Retention and Disallowance of Set-Off under MVAT(Indirect Tax Refresher Course)

CA NEERAJ MENON - PARTNER

Mumbai Pune New Delhi Aurangabad Hyderabad Gurgaon

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Pune OfficeLevel 3, Riverside Business Bay,

Wellesly Road, Near RTO,

Pune 411001,

INDIA

MZSK & ASSOCIATES

Topics

General Rules of MVAT

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General Rules of MVAT

General Rules of MVAT

General Rule:

Set Off is available on all purchases (Trading, Expenses & Capital Assets) made from a

dealer registered under MVAT Act who issues TAX INVOICE in a prescribed format showing

VAT separately.

However, there are few exceptions to this General Rule:

Rule 52A: Reduction of Set Off

Rule 53: Reduction of Set Off

Rule 54: Non-Admissibility of Set Off

Practical Issues: Rule 52 A

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Practical Issues: Rule 52 A

Mega Unit:

12

WITHIN MAHARASHTRA

Scenario 1: Below is a pictorial presentation of the case under consideration:

Sales are effected by a

Customers

sells the goods

within

Maharashtra.

MEGA UNIT

CUSTOMER

3OUTSIDE MAHARASHTRA

Sales are effected by a

Mega unit located in

Maharashtra to its

customers situated in

Maharashtra.

Maharashtra.

Customer sells

the goods

outside

Maharashtra

In this scenario, both the Mega Unit as well as the Customers used to claim setoff of tax paid on purchases.

Rule 52 A:

After insertion of this Rule (w.e.f 17 March 2011), a dealer purchasing goods from Mega

Unit holding valid Identification Certificate under the Act shall claim the input taxcredit towards the goods purchased from Mega unit:

Sr. No. Particulars Input tax CreditSr. No. Particulars Input tax Credit

1 Goods sold outside

Maharashtra

Only to the extent of Taxes paid / payable

under CST Act.

2 Goods sold within

Maharashtra

The taxes paid on the purchases of said goods

Mega Unit: Approval Procedure

Actual Manufacturer applies for

Mega Unit Project.

Now in the year 2014, the applicant

has met with criteria, so set, and

then applies for the Eligibility 2015

20092012

2014

Actual

production

got started

Mega Unit Project.

At the same time promises to

fulfill the criteria, as required

under Packaged Scheme of

Incentives

then applies for the Eligibility

Certificate and gets Identification

Certificate with effect from 2012 i.e. the year of production.

2015

Practical Issue: Mega Unit:

Scenario 1:

How does the dealers claim setoff of goods purchased from Mega Unit for the period

commencing 2012 considering provisions of rule 52A of Maharashtra Value Added Rules,

2005?2005?

Practical Issues: Rule 53(6)

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Practical Issues: Rule 53(6)

Rule 53 (6): Claim of setoff in case of Hotels

In case of dealers, whose total receipts on account of sale are less than 50% of total gross

receipts then set off is restricted to corresponding purchases, which are sold within 6

months from the date of purchase.

In case of hotels and clubs not being covered under composition scheme as notified by State

Government under Section 42 vide notification No. VAT-1505/CR/Taxation-1, datedGovernment under Section 42 vide notification No. VAT-1505/CR/Taxation-1, dated

1/06/2005, in addition to set off on goods sold above, the set off will be available on capital

assets and consumables pertaining to kitchen and service of foods and drinks.

What happens in a case of a Hotel hit by provisions of Rule 53(6) and opting to pay by way of

Composition Scheme?

Practical Issues: Rule 54 (g) & (h)

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Practical Issues: Rule 54 (g) & (h)

Rule 54 (g) & (h):

Rule 54(g) prohibits set off pertaining to purchases effected by Employer by way of Works

Contract resulting in immovable property other than Plant & Machinery.

Rule 54(h) states that set-off relating to purchases of any goods effected by a dealer used in

erection of immoveable property other than plant machinery shall be inadmissible.

Practical Issues: Rule 53(3)

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Practical Issues: Rule 53(3)

Rule 53(3):

Rule 53(3) provides for reduction of set-off by 4% in case of taxable goods sent to any other

State in India as branch transfer/consignment transfer

For the purpose of calculating purchase price under the corresponding Rule 53 (3), method has

been prescribed as the ratio of : Value of good dispatched incl Excise / Sale price of other

goods

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