RECENT DECISIONS PART B: VAT

The Addi. Commissioner of Sales Tax vs.
Benchmark Engineering Pvt Ltd.(Bom H.C) –
Judgment dated 28th November, 2018
Whether VAT can be levied on Service Tax,
Separately collected, even when the VAT is paid
under Composition Scheme?

FACTS

The appeal related to the period 2005-2006. The substantial
question of law referred to the Hon’ble High Court was
whether the Tribunal was justified in holding that for
determining the Composition amount in lieu of amount of
tax payable in respect of Works Contract Sales, the amount
of Service Tax charged separately in the invoice will not be
included in total contract value?

HELD

The Hon’ble Court upheld the judgment of the Tribunal
which had observed that the amount of Service Tax charged
separately in the invoice will not be included in total contract
value for the purpose of levy of VAT. The Hon’ble Court
referred to Trade Circular No.6T dated 14.05.2015 issued
by the Commissioner of Sales Tax, Maharashtra State which
had informed the trade that the Government had accepted
the judgment of the Tribunal in the case of Sujata Painters
wherein it was held that the Service Tax could not formed
part of Sale Price u/s.2(25) of the MVAT Act, in a transaction
wherein the sale price is determined subject to Rule 58 of
the MVAT Rules and is not liable to VAT. The Court said,
once the State had accepted the decision of the Tribunal in
the case of Sujata Painters by issuing Trade Circular and
pointing out that so far as the period prior to 01.04.2015 was
concerned, the Department had accepted the order of the
Tribunal that Service Tax would not form part of the Sale price
and informed the trade, the same would bar the Revenue
from taking a contrary view. The Court further said that the
State has to apply law uniformly to all the assesses. The
AGP had drawn the attention of the Court to the appeal on
similar issue, involved in the case of Technocrat Engineers,
and submitted that the same had already been admitted by
the Hon’ble Court. However, the Court refused to accept his
submissions stating that aforesaid Circular No.16 of 2015
was not pointed out to the Court at the time of admission of
that appeal.

Deepak Fertilisers And Petrochemicals
Corporation Ltd. vs. State of Maharashtra and
Others (Bom H.C.) – Judgment dated
26th June, 2018
Whether the Trade Circulars issued by the
Commissioner of Sales Tax, Maharashtra State can
controll the substantive notifications?

FACTS

The Petitioner was engaged in the manufacture and sale of
fertilisers and for the purpose of manufacture of fertilisers,
purchased natural gas from GAIL. The natural gas was
either utilised as fuel or as an input in the manufacture
and processing of fertilisers and chemicals. The rate of tax
applicable to the natural gas prior to 30th June 2017 was
13.5% under the MVAT Act,2002. However, Input Tax Credit
was available under that Act above 3%. Thus, the effective
rate on natural gas under that Act, was 3%. The Goods and
Service Tax was introduced on 1st July 2017. The natural
gas along with some other few goods was left outside the
coverage of the GST Act and VAT and CST continued to be
levied on the same. With effect from 1st July 2017, when any
person purchased natural gas domestically, the seller would
collect full tax from him @ 13.5% and since the person was
no longer a dealer under the 2002 Act due to the section
16(6A), he could not claim setoff or refund of the input tax
collected from him. Furthermore, he would be liable to pay
goods and service tax on his outputs at the full rate since the
GST Act only provided for ITC of goods and Service Tax paid
and not of value added tax paid. Hence, the effective rate
after 1st July 2017 got increased to 13.5%. The Government
of Maharashtra in exercise of its powers conferred u/s. 9(1)
of the MVAT Act issued a Notification dated 24th August
2017 adding Entry 16 in Schedule “B” to the MVAT Act, by
which the sale of natural gas to a registered dealer, subject
to the condition mentioned in the notification, was eligible
for a lower rate of VAT @ 3%. To avail the benefit of the
reduced rate of 3%, the purchasing dealer was required to
be certified by the Joint Commissioner. Queries were raised
to the Commissioner of Sales Tax whether the benefits
given under the Notification dated 24th August, 2017 were
available to the tax payers registered under the GST Act.
The Commissioner issued trade Circular No.39T dated 8th
September 2017 clarifying that the benefits of notifications dated 24th August 2017 would also be available to taxable
persons registered under the GST Act. Subsequently, by
Notification dated October 13, 2017, an explanation to
entry 16 of Schedule “B” of the MVAT Act was amended
with effect from 14th October 2017 to the effect that the
benefit of the Entry 16 in Schedule “B” shall be available to
a registered taxable person under the GST Act. However,
by Trade Circular No.3T of 2018 dated 16th January 2018 it
was clarified that manufacturers – buyers who did not hold
registration certificate under the MVAT Act on or after 1st
July 2017 either due to cancellation of registration certificate
or due to the deeming provision relating to cancellation of
registration certificate u/s. 16(6A) of the MVAT Act, shall
not be entitled for the benefits of the reduced rate of 3% in
respect of use of natural gas in manufacturing, for the period
24th August 2017 to 13th October 2017. Writ Petitions were
filed contending that Notification dated 13th October 2017
should be given effect to and operated from 24th August 2017
because Trade Circular No.3T of 2018 dated 16th October
2018 and the addenda dated 13th January 2018 enabled
recovery of VAT in excess of 3%.

HELD
Writ Petitions were dismissed holding that the language of
the Notifications issued was clear. The circulars were for
internal guidance or clarification of queries of the trade and
officials, but their language could not control the substantive
notifications.

Vishat Diagnostic Pvt Ltd. vs. State of
Maharashtra and Others (VAT Appeal Nos. 425
and 567 of 2017 (MSTT) – Judgment dated
30th November, 2018
Whether the words ‘on the body’ appearing in the
Entry for “Drug’ in the MVAT Act, 2002 exclude the

diagnostic kits used in the laboratory for testing of
blood etc., from the coverage of that entry and sent
the same to the residuary entry?

FACTS
The appellant was dealing in diagnostic reagents which were
used in laboratories in the diagnosis of the diseases like
diabetes, cancer etc.. The Advance Ruling Authority (ARA)
had relied upon the words ‘on the body’ appearing in Entry
No. C-29 (a) which was for drugs and held that the same
were falling under the residuary entry liable to tax @12.5%. It
was the contention of ARA that the words ‘on the body’ were
inserted in the said entry consequent to the judgment of the
Hon’ble Bombay High Court in the case of Merind Ltd. The
introduction of the said words in the Entry under the MVAT
Act was conscious. The legislature intended to exclude such
products which are used outside the human body i.e. in the
laboratory.

HELD
Hon’ble Maharashtra Sales Tax Tribunal relied on the
several judgments of the Apex Court, more particularly,
on the judgment in the case of Rajendra Prasad Yadav
and Others vs. State of M.P. and others (1997) 6 SCC
678 dated 09/07/1997 were in it was held that it is settled
principal of interpretation that all the provisions should be
harmoniously interpreted to give effect to all the provisions
and no part thereof rendered surplusage or otiose. Thus,
the words ‘diagnosis’ and ‘on the body’ were harmoniously
construed by the Hon’ble Tribunal. The Tribunal also relied
on the certificates issued by the competent authorities which
averred that there is no such product which can be used for
the purpose of diagnosis on the body of a person as held by
the ARA. The Hon’ble Tribunal gave liberal meaning to the
words ‘on the body’ and held that the diagnostic kits sold by
the appellant were covered by the entry for Drugs attracting
tax @5% and not 12.5%.