Under MVAT Act, 2002, the tax is payable on ‘sale price’. The term ‘sale price’ is defined in section 2(25) of the MVAT Act, 2002 as under;
“(25) “sale price” means the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged.
Explanation I — The amount of duties levied or leviable on goods under the Central Excise Act, 1944 (1 of 1944) or the Customs Act, 1962 (52 of 1962) or the Bombay Prohibition Act, 1949 (Bom. 25 of 1949), shall be deemed to be part of the sale price of such goods, whether such duties are paid or payable by or on behalf of, the seller or the purchaser or any other person. Explanation IA: Sale price shall not include the amount of service tax levied or leviable under the Finance Act, 1994 and collected separately from the purchaser. (w.e.f.1.4.2015),
Explanation II — Sale price shall not include tax paid or payable to a 16[seller] in respect of such sale.
Explanation III — Sale price shall include the amount received by the seller by way of deposit, whether refundable or not, which has been received whether by way of a separate agreement or not, in connection with or incidental or ancillary to, the said sale of goods;
Thus, the amount received from the buyer is considered as sale price. In addition, the statutory levies like Excise etc. are also deemed to be part of sale price .
What is the amount received from buyer? It has numerous interpretations. In the present controversy, the issue is about Service Tax collected separately, wherever, it is applicable. For example, in case of works contract, there is composite contract for supply of goods and services. Under such circumstances, the dealer may be liable to pay VAT on the supply part and Service Tax on labour portion. On the applicable labour portion, the dealer may collect Service Tax as inclusive in price i.e. without showing Service Tax separately or, on other hand, the dealer may charge Service Tax separately in the invoice.
In case, Service Tax is charged as inclusive (subject to facts of each case) it can be said that there is not much debate about ‘sale price’ and the whole amount of sale price without exclusion of Service Tax will be considered as sale price for levy of VAT .
However, the controversy arises when the Service Tax is collected separately in the invoices.
A possible argument is that the Service Tax is a tax allowed or to be collected from the customers under the provisions of Service Tax and hence it is an amount collected for and on behalf and to be paid to the Central Government. Therefore, it can be argued that it does not form part of the money of the dealer, it is a separate collection.
Recent judgment and amendment
In fact, in case of Sujata Printers (VAT A.No.18 of 2013 dt. 9.3.2015), Hon’ble MSST (Maharashtra Tribunal) has already held that the Service Tax collected separately does not form part of sale price. Further, there is amendment dated 18.4.2015 in the definition of ‘sale price’ by which Service Tax collected separately is excluded from the amount of sale price, shown above by Explanation 1A.
After above judgment and above referred amendment, there is circular from the Commissioner of Sales Tax, bearing no. 6T of 2015 dated 14.5.2015 in which the implications of above judgment and amendment are explained. It is stated in the Circular that the judgment will remain operative from 1.4.2005 till 31.3.2015. From 1.4.2015 the situation will be covered by the amendment. The net effect is that on Service Tax collected separately, no VAT will be applicable.
Controversy regarding Service Tax in case of Composition Schemes
In the above circular, the learned Commissioner of Sales Tax has made distinction between the works contracts. The Commissioner of Sales Tax has stated that the above exclusion of Service Tax collected separately will apply in case where the liability on works contract or other transactions is discharged under regular method like, in case of works contract, if the liability is discharged under rule 58 of MVAT Rules. However, in relation to discharging of tax under composition schemes, it is specifically mentioned that the above exclusion will not apply. In other words, the circular interprets that in case the liability is discharged under composition scheme than even if Service Tax is collected separately, it will be considered as part of contract price and on such whole amount (including Service Tax), the composition will be payable. It appears that the Commissioner of Sales Tax has kept in mind that under composition schemes, the dealer has to forgo its legal claim and has to abide by the terms of the composition scheme. Therefore, the assessing authorities are levying VAT on Service Tax collected separately, where the contractors discharge their tax liability under works contract composition scheme.
Recent judgment of the Hon’ble Tribunal
However, now the legal position has become absolute clear. The issue has been resolved by the Hon’ble Tribunal vide its judgment in case of Technocraft Engineers (VAT SA No.237 of 2014 dt.3.11.2015). In this case, the issue was same. VAT was levied on the Service Tax collected separately on the works contract and the dealer was discharging liability under composition scheme. The Hon’ble Tribunal has referred to arguments from both the sides. There was also earlier judgment in the 0case of Nikhil Comforts (SA No.30 of 2010 dated 31.3.2012) in which a contrary view was taken.
However, in this judgment, the Hon’ble Tribunal has held that no VAT can be levied on Service Tax collected separately, even if the tax is discharged under composition scheme. The reasoning of learned Tribunal is noted as under; “(iii) In the impugned matter, assessment order for the year was passed on 26/12/2012, for the interior designing the appellant had received total amount of Rs.4,35,43,472/- on which 8% composition amount was charged and with interest u/s. 30(2) and 30(3) of the MVAT Act total demand was raised at Rs.27,10,949/- Appellant challenged the said order on the ground of incorrect determination of turnover, levy of tax on service tax and set-off claim and on interest. The First Appellate Authority confirmed the levy of tax on service tax amount saying that, it is part of contract price but he allowed other grounds. Hence, VAT payable amount is changed from Rs.27,10,949/- to Rs.2,24,831/- with part payment made in appeal, the appellant got refund of Rs.1,82,109/- on which no interest u/s. 52 of the MVAT Act was calculated. In total consideration, the service charges amount will become the part of total receipt by the Contractor but service tax amount on service charges will not become part of total receipt, because appellant contractor wants to pay the said amount to the Central Excise Department. Although, the definition of sale price is later on amended with effect from 01/04/2015, and the separate Explanation IA is added clarifying that, service tax levied and collected separately shall not be included in sale price. It is the revenue’s contention that, the said amendment is not retrospective, and it has effect from 01/04/2015. So, upto 31/03/2015 total receipt should be considered including service tax. However, we made it clear that, in the definition of sale price u/s. 2(25) service tax was not incorporated as deemed sale price. In the instant case, sale means a valuable consideration of the goods involved in the works contract, the consideration must be received by the contractor. Even though he had collected service tax separately he has to deposit it with the Central Government. Therefore, it will not become part of his receipt. The revenue had cited most of the case laws on agreement for composition.
Appellant is not denying that, he had not agreed for composition. He is ready to pay 8% tax on the valuable consideration received by him which he can utilise in his business, and the tax amount against service charges incurred by him, he cannot keep with him as consideration for receipt of works contract. In total contract receipt, the sale price of the goods, service charges shown etc. are includible. In Sub–clause (a) and (b) of sub–section (3) of section 42, the wording is used “equal to 5% , of total contract value of the works contract in case of construction contract and 8% of total contract value of work contract of any other case.” Here, the meaning of total contract value is to be determined appropriately. By way of allotment of any works if assesse is receiving some amount against the property transferred in the goods and against the labour charges utilised in the said work, it will become a contract value. The various taxes levied separately, and those are to be deposited with the Govt. authorities will not constitute the total receipt against the said contract value hence element of service tax will not be a part of sale prices before amendment also. One can understand total expenses required to be paid for any particular work in which amount of taxes are also to be in total turnover but when a turnover for levy of tax is to be taken into consideration, the element shown separately in sale invoice It may be against sales tax VAT tax and service tax which cannot be included.” Thus, the Hon’ble Tribunal has put to rest all controversy in this regard. Most of the dealers (contractors) have not collected VAT on Service Tax collected separately and hence the above judgment will be a big relief.
Conclusion
To avoid future litigation, it is expected that the department will bring out one more circular to accept the above judgment. The finality to the subject is important, so that dealers can predict their liability correctly and a controversy is avoided.
