The Madhya Pradesh Value Added Tax Act, 2002: A recapitulation of important provisions

Introduction

The Value Added Tax (VAT) is tax on the value addition to the goods, and related VAT liability of the dealer is calculated by deducting input tax credit from tax collected on sales during payment period.

In India, The White Paper on state-level VAT design was worked out by the Empowered Committee of state finance ministers, centered around the basic concept of “set off” for the tax paid earlier, released on January 17, 2005, while the Madhya Pradesh VAT Act was already got accented in November,2002.

However, with the introduction of the Goods and Services Tax (GST) on July 1, 2017, multiple indirect taxes levied by central and state governments, including central and state VAT in India, were subsumed into a single tax—a historic action towards ‘Making India’ by ‘Make One India[i]. Despite the repeal of the state-level VAT regime, VAT is still applicable on certain goods which have been kept outside the ambit of GST such as Alcohol for Human Consumption, Petroleum Products etc. Apart from this numerous VAT-related cases remain pending in courts governed by the provisions of their respective State VAT Acts. Thus, rendering it imperative to preserve the judicial developments in relation to state-level VAT regime in India.

Assessment, Reassessment, & Best Judgement Assessment under Madhya Pradesh Value Added Tax Act,2002.

  • Self-Assessment:

The VAT liability is self-assessed by the dealer under Section 20(A)[ii] of the Act. The regime of self-assessment fix responsibility on the Assessee to assess his tax liability even if subsequently the self-assessment made by the Assessee turns out to be wrong and erroneous. Merely because an assessment is subject to objections or appeal does not make it any less than an assessment[iii].

  • Assessment / Reassessment of Tax:

Under the Act, Section 21[iv] confers upon the assessing authorities the power to conduct assessment or reassessment within stipulated timeframes, subject to certain circumstances. A case can be reopened u/s 21 of the act based on scrutiny report u/s 55 of the act[v]. The reopening of assessment without notice will render order passed under reassessment unstainable in law. Referring case of, Mahendra & Mahendra (Tractor Division), Bhopal v. Commissioner Commercial Tax,[vi] wherein, the gross purchase amount was enhanced on advertising material and other gift items and not on items in which the appellant carries on business. Therefore, it is necessary to ensure whether the material should be taxed in the light of legal provision. The Appellate Deputy Commissioner did not record whether the appellant was given the opportunity of being heard on this point. At this point the gross purchase amount was increased without adequate examination, which was not appropriate. The case was returned for reassessment to the assessing officer.

  • Best Judgment Assessment Method

The Power to assess the dealer as per best of judgement is invoked by authorities in circumstances mentioned in provision of Section 20 (5) & (6)[vii] of the MP VAT act.

An extraordinary power has been vested upon authorities which is to be exercise in certain manner, being- “Extent of Business, Surrounding Circumstances and all other matters”

In making an assessment to the best of his judgment the assessing authority shall, as far as practicable, have due regard to the extent of the business carried on by the dealer, the surrounding circumstances and all other matters which may be of assistance in arriving at a fair and proper estimate of the taxable turnover of the dealer[viii].

Apart from this, the determination of turnover based on best assessment method has certain necessary ingredients as deductible from judicial pronouncements, being-

  1. Reasonable Estimate: It must not be speculative or fanciful grounds or mere guesswork. It must be based on exercise of judgment on part of authorities resulting in reasonable estimate. For instance, in case of Eminence (India) Ltd., Gwalior v. Sate of M.P. (2014)[ix], wherein it was held that, the assessing authority who makes a best judgement should make an intelligent well-grounded estimate rather than pure guess work. Thus, the assessing authority must assign reasons under the best judgement method.
  1. Material to base judgement: An element of guess work is bound to be present in the best judgement assessment, but it must have reasonable nexus with the available material and circumstances of each case. It must be made on settled and recognized principles of Justice. For instance, in the case of Shri Krishna Steel Works v. Commissioner Trade Tax (2014)[x], wherein it was held that best assessment, cannot be made in arbitrary manner on conjectures and surmises. There must be some material to support such an assessment

Thus, enhancement of turnover or determination of turnover with best of judgment by authorities must be done in certain manner resulting in a fair, reasonable and proper estimate based on substantial material to place reliance.

Input Tax Rebate: A provision to provide set off for tax paid earlier

A rebate of input tax, subject to certain conditions and restrictions, can be claimed by a registered dealer or provided to such a dealer under circumstances prescribed in Section 14[xi]  of the Act.

Succinctly, understanding provisions related to input tax rebate-

  • Adjustment of ITR: The input tax rebate (ITR) available to a registered dealer shall be adjustable towards the tax payable by him under VAT Act or under the Central Sales Tax Act and the balance shall be carried over after two years from the close of relevant financial year. Hence it is obligatory on the part of authority adjust ITR against liability of the dealer regarding payment of tax in the same assessment year or subsequent years as per provisions of Sec. 14(3) of VAT Act.
  • Credit of Carried forward ITR: In the instant case, the appellant file revised return for the 4th quarter of 2006-2007 to correct the amount of carried forward ITR as Rs. 7,59,566/- which was inadvertently carried forward as Rs 8,38,621/-. In the assessment for next year, the amount carried forward was taken as 7,59,566/- based on revised return, but in the assessment of 2006-2007 the amount carried forward was taken as Rs 8,38,621/- Without considering the 4th quarter revised return. Thus, there was a situation of Double Taxation and considering the same, Appellate Body remanded the case to assessing authority to decide the case in accordance with provision of law after examining the records of the case and giving an opportunity to the appellant.[xii]
  • Disallowing claim for ITR: It is duty of authority to prove alleged illegality in granting ITR and disallowing claim on that basis. In the case of Jabalpur Cement Pipe v. Commissioner, Commercial Tax, M. P[xiii], wherein it was held that it is the Duty of Department to prove alleged Farzi sales bill for disallowing claim for ITR.

Delegation of Power & Jurisdiction

The various notifications and orders issued for delegation of Commissioner’s powers derive sanctity under Section 41[xiv] of the Act and are subject to the restrictions and conditions of that section. The delegation of power is necessary for giving inherent jurisdiction to be exercised in rightful manner by taxing authorities as contrary could render assessment order null and void ab initio.  Referring, Deepak Argo Foods v. State of Rajasthan (2010) [xv], wherein, the Supreme Court held that all irregular erroneous or illegal orders cannot be held to be null and void. There is a distinction between orders which are null and void and orders which are irregular, wrong or illegal. Where the authority passing the order lacks inherent jurisdiction, such order would be without jurisdiction, null and void ab initio as defect of jurisdiction goes to the root of the case and it cannot be cured even with the consent of parties. However, the exercise of jurisdiction in a wrongful manner cannot result in nullity. It is an illegality capable of being cured.

Conclusion

In conclusion, the state- level VAT regime encompassed crucial provisions designed to streamline taxation and bolster economic efficiency within the states. By emphasizing upon exemptions and compliance procedures, the VAT framework fostered a conducive environment for business growth while ensuring equitable contribution to state revenues. As the State of Madhya Pradesh continues to evolve economically, it become crucial to learn from the provisions and related judicial pronouncements of previous tax regime to continuously enhance efficiency and competitiveness in the present taxation landscape. Thus, understanding these provisions contributes towards understanding the foundation of the present tax regime.

[i] Sumi Dutt Majumder, GST in India: Its travails, tribulations and challenges ahead 661(Central Publications Pvt. Ltd., 2ndedn.,2016)

[ii] The Madhya Pradesh VAT Act, §20(A), Act No. 20, Act of Madhya Pradesh,2002(India)

[iii] Sales Tax Bar Association (regd.) v. Government of NCT of Delhi (2013) 23STJ 20(Del): (2013)61 VST 43

[iv] The Madhya Pradesh VAT Act, §21, Act No. 20, Act of Madhya Pradesh,2002(India)

[v] Scientific Supplies & Manufacturing, Gwalior vs Commissioner Commercial Tax, MP (2014) 25 STJ555 (MP-BD)

[vi] Mahendra & Mahendra (Tractor Division), Bhopal v. Commissioner Commercial Tax,[vi] M.P. (2012) 21 STJ 178:

[vii] The Madhya Pradesh VAT Act, §20(A), Act No. 20 (5) & (6), Act of Madhya Pradesh,2002(India)

[viii] The Madhya Pradesh VAT Rules, Rule 31, Noti. No. 18, dt. 31.3.06

[ix]  Eminence (India) Ltd., Gwalior v. Sate of M.P. (2014)[ix] 25STJ 285 (MP); 2014

[x] Shri Krishna Steel Works v. Commissioner Trade Tax (2014) 24 STJ 745 (All); (2014) 70 VST 309

[xi] The Madhya Pradesh VAT Act, §14, Act No. 20 (5) & (6), Act of Madhya Pradesh,2002(India)

[xii] A- One Radio Electricals Pvt. Ltd Indore v. Commissioner Commercial Tax, M.P. (2014) 24 STJ 265

[xiii] Jabalpur Cement Pipe v. Commissioner, Commercial Tax, M.P. (2012) 21 STJ 359 (MP-BD)

[xiv] The Madhya Pradesh VAT Act, §41, Act No. 20, Act of Madhya Pradesh,2002(India)

[xv] Deepak Argo Foods v. State of Rajasthan (2010) 16 STJ 1 (SC); 2018 16 VST 454; (2012)4 STD 392

This article is written by Jayati Singhal, a 4th year law student pursuing BBA LL.B.(Hons.) at Amity Law School, Amity University Madhya Pradesh, Gwalior.