MVAT

1) Introduction:The introduction of Value Added Tax (VAT) by almost all the States of our country is one of the important reforms under Indirect Taxation and it is also one of the right steps towards Globalisation of Indian Economy.Maharashtra State has also introduced the VAT in the year 2005. The guidelines for implementing of VAT in the States had been provided by the Empowered Com-mittee of Finance Ministers in White Paper issued on 17th January, 2005. The said White Paper of Empowered Committee has recommended to have provisions of Composition Scheme under the Local VAT Act. Para 2.9 of the White Paper provides, 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 Composi-tion Scheme with payment of tax at a small percentage of gross turnover. The dealers opting for this composition scheme will not be entitled to input tax credit.Accordingly, Maharashtra Government has provided for the Composition Scheme in Section 42 of the Maharashtra Value Added Tax Act, 2002 ( hereinafter referred as MVAT), which came into effect from 01/04/05.In this article an attempt is made to discuss the provisions of Composition Schemes (except Composition Scheme for Works contractor) as provided in section 42 of MVAT along with relevant Rules and Notifications issued from time to time in this regard.

2) Composition Schemes under the MVAT ActSection 42 of MVAT is an enabling provision, which provides power to the State Government to issue Notification for Composition schemes, on such conditions and restrictions, which the State Govt. deems proper.2.1 Composition Scheme of RetailersUnder Sub-section (1) of Section 42 of MVAT, State Govt. is empowered to issue Notification for Composition Scheme in respect to dealers, who are engaged in the business of reselling at retail.2.2 Composition Scheme for Restaurants, etc.As per Section 42(2) the State Govt. is empowered to issue Notification for Composition Schemes in respect of :Eating house, Restaurants, Caterers, etc.,Liquor dealers,Bakers andDealers who are dealing in second hand motor Car.2.3 Composition Scheme for Works ContractorsSection 42(3) itself has provided for the Composition Scheme in respect of Works Contractor subject to certain conditions and restrictions and2.4 Composition Scheme for Mandap Decorators, etc.Section 42(4) itself has provided for the Composition Scheme in respect of sales effected by way of transfer of right to use mandap or tarpaulin.With this background I will discuss the various Composition Schemes in details.In pursuance to power conferred in section 42 of the MVAT Act, Maharashtra Govt. has issued various Notifications from time to time.

3 Composition Scheme Retailers3.1 Section 42 (1):As per this sub-section (1) of section 42 of MVAT, the State Government can issue Notification, for Notifying the Composi-tion Scheme in respect of dealers who are RETAILERS. Notification can be subject to such conditions and restrictions which the State Government thinks proper.3.1.1 This sub-section read with Rule 85, explains that for the purpose of this sub-section, RETAILERS are those dealers whose 90% of turnover of sales (of any goods or merchandise) is made to persons who are not dealers.3.1.2 Sub-clause (b) of this sub-section further provides that if any question arises as to whether any particular dealer is a retailer, then the officer in charge of the case shall refer the question to the Joint Commissioner. The Joint Commissioner who after hearing the dealer may decide the question and his order in this respect is final. Thus, a very wide power has been provided to Joint Commissioner here. First of all, the Joint Commissioner may or may not decide the question. It all depends upon his whims, if he thinks that it is not necessary for him to decide the question, he is not bound to decide the same. Secondly, it is further provided that the order of Joint Commissioner is final. Thus, if in a case, the Joint Commissioner does not decide the question then it can impact the concerned dealer badly. Such type of provisions should not be there under any Act.3.1.3 As per sub clause (c) of this sub-section, the said Composition Scheme is not applicable to following types of dealer, who is i) Importer, orii) Manufacturer, oriii) Who has purchased the goods from a dealer, who is not liable to pay tax u/s. 8(1) of MVAT Act i.e. to a dealer who has purchased the goods in the course of inter-State trade or commerce oriv) Selling liquor in retail, (both Country as well as IMFL), except as provided in sub-section (2) of this Section. The impact of this is that any dealer who is selling (and not serving) the liquor is not entitled for Composition benefit under this sub-section i.e. as a RETAILER, in respect of sales of any other goods. Thus, the liquor dealer can not 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 available to such dealers in respect of sales of any goods.3.2 Notification issued as on 01.06.2005In pursuance to power conferred under sub-section 42(1), Govt. of Maharashtra has in supersession of the earlier Notifica-tion issued fresh Notification as on 01.06.2005 and notified the Composition Scheme for Retailers at sr. no. (3). This Notification has come into effect from 01.06.2005 and for the months of April and May, the provisions of old Notification are applicable.3.2.1 Salient features of this Scheme : The benefit of this Scheme is available to Retailers only, Only Registered Dealers are covered by this Scheme, it means Composition scheme is not available to unregistered dealer (URD) The benefit of Composition Scheme is not available in respect of sales of Motor Spirits, which are notified by the State Government u/s. 41(4) of MVAT Act, 2002, The benefit is also not available to those dealers whose turnover of sales has exceeded Rupees Fifty lakh in the previous year; the turnover limit of Rupees Fifty lakhs is applicable only on sales side and not on purchases side. This limit of turnover of sales is applicable qua dealer and not qua place of business. In other words the turnover limit is aggregate of turnover of sales of all the places of business of a dealer. Turnover of Sales/Purchases As per column no. 3 of the said Notification, the Composition amount is payable on the excess of turnover of sales over the turnover of purchases determined as under Total turnover of sales/purchases made by a Retailer excluding the turnover of resale of the following goods:a) Foreign Liquor,b) Country Liquor,c) Liquor Imported from outside India,d) Drugs covered by Schedule Entry C-29 (for the period 01.04.2005 to 30.06.07) ande) Motor spirits (as Notified u/s 41(4) of MVAT Act)In this column, deduction is provided in respect of resales of liquor. However, if one reads clause (c) of sub-section 42(1), it specifically denies the Composi-tion Scheme to Liquor dealers. Thus, once the dealer has sold liquor etc., he will be out from claiming this Composition benefit by virtue of Section 42(1) (c) and as such, there is no need of providing any deduction to such dealers in respect of sales of liquor. Thus the deduction provided in the Notifi-cation is not consistent with Section 42(1) (c), thus either the Notification has to be amended or otherwise section 42(1) (c) should be amended accordingly.Secondly benefit under this Composition Scheme was not available in respect of sales of drugs, for the period 01.04.2005 to 30.06.2007 because during this period, VAT was payable on Maximum Retail Price of the drug by the dealers. 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, the Composition Scheme has also been made available to dealers in respect of sales of drugs.Composition AmountUnder this Composition Scheme the registered dealer is required to pay Composition amount on six month basisa) Calculation of Taxable TurnoverIt is an excess of turnover of sales including tax-free goods over the turnover of purchases including tax-free goods.In the first year of operation, dealer can claim the deduction under section 3(2) of MVAT Act, 2002 and only balance turnover shall be taken for calculation purposes.Tax-free goods purchased may be from registered dealers or from un-registered dealers,Taxable goods resold are those goods which are purchased from registered dealer only except purchased goods which are used for packing of goods resold. Thus, no deduction is available from the turnover of sales in respect of purchases of goods made from unregistered dealers.Tax collected separately by the vendors shall form part of total turnover of purchases.The turnover of purchases shall be reduced by the amount of every credit received by the claimant dealer from his vendor.It is once again provided that the Turnover of Sales and Purchases shall not include the purchases and sales of liquor, motor spirits and drugs for certain period.To give the deduction of opening Stock as on 01.04.2005 a special concession has been provided in respect of the six month period starting on 1st April, 2005. In such cases, the six monthly turnovers of sales have to be considered at 5/6th of such turnover, whereas the total turnover of purchases of six months was to be reduced from such turnover of sales.Certain Issues in respect of calculation of taxable turnover i) Whether sales of furniture or fixture or Motor vehicles, can be added to the turnover of sales and dealer can pay the Composition amount @ 8% on such sales ? In my view, it is possible for claimant dealer to do so. That is so because Section 42 and Notification issued in this behalf has not provided for any exclusion of such types of sales. On the contrary, in the Section as well as in Notification it is provided that the claimant dealer is entitled for Composition Scheme in respect of sales of any goods or merchandises which includes sales of above-mentioned goods also. Thus, such claimant dealer can pay the Composition amount on sales of such goods.ii) Many times it is possible that the net excess turnover of purchases is in excess over turnover of sales, thus, calculation of taxable turnover sales determined as stated above may result in a negative amount, that is so because the turnover of purcha-ses may be more than turnover of sales. In such situation, provision is not there in this Notification for carry forward and adjustment of such excess purchases in next six monthly period (like it was there under the Notification Entry J-8 issued u/s. 41 of the Bombay Sales Tax Act). In such situation, retailers are losing the benefit of deduction in respect of unadjusted purchases of goods.iii) In some cases, some dealers, who are dealing in seasonal goods are also not in a position to take the benefit of this Composition Scheme, for the reason that such dealers are making their major purchases in one half of year and selling the said goods in another half of the year e.g. dealers dealing in Umbrellas or fertilizers, etc. are not in a position to take the benefit of this Composition Scheme.b) Rate of CompositionThe Composition amount is payable at the rate of 5% on the excess turnover of sales, in case of retailers, whose aggregate turnover of sales of goods covered by Schedule A and goods taxable at the rate of 4% is more than 50% of the total sales and in any other case, the Composition amount is payable at the rate of 8%.3.2.2 Conditions As per condition nos. (i) and (viii) of the said Notification, the claimant dealer shall not collect any tax or composition amount separately in the cash memo/bill issued by him, Condition no. (vi) of the Notification stipulates that the Retailer who desires to avail the benefit under this Notification shall apply in form No. 4 In case of new dealer, the application in above-stated form has to be made to the Registering authority at the time of registration. As per the Notification, an existing dealer should have applied on or before 15th 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 application is required to be made to the assessing authority, who was in-charge of the case as on 31st March, 2005.However, in the said Notification, nothing has been provided in respect of filing of application in the subsequent years i.e. if any existing dealer wants to avail the Composition benefit first time in the year 2006-07 or thereafter or a new dealer who has not opted for Composition Scheme in the first year of registration, wants to go for Composition Scheme in the next year, or dealer dealing in Drugs, after amendment to said Notification wants to avail the benefit of Composition Scheme on or after 01.07.2007 first time. In this respect, following ques-tions emerge for our discussion: 1) When should such dealers apply for Composition Scheme?2) To whom, such dealers shall apply?3) Whether such dealers are entitled for the benefit of Composition Scheme at all?4) Since nothing is mentioned in the Notification about such situation, a view has been expressed in certain section that such dealers can not opt for the Composition Scheme in subsequent years. This is not the correct view because if it is so, then this Notification becomes redundant at least for existing dealer who have not opted for the Composition Scheme in the first year.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 financial year and complies with the condi-tions and restrictions mentioned in the said Notification.In this regard, it is also noticed that certain existing dealers have filed the application in form no. 4 first time for the year 2006 -07 or 2007-08, before start of the said financial year to their old assessing autho-rity to avail the benefit of Compo-sition Scheme. Such dealers have filed the VAT Audit Report also for the year 2006-07. So far the Dept. has not taken any action on such dealers. Thus, it is concluded that such dealers have followed the proper procedures. As such if any existing dealer wants to avail the benefit of Composition Scheme, he could follow similar procedures.5) However, still it would be better if the Commissioner of Sales Tax clarifies all such issues. Another condition of the Notification stipulated that if the option to join or to opt out of the Composition Scheme is exercised in any year then it can be changed only at the beginning of the next year. Thus, it is clear that a dealer can join or come out of the Composition Scheme from the beginning of the year except in case of new dealer. Some times a question comes up for our discussion that if any claimant dealer who after opting for the Composition Scheme, wants to come out of the Composition Scheme during the year of exercising of option only, can he come out of Composition Scheme? Or what would be the position of the claimant dealer, if by chance or otherwise the condition or restriction stipulated in the Composition Scheme has not been followed or is violated by the claimant dealer? For example, a Claimant dealer has charged the tax/Composition amount in the Cash memo/bill issued by him or he has imported the goods; these are the instances which violate the conditions stipulated in the Notification of Composition Scheme. About the consequences of such eventuality-ties, Section 42 or the Notification is silent. In such a situation, the benefit of Composition Scheme to such defaulting dealers can be denied and such dealers can be assessed as normal dealers. It means such dealers become liable to pay full amount of VAT. In deserving cases, penalty, etc. can also be levied by the assessing authority. Condition no. (ii) of the Notification provides that the claimant dealer is not entitled to claim any set-off in respect of purchases corresponding to any goods which are sold or used in packing of goods in respect of which the dealer has discharged the liability under the Composition Scheme. Thus, the set-off is not allowable on purchases of traded goods and purchases of packing materials. It means the claimant dealer is entitled for set-off in respect of purchases of goods which are either capitalized or which are debited to profit and loss accounts. Simultaneously the claimant dealer can also add the amount of Capital assets purchases and/or other purcha-ses of expenses, which are debited to profit and loss account to turnover of purchases and then reduce the amount of such purchases from turnover of sales and then pay the Composition amount on balance turnover of sales. In the Notification, deduction is provided in respect of total purchases of goods and not in respect of corresponding purchases of resales of goods. Thus, in respect of other purchases, claimant dealers are entitled for the benefit of set-off as well as they can deduct the same from the turnover of sales.3.3 Certain other issues(1) M/s. ABC Co., who is a Retailer as per section 42 (1) has obtained the Registration Certificate on 1st April, 2006 under Voluntary Registration Scheme. At the time of Registration, he has opted for the Composition Scheme. During the year 2006-07 the turnover of sales was Rs. 45.55 lakh. In the year 2007-08 the turnover of sales was Rs. 70 lakh. What amount of turnover of sales of M/s. ABC Co. is to be considered for calculation of Composition amount ? The turnover of sales has to be considered at Rs.70 lakh and not at Rs. 50 lakh, because in the said Notification the turnover limit is applicable either for the first year in which the option is exercised or the turnover limit of Rs. 50 lakh is pres-cribed in respect of previous years turnover of sales. However, M/s. ABC & Co. is not eligible to claim the benefit in next year because his previous years turnover has exceeded the limit of Rs. 50 lakh.(2) Filing of returns by such dealers Rule 18 of MVAT Rules 2005, specifically provided that such dealers are liable to file return on half yearly basis.

4 Composition Scheme for restaurants, etc.4.1 Sections 42(2)Under this sub-section, State Government of Maharashtra is empowered to issue the Composition Scheme for dealers who are running any eating house, restaurants, hotel, refreshment room or boarding establishment, caterers, dealers running bakeries or dealers of second-hand motor vehicles whose principal business is buying or selling motor vehicles or vendors selling either Indian Made Foreign Liquor or Country Liquor at retail.Under this Sub-section, State Government is also empowered to issue Composition Scheme in respect of dealers who are in the business of retailing of liquor. However, so far Govt. has not issued any Notification in this regard and hence no Composition Scheme is available in respect of sales of liquor.4.2 Notification issued as on 01.06.2005In pursuance to power conferred under sub-section 42(2), Govt. of Maharashtra has issued Notification dt. 01.06.2005, in supersession of the earlier Notification issued as on 01.04.2005 and notified the Composition Scheme for Restaurants, etc. at sr. no. (1) of the Notification The said Notification is applicable w.e.f. 01.06.2005 and, for the months of April and May, the provisions of old Notification issued as on 01.04.2005 are applicable.4.2.1 Salient features of this Scheme The benefit of the Scheme is available to Restaurants, Eating House, Refresh-ment Room, Boarding Establishment, Factory Canteen, Clubs, Hotel and Caterers. It is clarified by way of explanation that if the above mentioned dealers also served alcoholic-drink then such dealers are entitled for benefit of this Scheme only in respect of sales and serving of food and non alcoholic drinks only. In other words, Composi-tion Scheme is not available in respect of sales/serving of alcoholic drinks. The benefit of the Scheme is not available to Restaurants or hotel or any part thereof having gradation of Four Star and above. Composition benefit is available to both Registered as well as to unregistered dealer, The Composition amount is fixed at 8% of the turnover of sales in the case of a registered dealer and 10% of the turnover of sales in the case of an unregistered dealer4.3 Conditions Condition no. (ii) of the Notification stipulates that the claimant dealer shall not collect the tax or composition amount separately in the cash memo/ bill invoice issued by him. Condition no. (v) Stipulates that the claimant dealer shall not issue any TAX INVOICE in respect of goods in respect of which, the dealer is claiming benefit of Composition Scheme. The turnover of sales is the aggregate of sales of :i) Food and non-alcoholic drinks served for consumption at or in the immediate vicinity of any restaurant, eating house, refreshment room, boarding establishment, hotel or in any club or;ii) Supply by way of counter sale by such restaurant, eating house, refreshment room, boarding establishment, hotel or in any club or;iii) Served for consumption at any place other than a restaurant, hotel, eating house, refreshment room, boarding establishment, factory canteen, or any club by a caterer Condition no. (iii) of the Notification stipulates that the dealer, who is running restaurants, etc. (other than caterers), and desires to avail the benefit under this Notification shall apply in form No.1 The dealer who is a caterer, and desires to avail the benefit under this Composition Scheme shall apply in form No.2. The benefit under the Notification is also available to un-registered dealers. Further, it is also provided that the claimant dealer must file an application to specified authority before the specified date or at-least at the time of obtaining the Registration Certificate. How Unregistered Dealers can fulfill such condition? To whom shall he file an application in prescribed form? Since nothing has been stipulated to whom URD shall apply for benefit under this Scheme, it appears to me that an unregistered dealer can exercise his option either at the time of his assessment while filing an application in prescribed form to his assessing authority, provided he is not going for registration and if he is going for registration, then in such case he shall file an application to the registration authority. It would be better if the Commissioner of Sales Tax clarifies this issue also.Let us discuss a case study here :4.2.3 Case Study-1AA dealer running a restaurant since 1st April, 2005, is not registered under the MVAT Act. An officer from the Survey Dept. has visited his place of business in the month of July, 2008 and asked him to obtain the Registration Certificate under the MVAT Act. Dealer has applied for the registration and also filed the application in form No.1. Whether the dealer can avail the Composition Scheme for the years 2005-06 and onwards? In my view, such URD, who has applied for registration under the MVAT as well as under this Composition Scheme, is entitled for the benefit of Composition benefit since April 2005, because nothing has been specified in the Notification about the effect of the benefit which can be enjoyed by the URD; on the contrary it is provided in the Scheme that URD is liable to pay Composition amount @ 10%.Thus, for unregistered period, claimant dealer can discharge the liability @10%, provided he files proper application before the specified authority. Such URD can file the application in prescribed form either at the time of his assessment or otherwise to Registering authority at the time of obtaining of Registration Certificate, if such URD is going for Registration Certificate. Condition no. (i) of the Notification provides that dealer is not entitled to claim any set-off in respect of purchases corresponding to any goods which are sold or used in packing of goods in respect of which dealer has discharged the liability under the Composition Scheme. Thus, the claimant dealer is not entitled for any set-off in respect of purchases of raw-materials, finished goods and packing materials. However, set-off is available in respect of purchases of goods which are debited to profit and loss account or purchases of furniture, fixtures or office equipment, etc. which are not corresponding to goods sold, on which the dealer has availed the Composition benefit. Similarly, set-off should also be available in respect of purchases of Kitchen equipment, etc. which are debited to Plant and Machinery. However, set-off is not available in respect of purchases of consumables like fuel, etc. which are consumed in the course of preparation of finished goods. Unlike Retailers, dealers opting for this Composition Scheme are liable to file returns as normal dealers, as per the provisions of Rules 17 and 18. 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 Composition Scheme; or consequences of violation of condi-tions of the Notification, have already been discussed under the heading of Composition Scheme for Retailer and hence same have not been repeated here.4.4 Composition Scheme and CaterersAlmost all the salient features of Composition Scheme which are applicable to restaurants, etc. are equally applicable to caterers who are serving foods, etc. to customer at any place, except that caterers shall apply in form No. 2 instead of form No. 1 to specified authority for exercising option.4.5 Discharging of Tax Liability as a normal dealer vis--vis under the Composition SchemeWhether this Composition Scheme is beneficial to such dealers? Composition Scheme has certain inherent disadvantages like claimant dealer is not entitled to claim set-off on purchases of corresponding goods to sales on which claimant dealer has paid tax under the Composition Scheme, nor is the claimant dealer allowed to collect the tax in the bill/cash memo etc. which he is going to issue. Thus, VAT paid by the claimant dealer forms a part of cost of material and simultaneously he has to pay Composition amount from his profit.However, under this Composition Scheme, the major saving is that the claimant dealer requires to pay less amount of tax to the tune of 4.5% (12.5% -8%) on gross turnover of sales and if claimant dealer plans properly in respect of price structure/menu price of goods sold by him, then cost benefit analysis will reveal that, under the Composition Scheme, dealer is required to pay lesser amount of tax in comparison to regular tax payment system. There can be different scenarios in some other dealer cases, but in most of the cases the dealers are required to pay lesser amount of tax under the Composition Scheme. That is so because, in such type of dealers cases, the percentage of consumption of taxable goods is quite less, on which dealer can claim the set-off, because such dealers main purchases are raw materials which are either tax free goods or are liable to tax @ 4%. Thus, loss of set-off is very negligible, compared to saving of 4.5% on sales side. Thus, according to me, this Composition Scheme is more beneficial for Restaurants, etc.4.6 Certain issues under this Composition Scheme Whether dealer can discharge liability differently for his different places of business? For example, dealer has two restaurants in Mumbai city. Can such dealers opt for the Composition Scheme in respect of only one restaurant and pay the tax in respect of another restaurant? The answer to this question is no, because the Composition Scheme is available to dealer and not to any restaurant. Thus, either benefit is available in respect of all the restaurants or it is not available in respect of any restaurant. Similarly, if dealer is running a restaurant as well as rendering catering services, can he discharge the tax liability in respect of catering services and can he opt for the Composition Scheme in respect of turnover of sales of restaurant. The answer is again no. The said dealer has to either go for regular tax payment or for Composition Scheme in respect of both his activities.

5 Composition Scheme Bakers5.1 Notification issued as on 01.06.2005In pursuance to power conferred under sub-section 42(2), Govt. of Maharashtra has 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.5.2 Salient features of this scheme The benefit of Scheme is available to a dealer who is a Baker, means who manufactures the bakery products himselfAny dealer who is a baker, unlike restaurants etc., can take Composition benefit; here the benefit can be availed by a hotel having any star-gradation, provided that such hotel itself manufactured the bakery products and also subject to other conditions and restrictions of the Notification. Composition benefit is available to both Registered as well as to unregistered dealer The benefit of this Scheme is not available to a dealer who is reseller of bakery products Condition no. (i) of the Notification stipulates the Joint Commissioner shall certify that claimant dealerHere it is important to note that only filing of an application is not enough to claim the benefit, in fact dealer should also be certified by the Joint Commissioner Condition no. (iv) of the Notification stipulates that dealer who desires to avail the benefit under this Notification shall apply in form No.3. In case of new dealer, the application in above-stated form has to be made to the Registering authority at the time of registration. The benefit under this Notification is not available to those dealers whose turnover of sales of bakery products including sales of bread has exceeded rupees thirty lakh in the previous year. The benefit under this scheme is available only up to first thirty lakh rupees of the total turnover of sales and once the turnover of sales of bakery products including bread has exceeded Rupees thirty lakh then benefit is not available in subsequent year. Thus, unlike in case of Composition Scheme of Retailers, where the turnover limit is not applicable in the year of exercising of option, in this case, the turnover limit is provided in the year of exercising of option also. For the purpose of this Composition Scheme, the class of sales specified in column (3), means the sales of bakery products, which are manufactured by the said baker himself.5.3 Composition amounta) In case of Registered dealer the Composition amount has been fixed at 4% of first thirty lakh rupees of the total turnover of sales of bakery goods manufactured by baker himself and goods imported from out of Maharashtra State and also including bread in loaf, roll or in slices, toasted or otherwise,b) In case of Unregistered dealer the Composition amount has been fixed at 6% of first thirty lakh rupees of the total turnover of sales of bakery goods manufactured by baker himself and goods imported out of Maharashtra State and also including bread in loaf, roll or in slices, toasted or otherwiseIt means that benefit of Composition amount is also available in respect of bakery products, which are imported from outside Maharashtra including sales of bread. In this Scheme the benefit is provided to imported bakery products. Simultaneously, tax has been levied on sales of tax-free goods i.e. on the sale of bread.Thus, a dealer who has imported the bakery products from outside the State can also avail the Composition benefit in respect of sales of bakery products imported from outside the State. However, in the first year of exercising of option the dealer may not be able to enjoy the benefit of this Scheme because the Joint Commissioner may not issue the Certificate to such dealer, for the reason that such dealer has not manufactured any bakery products in the State, which is one of the condi-tions for granting the Certificate. However, once the certificate is issued to any such dealer, the benefit can not be denied to certified dealer even though such dealers have not manufactured any bakery product. The issues pertaining to 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 Composition Scheme; or consequences of violation of conditions of the Notification, availability of set-off, filing of returns and availability of benefit in respect of more than one place of business have already been discussed under the heading of Composition Scheme for Retailer as well as Composition Scheme for Restaurants etc. and hence same has not been repeated in this section.

6 Composition Scheme Second Hand Motor Car Dealers6.1 Notification issued as on 01.06.2005In pursuance to power conferred under sub-section 42(2), Govt. of Maharashtra has, in supersession of the earlier Notification issued as on 01.04.2005, and notified the Composition Scheme for Second Hand Motor Car Dealer at Sr. No. 4 of the said Notification.6.2 Salient features of the said scheme The benefit of Composition Scheme is available to dealers in Second Hand Motor vehicles, The benefit of Scheme is available only to registered dealer whose principal business is of buying or selling of motor vehicles but not necessarily in the business of buying and selling of Second hand motor vehicles only, Unlike other Composition Schemes as discussed above, the benefit of this Composition Scheme is not available to URD. For the purpose of this Composition Scheme the turnover of sales specified in column (3), means sales of second hand passenger motor vehicles. Thus, the benefit of Composition Scheme is not available in respect of sales of second hand motor vehicles, which are not passenger vehicles. In nut shell, the benefit under this Composition Scheme is available to REGISTERED DEALER only, whose principal business is that of buying or selling of any motor vehicles (not necessarily in passenger vehicles or in second hand motor vehicles). However, the benefit is available only in respect of sales of SECOND HAND PASSENGER MOTOR VEHICLES. The benefit of Composition Scheme is available even if Motor vehicles are sold after reconditioning or refurbishing For claiming the benefit of Composition Scheme, claimant dealer shall prove in respect of sales of second hand motor vehicle that either Entry Tax has already been paid earlier or that the said vehicles are registered at the time of purchase under the Central Motor Vehicles Rules 1989, in the State of Maharashtra and accordingly registration mark of this State was allotted to said second hand motor vehicle, The Composition amount is fixed @ 12.5% on 15 % of the sale price of the vehicles. Thus, effective rate comes at 1.875% of the sale price.6.3 Conditions: Condition no. (iv) of the Notification mentioned that dealer who desires to avail the benefit under this Notification should apply in form No. 5 Condition no. (i) stipulates that claimant dealer shall be certified by the Joint Commissioner of sales tax,Here it is important to note that only filing of an application is not enough to claim the benefit, in fact dealer should also be certified by the Joint Commissioner, Condition no. (iii) of the Notification stipulates that the claimant dealer is not eligible to claim any set-off of Entry tax paid or payable in respect of said second hand motor vehicles. Similarly, it is further provided that claimant dealer is not eligible to claim any set-off of tax paid under the Act in respect of said second hand motor vehicles. However, set-off is not denied on any other materials e.g. in respect of purchases of goods which are used for repairing or reconditioning or refurbishing of second hand motor vehicles. Similarly set-off is also available in respect of purchases of paints and any other consumables, stores, plant and machinery etc. which is used/consu-med by claimant dealer for sales of second hand motor vehicles. As a result of availability of such set-off and also considering the meager rate of tax payable at 1.875% (12.5% of 15%) on sales price realized by the said dealers, many times such dealers are eligible for refund of tax. 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 Composition Scheme Condition no. (vi) of Notification stipulates that claimant dealer shall not collect the tax or composition amount separately in the cash memo/ bill invoice issued by him. Issues that have already been discussed earlier have not been repeated in this section.6.4 Case StudyM/s. XYZ Ltd. mainly dealing in buying and selling of motor vehicles including the purchases and sales of second hand passenger motor vehicles. M/s. XYZ is also running a petrol pump at some other location. In the said petrol pump premises, the dealer is also running a restaurant cum bar, a bakery shop and a general store. In the previous year the total turnover of sales of M/s. XYZ Ltd is more than Rs. 20 Cr. However, the turnover of sales in respect of general goods is less than Rs. 50 lakh and in respect of bakery products it is less than Rs. 30 lakh. Whether M/s. XYZ is entitled for all the above-discussed Composition Schemes for the year 2008-09, presuming that said dealer has fulfilled all other conditions of the Notification and has also filed all the applications in time and also obtained all the certificates wherever required.Answer to the question is as under :1) In respect of RETAILERS SCHEME The dealer will be eligible for the benefit of this Retailers Composition Scheme only if the turnover of sales, determined as per the provisions of said Notification is not exceeded Rs. 50 lakh in previous year. In this case, whether XYZ Ltd. can deduct the turnover of sales related to Restaurants or bakery products or that of motor vehicles? If one goes on plain reading of the Notification, then deduction in respect of such turnover is not available to M/s. XYZ Ltd. and XYZ Ltd. is not entitled for this Composition Scheme.However, if one can argue that for the purpose of Retailers Composition Scheme, the turnover of sales of restaurant cum bar, bakery products, motor spirits, motor vehicles, etc. should not be considered for determining the limit of turnover of sales and only turnover of sales of general goods or merchandise should be considered. If this view is accepted by the Department then benefit of this Notification may be available to M/s. XYZ Ltd. Again it would be better if this point is also clarified by the Commissioner of sales tax.2) However, the benefit of Composition Scheme pertaining to bakery products is available to XYZ Ltd. for the reason that the turnover of sales of bakery products during the previous year was less than Rs. 30 lakh. Under this Scheme, the turnover of sales of bakery products only needs to be considered and not the total turnover of sales.3) Similarly, said XYZ Ltd., subject to fulfilling of conditions of the Notifications stipulated to restaurants, etc. can enjoy the benefit under the Compositions Schemes available to Restaurant in respect of sales of foods and non-alcoholic beverages.4) SECOND HAND MOTOR CAR BUSINESS Here the position of XYZ Ltd. is a little fluid. One of the criteria of eligible dealer is that his principal business is of buying or selling of motor vehicles. Since in this case, the dealer is running other businesses also, at the time of granting of Certificate to XYZ Ltd., Joint Commissioner may take the stand that said dealers principal business is not that of selling of motor vehicles only and hence he can not avail Composition Scheme under this category. However, XYZ Ltd. can convince that his principal business (and not necessarily exclusive business) is of buying and selling of motor vehicles and his other businesses are incidental to principal business and hence, he is entitled for the benefit of this Composition Scheme also. As such, according to me XYZ Ltd. will be entitled for Certificate under this Composition Scheme.From the above discussion, it is clear that any dealer if he so desires, can enjoy the benefit of various Composition Schemes in respect of his different constituents of the business. However, if he opts for any Composition Scheme, then he has to follow it in respect of all the places of business.

7 Composition Scheme Works Contractor Section 42(3)Under this sub-section the Composition Scheme in respect of Works Contract has been announced.Where a dealer is liable to pay tax on the sales effected by way of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, he may subject to such restrictions and conditions as may be prescribed, in lieu of the amount of tax payable by him under this Act, whether in respect of the entire turnover of sales effected by way of works contract or in respect of any portion of the turnover corresponding to individual works contract, pay lump-sum by way of composition,(a) equal to five per cent. of the total contract value of the works contract in the case of a construction contract, and(b) eight per cent. of the total contract value of the works contract in any other case, after deducting from the total contract value of the works contract, the amount payable towards sub-contract involving goods to a registered sub-contractor.Explanation. For the purposes of this sub-section, (i) construction contract shall mean construction contract as may be notified by the State Government in the Official Gazette, from time to time, and(ii) the amount payable towards sub-contract involving goods means the aggregate value of the goods on which tax is paid and the quantum of said tax paid by the sub- contractor or the subcontract value on which tax by way of composition is paid by the sub-contractor, as the case may be.8 [(3A) The State Government may, by notification published in the Official Gazette, -(a) Provide a scheme of composition for the registered dealers who undertake the construction of flats, dwellings or buildings or premises and transfer them in pursuance of an agreement along with the land or interest underlying the land;(b) prescribe the rate of tax by way of composition, in lieu of the amount of tax payable on the transfer of goods (whether as goods or in some other form), in the execution of such works contracts by such registered dealer under this Act.

The notified construction contracts as per Notification No. VAT.1506/CR-134/Taxation-1 dated 30.11.2006 are as under.(A) Contracts for construction of, (1) Buildings,(2) Roads,(3) Runways,(4) Bridges, Railway over bridges,(5) Dams,(6) Tunnels,(7) Canals,(8) Barrages,(9) Diversions,(10) Rail Tracks,(11) Causeways, Subways, Spillways,(12) Water supply schemes,(13) Sewerage works,(14) Drainage,(15) Swimming pools,(16) Water Purification plants, and(17) Jetty.(B) Any works contract incidental or ancillary to the contracts mentioned in paragraph (A) above, if such work contracts are awarded and executed before the completion of the said contracts.Contractor/ Sub-contractorIf the contractor allots the works contract to the sub-contractor, then the contractor and sub-contractor are treated as Principal and agent. The responsibility for payment of tax will be joint and several. However the contractor can make the payment of tax on contract and sub-contractor can take deduction by obtaining declaration and certificate in Forms 406 and 409 from the contractor. Similarly if the sub contractor has made payment of tax on contract allotted to him, then contractor can take deduction to that extent by obtaining declaration and certificate in Forms 407 and 408 from sub-contractor.

8 Composition Scheme Mandap Keeper, etc.8.1 Section 42(4)Under this sub-section the Composition Scheme has been provided in respect of those dealers who have effected the sales by way of transfer of the right to use mandap or tarpaulin.8.2 Salient features of this Scheme The Composition Scheme has been provided in the Sub-section itself, This Sub-section has been inserted by Maharashtra Act No XXXII of 2006 as on 20.06.2006 and further amended by Maharashtra Act No. XXV of 2007 as on 06.08.2007. The effect of these amendments is that the benefit of Composition has been provided from appointed day i.e. 01.04.2005 The Composition Scheme is available to both registered as well as unregistered dealer Unlike other Composition Schemes, dealer opting for such Composition Scheme is not required to apply for any permission and also not required to obtain any certificate from the Sales Tax Dept. The Composition Scheme is available only to dealers, who have affected the sales by way of transfer of the right to use mandap or tarpaulin, Thus, supply/sales transactions are not covered by this Composition Scheme and no benefit is available in this regard An Explanation has been added to this sub-section which states that for the purpose of this sub-section, the transfer of the right to use mandap also includes the transfer of the right to use Mandap, pandal, shamiana or the decoration of such mandap, pandal or shamiana.Further, the said Explanation provides that sales effected by such transfer of right of mandap also includes transfer of right to use furniture, fixture, lights and light fittings, floor coverings, utensils and other articles ordinarily used along with a mandap, pandal or shamiana. Thus benefit of Composition scheme has been extended to sales effected by way of transfer of right of furniture, fixture, lights etc. specified in the Explanation. From the said Explanation it is clear that benefit of Composition Scheme is available to the dealer in respect of transfer of right to use of furniture or light or light fittings, etc., if these goods are ordinarily used along with the mandap etc.However, a question arising for our discussion is about the availability of the Composition Scheme in respect of transfer of right to use only the furniture or light fittings or utensils etc. which is not used along with the mandap, etc.The availability of Composition Scheme depends upon the facts of each case, Situation 1) In a situation where a dealer has transferred the furniture or fixture, or any other goods mentioned in the Explanation, to a mandap keeper, etc. and, in turn, the mandap keeper, etc. has used the said goods for transfer of right to use mandap, 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 because the goods transferred on right-to-use basis is ultimately used alongwith a mandap etc., maybe not by the dealer himself but by a main mandap keeper. The explanation to sub-section 42(4) has not stipulated the condition that the mandap keeper himself should use the other goods alongwith mandap, etc. and hence, if dealer has exclusively given the furniture or utensils, etc. on right-to-use, which is ultimately used along with mandap, etc., it is eligible for Composition Scheme. However, this view has not been favored by the Dept. and Dept. is levying full tax in such situation. What is your view?ii) However, the benefit of Composition Scheme is not available to dealer in respect of sales effected by way of transfer of right to use furniture, fixture, etc. which are not used alongwith a mandap, pandal or shamiana. That is so for the reason that, in the Explanation to sub-section, it is provided that such articles are ordinarily used alongwith a mandap, pandal or shamiana. Thus for claiming benefit of Composition Scheme, dealer must prove that he has used the furniture, fixture, etc. along with the mandap etc. If the dealer has provided the furniture or light or light fitting independently and not with the mandap, etc. then in such situation it is difficult to say that it is being used along with a mandap, etc. And hence, the benefit of Composition Scheme is not available in respect of such hire income. Thus, some times it has also happened that on furniture or utensils, etc., dealer is required to pay Composition amount if such goods are transferred along with the mandap, etc. and some times he requires to pay full amount of VAT on the same furniture, utensils, etc., if the same are not used along with the mandap, etc. Thus, the tax liability in respect of such types of transactions will vary from contract to contract and its tax liability will depend upon the nature of transactions entered by the dealer. Considering the nature of agreements /transactions taking place generally, dealer may face certain problems in claiming the benefit of such Composition schemes and they may also find it very difficult to prove the fact that goods are ordinarily used in the mandap, etc. before the authorities from the Sales Tax Dept. The rate of Composition is fixed at 1.5% under the MVAT Act. Another question which normally we are facing is What is the rate of CST if the transfer of right has taken place in the Course of Inter-state Trade or Commerce? Recently, Department has clarified the same by way of issuing a clarification that the benefit of Composition Scheme is not available under the CST Act and hence in such cases dealers are liable to pay CST without considering this Com-position Scheme. Dealer opting for such Composition Scheme can issue the Tax Invoice and can collect the composition amount in the Tax Invoice issued by him.8.3 Availability of Set off to such Dealers As per the provisions of Rule 54 (j) of MVAT Rules 2005, the dealer who has opted for such Composition Scheme is not entitled for the set-off in respect of purchases made on or after 20.06.2006 of Mandap, tarpaulin, pandal, shamiana, furniture, fixtures, lights and light fittings, floor coverings, utensils and other articles ordinarily used along with a Mandap or pandal or shamiana Here question has arisen about the availability of set-off in respect of purchases of above mentioned goods (i.e. furniture or utensils, etc.) which are used ordinarily along with mandap, pandal, etc. as well as otherwise. The set-off is not available if the dealer has discharged the tax liability under the Composition Scheme; however, it is available if the tax liability is not discharged under the Composition Scheme.Thus, a prudent dealer may first claim the set-off by not opting for the Composition scheme in the month of purchases of such goods and then in subsequent months (after claiming the set-off) he may opt for the Composition Scheme, subject to fulfilling of other conditions and restrictions in this regard. Since under this Scheme the claimant dealer can issue the TAX INVOICE, the purchasing dealer also can claim the set-off of Composition amount paid under this Composition Scheme. The availability of the set-off will be subject to other provisions of Sections and Rules. The set-off is denied in respect of purchases made on or after 20.06.2006, the date on which sub-section 42(4) has been inserted in the MVAT Act. However, by subsequent amendment, this Composition scheme is made effective w.e.f. 01.04.2005. However, amendment in the Rule 54(j) has not been carried out till today. As a result of this, presently for the period 01.04.2005 to 19.06.2006 dealer is entitled for the benefit of Composition Scheme as well as set-off as per the provisions of law.

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