Introduction Under the Maharashtra Value Added Tax Act, 2002 (MVAT Act) and the Maharashtra Value Added Tax Rules, 2005 (MVAT Rules), the dealers are entitled to a set off. However, they are subject to conditions as may be prescribed in the Rules. For example, Rule 52 of MVAT Rules which prescribes eligibility to set off reads as under:
“52. Claim and grant of set-off in respect of purchases made during any period commencing on or after the appointed day.
(1) In assessing the amount of tax payable in respect of any period starting on or after the appointed day, by a registered dealer (hereinafter, in this rule, referred to as ‘the claimant dealer’) the Commissioner shall subject to the provisions of [rules 53,54,55 & 55B] in respect of the purchases of goods made by the claimant dealer on or after the appointed day, grant him a set-off of the aggregate of the following sums, that is to say,
(a) the sum collected separately from the claimant dealer by the other registered dealer by way of [tax] on the purchases made by the claimant dealer from the said registered dealer of goods being capital assets and [goods the purchases of which are debited to the profit and loss account or, as the case may be, the trading account],
(b) tax paid in respect of any entry made after the appointed day under the Maharashtra Tax on the Entry of Motor Vehicles into Local Areas Act, 1987, and
(c) the tax paid in respect of any entry made after the appointed day under the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2003.
(d) the purchase tax paid by the claimant dealer under this Act.”
Thus, to find out actual availability of set off reference is required to be made to Rules like Rules 53 & 54. Rule 53 prescribes reduction in set off whereas Rule 54 is about a negative list.
Rule 53(6)(b)
One of the Rules prescribing reduction in set off is rule 53(6). Rule 53(6)(b) is applicable to dealers in general. The said rule is reproduced below for ready reference.
“53. Reduction in set-off. –
(6) If out of the gross receipts of a dealer in any year, receipts on account of sale are less than fifty % of the total receipts, –
(a) …
(b) in so far as the dealer is not a hotel or restaurant, the dealer shall be entitled to claim set-off only on those purchases effected in that year where the corresponding goods are sold or resold within six months of the date of purchase or are consigned within the said period, not by way of sale to another State, to oneself or one’s agent or purchases of packing materials used for packing of such goods sold, resold or consigned:
Provided that for the purposes of clause (b), the dealer who is a manufacturer of goods not being a dealer principally engaged in doing job work or labour work shall be entitled to claim set-off on his purchases of plant and machinery which are treated as capital assets and purchases of parts, components and accessories of the said capital assets, and on purchases of consumables, stores and packing materials in respect of a period of three years from the date of effect of the certificate of registration.
Explanation.- For the purposes of this sub-rule, “receipts” means the receipts pertaining to all activities including business activities carried out in the State but does not include the amount representing the value of the goods consigned not by way of sales to another State to oneself or one’s agent.” It can be seen that the rule provides for reduction or, in other words, restricted set off, when the receipts from sales are less than 50% of gross receipts. The Explanation under rule 53(6)(b) also provides meaning of gross receipts. There are disputes about meaning of gross receipts and how to compute it.
It can also be noted that if receipts from sales are less than 50% of gross receipts then set off is eligible only in respect of purchases which are sold within six months from the date of purchase. Therefore, the goods which are not sold like, consumed capital goods or goods which are not sold within six months are not eligible for set off.
Mutual Funds
Recently there was a controversy in relation to availability of set off to Mutual Funds. The Hon. M. S.T. Tribunal had an occasion to decide such an issue in case of UTI Mutual Fund (VAT SA 100 to 102 of 2014 dt.22.9.2015). The facts as narrated in the judgment are as under:
“The Appellant is a mutual fund registered with the Securities and Exchange Board of India (SEBI) and is regulated under the SEBI (Mutual Funds) Regulations, 1996. UTI Gold Exchange Traded Fund (UTI GETF) is one of the schemes of the Appellant and the same is also regulated by SEBI under the SEBI MF regulations.
3. As per the SEBI MF regulations, the balance sheet and revenue accounts of each scheme are required to be prepared separately and audited separately and no consolidated balance sheet of various schemes of a Mutual Fund is prepared. Thus, each scheme has a separate entity including separate receipts, funds, assets liabilities, etc.
4. As per the MVAT provisions, VAT is applicable on the turnover of sale of goods and the definition of goods specifically excludes securities. Therefore only UTI GETF is subject to VAT and not the other schemes of the Appellant as other schemes invested in securities and not in gold.
The Appellant obtained VAT registration simultaneously with the launch of UTI GETF and not earlier despite the other schemes of the Appellant dealer being in operation much before that. Thus the Appellant is assumed the role of dealer only on the launch of UTI GETF scheme and only this scheme should be considered and not any other scheme of the Appellant.”
From the above, it can be seen that the Mutual Fund has receipts from various schemes like relating to securities, gold etc.. Over all, the sales receipts are from the sale of gold whereas there are other receipts towards securities etc.. The main issue involved was whether the gross receipts should be computed considering receipts from all the schemes or only from gold scheme separately.
The argument was that under MVAT Act, only sale of goods can be considered as receipts and not other receipts which do not involve goods like shares, securities etc..
The Hon. Tribunal has dealt with the issue in the following words:
“The Learned representative of revenue has relied on the judgment of this Tribunal reported in the case of M/s. UTI Mutual Fund (present Appellant) vs. State of Maharashtra reported in 2013 (ST1) GJX 0626 STMAH wherein it is observed:-
“The set-off u/s. 48(1)(a)(ii) of MVAT Act is circumscribed with limitations. The limitations are (i) circumstances, (ii) conditions (iii) restrictions, as may be specified in the Rules. Rule 53 prescribe reduction in set-off in full or part, particularly Rule 53(6)(b) MVAT Rules prescribe restriction. Restriction is in the nature of duration of purchase and its sale. The restriction is where the receipts on account of sale are less than 50% of the total receipts, the setoff is permissible only on those purchases effected in that year where corresponding goods sold or resold within six months from the date of purchases. The “receipts” are explained in explanation. ”Receipts” means the receipts pertaining to all activities, including business activities carried out in the State.”
On the plain reading of section 48(1)(a)(ii) of MVAT Act r/w Rule 53(6)(b) and Explanation of MVAT Rules, it is clear that the receipts would include all activities of the dealer including business activities. Receipts which are concerning the activities not involving the sale of goods, are also included in “Total Receipts” in Rule 53(6) of MVAT Rules. The submission of Smt. N. R. Badheka does not have a legal base in law. Rule 53(6)(b) and explanation are within delegated powers conferred by section 48(1) of MVAT Act.”
26. The Learned Advocate Smt. Badheka has strongly contended that UTI GETF is dealing in equity and therefore only the receipts pertaining to the activity of UTI GETF ought to have been considered for grant of set off u/r. 53(6)(b) of MVAT rules. However, on going through the explanation attached to 53(6)(b), we find that the receipt means receipts pertaining to all activities including business activities carried out in the state and therefore in our considered opinion, the other activities of UTI Mutual Fund are also required to be taken into consideration while calculating the receipts for the purposes of set off as they are also business activities carried out in the State.
27. The basic rule of interpretation is laid down by the Hon’ble Apex Court in the case of Union of India and Others vs. Priyankan Sharan and Another (LIS/ SC/2008/1228) wherein it is observed:
“It is a well settled principle in law that the Court cannot read anything into a statutory provision which is plain and unambiguous. A statutes is an edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent”.
28. It is well settled that in the matter of grant of set off or exemption, the relevant provisions are required to be construed strictly. No liberal interpretation is permissible in such matters. On going through the explanation attached to Rule 53(6(b) of MVAT Rules, it clearly appears that receipts for the purpose of said rules means the receipts pertaining to all the activities including business activities of the dealer carried out in the State. The contention of Learned Advocate Smt. Badheka that only the activities of UTI GETF should be taken into consideration for the purposes of grant of set off u/r. 53(6)(b) is thus devoid of merit and cannot be accepted.”
Conclusion
Thus the interpretation lays down that the gross receipts should be computed considering receipts from all activities in Maharashtra. It will include receipts from sale of goods as well as non sale activities also. Further, Mutual fund is considered as one entity and cannot be considered scheme wise.
The ratio laid down above will also apply to other dealers. The dealers in Maharashtra are required to consider the above interpretation while computing the setoff.
