to30.06.07)and

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e)Motorspirits(asNotifiedu/s41(4)ofMVATAct)

Inthiscolumn,deductionisprovidedinrespectofresalesofliquor.However,ifone

readsclause(c)ofsubsection42(1),itspecificallydeniestheCompositionScheme

toLiquordealers.Thus,oncethedealerhassoldliquoretc.,hewillbeoutfrom

claimingthisCompositionbenefitbyvirtueofSection42(1)(c)andassuch,thereis

noneedofprovidinganydeductiontosuchdealersinrespectofsalesofliquor.Thus

thedeductionprovidedintheNotificationisnotconsistentwithSection42(1)(c),

thuseithertheNotificationhastobeamendedorotherwisesection42(1)(c)shouldbe

amendedaccordingly.

SecondlybenefitunderthisCompositionSchemewasnotavailableinrespectofsales

ofdrugs,fortheperiod01.04.2005to30.06.2007becauseduringthisperiod,VAT

waspayableonMaximumRetailPriceofthedrugbythedealers.However,w.e.f.

01.07.2007 the said scheme of taxation was discontinued and consequential

amendment has been made as a result of which amendment is also made in this

notification.Accordingly,theCompositionSchemehasalsobeenmadeavailableto

dealersinrespectofsalesofdrugs.

CompositionAmount

UnderthisCompositionSchemetheregistereddealerisrequiredtopayComposition

amountonsixmonthbasis

a)CalculationofTaxableTurnover

Itis anexcess ofturnoverofsales includingtaxfreegoodsovertheturnoverof

purchasesincludingtaxfreegoods.

Inthefirstyearofoperation,dealercanclaimthedeductionundersection3(2)of

MVATAct,2002andonlybalanceturnovershallbetakenforcalculationpurposes.

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Taxfree goods purchased may be from registered dealers or from unregistered

dealers,

Taxablegoodsresoldarethosegoodswhicharepurchasedfromregistereddealeronly

except purchased goods which are used for packing of goods resold. Thus, no

deductionisavailablefromtheturnoverofsalesinrespectofpurchasesofgoods

madefromunregistereddealers.

Taxcollectedseparatelybythevendorsshallformpartoftotalturnoverofpurchases.

Theturnoverofpurchasesshallbereducedbytheamountofeverycreditreceivedby

theclaimantdealerfromhisvendor.

ItisonceagainprovidedthattheTurnoverofSalesandPurchasesshallnotinclude

thepurchasesandsalesofliquor,motorspiritsanddrugsforcertainperiod.

TogivethedeductionofopeningStockason01.04.2005aspecialconcessionhas

beenprovidedinrespectofthesixmonthperiodstartingon1stApril,2005.Insuch

cases, the six monthly turnovers of sales have to be considered at 5/6th of such

turnover,whereasthetotalturnoverofpurchasesofsixmonthswastobereduced

fromsuchturnoverofsales.

CertainIssuesinrespectofcalculationoftaxableturnover

i)WhethersalesoffurnitureorfixtureorMotorvehicles,canbeaddedtotheturnover

ofsalesanddealercanpaytheCompositionamount@8%onsuchsales?Inmy

view,itispossibleforclaimantdealertodoso.ThatissobecauseSection42and

Notificationissuedinthisbehalfhasnotprovidedforanyexclusionofsuchtypesof

sales.Onthecontrary,intheSectionaswellasinNotificationitisprovidedthatthe

claimantdealerisentitledforCompositionSchemeinrespectofsalesofanygoodsor

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merchandises which includes sales of abovementioned goods also. Thus, such

claimantdealercanpaytheCompositionamountonsalesofsuchgoods.

ii)Manytimesitispossiblethatthenetexcessturnoverofpurchasesisinexcessover

turnover of sales, thus, calculation of taxable turnover sales determined as stated

abovemayresultinanegativeamount,thatissobecausetheturnoverofpurchases

maybemorethanturnoverofsales.Insuchsituation,provisionisnotthereinthis

Notificationforcarryforwardandadjustmentofsuchexcesspurchasesinnextsix

monthlyperiod(likeitwasthereundertheNotificationEntryJ8issuedu/s.41ofthe

BombaySalesTaxAct).Insuchsituation,retailersarelosingthebenefitofdeduction

inrespectofunadjustedpurchasesofgoods.

iii)Insomecases,somedealers,whoaredealinginseasonalgoodsarealsonotina

positiontotakethebenefitofthis CompositionScheme,forthereasonthatsuch

dealersaremakingtheirmajorpurchasesinonehalfofyearandsellingthesaidgoods

inanotherhalfoftheyeare.g.dealersdealinginUmbrellasorfertilizers,etc.arenot

inapositiontotakethebenefitofthisCompositionScheme.

b)RateofComposition

TheCompositionamountispayableattherateof5%ontheexcessturnoverofsales,

incaseofretailers,whoseaggregateturnoverofsalesofgoodscoveredbySchedule

Aandgoodstaxableattherateof4%ismorethan50%ofthetotalsalesandinany

othercase,theCompositionamountispayableattherateof8%.

Conditions

Asperconditionnos.(i)and(viii)ofthesaidNotification,theclaimantdealershall

notcollectanytaxorcompositionamountseparatelyinthecashmemo/billissuedby

him,

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Conditionno.(vi)oftheNotificationstipulatesthattheRetailerwhodesiresto

availthebenefitunderthisNotificationshallapplyinformNo.4

Incaseofnewdealer,theapplicationinabovestatedformhastobemadetothe

Registeringauthorityatthetimeofregistration.

AspertheNotification,anexistingdealershouldhaveappliedonorbefore15th

June 2005. The said date was extended upto 30th September, 2005 by the

Commissioner of Sales Tax vide Trade Circular No 26 T dt. 05.09.2005. The

applicationisrequiredtobemadetotheassessingauthority,whowasinchargeofthe

caseason31stMarch,2005.

However,inthesaidNotification,nothinghasbeenprovidedinrespectoffilingof

application in the subsequent years i.e. if any existing dealer wants to avail the

Compositionbenefitfirsttimeintheyear200607orthereafteroranewdealerwho

hasnotoptedforCompositionSchemeinthefirstyearofregistration,wantstogofor

CompositionSchemeinthenextyear,ordealerdealinginDrugs,afteramendmentto

said Notification wants to avail the benefit of Composition Scheme on or after

01.07.2007firsttime.Inthisrespect,followingquestionsemergeforourdiscussion:

1) When should such dealers apply for Composition Scheme?

2) To whom, such dealers shall apply?

3)WhethersuchdealersareentitledforthebenefitofCompositionSchemeatall?

4)SincenothingismentionedintheNotificationaboutsuchsituation,aviewhas

beenexpressedincertainsectionthatsuchdealerscannotoptfortheComposition

Schemeinsubsequentyears.Thisisnotthecorrectviewbecauseifitisso,thenthis

Notificationbecomesredundantatleastforexistingdealerwhohavenotoptedforthe

Composition Scheme in the first year.

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In my view, an existing dealer can opt for the Composition Scheme in any year

provided the said dealer applies to the specified authority before the start of the

financialyearandcomplieswiththeconditionsandrestrictionsmentionedinthesaid

Notification.

Inthisregard,itisalsonoticedthatcertainexistingdealershavefiledtheapplication

informno.4firsttimefortheyear200607or200708,beforestartofthesaid

financialyeartotheiroldassessingauthoritytoavailthebenefitofComposition

Scheme.SuchdealershavefiledtheVATAuditReportalsofortheyear200607.So

fartheDept.hasnottakenanyactiononsuchdealers.Thus,itisconcludedthatsuch

dealershavefollowedtheproperprocedures.Assuchifanyexistingdealerwantsto

avail the benefit of Composition Scheme, he could follow similar procedures.

5)However,stillitwouldbebetteriftheCommissionerofSalesTaxclarifiesallsuch

issues.

AnotherconditionoftheNotificationstipulatedthatiftheoptiontojoinortoopt

outoftheCompositionSchemeisexercisedinanyyearthenitcanbechangedonlyat

thebeginningofthenextyear.Thus,itisclearthatadealercanjoinorcomeoutof

theCompositionSchemefromthebeginningoftheyearexceptincaseofnewdealer.

Sometimesaquestioncomesupforourdiscussionthatifanyclaimantdealerwho

after opting forthe Composition Scheme, wants tocome out ofthe Composition

Schemeduringtheyearofexercisingofoptiononly,canhecomeoutofComposition

Scheme? Or what would be the position of the claimant dealer, if by chance or

otherwisetheconditionorrestrictionstipulatedintheCompositionSchemehasnot

beenfollowedorisviolatedbytheclaimantdealer?Forexample,aClaimantdealer

haschargedthetax/CompositionamountintheCashmemo/billissuedbyhimorhe

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hasimportedthegoods;thesearetheinstanceswhichviolatetheconditionsstipulated

in the Notification of Composition Scheme. About the consequences of such

eventualityties,Section42ortheNotificationissilent.Insuchasituation,thebenefit

ofCompositionSchemetosuchdefaultingdealerscanbedeniedandsuchdealerscan

beassessedasnormaldealers.Itmeanssuchdealersbecomeliabletopayfullamount

ofVAT.Indeservingcases,penalty,etc.canalsobeleviedbytheassessingauthority.

Conditionno.(ii)oftheNotificationprovidesthattheclaimantdealerisnotentitled

toclaimanysetoffinrespectofpurchasescorrespondingtoanygoodswhicharesold

orusedinpackingofgoodsinrespectofwhichthedealerhasdischargedtheliability

undertheCompositionScheme.Thus,thesetoffisnotallowableonpurchasesof

tradedgoodsandpurchasesofpackingmaterials.

Itmeanstheclaimantdealerisentitledforsetoffinrespectofpurchasesofgoods

whichareeithercapitalizedorwhicharedebitedtoprofitandlossaccounts.

Simultaneously the claimant dealer can also add the amount of Capital assets

purchasesand/orotherpurchasesofexpenses,whicharedebitedtoprofitandloss

accounttoturnoverofpurchasesandthenreducetheamountofsuchpurchasesfrom

turnoverofsalesandthenpaytheCompositionamountonbalanceturnoverofsales.

IntheNotification,deductionisprovidedinrespectoftotalpurchasesofgoodsand

notinrespectofcorrespondingpurchasesofresalesofgoods.

Thus,inrespectofotherpurchases,claimantdealersareentitledforthebenefitof

setoffaswellastheycandeductthesamefromtheturnoverofsales.

Certainotherissues

(1) M/s. ABC Co., who is a Retailer as per section 42 (1) has obtained the

RegistrationCertificateon1stApril,2006underVoluntaryRegistrationScheme.At

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thetimeofRegistration,hehasoptedfortheCompositionScheme.Duringtheyear

200607theturnoverofsaleswasRs.45.55lakh.Intheyear200708theturnoverof

saleswasRs.70lakh.WhatamountofturnoverofsalesofM/s.ABCCo.istobe

consideredforcalculationofCompositionamount?Theturnoverofsaleshastobe

consideredatRs.70lakhandnotatRs.50lakh,becauseinthesaidNotificationthe

turnoverlimitisapplicableeitherforthefirstyearinwhichtheoptionisexercisedor

theturnoverlimitofRs.50lakhisprescribedinrespectofpreviousyearsturnover

ofsales.However,M/s.ABC&Co.isnoteligibletoclaimthebenefitinnextyear

becausehispreviousyearsturnoverhasexceededthelimitofRs.50lakh.

basis.

CompositionSchemeforrestaurants,etc.

Sections42(2)

Underthissubsection,StateGovernmentofMaharashtraisempoweredtoissuethe

CompositionSchemefordealerswhoarerunninganyeatinghouse,restaurants,hotel,

refreshment room or boarding establishment, caterers, dealers running bakeries or

dealersofsecondhandmotorvehicleswhoseprincipalbusinessisbuyingorselling

motor vehicles or vendors selling either Indian Made Foreign Liquor or Country

Liquoratretail.

UnderthisSubsection,StateGovernmentisalsoempoweredtoissueComposition

Schemeinrespectofdealerswhoareinthebusinessofretailingofliquor.However,

sofarGovt.hasnotissuedanyNotificationinthisregardandhencenoComposition

Schemeisavailableinrespectofsalesofliquor.

Notificationissuedason01.06.2005

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Inpursuancetopowerconferredundersubsection42(2),Govt.ofMaharashtrahas

issuedNotificationdt.01.06.2005,insupersessionoftheearlierNotificationissuedas

on01.04.2005andnotifiedtheCompositionSchemeforRestaurants,etc.atsr.no.(1)

oftheNotificationThesaidNotificationisapplicablew.e.f.01.06.2005and,forthe

monthsofAprilandMay,theprovisionsofoldNotificationissuedason01.04.2005

areapplicable.

SalientfeaturesofthisScheme

ThebenefitoftheSchemeisavailabletoRestaurants,EatingHouse,Refreshment

Room,BoardingEstablishment,FactoryCanteen,Clubs,HotelandCaterers.

Itisclarifiedbywayofexplanationthatiftheabovementioneddealersalsoserved

alcoholicdrink then such dealers are entitled for benefit of this Scheme only in

respectofsalesandservingoffoodandnonalcoholicdrinksonly.Inotherwords,

CompositionSchemeisnotavailableinrespectofsales/servingofalcoholicdrinks.

ThebenefitoftheSchemeis notavailabletoRestaurants orhoteloranypart

thereofhavinggradationofFourStarandabove.

Composition benefit is available to both Registered as well as to unregistered

dealer,

TheCompositionamountisfixedat8%oftheturnoverofsalesinthecaseofa

registereddealerand10%oftheturnoverofsalesinthecaseofanunregistereddealer

Conditions

Conditionno.(ii)oftheNotificationstipulatesthattheclaimantdealershallnot

collectthetaxorcompositionamountseparatelyinthecashmemo/billinvoiceissued

byhim.

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 Condition no.(v) Stipulates that the claimant dealer shall not issue anyTAX

INVOICEinrespectofgoodsinrespectofwhich,thedealerisclaimingbenefitof

CompositionScheme.

Theturnoverofsalesistheaggregateofsalesof:

i) Food and nonalcoholic drinks served for consumption at or in the immediate

vicinityofanyrestaurant,eatinghouse,refreshmentroom,boardingestablishment,

hotelorinanyclubor;

ii)Supplybywayofcountersalebysuchrestaurant,eatinghouse,refreshmentroom,

boardingestablishment,hotelorinanyclubor;

iii)Servedforconsumptionatanyplaceotherthanarestaurant,hotel,eatinghouse,

refreshmentroom,boardingestablishment,factorycanteen,oranyclubbyacaterer

Conditionno.(iii)oftheNotificationstipulatesthatthedealer,whoisrunning

restaurants, etc. (other than caterers), and desires to avail the benefit under this

NotificationshallapplyinformNo.1

Thedealerwhoisacaterer,anddesirestoavailthebenefitunderthisComposition

SchemeshallapplyinformNo.2.

ThebenefitundertheNotificationisalsoavailabletounregistereddealers.

Further,itis alsoprovidedthattheclaimantdealermustfileanapplicationto

specifiedauthoritybeforethespecifieddateoratleastatthetimeofobtainingthe

Registration Certificate. How Unregistered Dealers can fulfill such condition? To

whomshallhefileanapplicationinprescribedform?

SincenothinghasbeenstipulatedtowhomURDshallapplyforbenefitunderthis

Scheme,itappearstomethatanunregistereddealercanexercisehisoptioneitherat

the time of his assessment while filing an application in prescribed form to his

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assessingauthority,providedheisnotgoingforregistrationandifheisgoingfor

registration,theninsuchcaseheshallfileanapplicationtotheregistrationauthority.

ItwouldbebetteriftheCommissionerofSalesTaxclarifiesthisissuealso.

Letusdiscussacasestudyhere:

CaseStudy1A

Adealerrunningarestaurantsince1stApril,2005,isnotregisteredundertheMVAT

Act.AnofficerfromtheSurveyDept.hasvisitedhisplaceofbusinessinthemonth

ofJuly,2008andaskedhimtoobtaintheRegistrationCertificateundertheMVAT

Act.DealerhasappliedfortheregistrationandalsofiledtheapplicationinformNo.1.

WhetherthedealercanavailtheCompositionSchemefortheyears200506and

onwards?Inmyview,suchURD,whohasappliedforregistrationundertheMVAT

aswellasunderthisCompositionScheme,isentitledforthebenefitofComposition

benefitsinceApril2005,becausenothinghasbeenspecifiedintheNotificationabout

theeffectofthebenefitwhichcanbeenjoyedbytheURD;onthecontraryitis

providedintheSchemethatURDisliabletopayCompositionamount@10%.

Thus, for unregistered period, claimant dealer can discharge the liability @10%,

providedhefilesproperapplicationbeforethespecifiedauthority.SuchURDcanfile

theapplicationinprescribedformeitheratthetimeofhisassessmentorotherwiseto

RegisteringauthorityatthetimeofobtainingofRegistrationCertificate,ifsuchURD

isgoingforRegistrationCertificate.

Conditionno.(i)oftheNotificationprovidesthatdealerisnotentitledtoclaimany

setoffinrespectofpurchasescorrespondingtoanygoodswhicharesoldorusedin

packingofgoodsinrespectofwhichdealerhasdischargedtheliabilityunderthe

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Composition Scheme. Thus, the claimant dealer is not entitled for any setoff in

respectofpurchasesofrawmaterials,finishedgoodsandpackingmaterials.

However,setoffisavailableinrespectofpurchasesofgoodswhicharedebitedto

profitandlossaccountorpurchasesoffurniture,fixturesorofficeequipment,etc.

which are not corresponding to goods sold, on which the dealer has availed the

Compositionbenefit.

Similarly, setoff should also be available in respect of purchases of Kitchen

equipment,etc.whicharedebitedtoPlantandMachinery.

However,setoffisnotavailableinrespectofpurchasesofconsumableslikefuel,

etc.whichareconsumedinthecourseofpreparationoffinishedgoods.

Unlike Retailers,dealers opting forthis Composition Scheme are liable to file

returnsasnormaldealers,aspertheprovisionsofRules17and18.

The issues regarding the availability of deduction u/s. 3(2)in the first year of

operation, time limit for filing of application and application to be filed by the

existing dealer claiming benefit in next year, dealer wanting to come out of the

CompositionScheme;orconsequencesofviolationofconditionsoftheNotification,

havealreadybeendiscussedundertheheadingofCompositionSchemeforRetailer

andhencesamehavenotbeenrepeatedhere.

CompositionSchemeandCaterers

Almost all the salient features of Composition Scheme which are applicable to

restaurants, etc. are equally applicable to caterers who are serving foods, etc. to

customeratanyplace,exceptthatcaterersshallapplyinformNo.2insteadofform

No.1tospecifiedauthorityforexercisingoption.

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Discharging of Tax Liability as a normal dealer visvis under the Composition

Scheme

WhetherthisCompositionSchemeisbeneficialtosuchdealers?CompositionScheme

hascertaininherentdisadvantageslikeclaimantdealerisnotentitledtoclaimsetoff

onpurchasesofcorrespondinggoodstosalesonwhichclaimantdealerhaspaidtax

undertheCompositionScheme,noristheclaimantdealerallowedtocollectthetaxin

thebill/cashmemoetc.whichheisgoingtoissue.Thus,VATpaidbytheclaimant

dealerformsapartofcostofmaterialandsimultaneouslyhehastopayComposition

amountfromhisprofit.

However, under this Composition Scheme, the major saving is that the claimant

dealerrequirestopaylessamountoftaxtothetuneof4.5%(12.5%8%)ongross

turnover of sales and if claimant dealer plans properly in respect of price

structure/menupriceofgoodssoldbyhim,thencostbenefitanalysiswillrevealthat,

undertheCompositionScheme,dealeris requiredtopaylesseramountoftaxin

comparisontoregulartaxpaymentsystem.Therecanbedifferentscenariosinsome

otherdealercases,butinmostofthecasesthedealersarerequiredtopaylesser

amountoftaxundertheCompositionScheme.Thatissobecause,insuchtypeof

dealerscases,thepercentageofconsumptionoftaxablegoodsisquiteless,onwhich

dealercanclaimthesetoff,becausesuchdealersmainpurchasesarerawmaterials

whichareeithertaxfreegoodsorareliabletotax@4%.Thus,lossofsetoffisvery

negligible,comparedtosavingof4.5%onsalesside.Thus,accordingtome,this

CompositionSchemeismorebeneficialforRestaurants,etc.

CertainissuesunderthisCompositionScheme

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 Whether dealer can discharge liability differently for his different places of

business?Forexample,dealerhastworestaurantsinMumbaicity.Cansuchdealers

optfortheCompositionSchemeinrespectofonlyonerestaurantandpaythetaxin

respect of another restaurant? The answer to this question is no, because the

CompositionSchemeisavailabletodealerandnottoanyrestaurant.Thus,either

benefitisavailableinrespectofalltherestaurantsoritisnotavailableinrespectof

anyrestaurant.

Similarly,ifdealerisrunningarestaurantaswellasrenderingcateringservices,

canhedischargethetaxliabilityinrespectofcateringservicesandcanheoptforthe

CompositionSchemeinrespectofturnoverofsalesofrestaurant.Theanswerisagain

no. The said dealer has to either go for regular tax payment or for Composition

Schemeinrespectofbothhisactivities.

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CompositionSchemeBakers

Notificationissuedason01.06.2005

Inpursuancetopowerconferredundersubsection42(2),Govt.ofMaharashtrahas

issued Notification as on 01.06.2005, in supersession of the earlier Notification,

notifying about the Composition Scheme for Bakers at Sr. No. 2 of the said

Notification.

Salientfeaturesofthisscheme

The benefit of Scheme is available to a dealer who is a Baker, means who

manufacturesthebakeryproductshimself

Anydealerwhoisabaker,unlikerestaurantsetc.,cantakeCompositionbenefit;

herethebenefitcanbeavailedbyahotelhavinganystargradation,providedthat

suchhotelitselfmanufacturedthebakeryproductsandalsosubjecttootherconditions

andrestrictionsoftheNotification.

CompositionbenefitisavailabletobothRegisteredaswellastounregistereddealer

ThebenefitofthisSchemeisnotavailabletoadealerwhoisresellerofbakery

products

Conditionno.(i)oftheNotificationstipulatestheJointCommissionershallcertify

thatclaimantdealer

Hereitisimportanttonotethatonlyfilingofanapplicationisnotenoughtoclaimthe

benefit,infactdealershouldalsobecertifiedbytheJointCommissioner

Conditionno.(iv)oftheNotificationstipulatesthatdealerwhodesirestoavailthe

benefitunderthisNotificationshallapplyinformNo.3.

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Incaseofnewdealer,theapplicationinabovestatedformhastobemadetothe

Registeringauthorityatthetimeofregistration.

ThebenefitunderthisNotificationisnotavailabletothosedealerswhoseturnover

ofsalesofbakeryproductsincludingsalesofbreadhasexceededrupeesthirtylakhin

thepreviousyear.

Thebenefitunderthisschemeisavailableonlyuptofirstthirtylakhrupeesofthe

totalturnoverofsalesandoncetheturnoverofsalesofbakeryproductsincluding

breadhasexceededRupeesthirtylakhthenbenefitisnotavailableinsubsequentyear.

Thus,unlikeincaseofCompositionSchemeofRetailers,wheretheturnoverlimit

isnotapplicableintheyearofexercisingofoption,inthiscase,theturnoverlimitis

providedintheyearofexercisingofoptionalso.

ForthepurposeofthisCompositionScheme,theclassofsalesspecifiedincolumn

(3),meansthesalesofbakeryproducts,whicharemanufacturedbythesaidbaker

himself.

Compositionamount

a)IncaseofRegistereddealertheCompositionamounthasbeenfixedat4%offirst

thirtylakhrupeesofthetotalturnoverofsales ofbakerygoodsmanufacturedby

bakerhimselfandgoodsimportedfromoutofMaharashtraStateandalsoincluding

breadinloaf,rollorinslices,toastedorotherwise,

b)IncaseofUnregistereddealertheCompositionamounthasbeenfixedat6%of

firstthirtylakhrupeesofthetotalturnoverofsalesofbakerygoodsmanufacturedby

bakerhimselfandgoodsimportedoutofMaharashtraStateandalsoincludingbread

inloaf,rollorinslices,toastedorotherwise

21
ItmeansthatbenefitofCompositionamountisalsoavailableinrespectofbakery

products,whichareimportedfromoutsideMaharashtraincludingsalesofbread.In

thisSchemethebenefitisprovidedtoimportedbakeryproducts.Simultaneously,tax

hasbeenleviedonsalesoftaxfreegoodsi.e.onthesaleofbread.

Thus,adealerwhohasimportedthebakeryproductsfromoutsidetheStatecanalso

availtheCompositionbenefitinrespectofsalesofbakeryproductsimportedfrom

outsidetheState.However,inthefirstyearofexercisingofoptionthedealermaynot

beabletoenjoythebenefitofthisSchemebecausetheJointCommissionermaynot

issue the Certificate to such dealer, for the reason that such dealer has not

manufacturedanybakeryproductsintheState,whichisoneoftheconditionsfor

grantingtheCertificate.However,oncethecertificateisissuedtoanysuchdealer,the

benefit can not be denied to certified dealer even though such dealers have not

manufacturedanybakeryproduct.

Theissuespertainingtotheavailabilityofdeductionu/s.3(2)inthefirstyearof

operation, time limit for filing of application and application to be filed by the

existing dealer claiming benefit in next year, dealer wanting to come out of the

CompositionScheme;orconsequencesofviolationofconditionsoftheNotification,

availabilityofsetoff,filingofreturnsandavailabilityofbenefitinrespectofmore

than one place of business have already been discussed under the heading of

CompositionSchemeforRetaileraswellasCompositionSchemeforRestaurantsetc.

andhencesamehasnotbeenrepeatedinthissection.

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CompositionSchemeSecondHandMotorCarDealers

Notificationissuedason01.06.2005

Inpursuancetopowerconferredundersubsection42(2),Govt.ofMaharashtrahas,

insupersessionoftheearlierNotificationissuedason01.04.2005,andnotifiedthe

CompositionSchemeforSecondHandMotorCarDealeratSr.No.4ofthesaid

Notification.

Salientfeaturesofthesaidscheme

ThebenefitofCompositionSchemeisavailabletodealersinSecondHandMotor

vehicles,

The benefit of Scheme is available only to registered dealer whose principal

businessisofbuyingorsellingofmotorvehiclesbutnotnecessarilyinthebusiness

ofbuyingandsellingofSecondhandmotorvehiclesonly,

Unlike other Composition Schemes as discussed above, the benefit of this

CompositionSchemeisnotavailabletoURD.

ForthepurposeofthisCompositionSchemetheturnoverofsalesspecifiedin

column(3),meanssalesofsecondhandpassengermotorvehicles.Thus,thebenefit

ofCompositionSchemeisnotavailableinrespectofsalesofsecondhandmotor

vehicles,whicharenotpassengervehicles.

In nut shell, the benefit under this Composition Scheme is available to

REGISTEREDDEALERonly,whoseprincipalbusinessisthatofbuyingorselling

ofanymotorvehicles(notnecessarilyinpassengervehiclesorinsecondhandmotor

vehicles). However, the benefit is available only in respect of sales of SECOND

HANDPASSENGERMOTORVEHICLES.

23
ThebenefitofCompositionSchemeisavailableevenifMotorvehiclesaresold

afterreconditioningorrefurbishing

ForclaimingthebenefitofCompositionScheme,claimantdealershallprovein

respectofsalesofsecondhandmotorvehiclethateitherEntryTaxhasalreadybeen

paidearlierorthatthesaidvehiclesareregisteredatthetimeofpurchaseunderthe

Central Motor Vehicles Rules 1989, in the State of Maharashtra and accordingly

registrationmarkofthisStatewasallottedtosaidsecondhandmotorvehicle,

The Composition amount is fixed @ 12.5% on 15 % of the sale price of the

vehicles.Thus,effectiveratecomesat1.875%ofthesaleprice.

Conditions:

Conditionno.(iv)oftheNotificationmentionedthatdealerwhodesirestoavailthe

benefitunderthisNotificationshouldapplyinformNo.5

Condition no. (i) stipulates that claimant dealer shall be certified by the Joint

Commissionerofsalestax,

Hereitisimportanttonotethatonlyfilingofanapplicationisnotenoughtoclaimthe

benefit,infactdealershouldalsobecertifiedbytheJointCommissioner,

Condition no.(iii) ofthe Notification stipulates that the claimant dealer is not

eligibletoclaimanysetoffofEntrytaxpaidorpayableinrespectofsaidsecond

hand motor vehicles. Similarly, it is further provided that claimant dealer is not

eligibletoclaimanysetoffoftaxpaidundertheActinrespectofsaidsecondhand

motorvehicles.

However,setoffisnotdeniedonanyothermaterialse.g.inrespectofpurchasesof

goodswhichareusedforrepairingorreconditioningorrefurbishingofsecondhand

motorvehicles.Similarlysetoffisalsoavailableinrespectofpurchasesofpaintsand

24
anyotherconsumables,stores,plantandmachineryetc.whichisused/consumedby

claimantdealerforsalesofsecondhandmotorvehicles.Asaresultofavailabilityof

suchsetoffandalsoconsideringthemeagerrateoftaxpayableat1.875%(12.5%of

15%)onsalespricerealizedbythesaiddealers,manytimessuchdealersareeligible

forrefundoftax.

Condition no. (v) stipulates that claimant dealer shall not issue any TAX

INVOICE in respect of goods which dealer is claiming benefit of under the

CompositionScheme

Conditionno.(vi)ofNotificationstipulatesthatclaimantdealershallnotcollectthe

taxorcompositionamountseparatelyinthecashmemo/billinvoiceissuedbyhim.

Issues that have already been discussed earlier have not been repeated in this

section.

CaseStudy

M/s.XYZLtd.mainlydealinginbuyingandsellingofmotorvehiclesincluding

thepurchasesandsalesofsecondhandpassengermotorvehicles.M/s.XYZisalso

runningapetrolpumpatsomeotherlocation.Inthesaidpetrolpumppremises,the

dealerisalsorunningarestaurantcumbar,abakeryshopandageneralstore.Inthe

previousyearthetotalturnoverofsalesofM/s.XYZLtdismorethanRs.20Cr.

However,theturnoverofsalesinrespectofgeneralgoodsislessthanRs.50lakhand

inrespectofbakeryproductsitislessthanRs.30lakh.WhetherM/s.XYZisentitled

foralltheabovediscussedCompositionSchemesfortheyear200809,presuming

thatsaiddealerhasfulfilledallotherconditionsoftheNotificationandhasalsofiled

alltheapplicationsintimeandalsoobtainedallthecertificateswhereverrequired.

Answertothequestionisasunder:

25
1)InrespectofRETAILERSSCHEMEThedealerwillbeeligibleforthebenefit

ofthisRetailersCompositionSchemeonlyiftheturnoverofsales,determinedasper

theprovisionsofsaidNotificationisnotexceededRs.50lakhinpreviousyear.Inthis

case,whetherXYZLtd.candeducttheturnoverofsalesrelatedtoRestaurantsor

bakery products or that of motor vehicles? If one goes on plain reading of the

Notification,thendeductioninrespectofsuchturnoverisnotavailabletoM/s.XYZ

Ltd.andXYZLtd.isnotentitledforthisCompositionScheme.

However,ifonecanarguethatforthepurposeofRetailersCompositionScheme,the

turnoverofsalesofrestaurantcumbar,bakeryproducts,motorspirits,motorvehicles,

etc.shouldnotbeconsideredfordeterminingthelimitofturnoverofsalesandonly

turnoverofsalesofgeneralgoodsormerchandiseshouldbeconsidered.Ifthisview

isacceptedbytheDepartmentthenbenefitofthisNotificationmaybeavailableto

M/s. XYZ Ltd. Again it would be better if this point is also clarified by the

Commissionerofsalestax.

2) However, the benefit ofComposition Scheme pertaining to bakery products is

availabletoXYZLtd.forthereasonthattheturnoverofsalesofbakeryproducts

duringthepreviousyearwaslessthanRs.30lakh.UnderthisScheme,theturnoverof

salesofbakeryproductsonlyneedstobeconsideredandnotthetotalturnoverof

sales.

3)Similarly,saidXYZLtd.,subjecttofulfillingofconditionsoftheNotifications

stipulatedtorestaurants,etc.canenjoythebenefitundertheCompositionsSchemes

availabletoRestaurantinrespectofsalesoffoodsandnonalcoholicbeverages.

4)SECONDHANDMOTORCARBUSINESSHerethepositionofXYZLtd.is

alittlefluid.Oneofthecriteriaofeligibledealeristhathisprincipalbusinessisof

26
buyingorsellingofmotorvehicles.Sinceinthiscase,thedealerisrunningother

businesses also, at the time of granting of Certificate to XYZ Ltd., Joint

Commissionermaytakethestandthatsaiddealersprincipalbusinessisnotthatof

sellingofmotorvehiclesonlyandhencehecannotavailCompositionSchemeunder

thiscategory.However,XYZLtd.canconvincethathisprincipalbusiness(andnot

necessarilyexclusivebusiness)isofbuyingandsellingofmotorvehiclesandhis

otherbusinessesareincidentaltoprincipalbusinessandhence,heisentitledforthe

benefitofthisCompositionSchemealso.Assuch,accordingtomeXYZLtd.willbe

entitledforCertificateunderthisCompositionScheme.

Fromtheabovediscussion,itisclearthatanydealerifhesodesires,canenjoythe

benefitofvariousCompositionSchemesinrespectofhisdifferentconstituentsofthe

business.However,ifheoptsforanyCompositionScheme,thenhehastofollowitin

respectofalltheplacesofbusiness.

27
7CompositionSchemeWorksContractorSection42(3)

UnderthissubsectiontheCompositionSchemeinrespectofWorksContracthas

beenannounced.

Whereadealerisliabletopaytaxonthesaleseffectedbywayoftransferofproperty

ingoods(whetherasgoodsorinsomeotherform)involvedintheexecutionofa

works contract, he may subject to such restrictions and conditions as may be

prescribed,inlieuoftheamountoftaxpayablebyhimunderthisAct,whetherin

respectoftheentireturnoverofsaleseffectedbywayofworkscontractorinrespect

ofanyportionoftheturnovercorrespondingtoindividualworkscontract,paylump

sumbywayofcomposition,

(a)equaltofivepercent.ofthetotalcontractvalueoftheworkscontractinthecase

ofaconstructioncontract,and

(b)eightpercent.ofthetotalcontractvalueoftheworkscontractinanyothercase,

after deducting from the total contract value of the works contract, the amount

payabletowardssubcontractinvolvinggoodstoaregisteredsubcontractor.

Explanation.Forthepurposesofthissubsection,

(i)constructioncontractshallmeanconstructioncontractasmaybenotifiedbythe

StateGovernmentintheOfficialGazette,fromtimetotime,and

(ii)theamountpayabletowardssubcontractinvolvinggoodsmeanstheaggregate

valueofthegoodsonwhichtaxispaidandthequantumofsaidtaxpaidbythesub

contractororthesubcontractvalueonwhichtaxbywayofcompositionispaidbythe

subcontractor,asthecasemaybe.

8[(3A)TheStateGovernmentmay,bynotificationpublishedintheOfficialGazette,

28
(a)Provideaschemeofcompositionfortheregistereddealerswhoundertakethe

construction of flats, dwellings or buildings or premises and transfer them in

pursuanceofanagreementalongwiththelandorinterestunderlyingtheland;

(b)prescribetherateoftaxbywayofcomposition,inlieuoftheamountoftax

payableonthetransferofgoods(whetherasgoodsorinsomeotherform),inthe

executionofsuchworkscontractsbysuchregistereddealerunderthisAct.

The notified construction contracts as per Notification No. VAT.1506/CR

134/Taxation1dated30.11.2006areasunder.

(A)Contractsforconstructionof,

(1)Buildings,

(2)Roads,

(3)Runways,

(4)Bridges,Railwayoverbridges,

(5)Dams,

(6)Tunnels,

(7)Canals,

(8)Barrages,

(9)Diversions,

(10)RailTracks,

(11)Causeways,Subways,Spillways,

(12)Watersupplyschemes,

(13)Sewerageworks,

(14)Drainage,

29
(15)Swimmingpools,

(16)WaterPurificationplants,and

(17)Jetty.

(B)Anyworkscontractincidentalorancillarytothecontractsmentionedinparagraph

(A)above,ifsuchworkcontractsareawardedandexecutedbeforethecompletionof

thesaidcontracts.

Contractor/Subcontractor

Ifthecontractorallotstheworkscontracttothesubcontractor,thenthecontractor

andsubcontractoraretreatedasPrincipalandagent.Theresponsibilityforpayment

oftaxwillbejointandseveral.Howeverthecontractorcanmakethepaymentoftax

on contract and subcontractor can take deduction by obtaining declaration and

certificateinForms406and409fromthecontractor.Similarlyifthesubcontractor

has made payment of tax on contract allotted to him, then contractor can take

deductiontothatextentbyobtainingdeclarationandcertificateinForms407and408

fromsubcontractor.

30
CompositionSchemeMandapKeeper,etc.

Section42(4)

UnderthissubsectiontheCompositionSchemehasbeenprovidedinrespectofthose

dealerswhohaveeffectedthesalesbywayoftransferoftherighttousemandapor

tarpaulin.

SalientfeaturesofthisScheme

TheCompositionSchemehasbeenprovidedintheSubsectionitself,

ThisSubsectionhasbeeninsertedbyMaharashtraActNoXXXIIof2006ason

20.06.2006 and further amended by Maharashtra Act No. XXV of 2007 as on

06.08.2007.TheeffectoftheseamendmentsisthatthebenefitofCompositionhas

beenprovidedfromappointeddayi.e.01.04.2005

TheCompositionSchemeisavailabletobothregisteredaswellasunregistered

dealer

UnlikeotherCompositionSchemes,dealeroptingforsuchCompositionSchemeis

notrequiredtoapplyforanypermissionandalsonotrequiredtoobtainanycertificate

fromtheSalesTaxDept.

TheCompositionSchemeisavailableonlytodealers,whohaveaffectedthesales

bywayoftransferoftherighttousemandaportarpaulin,

Thus,supply/salestransactionsarenotcoveredbythisCompositionSchemeandno

benefitisavailableinthisregard

AnExplanationhasbeenaddedtothissubsectionwhichstatesthatforthepurpose

ofthissubsection,thetransferoftherighttousemandapalsoincludesthetransferof

31
therighttouseMandap,pandal,shamianaorthedecorationofsuchmandap,pandal

orshamiana.

Further,thesaidExplanationprovidesthatsaleseffectedbysuchtransferofrightof

mandapalsoincludestransferofrighttousefurniture,fixture,lightsandlightfittings,

floor coverings, utensils and other articles ordinarily used along with a mandap,

pandalorshamiana.ThusbenefitofCompositionschemehasbeenextendedtosales

effectedbywayoftransferofrightoffurniture,fixture,lightsetc.specifiedinthe

Explanation.

From the said Explanation it is clear that benefit of Composition Scheme is

availabletothedealerinrespectoftransferofrighttouseoffurnitureorlightorlight

fittings,etc.,ifthesegoodsareordinarilyusedalongwiththemandapetc.

However, a question arising for our discussion is about the availability of the

CompositionSchemeinrespectoftransferofrighttouseonlythefurnitureorlight

fittingsorutensilsetc.whichisnotusedalongwiththemandap,etc.

TheavailabilityofCompositionSchemedependsuponthefactsofeachcase,

Situation1)Inasituationwhereadealerhastransferredthefurnitureorfixture,or

anyothergoodsmentionedintheExplanation,toamandapkeeper,etc.and,inturn,

themandapkeeper,etc.hasusedthesaidgoodsfortransferofrighttousemandap,

etc. as stated in the Explanation, then the dealer who has transferred only the

furniture, etc. may be entitled to the benefit of Composition Scheme. This is so

becausethegoodstransferredonrighttousebasisisultimatelyusedalongwitha

mandapetc.,maybenotbythedealerhimselfbutbyamainmandapkeeper.The

explanation to subsection 42(4) has not stipulated the condition that the mandap

keeperhimselfshouldusetheothergoodsalongwithmandap,etc.andhence,ifdealer

32
hasexclusivelygiventhefurnitureorutensils,etc.onrighttouse,whichisultimately

usedalongwithmandap,etc.,itiseligibleforCompositionScheme.However,this

viewhasnotbeenfavoredbytheDept.andDept.islevyingfulltaxinsuchsituation.

Whatisyourview?

ii)However,thebenefitofCompositionSchemeisnotavailabletodealerinrespect

ofsaleseffectedbywayoftransferofrighttousefurniture,fixture,etc.whicharenot

usedalongwithamandap,pandalorshamiana.Thatissoforthereasonthat,inthe

Explanation to subsection, it is provided that such articles are ordinarily used

alongwithamandap,pandalorshamiana.ThusforclaimingbenefitofComposition

Scheme,dealermustprovethathehasusedthefurniture,fixture,etc.alongwiththe

mandap etc. If the dealer has provided the furniture or light or light fitting

independentlyandnotwiththemandap,etc.theninsuchsituationitisdifficulttosay

thatitisbeingusedalongwithamandap,etc.Andhence,thebenefitofComposition

Schemeisnotavailableinrespectofsuchhireincome.

Thus,sometimesithasalsohappenedthatonfurnitureorutensils,etc.,dealeris

requiredtopayCompositionamountifsuchgoodsaretransferredalongwiththe

mandap,etc.andsometimesherequirestopayfullamountofVATonthesame

furniture,utensils,etc.,ifthesamearenotusedalongwiththemandap,etc.

Thus, the tax liability in respect of such types of transactions will vary from

contracttocontractanditstaxliabilitywilldependuponthenatureoftransactions

enteredbythedealer.

Consideringthenatureofagreements/transactionstakingplacegenerally,dealer

mayfacecertainproblemsinclaimingthebenefitofsuchCompositionschemesand

33
theymayalsofinditverydifficulttoprovethefactthatgoodsareordinarilyusedin

themandap,etc.beforetheauthoritiesfromtheSalesTaxDept.

TherateofCompositionisfixedat1.5%undertheMVATAct.

AnotherquestionwhichnormallywearefacingisWhatistherateofCSTif

thetransferofrighthastakenplaceintheCourseofInterstateTradeorCommerce?

Recently,Departmenthasclarifiedthesamebywayofissuingaclarificationthatthe

benefitofCompositionSchemeisnotavailableundertheCSTActandhenceinsuch

casesdealersareliabletopayCSTwithoutconsideringthisCompositionScheme.

DealeroptingforsuchCompositionSchemecanissuetheTaxInvoiceandcan

collectthecompositionamountintheTaxInvoiceissuedbyhim.

AvailabilityofSetofftosuchDealers

AspertheprovisionsofRule54(j)ofMVATRules2005,thedealerwhohas

opted for such Composition Scheme is not entitled for the setoff in respect of

purchases made on or after 20.06.2006 of Mandap, tarpaulin, pandal, shamiana,

furniture,fixtures,lightsandlightfittings,floorcoverings,utensilsandotherarticles

ordinarilyusedalongwithaMandaporpandalorshamiana

Herequestionhasarisenabouttheavailabilityofsetoffinrespectofpurchasesof

abovementionedgoods(i.e.furnitureorutensils,etc.)whichareusedordinarilyalong

withmandap,pandal,etc.aswellasotherwise.Thesetoffisnotavailableifthe

dealerhasdischargedthetaxliabilityundertheCompositionScheme;however,itis

availableifthetaxliabilityisnotdischargedundertheCompositionScheme.

Thus,aprudentdealermayfirstclaimthesetoffbynotoptingfortheComposition

schemeinthemonthofpurchasesofsuchgoodsandtheninsubsequentmonths(after

34
claimingthesetoff)hemayoptfortheCompositionScheme,subjecttofulfillingof

otherconditionsandrestrictionsinthisregard.

SinceunderthisSchemetheclaimantdealercanissuetheTAXINVOICE,the

purchasingdealeralsocanclaimthesetoffofCompositionamountpaidunderthis

Composition Scheme. The availability of the setoff will be subject to other

provisionsofSectionsandRules.

Thesetoffisdeniedinrespectofpurchasesmadeonorafter20.06.2006,thedate

on which subsection 42(4) has been inserted in the MVAT Act. However, by

subsequentamendment,thisCompositionschemeismadeeffectivew.e.f.01.04.2005.

However,amendmentintheRule54(j)hasnotbeencarriedouttilltoday.Asaresult

ofthis,presentlyfortheperiod01.04.2005to19.06.2006dealerisentitledforthe

benefitofCompositionSchemeaswellassetoffaspertheprovisionsoflaw.

35
36