The High Court of Bombay has quashed the Maharashtra Value Added Tax (MVAT) Review Order that disallowed deductions for Works Contract Project citing excess scope and misapplied deductions on the part of the revenue authorities.
The case pertains to a writ petition filed by Kalpataru Power Transmission Ltd., a Mumbai-based company engaged in infrastructure projects which involves a dispute over the application of Rule 58 of the MVAT Rules for the financial year 2006-07.
The petitioner, Kalpataru Power Transmission Ltd. challenged a review order issued by the Deputy Commissioner of State Tax, Investigation Division, Mumbai, under Section 25 of the Maharashtra Value Added Tax (MVAT) Act, 2002.
The petitioner also contested the order which rejected their application for rectification of the earlier review order.
The primary contention in the case revolved around the computation of deductions for the transfer of property in goods as part of works contracts.
Rule 58 of the MVAT Rules provides a framework for determining the value of goods involved in the execution of works contracts. This Rule allows for various deductions, including labor costs, subcontractor payments, charges for planning and design, among others. The dispute centered on the eligibility and calculation of these deductions.
The petitioner, represented by Ms. Nikita Badheka, Mr. Parth Badheka and Ms. Lata Nagal argued that the deductions claimed by the petitioner under Rule 58 were valid and in line with the provisions of the MVAT Act.
The petitioner also contended that the review order exceeded the scope of the Show Cause Notice (SCN), as it disallowed all deductions under Rule 58, whereas the notice only referred to a deduction under Rule 58(1)(h) related to profits on supply of labor and services.
The respondent revenue was represented by Mr. Dushant Kumar reiterated the orders.
The court analysed the relevant sections of the MVAT Act and MVAT Rules and concluded that the review order had indeed exceeded the scope of the SCN.
The bench emphasised the principle that orders passed by authorities should not go beyond the issues raised in the notice.
The court also highlighted the significance of the proviso to Rule 58(1), which allows for the application of fixed deductions specified in a table only under certain conditions. The court found that these conditions were not satisfied in this case.
The court underlined that the Act did not impose any express restrictions on the scope of deductions that could be claimed by businesses. Instead, it was the department that had incorrectly imposed such limitations.
Furthermore, the court noted that the deductions were being granted to encourage businesses to participate in crucial infrastructure projects and to promote the growth of the construction sector. Denying these deductions would not only be counterproductive but also hinder the government’s own objectives.
The division bench comprising Justice G. S. Kulkarni and Justice Jitendra Jain ruled in favour of Kalpataru Power Transmission Ltd., stating that the review order was passed without jurisdiction and in violation of the principles of natural justice.
In result, the writ petition is allowed and the review order as well as the order rejecting the rectification application were quashed.
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