HC: Grants “legislative flexibility”, upholds stage-wise taxability under MVAT Rules; Bombay Tyre reigns

Bombay HC rejects challenge to amendment to Rule 58 of Maharashtra VAT (MVAT) Rules vide Notification dated January 29, 2014 and ensuing Trade Circulars 7T of 2014 and 12T of 2014, dismisses petitioners’ claim of the same being in express conflict with SC dictum in the case of Larsen & Toubro Ltd; Rejects petitioners’ contention that amended Rule 58 tends to indirectly tax immovable property and does not allow deductions on account of consideration for acquisition of FSI / TDR, payments towards eviction of tenants, and clearance of land encroachment; Observes, prescription under the provisions may be inadequate and falling short but its incorporation would not be bad or illegal or ultra vires the Constitution; Perusing the history of litigation on subject matter, observes, new provisions determine the value on basis of elimination and deductions and the value arrived at is charged / chargeable in respect of transfer of goods in works contract, when such specific value is determined, fundamental basis of petitioners’ arguments does not survive; Conceptual nature of measure of subject of tax occurs as neither the identity of seller of goods nor identity of goods sought to be charged, nor the actual cost charged by seller can be determining factor, such conceptual value governs the assessment of levy; Rejecting petitioners’ stand that value of goods must be limited to cost plus profit, observes, “While enacting a measure to serve as a standard as levy, the legislation may not contour it along with the lines which spell out the character of the levy itself… A standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of levy.”; Incidence of MVAT ultimately will always be on consumer and as such, said tax can be levied at a convenient stage so long as character of the impost – ‘it is a tax on transfer of goods’ – is not lost, observes, “….the valuation of tax being made at the stages is a convenient mode for point of collection. It would not be necessarily confused with the nature of tax.” ; It is open for legislature to adopt any basis for determining the value of a taxable article, holds “…The measure for assessing the levy need not correspond completely to the nature of levy, and no fault can be found with the measure so long as it bears nexus with the charge.” ; Where in construction contracts element of transfer of interest in land is involved, Rule 58(1A) provides for mandatory method of computing assessable value, and therefore, Trade Circulars being only clarificatory, cannot be said to have travelled beyond the contours of said Rule; Observes that SC in Larsen & Toubro Ltd had held that it would be permissible for State legislature to prescribe a formula for determination of charges and to allow deductions of amount, the proviso to Rule 58 (1A) and 58 (1B) have been enacted to deal with such situation; Moreover, SC, while directing Govt to bring clarity in the Rules, had not disturbed Rule 58(1A) requiring valuation of land pursuant to Annual Statement of Rates of Bombay TMV Rules, 1995, thus application of same not open for re-examination / challenge; Observes, “It is to be borne in mind that defining the subject of tax is a simple task and devising measure for tax is far more complex exercise…..and the legislature has to be given much more flexibility in the latter field.” ; Relies on a catena of landmark rulings of apex court including Bombay Tyre International, State of West Bengal vs Kesoram Industries, Commissioner of Wealth Tax vs Shravan Kumar & Sons and division bench rulings of Bombay HC in Maharashtra Chamber of Housing Industry vs State of Maharashtra, Builders Association of India vs State of Maharashtra and Hyva (India) Pvt Ltd vs UoI, rejects petitioners reliance on ratio laid down in A.V. Fernandez vs State of Kerala and Bhawani Cotton Mills vs State of Punjab  : Bombay HC