Taxation
More Taxtortion: Sulabh Shauchalaya asked to pay VAT because it is into selling!
In a recent order, the Commissioner of Sales Tax in Maharashtra has held that the work of construction as well the activity of operations and maintenance of urinals and latrines are 'deemed sale' and thus sales tax is leviable. For construction work, sales tax is leviable on the implementation charges received from the entity awarding the contract. Sales tax is leviable on the fees received from users of latrines and urinals under the operational and maintenance activities. The case is related to Sulabh International Social Services Organisation, a non-governmental organisation (NGO), engaged in construction and maintenance of latrines, urinals and bath complexes across the country.
 
"I have gone through the contention and arguments of the applicant. They revolve mostly on the aspect of 'social service'. However, we have seen that the provisions of the Maharashtra Value Added Tax (MVAT) Act, 2002 are such that the activities of construction of urinals and latrines fall in the category of 'deemed sale' and thereby, the applicant gets covered as a 'dealer' and also as a 'deemed dealer' for the purposes of the MVAT Act, 2002," ruled Rajiv Jalota, Commissioner of Sales Tax, Maharashtra in an order issued on 11 April 2016.
 
"The present transaction of construction of Sulabh Shauchalya complexes amounts to a sale of goods and the applicant as a 'deemed dealer' enumerated in the explanation (applicant falls under 'incorporated or unincorporated societies' and would be a 'public charitable trust', if the required formalities are fulfilled) being engaging in such a transaction would be deemed to be a 'dealer'," the order stated.
 
Nagpur Municipal Corp (NMC) had asked Sulabh International to construct, operate and maintain latrines, urinals and bath complexes in the city for 30 years on the basis of 'pay and use'. However, the Sales Tax department, terming this as 'sale' demanded tax on the transactions. 
 
Mr Jalota says, "Though a single agreement is executed between the parties to the agreement, the clauses therein reveal that there are two distinct and discernible transactions in the impugned contract awarded by Nagpur Municipal Corp (NMC) as follows
a. First is the works contract allotted for construction of Sulabh Shauchalaya Complex
b. The second transaction is the permission to the applicant to maintain and operate the above Sulabh Shauchalaya Complex for a period of 30 years on the basic of 'pay & use'.
 
The sale prices of the transactions are thus-
a. The 'sale price' of the first transaction would be Rs22.85 lakh. 
b. The 'sale price' of the second transaction would be the amount of 'fees' collected whenever there is a sale or deemed sale in the form of an agreement for carrying out construction, processing, fabrication, erection, installation, fitting out, improvement, modification, repair. In the absence of details before me, this amount would have to be determined during verification proceedings."
 
Sulabh International contended that for constitution of sale, the delivery of goods is also important and in its case, the delivery period was 30 years. This means, after 30 years, Sulabh International would handover the premises back to NMC.
 
Mr Jalota, however, said, "...I have to argue that the giving of delivery after a period of 30 years would not mean that the NMC would not assume ownership thereto unless the delivery is given. For all purposes and from the very start of the construction agreement to the lease for operating on pay and use basis, the NMC remains owner of the premises. I have mentioned earlier that a perusal of the agreement shows two distinct transactions, one for the construction and the other for the lease. At no point of time, is it the situation that the applicant assumes ownership of the premises, the delivery of which has to be given so as to return the goods to the legal owner thereof. Therefore, the argument of the applicant does not find favour with me."
 
The Commissioner also rejected prayer from Sulabh International for prospective effect. He said, "As is always the measure, a request for prospective effect is to be weighed on the basis of the available provisions as also any mis-guidance. In the present case, the provisions were clear enough, leaving aside any scope for ambiguity. The definition of 'sale' in certain terms provided for 'deemed sale'. The definition of 'dealer' was also very clearly worded. In view of the elaborate deliberations held herein above, I am not inclined to accept the request for prospective effect."
 

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COMMENTS

R Balakrishnan

8 months ago

The chaps under Mr Jet Lee are clearly on an extortion mission. Modi can say anything he wants, but what happens is something different. Modi justifies his title of "Feku" by acts like this.

vswami

9 months ago

OFFHAND (sadly, being obliged to dilate even on such so-obvious matter of social behavior):
This really has nothing to do with or concerns the most talked about current topic of 'ease of doing business'; but relates to 'easing self'- i.e. answering the inevitable nature's call. To say the least, stands god comparison to what a legal stalwart / luminary once lamented remorsefully wprt the then in force , so called 'estate duty' - 'there is no incentive even to die' ; likewise, no incentive to 'ease self' , even if for a charge, for the facility thought of and provided driven by humanitarian outlook. To be precise, no incentive for a fellow being to remain disciplined as far as feasible, thereby avoid the chance of being charged for the offense / on the ground of having committed 'public nuisance'.

In short, an instance of 'tax torture' ( a disincentive to modern 'chivalry', so to say)

Suhas Kelkar

9 months ago

Correct intepretation

Srinivas Sreeram

9 months ago

The commissioner of tax is at fault & for Sulabh is not selling but only providing services which are of "charitable" nature. The fee charged is for "maintenace " (consumable). So they are not selling nor "marketing", which is an important element for selling a service or product. While I am ignorant of provisions in govt act, putting logic in the normal context. Stretching the imaginative logic further, should a "dharmic" pravachan or religious institutions be taxed for they selling "text" or "yoga" & deliverying moksha ? It is here the commissioner of tax argument fails.

RAVI RAM PV

9 months ago

Another giant leap towards Swachch Bharat. Tax till death, the only really well organized public toilet managing set-up. Great going!

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