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Government of Maharashtra
Department of Goods and Services Tax
Build Nation By Paying Taxes
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Department at a glance

What Do We Do

The Department administrates the following Acts -  

Maharashtra Goods and Service Tax (MGST) and Central Goods and Service Tax (CGST)

The Constitution (One Hundred and First Amendment) Act, 2016, inserted new article 246A in the constitution. This amendment in constitution has introduced the Goods and Services Tax (GST) in India, granting concurrent powers to the Union and State governments to levy GST, and it replaced various existing indirect taxes. Accordingly, MGST Act is notified on dt.15.06.2017 in official Gazette and implemented w.e.f. from dt.01.07.2017.

Features of GST Act.: -

GST is a consumption tax based on the credit invoice method where only the value addition at each stage is taxed, with seamless flow of credit along the supply chain. It subsumed in its ambit a large number of consumption taxes that previously existed in India, administered separately by the Centre and the States, resulting in a greatly rationalized taxation structure. The umbrella system of GST inter alia integrated the tax administrations of the Central and State Governments, making it a single interface for the taxpayers, creating an IT backbone that would match the details of inward & outward supplies at the level of line items, eliminating the cascading effect of taxes thereby making the country’s exports more competitive in the global market and finally removing once and for all the age-old system of check posts for inter-State movement of goods. Primarily, GST is a tax levied on the supply of goods and services. In case of an inter-state supply, it is called integrated tax, levied by the Federal Government, administered jointly by the Centre and the States and later apportioned between them. In the case of an intra-state supply, it is levied in two components – the federal tax, levied by the Central Government and the state tax/union territory tax, levied by the respective administrations.

GST subsumed several taxes and levies, which included central taxes such as central excise duty, services tax, Central sales tax, additional customs duty, surcharges, and  state-level taxes such as  value added tax, purchase tax, luxury tax, Entertainment tax  and Octroi and  Other levies which were applicable on inter-state transportation of goods have also been done away with in GST regime.

Advantages of GST: -

The implementation of GST has brought about numerous advantages for the Indian economy, businesses, and consumers. Here are nine key benefits of GST registration:

1. Easy Compliance: GST has streamlined the tax compliance process by replacing multiple taxes with a single one. This has reduced the burden on businesses, especially small and medium enterprises (SMEs), who no longer need to deal with complex tax laws and procedures.

2. Uniformity of Tax Rates and Structures: GST has brought uniformity in tax rates and structures across India, eliminating the cascading effect of taxes that existed earlier. This has created a level playing field for businesses and reduced the scope for tax evasion.

3. Removal of Cascading: One of the primary objectives of the GST is to eliminate the cascading effect of tax that was previously observed. This 'Tax on Tax' effect occurs when you have to pay tax on the value of a good or service that already includes tax. This can increase the overall tax burden on the end consumer.

4. Improved Competitiveness: Enhancing transparency and reducing expenses can boost the competitiveness of businesses in both domestic and international markets. By being transparent with their practices and costs, companies can gain the trust of their customers and stakeholders, which can lead to increased sales and profits.

5. Simple and Easy to Administer: The GST regime is simpler and easier to administer compared to the previous tax system. This has reduced administrative costs for both the government and businesses.

6. Higher Revenue Efficiency: The streamlined GST system has improved tax collection efficiency, leading to higher revenue for both the central and state governments. This additional revenue can be used for infrastructure development and social welfare programs.

7. Single and Transparent Tax Proportionate to the Value of Goods and Services: GST is a single tax levied on the final value of goods and services. This makes the tax system more transparent and fairer, as the tax burden is directly proportional to the value of the transaction.

8. Relief in the Overall Tax Burden: The trade and industry sectors are experiencing a reduced average tax burden, leading to lower prices, increased consumer spending, and subsequently, a notable surge in production, thus bolstering industrial growth. Additionally, businesses can avail themselves of GST credits on inputs, effectively lowering the ultimate cost for consumers and fostering enhanced efficiency in cost management.

9. Reduced Corruption and Tax Evasion: The enhanced efficiency of the streamlined system promotes transparency and minimises tax evasion, thereby fostering a conducive environment for economic growth. GST has demonstrated its advantages for both businesses and consumers, contributing significantly to the overall economic boost.

  • The Maharashtra Value Added Tax, 2002.

1.1 Why VAT? In the pre - VAT state tax structure, there were problems of double taxation of commodities and multiplicity of taxes, resulting in a cascading tax burden. For instance, in the pre - VAT structure, before a commodity is produced, inputs are first taxed and then after the commodity is produced with input tax load, output is taxed again. This causes an unfair double taxation with cascading effects. In the VAT, a set-off is given for input tax as well as tax paid on previous purchases. In the pre - VAT sales tax structure, several States also had multiplicity of taxes, such as turnover tax, surcharge on sales tax, additional surcharge, etc. With introduction of VAT, these other taxes are abolished. In addition, Central Sales Tax is also going to be phased out. As a result, overall tax burden will be rationalised and prices in general will also fall. Moreover, VAT will replace the system of inspection by a system of built-in self-assessment by the dealers and auditing. The tax structure will become simple and more transparent. That will improve tax compliance and also augment revenue growth. Thus, to repeat, with the introduction of VAT, benefits are as follows :

  • a set-off will be given for input tax as well as tax paid on previous purchases.
  • other taxes, such as turnover tax, surcharge, additional surcharge, etc. will be abolished.
  • overall burden will be rationalised.
  • prices will in general fall.
  • there will be self-assessment by dealers.
  • transparency will increase.
  • there will higher revenue growth.

 

1.2 The essence of VAT is in providing set-off for the tax paid earlier and this is given effect through the concept of input tax credit / rebate. This input tax credit in relation to any period means setting off the amount of input tax by a registered dealer against the amount of his output tax. The Value Added Tax (VAT) is based on the value addition to the goods and the related VAT liability of the dealer is calculated by deducting input tax credit from tax collected on sales during the payment period (say, a month).

If, for example, input worth Rs. 1,00,000/- is purchased and sales are worth Rs. 2,00,000/- in a month and input tax rate and output tax rate are 4% and 10% respectively then input tax credit / set-off and calculation of VAT will be as shown below :

 

(a) Input purchased within the month : Rs. 1,00,000/-

(b) Output sold in the month : Rs. 2,00,000/-

(c) Input tax paid : Rs. 4,000/-

(d) Output tax payable : Rs. 20,000/-

(e) VAT payable during the month after set-  

off / input tax credit [ (d) & (c) ] : Rs. 16,000/-

 

1.3 This input tax credit will be given for both manufacturers and traders for purchases of inputs / supplies meant for both sale within the State as well as to other States, irrespective of when these will be unutilised / sold. This also reduces immediate tax liability.

Even for stock transfer / consignment sale of goods out of the State, input tax paid in excess of 4% will be eligible for tax credit.

1.4 For all exports made out of the country, tax paid within the State will be refunded in full and this refund will be made within three months. Units located in SEZ and EOU will be ganged either exemption from payment of input tax or refund of the input tax paid within three months.

1.5 This entire design of VAT with input tax credit is crucially based on documentation of tax invoice, cash memo or bill. Every registered dealer, having turnover of sales above an amount specified, shall issue to the purchaser serially numbered tax invoice with the prescribed particulars. This tax invoice will be signed and dated by the dealer or his regular employee, showing the required particulars. The dealer shall keep a counterfoil or duplicate of such tax invoice duly signed and dated. Failure to comply with the above will attract penalty.
 

1.6 Registration of dealers with gross annual turnover above Rs. 5 lakh will be compulsory. There will be provision for voluntary registration. Small dealers with gross annual turnover not exceeding Rs.5 lakh will not be liable to pay VAT.

Small dealers with annual gross turnover not exceeding Rs. 50 lakh who are otherwise liable to pay VAT, shall however have the option for a composition scheme with payment of tax at a small percentage of gross turnover. The dealers opting for this composition scheme will not be entitled to input tax credit.

1.7 The Tax Payer�s Identification Number will consist of 11 digit numerals throughout the country. First two characters will represent the State Code as used by the Union Ministry of Home Affairs. The set-up of the next nine characters may, however, be different in different States.
 

1.8 Correctness of self-assessment will be checked through a system of Department Audit. A certain percentage of the dealers will be taken up for audit every year on a scientific basis. If, however, evasion is detected on audit, the concerned dealer may be taken up for audit for previous periods. This Audit Wing sill remains delinked from tax collection wing to remove any bias. The audit team will conduct its work in a time bound manner.

Simultaneously, a cross-checking, computerised system is being worked out on the basis of coordination between various tax authorities within the Department and also outside the Department. This comprehensive cross-checking system will help reduce tax evasion and also lead to significant growth of tax revenue. At the same time, by protecting transparently the interests of tax-complying dealers against the unfair practices of tax-evaders, the system will also bring in more equal competition in the sphere of trade and industry.

1.9 Under the VAT system covering about 550 goods, there will be only two basic VAT rates of 4% and 12.5%, plus a specific category of tax-exempted goods and a special VAT rate of 1% only for gold and silver ornaments, etc. Thus, the multiplicity of rates in the old structure will be done away with under the VAT system.

Under exempted category there will be about 46 comprising of natural and unprocessed products in unorganised sector, items which are legally barred from taxation and items which have social implications. The rest of the commodities in the list will be common for all the States. Under 4% VAT rate category there will be the largest number of goods (about 270), common for all the States, comprising of items of basic necessities such as medicines and drugs, all agricultural and industrial inputs, capital goods and declared goods. The schedule of commodities is attached to the VAT Act. The remaining commodities, common for all the States, will fall under the general VAT rate of 12.5%.

 

  • Central Sales Tax Act, 1956

Before the Constitution, as is well known, each State tried to subject under its law the same transaction to tax on the nexus doctrine. A sale of goods consists of various elements; goods, agreement to sell, transfer of property in the goods, the consideration for the sale and delivery of goods. It is possible that the elements in a concluded sale may be distributed over more than one State. Each State relied on one or more of such elements as having a territorial nexus and brought the sale to tax, with the result that the same transaction had to suffer tax in different States with the concomitant hardship to trade and consumers in the same or different States. The makers of the Constitution being fully alive to the problem sought to check the phenomenon. Accordingly, Article 286 of the Constitution forged out the checks and said that no law of a State could bring to tax sale taking place outside the State or a sale taking place in the course of import of goods into or export of goods out of the territory of India. A similar ban was put on taxation of inter-state sale or purchase, except as authoritised by Parliament by law.

An explanation with reference to an outside sale stated that a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.

The interpretation of the Article led to certain difficulties for the trade and to the assessment and collection of tax from non-resident dealers. The taxing authorities of the State in which goods were delivered for consumption started calling upon the non-resident dealers to file returns, produce accounts, get themselves registered and comply with the demands of tax. But the view as to the scope of Article 286 as expressed in State of Bombay V/s. United Motors (India) Ltd. was reversed by a majority opinion of a Fuller Bench of the Supreme Court in Bengal Immunity Co. Ltd. V/s. State of Bihar. Accounting to the majority opinion : (it was held that)

'Until Parliament by law made in exercise of the powers vested in it by clause (2) provides otherwise, no State can impose or authorise the imposition of any tax on sales or purchases of goods when such sales or purchases take place in the course of inter-state trade or commerce.'

It was held that the ban imposed against taxation under each of the clauses in Article 286 was a separate and independent limitation and each of them had to be got over before the State law could impose tax on inter-state sale or purchase of goods. The Supreme Court considered that each of the bans was imposed from a different view point, as for instance the explanation looked at the market from the view point of what was an outside sale, clause (2) of the Article had in mind the character of the transaction as an inter-state one and clause (3) then dealt with essentiality of certain goods to the country. If it was an outside sale to the State, it could not tax it. If a sale resulted in delivery of goods for consumption in the taxing State, the tax thereon would be attracted by the explanation. If that transaction were of an inter-state character, the ban under clause (2) of the Article should have to be got over before a State imposed a tax thereon. This led to further difficulties and some of the States had perforce to refund taxes which they had already collected, Bengal Immunity Co. Ltd. V/s. State of Bihar was decided on 6th September, 1955. On 30th January, 1956, the Sales Tax Laws Validation Ordinance and the Validation Act was to legalize the taxes collected by the various States during the period from 1st April, 1951 to 6th September, 1955. The validity of the Ordinance and the Validation Act was attacked with the result that different views were expressed by different High Courts on their scope and validity.

The position by this time was that there was a great deal of uncertainty because of conflicting decisions of various High Courts as to the scope and nature of the sales in the course of inter-state trade and commerce or in the course of import or export. It was in this background that the Sixth Amendment to the Constitution was made in 1956 which radically amended Article 286, separated the power to tax inter-state sales from the State List and put it in the Union List. Article 269 (1) (g) was also amended assigning to the States taxes on the sale or purchase of goods other than newspapers where such sale or purchase took place in the course of inter-state trade or commerce. A new clause to Article 269 provided that Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in the course of inter-state trade or commerce. So far as Article 286 was concerned, the explanation to clause (1) (a) was omitted and clause (2) was amended so as to read. Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1), namely, outside sales, or sales which took place in the course of import into or export out of the territory of India. Clause (3) as amended is to the effect that any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-state trade or commerce be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. In exercise of the powers conferred on Parliament by the Sixty Amendment to the Constitution, it enacted the Central Sales Tax Act, 1956, which received the assent of the President on 21st December, 1956. It is in this historical background that we must approach and interpret the provisions of the Central Act.

The act was enacted by the Central Government in 1956 and for all practical purposes such as levy, collection the powers are being delegated to the State Governments. The act formulates the principles for determining when a sale or purchase of goods takes place in the course of inter-state trade or commerce or outside a state or in the course of import into or export from India. The act provides for the levy of tax by the appropriate state on the inter-state sale of goods. The act also declares certain goods to be of special importance in inter-state trade which are taxed subject to certain restrictions and conditions. It is also provides rate of tax on inter-state sales.

The tax is levied on inter-state sales by the exporting state generally at the rate of 4% subject to production of declaration. It is proposed to reduce the mentioned rate to 0% in a phased manner and thereby avoiding export of tax. 

  • Profession Tax Act, 1975

To take care of the weaker section of the society, the Government of Maharashtra introduced a scheme known as Employment Guarantee Scheme. The scheme guarantees manual work for the unskilled rural labour and payment or wages according to the quality and quantity of work. With a view to provide the necessary funds for the fine implementation of the Scheme, the levy of the Professional Tax was introduced in the year 1975.

The power of such levy was derived from article 276 of the Indian Constitution, which empowers, the State Government to levy a tax on Professions, Traders, Callings and Employments.

Profession :-

A profession in the present use of language involves an idea of occupation requiring either purely intellectual skill or of any manual skill as in painting and sculpture or surgery, skill controlled by intellectual skill of the operator. Profession is an activity carried on by an individual by his personal skill and intelligence and dependent on individual characteristics.

 Trade :-

Trade means exchange of goods for goods, goods for money, but in a secondary sense it includes any business manual or mercantile as distinguished from the literal arts learned profession or agricultural.

 Callings :-

Word callings is very wide means ones usual occupation, vocation, business or trade.

 Employment :-

Employment means an act of employing or state of being employed (1) that which engages or occupies, (2) that which consumes time or attention, (3) also an occupation, profession, trade or service. 

History

THE DEVELOPMENT OF SALES TAX IN THE STATE

PRE-VALUE ADDED TAX SYSTEM

1.1     Sales tax was first introduced in India in the province of Bombay, where a tax was imposed on sales of tobacco within certain very limited urban and suburban areas by the Bombay Tobacco (Amendment) Act, 1938, which came into force on the 24th March, 1938.

1.2    In the Central provinces & levy, again a selective one, on motor spirit and lubricants alone was introduced in January, 1939.  In the province of Bombay, Government took powers by the Bombay Sales Tax Act, 1939 to levy sales tax on motor spirit and manufactured cloth, at rates not exceeding six and a quarter per cent.  Eventually, however, only motor spirit was notified for taxation under that Act.

1.3   It was not until 1945, that an attempt to introduce a general sales tax was made in Bombay.  The Bombay Sales Tax Act of 1946 enacted on8th March, 1946, provided for the levy of a tax at the last stage of sale of any goods.  The rate of tax under the Bombay Sales Tax Act, 1946 was six paisa per rupee of the sale price.  The exemption list largely comprised articles of staple diet and other necessities of the common man and other items such as electrical energy, tobacco, foreign liquor and motor-spirits on which there was already same form of duty or tax. 

1.4  On the 1st April, 1948 a tax of one anna in the rupee was levied, for the first time, on 13 specially selected items which included motor cars, refrigerators wireless equipment, perfumery, firearms, silk and jewellery. 

1.5   A radical change in the basis of the sales tax was effected on 1st November, 1952 by the sales introduction of a system of multi-point taxation, that is to say, a uniform levy at each stage of the sale of any goods, supplemented by a special tax at one anna in the rupee on selected goods, in addition to the general levy.  The limit of turnover for registration in the case of persons dealing in general goods it was at Rs. 30,000 per year.

1.6   The Bombay State introduced from the 1st of April, 1954 the system on tax which has come to be commonly known as the ?two point? system.  Under this system of tax the turnover limits attracting liability to tax and registration are Rs. 10,000 per year in the case of manufacturers and importers and Rs. 25,000 in the case of all patterns of the lists under the earlier enactments, generally speaking.  The scheme of the Act is broadly that a sales tax is levied at the first stage of the sales of any goods and a General Sales Tax is levied in addition to the sales tax.   

1.7  The BST Act, 1959 was amended by  from 1.7.1981, which completely amended the scheme of taxation under the BST Act, 1959 from 1.7.1981.Prior to 1.7.1981, the BST Act, 1959 was a schedule oriented Act in as much as the tax liability of a sale or purchase of a commodity will depend on the schedule in which the goods fall.  Thus, prior to 1.7.1981 there were five schedules in which the specific goods in question lie ? schedule A Tax free goods   No Tax.

Schedule B Part I Declared goods  Tax at first stage only at a rate not more than 4%

Schedule B Part II Declared goods  Tax at last stage.  The last stage being the

stage at which goods pass from a licensed dealer to unlicensed dealer at a rate not more than 4%

Schedule C Tax at the first stage of sale.  The first stage being the stage at which the goods enter into the stream of sale in the State of Maharashtra.  Such first stage one can visualise as follows :-

a)   Where the goods are manufactured.

b)   Where the goods are imported from foreign country.

c)    Where goods are purchased from a dealer from outside the State of Maharashtra.

d)   Where goods purchased from an unregistered dealer are resold.

Schedule D Tax at the last stage of sale.  The last stage being the stage at which the goods pass from a licensed to an unlicensed dealer.

Schedule E Tax at first stage and tax at last stage.  The stages being stages (first and last) as explained above.  In addition to this in respect of Schedule E goods, additional retail S. T. at % is payable by a dealer who is not a licensed dealer both at the time of purchase and sale.

1.8     To review the present system of Sales Tax in the State, in the light of the system prevailing in Gujarat, Tamil Nadu, West Bengal and Karnataka and to examine the system of administration of Sales Tax Law and to suggest improvement therein so as to simplify the procedure for assessment ensuring avoidance of evasion of taxes, a Committee under the Chairmanship of Shri. M. R. Yardi was appointed by the Government in 1975.In view of the recommendation of the Committee on various issues, the BST Act, 1959 is suitably amended from 1.7.1981.

1.9     From 1.7.1981 however, the scheme entirely changed and now we have brought single point first stage levy in operation.  Under the new scheme now Government expects tax as all taxable sales or purchases of first stage only, the first stage being the stage of which the goods enter into the stream of sale in the State of Maharashtra.  The possible avenues by which the goods can for the first time enter the streams of sale can be visualised as follows :

1.    Where goods are manufactured.

2    where goods are imported from foreign country.

3.    Where goods are purchased from dealer outside the State of Maharashtra.

4.    Where goods are purchased from unregistered person.

          The first stage tax is called sales tax.  In view of this new scheme, the schedules have now been reduced from 5 in number to 3 viz..

(a)  Schedule A Tax free goods on which no tax is payable under section 5 of the Act.text_style

(b)  Schedule B Declared goods  on which tax is leviable at the first stage at a rate not more than 4%.

(c)  Schedule C First stage levy at the rates specified against the entry.  This Part  I schedule is covered by items of raw materials which are generally Part  II   used for manufacture, liable to 4% S. T.

       Thus, under the new amended Act since tax is leviable in the first stage i. e. the stage at which goods enter the manufacturers, the tax liability of transaction of a sale will depend upon the character of purchase i. e. whether from R. D. or O. M. S. import or U. R. D.

1.10     Thereafter on important change in the State indirect tax reforms took place from  April 1st, 2005 by introduction of VALUE ADDED TAX system. 

The Bombay Sales of Motor Spirit Taxation Act, 1958

          The act remained in operation from 1958 till 31/03/2005.  The act provided a levy of tax on the sales of Motor Spirits within the State.  The following commodities were covered under the Act

       High Speed Diesel Oil

      Aviation Gasoline (Duty paid)

      Aviation Gasoline (Banded)

      Aviation Turbine Fuel (Duty paid)

      Aviation Turbine Fuel (Banded)

      Any other kind of Motor Spirit 

1st April, 2005 the tax on Motor Spirit is being levied under Value Added Tax Act, 2002. 

Maharashtra Sales Tax on the transfer of property in goods

 involved in the executions of Works Contract Act, 1985. 

Historical Background :-

          Prior to the enactment of Constitution of India, the provincial Legislatures derived power to levy taxes on the sale of goods and advertisement by virtue of Entry 48 of List II in the Seventh Schedule to the Government of India Act, 1935.  The power exercised by the States was not subject to any restrictions or conditions.  The then province of Madras was the first State which attempted to bring within its tax net the transactions of Works Contract by amending the term 'goods', 'sale' and 'turnover' in the Madras General Sales Tax Act, 1939.  The expression 'sale' was amended so as to bring within its ambit transfer of property in goods involved in the execution of works contract.  The term 'goods' was also amended so as to include materials used in construction, fitting out, improvements etc.  Assessment of taxable turnover arrived at by the authorities in pursuance of the said Amendment was challenged in the Madras High Court in the Case of Gannon Dunkerley and Co. (Madras) Ltd. V/s. State of Madras.  Similar question about the liability of contractors who had undertaken to carry on works contract to pay sales tax on transfer property in goods involved in works contract came up for consideration in different High Courts.         

Conflicting views of various High Courts :-

         Gannon Dunkerley and Co. (Madras) Ltd. V/s. State of Madaras,      A. I. R. 1954 Mad. 1130, the assesses were carrying on business as engineers and contractors.  Their business consisted mainly of execution of contracts for construction of buildings, bridges, dams, roads and structural contracts of all kinds.  During the assessment year the return made by the assesses showed as many as 47 contracts, most of which were building contracts, which were executed by the assesses.  From the total of the amount which assesses received in respect of sanitary contracts and other contracts 20% and 30% respectively were deducted for labour and the balance was taken as the turnover of the assesses for the assessment year in question.  Sales tax was levied on the said balance treating it as taxable turnover on the ground that there was no sale of goods as understood in India and, therefore, no sales tax could be levied on any portion of the amount which was received by the assesses from the persons for whose benefit they had constructed buildings.  It was urged on behalf of the assesses that there was no element of sale of the materials in a building contract and that such a contract was one entire and indivisible.  Unless the contract was completed, the builder was not entitled to the price fixed under the contract or ascertainable under the terms of the contract.  The property in the materials passed to the owner of the land not by virtue of the delivery of the materials as goods under and in pursuance of an agreement of sale which stipulated a price for the materials.  The property in the materials passed to the owner of the land because they were fixed in pursuance of the contract to building and along with the corpus, which ultimately resulted by the erection of the super-structure, the materials also passed to the owner of the land.  It was urged that a contract to build was not a contract to sell goods used in the construction of a building.  The High Court of Madras on a consideration of the submission made before it came to the conclusion that the transaction in question were not contracts for sale of goods as defined under the provisions of the Sale of Goods Act, 1030 which was in force on the date on which the Constitution came into force and therefore the assesses were not liable to pay sales tax on the amounts received by them from the persons for whom they had constructed buildings etc. during the year of assessment.  But a petition filled by the very same assesses for similar relief in Gannon Dunkerley and Co., Madras Pvt. Ltd., V/s. Sales Tax Officer, Mattancheri, A. I. R. 1957 Kerala 146 was dismissed by the Kerala High Court affirming the imposition of sales tax on the turnover relating to construction works and upholding the rules providing for apportionment of the determination of the taxable turnover on a percentage basis.  In Mohammed Khasim V/s. State of Mysore, (1955) 6 S. T. C. 211, the Mysore High Court held that the provisions of the Mysore Sales Tax Act imposing sales tax on construction of buildings under works contract were valid and further upheld the determination of the taxable turnover on percentage basis.         

Supreme Court Judgment in Gannon Dunkerley's Case :-

         Ultimately the question whether the cost of the goods supplied by a building contractor in the course of the construction of building could be subjected to payment of sales tax was finally resolved by the Supreme Court in State of Madras V/s. Gannon Dunkerley and Co. (Madras) Ltd. (1959)     S. C. R. 379 : 9 S. T. C. 353, which was an appeal filed against the decision of the High Court of Madras in Gannon Dunkerley and Co. Ltd. V/s. The State of Madras (supra).  In this case Supreme Court held that on a true interpretation the expression ?sale of goods? meant an agreement between the parties was that the contractor should construct the building according to the specifications contained in the agreement and in consideration therefore received payment as provided therein, there was neither a contract to sell the materials used in the construction nor the property passed therein as movable.  The Supreme Court further held that the expression Sale of goods was at the time when the Government of India Act, 1935 was enacted, a term of well recognised legal import in the general law relating to sale of goods and in the legislative practice relating to that topic and should be interpreted in Entry 48 in List II in Schedule VII of the Government of India Act, 1935 as having the same meaning as in the Sale of Goods Act, 1030.  It was further held that in a building contract which was one, entire and indivisible, there was no sale of goods and it was not within the competence of the provincial Legislature under Entry 48 in List II in Schedule VII of the Government of India Act, 1935, to impose a tax on the supply of the materials used in such a contract treating it as a sale.  The above decision though it was rendered on the basis of the provisions in the Government of India Act, 1935 was equally applicable to the provisions found in Entry 54 of List II of Schedule VII of the Constitution.   As a result of the above decision, the decision of the Nagpur High Court, the Rajasthan High Court, the Mysore High Court and the Kerala High Court referred to above were over-ruled and the decision of the Hyderabad High Court and the decision of the Madras High Court against which the above appeal had been filed were affirmed.  By virtue of the above decision of the Supreme Court no sales tax could be levied for 25 years on the amounts received under a works contract by a building contractor even though he had supplied goods for the construction of the buildings. 

Recommendations of Law Commission :-

          The various problems which arose on account of the above decision were referred to the Law Commission of India and its advice was sought as to the manner in which the types of transactions involved in the above decisions could be made eligible to sales tax.  The Law Commission considered these matters in its 61st Report and recommended inter alia certain amendments to the Constitution, if as a matter of administrative policy it was decided to levy sales tax on transactions of the nature mentioned above.  There were also complaints from the States that there was a large scale leakage of sales tax revenue by the adoption of devices such as hire purchase system.  In the year 1982 Parliament passed the 46th Amendment amending the Constitution in several respects in order to bring many of the transactions, in which property in goods passed but were not considered as sales for the purpose of levy of sales tax, within the scope of the powers of the states to levy sales tax. 

Forty sixth Amendment Act :-

          By the 46th Amendment a new clause, namely clause (29 A) was introduced in Article 366 of the Constitution.  Clause (29 A) of Article 366 of the Constitution reads thus -  

366. Definitions  In this Constitution, unless the context otherwise requires, the following expressions have the meaning hereby respectively assigned to them, that is to say ............ 

(29 A) 'tax on the sale or purchase of goods' includes --

(a)   a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration.

(b)   a tax on the transfer of property of goods (whether as goods or in some other form) involved in the execution of a works contract;

(c)    a tax on the delivery of goods on hire-purchase or any system of payment by installments;

(d)   a tax on the transfer of the right to use goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

(e)   a tax on the supply of goods by any unincorporated association or body of persons to member thereof for cash, deferred payment or other valuable consideration.

(f)    a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration. 

and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made?. 

 In the year 1982 Parliament passed the 46th Amendment amending the Constitution in several respect in order to bring many of the transactions, in which property in goods passed but where not considered as sales for the purpose of levy of sales tax, within the scope of the powers of the states to levy sales tax.  Accordingly, tax was levied on the indivisible works contract on the value of transfer of property in goods involved in the execution of Works Contract Act. In pursuance of the amendment the state enacted an act on 1st October 1986.

From 1st April, 2005 tax on such Works Contract is being levied under Value Added Tax Act, 2002. 

Maharashtra tax on transfer of the right to use any goods for any purpose Act, 1985

Devices by way of leases of films had been resulting in avoidance of sales tax. The main right in regard to a film related to its exploitation and after that for a certain period of time ,in most cases, the ceases to have any value. In the year 1982 Parliament passed the 46th Amendment amending the Constitution in several respect in order to bring many of the transactions, in which property in goods passed but where not considered as sales for the purpose of levy of sales tax, within the scope of the powers of the states to levy sales tax. In pursuance of the amendment to the constitution and in order to cover such and similar transactions the act was enacted on 1st October 1986 which operated during the period from 1st October, 1986 till 31st March, 2005.  Accordingly, tax was levied on the leasing transaction at the rate of 4%. 

From 1st April, 2005 tax on such lease transaction is being levied under Value Added Tax Act, 2002.

 

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