MVAT Assessments Foregone - Better Late Than Never!

Jigar Doshi, Founding Partner & Swapnil Kolte, Assistant Manager, TMSL

Maharashtra is facing a revolting second wave of Covid-19 and things are looking grim with a second lockdown in the state. The businesses that were crippling back to normalcy are facing another ordeal of a lockdown 2.0. Amidst this anguish, the Maharashtra State Value Added Tax (VAT) department has tried to offer relief to the devastated taxpayers by notifying VAT Criteria for Withdrawal of the Assessment Proceedings Scheme, 2021.

An extension to 'Maharashtra Criteria for Selection (on the basis of probable revenue earnings) of the cases for Assessment (Amendment) Scheme, 2018' (the scheme), has come up at the right time; just when the businesses needed some support from the State Government.

Notification no. VAT-1521/C.R. 1/Taxation-1 dated the 1st April 2021, has been notified with an objective to decide the criteria for withdrawing assessment proceedings based on probable revenue earnings. The Scheme defines "Probable revenue involved" as the amount of probable revenue indicated on analysis of electronic data available with the Sales Tax Department. In simple terms, it means that the expected revenue from a specific taxpayer which is determined basis an analysis of data available with the department. Therefore, where the probable revenue is below the notified threshold, a withdrawal of assessment proceedings under VAT and Central Sales Tax (CST) can be anticipated.

The features of the scheme are enlisted below:

1. The scheme envisages the use of business intelligence data warehouse tools and other electronic data mining tools to identify cases where likely revenue would be less than the threshold. This would ensure optimal manpower usage of the State Department and effective assessment proceedings.

2. The scheme is applicable to all pending assessment proceedings as on the date of publication of this Notification i.e. 1 April 2021. Pending assessment proceedings in the scheme have been defined as those cases which have been selected for assessment purpose, irrespective of whether notice in this regard has been issued or not before the Notification came into existence. However, the said scheme shall not be applicable in the following cases:

- Where an assessment order has been passed before the scheme got published in the official gazette.

- Where an assessment is initiated as a part of investigation either before or after the publication of scheme in the official gazette.

- Where an assessment proceeding is undertaken to give effect to any directions of appellate authority including Tribunal or Court.

3. The threshold of scheme has been amended to Rs. 10,00,000 i.e. where the probable revenue is less than Rs. 10,00,000, then such assessment proceedings could be withdrawn. Moreover, the original scheme of 2018 laid down several scenarios which could be applied in calculating probable revenue earning. Apart from the threshold, other factors such as manpower availability, recommendation of the selection committee (constituted under the guidance of Commissioner), and decision of Commissioner may impact the withdrawal of assessment.

4. Other criteria which have been inserted in the amended scheme is that such scheme is not available to dealers whose registration has not been cancelled u/s 16(6A) of the MVAT Act, 2002 [i.e. dealers who are effecting sale of petroleum products on which MVAT is still levied].

5. Once the list for withdrawal of the pending assessment proceeding is published on the Official Website of the Sales Tax Department, then it shall be deemed that the said assessment proceeding is abated from the stage where it was left. The Commissioner shall, from time to time, publish the order containing the list of the cases where the pending assessment proceedings are withdrawn for each year on the Official Website of the Sales Tax Department.

Our Comments

The idea of forgoing assessments basis the probable revenue is not a novel concept and the State Government has exercised the scheme before. However, the timing of the scheme is impeccable and would certainly give respite to the industry in the taxing times. Moreover, the State is facing a mammoth sized revenue deficit with significant amounts pending from tax revenue. In 2019-20, Rs. 1,13,198 crore was the outstanding tax revenue[1]. Of this amount, Rs. 80,035 crore is disputed tax amount for which litigations and appeals are pending in various courts for years and Rs. 33,162 crore is the accumulated outstanding tax revenue that the government could not recover over various reasons in the past many years. With such massive revenue on stakes, the State has taken the right step to forego the litigations where the revenue is not significant and focus on the large taxpayers. This would help in closing out the assessments in a more efficient manner.

Thus, for taxpayers, whose assessments are pending (irrespective or whether notice is received or not) under MVAT could expect a waiver of assessment if their case is selected on the basis of technology assessment and mandated threshold. Nonetheless, where assessment order has been passed, or assessment is a consequence of investigation or a court order, the present scheme would not apply.

Another striking feature is the reliance on technology to identify the eligible cases i.e. business intelligence data warehouse tools and other electronic data mining tools. With each passing day, we are witnessing enhanced inclination of the revenue on technology for its day-to-day affairs. The good part is that technology is not only being used extensively for GST related matters, the state department is also keen on closing the legacy assessments with its help. It goes without saying that time-bound closure of assessment proceedings would not only benefit the taxpayers but the Government also by reducing their workload and manpower requirements.

The author is Jigar Doshi - Founding Partner at TMSL - a tax, technology firm and the views are personal. He can be reached at jigar.doshi@tmsl.in

The article is co-authored by Swapnil Kolte - Assistant Manager at TMSL.

[Date: 09/04/2021]

(The views expressed in this article are strictly personal)