Benefit of 3% Tax Rate under MVAT Act can’t be granted Prior to 14th October 2017: Bombay High Court [Read Judgment]

The Bombay High Court in the case of Deepak Fertilisers and Petrochemicals Corporation Ltd. v. State of Maharashtra vide its judgment dated July 26^th, 2018 held that the benefit of a lower tax rate (3%) under the MVAT Act will have to be granted only from the date from which it is extended, namely, w.e.f. 14.10.2017.

The petitioner company is engaged in the manufacture of fertilizers at its factory. The respondents 2, 3 and 4 are the Officers and the Authorities exercising powers under the Maharashtra Value Added Tax Act, 2002 (MVAT). Respondent 5 is the Gas Authority of India Limited which has been impleaded as a respondent because the petitioner for the purposes of manufacture of fertilizers, purchases natural gas from respondent 5. The intra-state purchase was made under various gas purchase agreements wherein natural gas is either utilized as fuel or as an input in the manufacture/ processing of fertilizers/ chemicals.

After the introduction of the goods and services regime and decision of state governments to keep petroleum products out of its purview, an amendment to insert Section 16(6A) under the MVAT took place to provide that any person who was not involved in the sale of the six commodities would no longer have a valid registration under the MVAT. Proviso to the same mentions that a person who wished to continue to do business in the commodities would have to apply to the Respondents in the prescribed manner to revoke the cancelled registration. Prior to 01.07.2017, the sale of natural gas was governed by the residuary Entry of the MVAT Act with applicable rate of tax of 13.5%. The petitioner was also eligible to claim set-off of the input MVAT subject to a reduction of 3% i.e. the net effective rate of MVAT on natural gas was only 3% prior to 01.07.2017 if the natural gas was consumed domestically as fuel or as an input for manufacture. This rate increased to 13.5% w.e.f. 01.07.2017 since he could not claim set-off due to Section 16(6A). Also, because to the GST Act only provided for adjustment of GST paid and not of VAT paid.

The petitioner has challenged the Trade Circular No. 3T of 2018 dated January 16^th, 2018. The prayer is that the notification No. VAT-1517/C.R.136 (A)/Taxation-1 dated October 13^th, 2017, Entry 16 should be given effect to and operated from August 2017.

It was contended on behalf of the petitioner that it was never the intention of the respondents at the time of the enactment of the Notification dated 24.08.2017 to restrict the benefits to only registered dealers. Further, if the contention of the respondents is accepted and particularly that this notification of 24.08.2017 is held to be applicable only to dealers registered under MVAT Act, then, the notification will be applicable to no one, as it is impossible to manufacture the other five items mentioned in MVAT Act from natural gas. Further, since no manner was prescribed yet for cancelling the revoked registration, the issuances of proforma by the respondents on petitioner’s application should be considered as registration under the MVAT Act considering the petitioner to be a registered dealer.

The respondent on the other hand argued that the petitioners paid the tax and were granted the set off submitting that the object is to prevent a cascading effect.

The High Court ruling in favor of the respondents hence held that “we cannot bring in the goods as defined under the MGST Act and the taxable person registered under the MGST Act in the Schedule B as amended. As already held above, Schedule B to the MVAT Act, 2002 has been amended and by resorting to the power to amend conferred by Section 9(1) of the MVAT Act. It is entirely for the Maharashtra Government therefore, to bring a notification to the Maharashtra Value Added Tax Act, 2002 to extend the concessional rate of duty or to enable availing of the concession by such persons who were earlier not eligible and entitled to it… Court cannot rely upon the language of the Trade Circular or the understanding of the Government as reflected from the Trade Circulars to grant any benefits to the petitioners from an earlier date or an earlier period. The benefit will have to be granted only from the date from which it is extended, namely, w.e.f. 14.10.2017.”