Case Note & Summary
The writ petitions challenged the constitutional validity and propriety of a notification dated January 29, 2014, issued by the Finance Department of the State of Maharashtra, along with two trade circulars dated February 21, 2014, and April 17, 2014. These instruments were issued under the Maharashtra Value Added Tax Act, 2002 (MVAT Act). The petitioners, including real estate developer associations and construction companies, sought to quash the notification and circulars, arguing that they were ultra vires the MVAT Act and its rules, particularly for want of previous publication as required under section 83 of the Act. The notification amended Rule 58 of the Maharashtra Value Added Tax Rules, 2005, specifically by inserting sub-rules (1A), (1B), (1C), and (2), which prescribed a new method for determining the value of goods in works contracts. Prior to the amendment, Rule 58(1) allowed deductions for labour, services, subcontracting, and other expenses, with a proviso for lump sum deductions based on a table of percentages for various types of works contracts. The table included a note that the percentage was to be applied after first deducting the cost of land determined under sub-rule (1A). The amended Rule 58(1A) required that the value of goods be calculated after deduction of the cost of land from the total agreement value, with the cost of land to be determined in accordance with the guidelines appended to the Annual Statement of Rates under the Bombay Stamp (Determination of True Market Value of Property) Rules, 1995. A proviso allowed the dealer to prove actual land cost higher than the Annual Statement rate and seek a refund. The newly inserted Rule 58(1B) introduced a stage-wise percentage table for determining the value of goods involved in a works contract, depending on the stage of construction at which the purchaser entered into the contract, ranging from 100% before the commencement certificate to 0% after the occupancy certificate. Rule 58(1C) provided that if the dealer failed to establish the stage, the entire value of goods as determined after deductions under sub-rule (1) and (1A) would be considered. The petitioners contended that the notification was contrary to the provisions of the MVAT Act and earlier directions of the High Court and Supreme Court in previous litigation. They sought a direction to permit them to deduct the consideration or profit of sale of land while determining the sale price for the purpose of Rule 58(1), and to allow the determination of the value of works contract on the basis of percentage of material consumption instead of the stages given under the notification. They also sought permission to submit revised VAT returns using a 'material cost plus gross profit' method. The petitioners argued that the notification should be declared ultra vires for non-compliance with the requirement of previous publication under section 83 of the MVAT Act, and that Trade Circular 12T of 2014 was bad in law. The High Court, consisting of Justices S. C. Dharmadhikari and Sunil P. Deshmukh, heard the matter and reserved judgment on January 14, 2015. The judgment was pronounced on April 30, 2015, but the full reasoning and decision are not contained in the provided excerpt.
Issue of Consideration
Constitutional validity of notification dated January 29, 2014 under proviso to section 83(4) of MVAT Act and related Trade Circulars; whether the notification is ultra vires the MVAT Act and Rules; whether previous publication was required; whether the method of valuation in the notification is correct
Case Details
2015 LawText (BOM) (04) 32
Writ Petition No.4520 of 2014 with Writ Petition No.2557 of 2014, Writ Petition (Lodg) No.1148 of 2014, Writ Petition No.1258 of 2014
S. C. Dharmadhikari, Sunil P. Deshmukh
V. Sridharan, Rahul Thakur, Manjiri Parasnis, V. P. Patkar, M. M. Vaidya, Sunil V. Manohar, Geeta Shastri, Naira Variava, B. B. Sharma
Confederation of Real Estates Developers' Association of India, Builders Association of India, M/s Prime Property Development Corporation Ltd., M/s Shree Shridharkrupa Builders and Realtors Pvt. Ltd.
State of Maharashtra, Commissioner of Sales Tax, Maharashtra State
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Nature of Litigation
Challenge to the constitutional validity and propriety of notification dated 29 January 2014 and trade circulars dated 21 February 2014 and 17 April 2014 issued under the Maharashtra Value Added Tax Act, 2002.
Remedy Sought
Petitioners seek to quash the notification and trade circulars, allow deduction of land cost from total agreement value before applying percentage for valuation of goods in works contracts, permit revised VAT returns with 'material cost plus gross profit' method, and declare notification ultra vires for want of previous publication.
Filing Reason
The notification amended the method of determining the value of goods in works contracts by prescribing stage-wise percentages without deducting land cost, which petitioners claim is contrary to the MVAT Act and previous court directions.
Previous Decisions
High Court order dated 10 April 2012 in Writ Petition No. 2022 of 2007 directed processing of applications for determination; Supreme Court decision dated 26 September 2013 and High Court order dated 30 October 2012 in Ashok R. Gokani v. State of Maharashtra gave further directions.
Issues
Constitutional validity of notification dated January 29, 2014 under proviso to section 83(4) of MVAT Act
Whether the notification is ultra vires the provisions of MVAT Act and Rules
Whether previous publication under section 83 was required before issuing the notification
Whether the stage-wise percentage method in the notification is legally valid and permits deduction of land cost
Whether Trade Circular 12T dated 17 April 2014 is bad in law
Judgment Excerpts
Rule 58 as it stood prior to January 29, 2014 read thus - 58. Determination of sale price and of purchase price in respect of Sale by transfer of property in Goods (whether as good or in some other form) involved in the execution of a works contract.
"58 (1A) In case of construction contract, where alongwith the immovable property, the land or, as the case may be, interest in the land, underlying the immovable property is to be conveyed, and the property in the goods (whether as goods or in some other form) involved in the execution of the construction contract is also transferred to the purchaser such transfer is liable to tax under this rule."
"58 (1B) (a) Where the dealer undertakes the construction of flats, dwellings, buildings or premises and transfers them in pursuance of an agreement along with the land or interest underlying the land then, after deductions under sub-rules (1) and (1A) from the total contract prices, the value of the goods involved in the works contract shall be determined after applying the percentage provided in column (3) of the following TABLE depending upon the stage at which the purchaser entered into contract."
Acts & Sections
- Maharashtra Value Added Tax Act, 2002: Section 83(4)
- Maharashtra Value Added Tax Rules, 2005: Rule 58(1), Rule 58(1A), Rule 58(1B), Rule 58(1C), Rule 58(2)
- Bombay Stamp (Determination of True Market Value of Property) Rules, 1995: Guidelines appended to Annual Statement of Rates
