With the enactment of the Maharashtra Value Added Tax Act, 2002 ("MVAT Act") effective from 1 April 2005, there is now a multi-point levy of sales tax as opposed to the single-point levy of sales tax earlier. Under the new system sales tax or VAT is payable by each seller on the sale price charged by him (sections 3 and 4 of the MVAT Act). The primary liability to pay VAT is therefore that of the seller. However, under section 48 of the MVAT Act, the seller gets set-off of the VAT paid by the dealer from whom he has purchased the goods, upon fulfillment of the conditions laid down in section 48(2) of the MVAT Act. This is with a view to eliminate the cascading effect or double taxation. Effectively, the scheme of the law operates in such a manner that each dealer pays tax on the proportion of his own margin.
1.2 Under section 48(2) of the MVAT Act set-off of the VAT paid on the purchases made is granted to the dealer upon fulfillment of the following conditions: (a) the claimant dealer produces a tax invoice, containing a certificate that the registration certificate of the selling dealer was in force on the date of sale by him and the due tax, if any, payable on the sale has been paid or shall be paid; and (b) such certificate is signed by the selling dealer or a person duly authorized by him. Section 48(5) of the Act lays down, in effect, that the set-off shall not exceed the amount of tax actually paid. The Sales-tax Department has taken the stand that even if the dealer has produced a certificate to the above effect, if the person issuing the certificate has not actually paid the tax due, set-off will be denied to the purchasing dealer. Thus, instead of chasing the person who has not paid the tax due, the Sales-tax Department has chosen the easy route of denying the set-off and recovering the tax from the poor purchasing dealer, though he has fulfilled the conditions of section 48(2) by producing the requisite certificate. ( There is case law on this)
2.1 Several issues arise here in the context of the income-tax assessment:
(i) Can mere appearance of the name of the dealer on the website of the sales tax authorities be sufficient to treat purchases from him as bogus for income-tax purposes?
(ii) Can mere voluntary payment of differential VAT (and interest and penalty, if any, thereon) by the assessee by revising the VAT return and withdrawal/denial of the set-off under section 48 of the MVAT Act ipso facto tantamount to "admission" or "confession" of the purchases as bogus for income-tax purposes?
(iii) Would the position be different if, instead of the assessee voluntarily revising the VAT return, there is an assessment order by the Sales–tax Department denying the set-off and demanding the differential VAT and interest and penalty?
(iv) Can a copy of the statement made by such dealer before the sales tax authorities passed on to the AO be sufficient to hold purchases from such dealer as bogus in the assessee's hands for income-tax purposes?
There are various case laws in favour of assessee to deal with these cases.
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CA.C.V.PAWAR
PATIL DAWARE GIRASE PAWAR & ASSOCIATES
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