1)Introduction:

TheintroductionofValueAddedTax(VAT)byalmostalltheStatesofourcountryis
oneoftheimportantreformsunderIndirectTaxationanditisalsooneoftheright
stepstowardsGlobalisationofIndianEconomy.
MaharashtraStatehasalsointroducedtheVATintheyear2005.Theguidelinesfor
implementingofVATintheStateshadbeenprovidedbytheEmpoweredCommittee
ofFinanceMinistersinWhitePaperissuedon17thJanuary,2005.ThesaidWhite
Paper of Empowered Committee has recommended to have provisions of
CompositionSchemeundertheLocalVATAct.Para2.9oftheWhitePaperprovides,
Small dealer with annual gross turnover not exceeding Rs.50 lakhs, who are
otherwise liable to pay VAT, shall however, have the option for a Composition
Schemewithpaymentoftaxatasmallpercentageofgrossturnover.Thedealers
optingforthiscompositionschemewillnotbeentitledtoinputtaxcredit.
Accordingly,MaharashtraGovernmenthasprovidedfortheCompositionSchemein
Section42oftheMaharashtraValueAddedTaxAct,2002(hereinafterreferredas
MVAT),whichcameintoeffectfrom01/04/05.
InthisarticleanattemptismadetodiscusstheprovisionsofCompositionSchemes
(except Composition Scheme for Works contractor) as provided in section 42 of
MVATalongwithrelevantRulesandNotificationsissuedfromtimetotimeinthis
regard.

CompositionSchemesundertheMVATAct
Section42ofMVATisanenablingprovision,whichprovidespowertotheState
GovernmenttoissueNotificationforCompositionschemes,onsuchconditionsand
restrictions,whichtheStateGovt.deemsproper.
CompositionSchemeofRetailers
UnderSubsection(1)ofSection42ofMVAT,StateGovt.isempoweredtoissue
NotificationforCompositionSchemeinrespecttodealers,whoareengagedinthe
businessofresellingatretail.
CompositionSchemeforRestaurants,etc.
As per Section 42(2) the State Govt. is empowered to issue Notification for
CompositionSchemesinrespectof:
Eatinghouse,Restaurants,Caterers,etc.,
Liquordealers,
Bakersand
DealerswhoaredealinginsecondhandmotorCar.
CompositionSchemeforWorksContractors
Section42(3)itselfhasprovidedfortheCompositionSchemeinrespectofWorks
Contractorsubjecttocertainconditionsandrestrictionsand
CompositionSchemeforMandapDecorators,etc.
Section 42(4)itself has provided for the Composition Scheme inrespect ofsales
effectedbywayoftransferofrighttousemandaportarpaulin.
WiththisbackgroundIwilldiscussthevariousCompositionSchemesindetails.

Inpursuancetopowerconferredinsection42oftheMVATAct,MaharashtraGovt.
hasissuedvariousNotificationsfromtimetotime.

CompositionSchemeRetailers
Section42(1):
Asperthissubsection(1)ofsection42ofMVAT,theStateGovernmentcanissue
Notification,forNotifyingtheCompositionSchemeinrespectofdealerswhoare
RETAILERS.Notificationcanbesubjecttosuchconditionsandrestrictionswhich
theStateGovernmentthinksproper.
ThissubsectionreadwithRule85,explainsthatforthepurposeofthissub
section,RETAILERSarethosedealerswhose90%ofturnoverofsales(ofanygoods
ormerchandise)ismadetopersonswhoarenotdealers.
Subclause(b)ofthissubsectionfurtherprovidesthatifanyquestionarisesasto
whetheranyparticulardealerisaretailer,thentheofficerinchargeofthecaseshall
refer the question to the Joint Commissioner. The Joint Commissioner who after
hearingthedealermaydecidethequestionandhisorderinthisrespectisfinal.Thus,
averywidepowerhasbeenprovidedtoJointCommissionerhere.Firstofall,the
JointCommissionermayormaynotdecidethequestion.Italldependsuponhis
whims,ifhethinksthatitisnotnecessaryforhimtodecidethequestion,heisnot
boundtodecidethesame.Secondly,itisfurtherprovidedthattheorderofJoint
Commissionerisfinal.Thus,ifinacase,theJointCommissionerdoesnotdecidethe
question then it can impact the concerned dealer badly. Such type of provisions
shouldnotbethereunderanyAct.

As per sub clause (c) of this subsection, the said Composition Scheme is not
applicabletofollowingtypesofdealer,whois
i)Importer,or
ii)Manufacturer,or
iii)Whohaspurchasedthegoodsfromadealer,whoisnotliabletopaytaxu/s.8(1)
ofMVATActi.e.toadealerwhohaspurchasedthegoodsinthecourseofinterState
tradeorcommerceor
iv)Sellingliquorinretail,(bothCountryaswellasIMFL),exceptasprovidedinsub
section(2)ofthisSection.Theimpactofthisisthatanydealerwhoisselling(andnot
serving)theliquorisnotentitledforCompositionbenefitunderthissubsectioni.e.as
aRETAILER,inrespectofsalesofanyothergoods.Thus,theliquordealercannot
claim the benefit of Composition Scheme in respect of sales of any goods or
merchandise.
Thus, here it is important to note that the benefit of Composition Scheme is not
availabletosuchdealersinrespectofsalesofanygoods.
Notificationissuedason01.06.2005
Inpursuancetopowerconferredundersubsection42(1),Govt.ofMaharashtrahasin
supersessionoftheearlierNotificationissuedfreshNotificationason01.06.2005
andnotifiedtheCompositionSchemeforRetailersatsr.no.(3).ThisNotificationhas
comeintoeffectfrom01.06.2005andforthemonthsofAprilandMay,theprovisions
ofoldNotificationareapplicable.

SalientfeaturesofthisScheme:
ThebenefitofthisSchemeisavailabletoRetailersonly,
OnlyRegisteredDealersarecoveredbythisScheme,itmeansCompositionscheme
isnotavailabletounregistereddealer(URD)
ThebenefitofCompositionSchemeisnotavailableinrespectofsalesofMotor
Spirits,whicharenotifiedbytheStateGovernmentu/s.41(4)ofMVATAct,2002,
The benefit is also not available to those dealers whose turnover of sales has
exceededRupeesFiftylakhinthepreviousyear;theturnoverlimitofRupeesFifty
lakhsisapplicableonlyonsalessideandnotonpurchasesside.
This limit of turnover of sales is applicable qua dealer and not qua place of
business.Inotherwordstheturnoverlimitisaggregateofturnoverofsalesofallthe
placesofbusinessofadealer.
TurnoverofSales/PurchasesAspercolumnno.3ofthesaidNotification,the
Compositionamountispayableontheexcessofturnoverofsalesovertheturnoverof
purchasesdeterminedasunder
Totalturnoverofsales/purchasesmadebyaRetailerexcludingtheturnoverofresale
ofthefollowinggoods:
a)ForeignLiquor,
b)CountryLiquor,
c)LiquorImportedfromoutsideIndia,
d)DrugscoveredbyScheduleEntryC29(fortheperiod01.04.2005to30.06.07)and

e)Motorspirits(asNotifiedu/s41(4)ofMVATAct)
Inthiscolumn,deductionisprovidedinrespectofresalesofliquor.However,ifone
readsclause(c)ofsubsection42(1),itspecificallydeniestheCompositionScheme
toLiquordealers.Thus,oncethedealerhassoldliquoretc.,hewillbeoutfrom
claimingthisCompositionbenefitbyvirtueofSection42(1)(c)andassuch,thereis
noneedofprovidinganydeductiontosuchdealersinrespectofsalesofliquor.Thus
thedeductionprovidedintheNotificationisnotconsistentwithSection42(1)(c),
thuseithertheNotificationhastobeamendedorotherwisesection42(1)(c)shouldbe
amendedaccordingly.
SecondlybenefitunderthisCompositionSchemewasnotavailableinrespectofsales
ofdrugs,fortheperiod01.04.2005to30.06.2007becauseduringthisperiod,VAT
waspayableonMaximumRetailPriceofthedrugbythedealers.However,w.e.f.
01.07.2007 the said scheme of taxation was discontinued and consequential
amendment has been made as a result of which amendment is also made in this
notification.Accordingly,theCompositionSchemehasalsobeenmadeavailableto
dealersinrespectofsalesofdrugs.
CompositionAmount
UnderthisCompositionSchemetheregistereddealerisrequiredtopayComposition
amountonsixmonthbasis
a)CalculationofTaxableTurnover
Itis anexcess ofturnoverofsales includingtaxfreegoodsovertheturnoverof
purchasesincludingtaxfreegoods.
Inthefirstyearofoperation,dealercanclaimthedeductionundersection3(2)of
MVATAct,2002andonlybalanceturnovershallbetakenforcalculationpurposes.

Taxfree goods purchased may be from registered dealers or from unregistered

dealers,
Taxablegoodsresoldarethosegoodswhicharepurchasedfromregistereddealeronly
except purchased goods which are used for packing of goods resold. Thus, no
deductionisavailablefromtheturnoverofsalesinrespectofpurchasesofgoods
madefromunregistereddealers.
Taxcollectedseparatelybythevendorsshallformpartoftotalturnoverofpurchases.
Theturnoverofpurchasesshallbereducedbytheamountofeverycreditreceivedby
theclaimantdealerfromhisvendor.
ItisonceagainprovidedthattheTurnoverofSalesandPurchasesshallnotinclude
thepurchasesandsalesofliquor,motorspiritsanddrugsforcertainperiod.
TogivethedeductionofopeningStockason01.04.2005aspecialconcessionhas
beenprovidedinrespectofthesixmonthperiodstartingon1stApril,2005.Insuch
cases, the six monthly turnovers of sales have to be considered at 5/6th of such
turnover,whereasthetotalturnoverofpurchasesofsixmonthswastobereduced
fromsuchturnoverofsales.
CertainIssuesinrespectofcalculationoftaxableturnover
i)WhethersalesoffurnitureorfixtureorMotorvehicles,canbeaddedtotheturnover
ofsalesanddealercanpaytheCompositionamount@8%onsuchsales?Inmy
view,itispossibleforclaimantdealertodoso.ThatissobecauseSection42and
Notificationissuedinthisbehalfhasnotprovidedforanyexclusionofsuchtypesof
sales.Onthecontrary,intheSectionaswellasinNotificationitisprovidedthatthe
claimantdealerisentitledforCompositionSchemeinrespectofsalesofanygoodsor

merchandises which includes sales of abovementioned goods also. Thus, such

claimantdealercanpaytheCompositionamountonsalesofsuchgoods.
ii)Manytimesitispossiblethatthenetexcessturnoverofpurchasesisinexcessover
turnover of sales, thus, calculation of taxable turnover sales determined as stated
abovemayresultinanegativeamount,thatissobecausetheturnoverofpurchases
maybemorethanturnoverofsales.Insuchsituation,provisionisnotthereinthis
Notificationforcarryforwardandadjustmentofsuchexcesspurchasesinnextsix
monthlyperiod(likeitwasthereundertheNotificationEntryJ8issuedu/s.41ofthe
BombaySalesTaxAct).Insuchsituation,retailersarelosingthebenefitofdeduction
inrespectofunadjustedpurchasesofgoods.
iii)Insomecases,somedealers,whoaredealinginseasonalgoodsarealsonotina
positiontotakethebenefitofthis CompositionScheme,forthereasonthatsuch
dealersaremakingtheirmajorpurchasesinonehalfofyearandsellingthesaidgoods
inanotherhalfoftheyeare.g.dealersdealinginUmbrellasorfertilizers,etc.arenot
inapositiontotakethebenefitofthisCompositionScheme.
b)RateofComposition
TheCompositionamountispayableattherateof5%ontheexcessturnoverofsales,
incaseofretailers,whoseaggregateturnoverofsalesofgoodscoveredbySchedule
Aandgoodstaxableattherateof4%ismorethan50%ofthetotalsalesandinany
othercase,theCompositionamountispayableattherateof8%.
Conditions
Asperconditionnos.(i)and(viii)ofthesaidNotification,theclaimantdealershall
notcollectanytaxorcompositionamountseparatelyinthecashmemo/billissuedby
him,

Conditionno.(vi)oftheNotificationstipulatesthattheRetailerwhodesiresto
availthebenefitunderthisNotificationshallapplyinformNo.4
Incaseofnewdealer,theapplicationinabovestatedformhastobemadetothe
Registeringauthorityatthetimeofregistration.
AspertheNotification,anexistingdealershouldhaveappliedonorbefore15th
June 2005. The said date was extended upto 30th September, 2005 by the
Commissioner of Sales Tax vide Trade Circular No 26 T dt. 05.09.2005. The
applicationisrequiredtobemadetotheassessingauthority,whowasinchargeofthe
caseason31stMarch,2005.
However,inthesaidNotification,nothinghasbeenprovidedinrespectoffilingof
application in the subsequent years i.e. if any existing dealer wants to avail the
Compositionbenefitfirsttimeintheyear200607orthereafteroranewdealerwho
hasnotoptedforCompositionSchemeinthefirstyearofregistration,wantstogofor
CompositionSchemeinthenextyear,ordealerdealinginDrugs,afteramendmentto
said Notification wants to avail the benefit of Composition Scheme on or after
01.07.2007firsttime.Inthisrespect,followingquestionsemergeforourdiscussion:
1) When should such dealers apply for Composition Scheme?
2)

To

whom,

such

dealers

shall

apply?

3)WhethersuchdealersareentitledforthebenefitofCompositionSchemeatall?
4)SincenothingismentionedintheNotificationaboutsuchsituation,aviewhas
beenexpressedincertainsectionthatsuchdealerscannotoptfortheComposition
Schemeinsubsequentyears.Thisisnotthecorrectviewbecauseifitisso,thenthis
Notificationbecomesredundantatleastforexistingdealerwhohavenotoptedforthe
Composition

Scheme

in

the

first

year.

10

In my view, an existing dealer can opt for the Composition Scheme in any year
provided the said dealer applies to the specified authority before the start of the
financialyearandcomplieswiththeconditionsandrestrictionsmentionedinthesaid
Notification.
Inthisregard,itisalsonoticedthatcertainexistingdealershavefiledtheapplication
informno.4firsttimefortheyear200607or200708,beforestartofthesaid
financialyeartotheiroldassessingauthoritytoavailthebenefitofComposition
Scheme.SuchdealershavefiledtheVATAuditReportalsofortheyear200607.So
fartheDept.hasnottakenanyactiononsuchdealers.Thus,itisconcludedthatsuch
dealershavefollowedtheproperprocedures.Assuchifanyexistingdealerwantsto
avail the benefit of Composition Scheme, he could follow similar procedures.
5)However,stillitwouldbebetteriftheCommissionerofSalesTaxclarifiesallsuch
issues.
AnotherconditionoftheNotificationstipulatedthatiftheoptiontojoinortoopt
outoftheCompositionSchemeisexercisedinanyyearthenitcanbechangedonlyat
thebeginningofthenextyear.Thus,itisclearthatadealercanjoinorcomeoutof
theCompositionSchemefromthebeginningoftheyearexceptincaseofnewdealer.
Sometimesaquestioncomesupforourdiscussionthatifanyclaimantdealerwho
after opting forthe Composition Scheme, wants tocome out ofthe Composition
Schemeduringtheyearofexercisingofoptiononly,canhecomeoutofComposition
Scheme? Or what would be the position of the claimant dealer, if by chance or
otherwisetheconditionorrestrictionstipulatedintheCompositionSchemehasnot
beenfollowedorisviolatedbytheclaimantdealer?Forexample,aClaimantdealer
haschargedthetax/CompositionamountintheCashmemo/billissuedbyhimorhe

11

hasimportedthegoods;thesearetheinstanceswhichviolatetheconditionsstipulated
in the Notification of Composition Scheme. About the consequences of such
eventualityties,Section42ortheNotificationissilent.Insuchasituation,thebenefit
ofCompositionSchemetosuchdefaultingdealerscanbedeniedandsuchdealerscan
beassessedasnormaldealers.Itmeanssuchdealersbecomeliabletopayfullamount
ofVAT.Indeservingcases,penalty,etc.canalsobeleviedbytheassessingauthority.
Conditionno.(ii)oftheNotificationprovidesthattheclaimantdealerisnotentitled
toclaimanysetoffinrespectofpurchasescorrespondingtoanygoodswhicharesold
orusedinpackingofgoodsinrespectofwhichthedealerhasdischargedtheliability
undertheCompositionScheme.Thus,thesetoffisnotallowableonpurchasesof
tradedgoodsandpurchasesofpackingmaterials.
Itmeanstheclaimantdealerisentitledforsetoffinrespectofpurchasesofgoods
whichareeithercapitalizedorwhicharedebitedtoprofitandlossaccounts.
Simultaneously the claimant dealer can also add the amount of Capital assets
purchasesand/orotherpurchasesofexpenses,whicharedebitedtoprofitandloss
accounttoturnoverofpurchasesandthenreducetheamountofsuchpurchasesfrom
turnoverofsalesandthenpaytheCompositionamountonbalanceturnoverofsales.
IntheNotification,deductionisprovidedinrespectoftotalpurchasesofgoodsand
notinrespectofcorrespondingpurchasesofresalesofgoods.
Thus,inrespectofotherpurchases,claimantdealersareentitledforthebenefitof
setoffaswellastheycandeductthesamefromtheturnoverofsales.
Certainotherissues
(1) M/s. ABC Co., who is a Retailer as per section 42 (1) has obtained the
RegistrationCertificateon1stApril,2006underVoluntaryRegistrationScheme.At

12

thetimeofRegistration,hehasoptedfortheCompositionScheme.Duringtheyear
200607theturnoverofsaleswasRs.45.55lakh.Intheyear200708theturnoverof
saleswasRs.70lakh.WhatamountofturnoverofsalesofM/s.ABCCo.istobe
consideredforcalculationofCompositionamount?Theturnoverofsaleshastobe
consideredatRs.70lakhandnotatRs.50lakh,becauseinthesaidNotificationthe
turnoverlimitisapplicableeitherforthefirstyearinwhichtheoptionisexercisedor
theturnoverlimitofRs.50lakhisprescribedinrespectofpreviousyearsturnover
ofsales.However,M/s.ABC&Co.isnoteligibletoclaimthebenefitinnextyear
becausehispreviousyearsturnoverhasexceededthelimitofRs.50lakh.
basis.

CompositionSchemeforrestaurants,etc.
Sections42(2)
Underthissubsection,StateGovernmentofMaharashtraisempoweredtoissuethe
CompositionSchemefordealerswhoarerunninganyeatinghouse,restaurants,hotel,
refreshment room or boarding establishment, caterers, dealers running bakeries or
dealersofsecondhandmotorvehicleswhoseprincipalbusinessisbuyingorselling
motor vehicles or vendors selling either Indian Made Foreign Liquor or Country
Liquoratretail.
UnderthisSubsection,StateGovernmentisalsoempoweredtoissueComposition
Schemeinrespectofdealerswhoareinthebusinessofretailingofliquor.However,
sofarGovt.hasnotissuedanyNotificationinthisregardandhencenoComposition
Schemeisavailableinrespectofsalesofliquor.
Notificationissuedason01.06.2005

13

Inpursuancetopowerconferredundersubsection42(2),Govt.ofMaharashtrahas
issuedNotificationdt.01.06.2005,insupersessionoftheearlierNotificationissuedas
on01.04.2005andnotifiedtheCompositionSchemeforRestaurants,etc.atsr.no.(1)
oftheNotificationThesaidNotificationisapplicablew.e.f.01.06.2005and,forthe
monthsofAprilandMay,theprovisionsofoldNotificationissuedason01.04.2005
areapplicable.
SalientfeaturesofthisScheme
ThebenefitoftheSchemeisavailabletoRestaurants,EatingHouse,Refreshment
Room,BoardingEstablishment,FactoryCanteen,Clubs,HotelandCaterers.
Itisclarifiedbywayofexplanationthatiftheabovementioneddealersalsoserved
alcoholicdrink then such dealers are entitled for benefit of this Scheme only in
respectofsalesandservingoffoodandnonalcoholicdrinksonly.Inotherwords,
CompositionSchemeisnotavailableinrespectofsales/servingofalcoholicdrinks.
ThebenefitoftheSchemeis notavailabletoRestaurants orhoteloranypart
thereofhavinggradationofFourStarandabove.
Composition benefit is available to both Registered as well as to unregistered
dealer,
TheCompositionamountisfixedat8%oftheturnoverofsalesinthecaseofa
registereddealerand10%oftheturnoverofsalesinthecaseofanunregistereddealer
Conditions
Conditionno.(ii)oftheNotificationstipulatesthattheclaimantdealershallnot
collectthetaxorcompositionamountseparatelyinthecashmemo/billinvoiceissued
byhim.

14

 Condition no.(v) Stipulates that the claimant dealer shall not issue anyTAX
INVOICEinrespectofgoodsinrespectofwhich,thedealerisclaimingbenefitof
CompositionScheme.
Theturnoverofsalesistheaggregateofsalesof:
i) Food and nonalcoholic drinks served for consumption at or in the immediate
vicinityofanyrestaurant,eatinghouse,refreshmentroom,boardingestablishment,
hotelorinanyclubor;
ii)Supplybywayofcountersalebysuchrestaurant,eatinghouse,refreshmentroom,
boardingestablishment,hotelorinanyclubor;
iii)Servedforconsumptionatanyplaceotherthanarestaurant,hotel,eatinghouse,
refreshmentroom,boardingestablishment,factorycanteen,oranyclubbyacaterer
Conditionno.(iii)oftheNotificationstipulatesthatthedealer,whoisrunning
restaurants, etc. (other than caterers), and desires to avail the benefit under this
NotificationshallapplyinformNo.1
Thedealerwhoisacaterer,anddesirestoavailthebenefitunderthisComposition
SchemeshallapplyinformNo.2.
ThebenefitundertheNotificationisalsoavailabletounregistereddealers.
Further,itis alsoprovidedthattheclaimantdealermustfileanapplicationto
specifiedauthoritybeforethespecifieddateoratleastatthetimeofobtainingthe
Registration Certificate. How Unregistered Dealers can fulfill such condition? To
whomshallhefileanapplicationinprescribedform?
SincenothinghasbeenstipulatedtowhomURDshallapplyforbenefitunderthis
Scheme,itappearstomethatanunregistereddealercanexercisehisoptioneitherat
the time of his assessment while filing an application in prescribed form to his

15

assessingauthority,providedheisnotgoingforregistrationandifheisgoingfor
registration,theninsuchcaseheshallfileanapplicationtotheregistrationauthority.
ItwouldbebetteriftheCommissionerofSalesTaxclarifiesthisissuealso.
Letusdiscussacasestudyhere:
CaseStudy1A
Adealerrunningarestaurantsince1stApril,2005,isnotregisteredundertheMVAT
Act.AnofficerfromtheSurveyDept.hasvisitedhisplaceofbusinessinthemonth
ofJuly,2008andaskedhimtoobtaintheRegistrationCertificateundertheMVAT
Act.DealerhasappliedfortheregistrationandalsofiledtheapplicationinformNo.1.
WhetherthedealercanavailtheCompositionSchemefortheyears200506and
onwards?Inmyview,suchURD,whohasappliedforregistrationundertheMVAT
aswellasunderthisCompositionScheme,isentitledforthebenefitofComposition
benefitsinceApril2005,becausenothinghasbeenspecifiedintheNotificationabout
theeffectofthebenefitwhichcanbeenjoyedbytheURD;onthecontraryitis
providedintheSchemethatURDisliabletopayCompositionamount@10%.
Thus, for unregistered period, claimant dealer can discharge the liability @10%,
providedhefilesproperapplicationbeforethespecifiedauthority.SuchURDcanfile
theapplicationinprescribedformeitheratthetimeofhisassessmentorotherwiseto
RegisteringauthorityatthetimeofobtainingofRegistrationCertificate,ifsuchURD
isgoingforRegistrationCertificate.
Conditionno.(i)oftheNotificationprovidesthatdealerisnotentitledtoclaimany
setoffinrespectofpurchasescorrespondingtoanygoodswhicharesoldorusedin
packingofgoodsinrespectofwhichdealerhasdischargedtheliabilityunderthe

16

Composition Scheme. Thus, the claimant dealer is not entitled for any setoff in
respectofpurchasesofrawmaterials,finishedgoodsandpackingmaterials.
However,setoffisavailableinrespectofpurchasesofgoodswhicharedebitedto
profitandlossaccountorpurchasesoffurniture,fixturesorofficeequipment,etc.
which are not corresponding to goods sold, on which the dealer has availed the
Compositionbenefit.
Similarly, setoff should also be available in respect of purchases of Kitchen
equipment,etc.whicharedebitedtoPlantandMachinery.
However,setoffisnotavailableinrespectofpurchasesofconsumableslikefuel,
etc.whichareconsumedinthecourseofpreparationoffinishedgoods.
Unlike Retailers,dealers opting forthis Composition Scheme are liable to file
returnsasnormaldealers,aspertheprovisionsofRules17and18.
The issues regarding the availability of deduction u/s. 3(2)in the first year of
operation, time limit for filing of application and application to be filed by the
existing dealer claiming benefit in next year, dealer wanting to come out of the
CompositionScheme;orconsequencesofviolationofconditionsoftheNotification,
havealreadybeendiscussedundertheheadingofCompositionSchemeforRetailer
andhencesamehavenotbeenrepeatedhere.
CompositionSchemeandCaterers
Almost all the salient features of Composition Scheme which are applicable to
restaurants, etc. are equally applicable to caterers who are serving foods, etc. to
customeratanyplace,exceptthatcaterersshallapplyinformNo.2insteadofform
No.1tospecifiedauthorityforexercisingoption.

17

Discharging of Tax Liability as a normal dealer visvis under the Composition

Scheme
WhetherthisCompositionSchemeisbeneficialtosuchdealers?CompositionScheme
hascertaininherentdisadvantageslikeclaimantdealerisnotentitledtoclaimsetoff
onpurchasesofcorrespondinggoodstosalesonwhichclaimantdealerhaspaidtax
undertheCompositionScheme,noristheclaimantdealerallowedtocollectthetaxin
thebill/cashmemoetc.whichheisgoingtoissue.Thus,VATpaidbytheclaimant
dealerformsapartofcostofmaterialandsimultaneouslyhehastopayComposition
amountfromhisprofit.
However, under this Composition Scheme, the major saving is that the claimant
dealerrequirestopaylessamountoftaxtothetuneof4.5%(12.5%8%)ongross
turnover of sales and if claimant dealer plans properly in respect of price
structure/menupriceofgoodssoldbyhim,thencostbenefitanalysiswillrevealthat,
undertheCompositionScheme,dealeris requiredtopaylesseramountoftaxin
comparisontoregulartaxpaymentsystem.Therecanbedifferentscenariosinsome
otherdealercases,butinmostofthecasesthedealersarerequiredtopaylesser
amountoftaxundertheCompositionScheme.Thatissobecause,insuchtypeof
dealerscases,thepercentageofconsumptionoftaxablegoodsisquiteless,onwhich
dealercanclaimthesetoff,becausesuchdealersmainpurchasesarerawmaterials
whichareeithertaxfreegoodsorareliabletotax@4%.Thus,lossofsetoffisvery
negligible,comparedtosavingof4.5%onsalesside.Thus,accordingtome,this
CompositionSchemeismorebeneficialforRestaurants,etc.
CertainissuesunderthisCompositionScheme

18

 Whether dealer can discharge liability differently for his different places of
business?Forexample,dealerhastworestaurantsinMumbaicity.Cansuchdealers
optfortheCompositionSchemeinrespectofonlyonerestaurantandpaythetaxin
respect of another restaurant? The answer to this question is no, because the
CompositionSchemeisavailabletodealerandnottoanyrestaurant.Thus,either
benefitisavailableinrespectofalltherestaurantsoritisnotavailableinrespectof
anyrestaurant.
Similarly,ifdealerisrunningarestaurantaswellasrenderingcateringservices,
canhedischargethetaxliabilityinrespectofcateringservicesandcanheoptforthe
CompositionSchemeinrespectofturnoverofsalesofrestaurant.Theanswerisagain
no. The said dealer has to either go for regular tax payment or for Composition
Schemeinrespectofbothhisactivities.

19

CompositionSchemeBakers
Notificationissuedason01.06.2005
Inpursuancetopowerconferredundersubsection42(2),Govt.ofMaharashtrahas
issued Notification as on 01.06.2005, in supersession of the earlier Notification,
notifying about the Composition Scheme for Bakers at Sr. No. 2 of the said
Notification.
Salientfeaturesofthisscheme
The benefit of Scheme is available to a dealer who is a Baker, means who
manufacturesthebakeryproductshimself
Anydealerwhoisabaker,unlikerestaurantsetc.,cantakeCompositionbenefit;
herethebenefitcanbeavailedbyahotelhavinganystargradation,providedthat
suchhotelitselfmanufacturedthebakeryproductsandalsosubjecttootherconditions
andrestrictionsoftheNotification.
CompositionbenefitisavailabletobothRegisteredaswellastounregistereddealer
ThebenefitofthisSchemeisnotavailabletoadealerwhoisresellerofbakery
products
Conditionno.(i)oftheNotificationstipulatestheJointCommissionershallcertify
thatclaimantdealer
Hereitisimportanttonotethatonlyfilingofanapplicationisnotenoughtoclaimthe
benefit,infactdealershouldalsobecertifiedbytheJointCommissioner
Conditionno.(iv)oftheNotificationstipulatesthatdealerwhodesirestoavailthe
benefitunderthisNotificationshallapplyinformNo.3.

20

Incaseofnewdealer,theapplicationinabovestatedformhastobemadetothe
Registeringauthorityatthetimeofregistration.
ThebenefitunderthisNotificationisnotavailabletothosedealerswhoseturnover
ofsalesofbakeryproductsincludingsalesofbreadhasexceededrupeesthirtylakhin
thepreviousyear.
Thebenefitunderthisschemeisavailableonlyuptofirstthirtylakhrupeesofthe
totalturnoverofsalesandoncetheturnoverofsalesofbakeryproductsincluding
breadhasexceededRupeesthirtylakhthenbenefitisnotavailableinsubsequentyear.
Thus,unlikeincaseofCompositionSchemeofRetailers,wheretheturnoverlimit
isnotapplicableintheyearofexercisingofoption,inthiscase,theturnoverlimitis
providedintheyearofexercisingofoptionalso.
ForthepurposeofthisCompositionScheme,theclassofsalesspecifiedincolumn
(3),meansthesalesofbakeryproducts,whicharemanufacturedbythesaidbaker
himself.
Compositionamount
a)IncaseofRegistereddealertheCompositionamounthasbeenfixedat4%offirst
thirtylakhrupeesofthetotalturnoverofsales ofbakerygoodsmanufacturedby
bakerhimselfandgoodsimportedfromoutofMaharashtraStateandalsoincluding
breadinloaf,rollorinslices,toastedorotherwise,
b)IncaseofUnregistereddealertheCompositionamounthasbeenfixedat6%of
firstthirtylakhrupeesofthetotalturnoverofsalesofbakerygoodsmanufacturedby
bakerhimselfandgoodsimportedoutofMaharashtraStateandalsoincludingbread
inloaf,rollorinslices,toastedorotherwise

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ItmeansthatbenefitofCompositionamountisalsoavailableinrespectofbakery
products,whichareimportedfromoutsideMaharashtraincludingsalesofbread.In
thisSchemethebenefitisprovidedtoimportedbakeryproducts.Simultaneously,tax
hasbeenleviedonsalesoftaxfreegoodsi.e.onthesaleofbread.
Thus,adealerwhohasimportedthebakeryproductsfromoutsidetheStatecanalso
availtheCompositionbenefitinrespectofsalesofbakeryproductsimportedfrom
outsidetheState.However,inthefirstyearofexercisingofoptionthedealermaynot
beabletoenjoythebenefitofthisSchemebecausetheJointCommissionermaynot
issue the Certificate to such dealer, for the reason that such dealer has not
manufacturedanybakeryproductsintheState,whichisoneoftheconditionsfor
grantingtheCertificate.However,oncethecertificateisissuedtoanysuchdealer,the
benefit can not be denied to certified dealer even though such dealers have not
manufacturedanybakeryproduct.
Theissuespertainingtotheavailabilityofdeductionu/s.3(2)inthefirstyearof
operation, time limit for filing of application and application to be filed by the
existing dealer claiming benefit in next year, dealer wanting to come out of the
CompositionScheme;orconsequencesofviolationofconditionsoftheNotification,
availabilityofsetoff,filingofreturnsandavailabilityofbenefitinrespectofmore
than one place of business have already been discussed under the heading of
CompositionSchemeforRetaileraswellasCompositionSchemeforRestaurantsetc.
andhencesamehasnotbeenrepeatedinthissection.

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CompositionSchemeSecondHandMotorCarDealers
Notificationissuedason01.06.2005
Inpursuancetopowerconferredundersubsection42(2),Govt.ofMaharashtrahas,
insupersessionoftheearlierNotificationissuedason01.04.2005,andnotifiedthe
CompositionSchemeforSecondHandMotorCarDealeratSr.No.4ofthesaid
Notification.
Salientfeaturesofthesaidscheme
ThebenefitofCompositionSchemeisavailabletodealersinSecondHandMotor
vehicles,
The benefit of Scheme is available only to registered dealer whose principal
businessisofbuyingorsellingofmotorvehiclesbutnotnecessarilyinthebusiness
ofbuyingandsellingofSecondhandmotorvehiclesonly,
Unlike other Composition Schemes as discussed above, the benefit of this
CompositionSchemeisnotavailabletoURD.
ForthepurposeofthisCompositionSchemetheturnoverofsalesspecifiedin
column(3),meanssalesofsecondhandpassengermotorvehicles.Thus,thebenefit
ofCompositionSchemeisnotavailableinrespectofsalesofsecondhandmotor
vehicles,whicharenotpassengervehicles.
In nut shell, the benefit under this Composition Scheme is available to
REGISTEREDDEALERonly,whoseprincipalbusinessisthatofbuyingorselling
ofanymotorvehicles(notnecessarilyinpassengervehiclesorinsecondhandmotor
vehicles). However, the benefit is available only in respect of sales of SECOND
HANDPASSENGERMOTORVEHICLES.

23

ThebenefitofCompositionSchemeisavailableevenifMotorvehiclesaresold
afterreconditioningorrefurbishing
ForclaimingthebenefitofCompositionScheme,claimantdealershallprovein
respectofsalesofsecondhandmotorvehiclethateitherEntryTaxhasalreadybeen
paidearlierorthatthesaidvehiclesareregisteredatthetimeofpurchaseunderthe
Central Motor Vehicles Rules 1989, in the State of Maharashtra and accordingly
registrationmarkofthisStatewasallottedtosaidsecondhandmotorvehicle,
The Composition amount is fixed @ 12.5% on 15 % of the sale price of the
vehicles.Thus,effectiveratecomesat1.875%ofthesaleprice.
Conditions:
Conditionno.(iv)oftheNotificationmentionedthatdealerwhodesirestoavailthe
benefitunderthisNotificationshouldapplyinformNo.5
Condition no. (i) stipulates that claimant dealer shall be certified by the Joint
Commissionerofsalestax,
Hereitisimportanttonotethatonlyfilingofanapplicationisnotenoughtoclaimthe
benefit,infactdealershouldalsobecertifiedbytheJointCommissioner,
Condition no.(iii) ofthe Notification stipulates that the claimant dealer is not
eligibletoclaimanysetoffofEntrytaxpaidorpayableinrespectofsaidsecond
hand motor vehicles. Similarly, it is further provided that claimant dealer is not
eligibletoclaimanysetoffoftaxpaidundertheActinrespectofsaidsecondhand
motorvehicles.
However,setoffisnotdeniedonanyothermaterialse.g.inrespectofpurchasesof
goodswhichareusedforrepairingorreconditioningorrefurbishingofsecondhand
motorvehicles.Similarlysetoffisalsoavailableinrespectofpurchasesofpaintsand

24

anyotherconsumables,stores,plantandmachineryetc.whichisused/consumedby
claimantdealerforsalesofsecondhandmotorvehicles.Asaresultofavailabilityof
suchsetoffandalsoconsideringthemeagerrateoftaxpayableat1.875%(12.5%of
15%)onsalespricerealizedbythesaiddealers,manytimessuchdealersareeligible
forrefundoftax.
Condition no. (v) stipulates that claimant dealer shall not issue any TAX
INVOICE in respect of goods which dealer is claiming benefit of under the
CompositionScheme
Conditionno.(vi)ofNotificationstipulatesthatclaimantdealershallnotcollectthe
taxorcompositionamountseparatelyinthecashmemo/billinvoiceissuedbyhim.
Issues that have already been discussed earlier have not been repeated in this
section.
CaseStudy
M/s.XYZLtd.mainlydealinginbuyingandsellingofmotorvehiclesincluding
thepurchasesandsalesofsecondhandpassengermotorvehicles.M/s.XYZisalso
runningapetrolpumpatsomeotherlocation.Inthesaidpetrolpumppremises,the
dealerisalsorunningarestaurantcumbar,abakeryshopandageneralstore.Inthe
previousyearthetotalturnoverofsalesofM/s.XYZLtdismorethanRs.20Cr.
However,theturnoverofsalesinrespectofgeneralgoodsislessthanRs.50lakhand
inrespectofbakeryproductsitislessthanRs.30lakh.WhetherM/s.XYZisentitled
foralltheabovediscussedCompositionSchemesfortheyear200809,presuming
thatsaiddealerhasfulfilledallotherconditionsoftheNotificationandhasalsofiled
alltheapplicationsintimeandalsoobtainedallthecertificateswhereverrequired.
Answertothequestionisasunder:

25

1)InrespectofRETAILERSSCHEMEThedealerwillbeeligibleforthebenefit
ofthisRetailersCompositionSchemeonlyiftheturnoverofsales,determinedasper
theprovisionsofsaidNotificationisnotexceededRs.50lakhinpreviousyear.Inthis
case,whetherXYZLtd.candeducttheturnoverofsalesrelatedtoRestaurantsor
bakery products or that of motor vehicles? If one goes on plain reading of the
Notification,thendeductioninrespectofsuchturnoverisnotavailabletoM/s.XYZ
Ltd.andXYZLtd.isnotentitledforthisCompositionScheme.
However,ifonecanarguethatforthepurposeofRetailersCompositionScheme,the
turnoverofsalesofrestaurantcumbar,bakeryproducts,motorspirits,motorvehicles,
etc.shouldnotbeconsideredfordeterminingthelimitofturnoverofsalesandonly
turnoverofsalesofgeneralgoodsormerchandiseshouldbeconsidered.Ifthisview
isacceptedbytheDepartmentthenbenefitofthisNotificationmaybeavailableto
M/s. XYZ Ltd. Again it would be better if this point is also clarified by the
Commissionerofsalestax.
2) However, the benefit ofComposition Scheme pertaining to bakery products is
availabletoXYZLtd.forthereasonthattheturnoverofsalesofbakeryproducts
duringthepreviousyearwaslessthanRs.30lakh.UnderthisScheme,theturnoverof
salesofbakeryproductsonlyneedstobeconsideredandnotthetotalturnoverof
sales.
3)Similarly,saidXYZLtd.,subjecttofulfillingofconditionsoftheNotifications
stipulatedtorestaurants,etc.canenjoythebenefitundertheCompositionsSchemes
availabletoRestaurantinrespectofsalesoffoodsandnonalcoholicbeverages.
4)SECONDHANDMOTORCARBUSINESSHerethepositionofXYZLtd.is
alittlefluid.Oneofthecriteriaofeligibledealeristhathisprincipalbusinessisof

26

buyingorsellingofmotorvehicles.Sinceinthiscase,thedealerisrunningother
businesses also, at the time of granting of Certificate to XYZ Ltd., Joint
Commissionermaytakethestandthatsaiddealersprincipalbusinessisnotthatof
sellingofmotorvehiclesonlyandhencehecannotavailCompositionSchemeunder
thiscategory.However,XYZLtd.canconvincethathisprincipalbusiness(andnot
necessarilyexclusivebusiness)isofbuyingandsellingofmotorvehiclesandhis
otherbusinessesareincidentaltoprincipalbusinessandhence,heisentitledforthe
benefitofthisCompositionSchemealso.Assuch,accordingtomeXYZLtd.willbe
entitledforCertificateunderthisCompositionScheme.
Fromtheabovediscussion,itisclearthatanydealerifhesodesires,canenjoythe
benefitofvariousCompositionSchemesinrespectofhisdifferentconstituentsofthe
business.However,ifheoptsforanyCompositionScheme,thenhehastofollowitin
respectofalltheplacesofbusiness.

27

7CompositionSchemeWorksContractorSection42(3)
UnderthissubsectiontheCompositionSchemeinrespectofWorksContracthas
beenannounced.
Whereadealerisliabletopaytaxonthesaleseffectedbywayoftransferofproperty
ingoods(whetherasgoodsorinsomeotherform)involvedintheexecutionofa
works contract, he may subject to such restrictions and conditions as may be
prescribed,inlieuoftheamountoftaxpayablebyhimunderthisAct,whetherin
respectoftheentireturnoverofsaleseffectedbywayofworkscontractorinrespect
ofanyportionoftheturnovercorrespondingtoindividualworkscontract,paylump
sumbywayofcomposition,
(a)equaltofivepercent.ofthetotalcontractvalueoftheworkscontractinthecase
ofaconstructioncontract,and
(b)eightpercent.ofthetotalcontractvalueoftheworkscontractinanyothercase,
after deducting from the total contract value of the works contract, the amount
payabletowardssubcontractinvolvinggoodstoaregisteredsubcontractor.
Explanation.Forthepurposesofthissubsection,
(i)constructioncontractshallmeanconstructioncontractasmaybenotifiedbythe
StateGovernmentintheOfficialGazette,fromtimetotime,and
(ii)theamountpayabletowardssubcontractinvolvinggoodsmeanstheaggregate
valueofthegoodsonwhichtaxispaidandthequantumofsaidtaxpaidbythesub
contractororthesubcontractvalueonwhichtaxbywayofcompositionispaidbythe
subcontractor,asthecasemaybe.
8[(3A)TheStateGovernmentmay,bynotificationpublishedintheOfficialGazette,

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(a)Provideaschemeofcompositionfortheregistereddealerswhoundertakethe
construction of flats, dwellings or buildings or premises and transfer them in
pursuanceofanagreementalongwiththelandorinterestunderlyingtheland;
(b)prescribetherateoftaxbywayofcomposition,inlieuoftheamountoftax
payableonthetransferofgoods(whetherasgoodsorinsomeotherform),inthe
executionofsuchworkscontractsbysuchregistereddealerunderthisAct.

The notified construction contracts as per Notification No. VAT.1506/CR

134/Taxation1dated30.11.2006areasunder.
(A)Contractsforconstructionof,
(1)Buildings,
(2)Roads,
(3)Runways,
(4)Bridges,Railwayoverbridges,
(5)Dams,
(6)Tunnels,
(7)Canals,
(8)Barrages,
(9)Diversions,
(10)RailTracks,
(11)Causeways,Subways,Spillways,
(12)Watersupplyschemes,
(13)Sewerageworks,
(14)Drainage,

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(15)Swimmingpools,
(16)WaterPurificationplants,and
(17)Jetty.
(B)Anyworkscontractincidentalorancillarytothecontractsmentionedinparagraph
(A)above,ifsuchworkcontractsareawardedandexecutedbeforethecompletionof
thesaidcontracts.
Contractor/Subcontractor
Ifthecontractorallotstheworkscontracttothesubcontractor,thenthecontractor
andsubcontractoraretreatedasPrincipalandagent.Theresponsibilityforpayment
oftaxwillbejointandseveral.Howeverthecontractorcanmakethepaymentoftax
on contract and subcontractor can take deduction by obtaining declaration and
certificateinForms406and409fromthecontractor.Similarlyifthesubcontractor
has made payment of tax on contract allotted to him, then contractor can take
deductiontothatextentbyobtainingdeclarationandcertificateinForms407and408
fromsubcontractor.

30

CompositionSchemeMandapKeeper,etc.
Section42(4)
UnderthissubsectiontheCompositionSchemehasbeenprovidedinrespectofthose
dealerswhohaveeffectedthesalesbywayoftransferoftherighttousemandapor
tarpaulin.
SalientfeaturesofthisScheme
TheCompositionSchemehasbeenprovidedintheSubsectionitself,
ThisSubsectionhasbeeninsertedbyMaharashtraActNoXXXIIof2006ason
20.06.2006 and further amended by Maharashtra Act No. XXV of 2007 as on
06.08.2007.TheeffectoftheseamendmentsisthatthebenefitofCompositionhas
beenprovidedfromappointeddayi.e.01.04.2005
TheCompositionSchemeisavailabletobothregisteredaswellasunregistered
dealer
UnlikeotherCompositionSchemes,dealeroptingforsuchCompositionSchemeis
notrequiredtoapplyforanypermissionandalsonotrequiredtoobtainanycertificate
fromtheSalesTaxDept.
TheCompositionSchemeisavailableonlytodealers,whohaveaffectedthesales
bywayoftransferoftherighttousemandaportarpaulin,
Thus,supply/salestransactionsarenotcoveredbythisCompositionSchemeandno
benefitisavailableinthisregard
AnExplanationhasbeenaddedtothissubsectionwhichstatesthatforthepurpose
ofthissubsection,thetransferoftherighttousemandapalsoincludesthetransferof

31

therighttouseMandap,pandal,shamianaorthedecorationofsuchmandap,pandal
orshamiana.
Further,thesaidExplanationprovidesthatsaleseffectedbysuchtransferofrightof
mandapalsoincludestransferofrighttousefurniture,fixture,lightsandlightfittings,
floor coverings, utensils and other articles ordinarily used along with a mandap,
pandalorshamiana.ThusbenefitofCompositionschemehasbeenextendedtosales
effectedbywayoftransferofrightoffurniture,fixture,lightsetc.specifiedinthe
Explanation.
From the said Explanation it is clear that benefit of Composition Scheme is
availabletothedealerinrespectoftransferofrighttouseoffurnitureorlightorlight
fittings,etc.,ifthesegoodsareordinarilyusedalongwiththemandapetc.
However, a question arising for our discussion is about the availability of the
CompositionSchemeinrespectoftransferofrighttouseonlythefurnitureorlight
fittingsorutensilsetc.whichisnotusedalongwiththemandap,etc.
TheavailabilityofCompositionSchemedependsuponthefactsofeachcase,
Situation1)Inasituationwhereadealerhastransferredthefurnitureorfixture,or
anyothergoodsmentionedintheExplanation,toamandapkeeper,etc.and,inturn,
themandapkeeper,etc.hasusedthesaidgoodsfortransferofrighttousemandap,
etc. as stated in the Explanation, then the dealer who has transferred only the
furniture, etc. may be entitled to the benefit of Composition Scheme. This is so
becausethegoodstransferredonrighttousebasisisultimatelyusedalongwitha
mandapetc.,maybenotbythedealerhimselfbutbyamainmandapkeeper.The
explanation to subsection 42(4) has not stipulated the condition that the mandap
keeperhimselfshouldusetheothergoodsalongwithmandap,etc.andhence,ifdealer

32

hasexclusivelygiventhefurnitureorutensils,etc.onrighttouse,whichisultimately
usedalongwithmandap,etc.,itiseligibleforCompositionScheme.However,this
viewhasnotbeenfavoredbytheDept.andDept.islevyingfulltaxinsuchsituation.
Whatisyourview?
ii)However,thebenefitofCompositionSchemeisnotavailabletodealerinrespect
ofsaleseffectedbywayoftransferofrighttousefurniture,fixture,etc.whicharenot
usedalongwithamandap,pandalorshamiana.Thatissoforthereasonthat,inthe
Explanation to subsection, it is provided that such articles are ordinarily used
alongwithamandap,pandalorshamiana.ThusforclaimingbenefitofComposition
Scheme,dealermustprovethathehasusedthefurniture,fixture,etc.alongwiththe
mandap etc. If the dealer has provided the furniture or light or light fitting
independentlyandnotwiththemandap,etc.theninsuchsituationitisdifficulttosay
thatitisbeingusedalongwithamandap,etc.Andhence,thebenefitofComposition
Schemeisnotavailableinrespectofsuchhireincome.
Thus,sometimesithasalsohappenedthatonfurnitureorutensils,etc.,dealeris
requiredtopayCompositionamountifsuchgoodsaretransferredalongwiththe
mandap,etc.andsometimesherequirestopayfullamountofVATonthesame
furniture,utensils,etc.,ifthesamearenotusedalongwiththemandap,etc.
Thus, the tax liability in respect of such types of transactions will vary from
contracttocontractanditstaxliabilitywilldependuponthenatureoftransactions
enteredbythedealer.
Consideringthenatureofagreements/transactionstakingplacegenerally,dealer
mayfacecertainproblemsinclaimingthebenefitofsuchCompositionschemesand

33

theymayalsofinditverydifficulttoprovethefactthatgoodsareordinarilyusedin
themandap,etc.beforetheauthoritiesfromtheSalesTaxDept.
TherateofCompositionisfixedat1.5%undertheMVATAct.
AnotherquestionwhichnormallywearefacingisWhatistherateofCSTif
thetransferofrighthastakenplaceintheCourseofInterstateTradeorCommerce?
Recently,Departmenthasclarifiedthesamebywayofissuingaclarificationthatthe
benefitofCompositionSchemeisnotavailableundertheCSTActandhenceinsuch
casesdealersareliabletopayCSTwithoutconsideringthisCompositionScheme.
DealeroptingforsuchCompositionSchemecanissuetheTaxInvoiceandcan
collectthecompositionamountintheTaxInvoiceissuedbyhim.
AvailabilityofSetofftosuchDealers
AspertheprovisionsofRule54(j)ofMVATRules2005,thedealerwhohas
opted for such Composition Scheme is not entitled for the setoff in respect of
purchases made on or after 20.06.2006 of Mandap, tarpaulin, pandal, shamiana,
furniture,fixtures,lightsandlightfittings,floorcoverings,utensilsandotherarticles
ordinarilyusedalongwithaMandaporpandalorshamiana
Herequestionhasarisenabouttheavailabilityofsetoffinrespectofpurchasesof
abovementionedgoods(i.e.furnitureorutensils,etc.)whichareusedordinarilyalong
withmandap,pandal,etc.aswellasotherwise.Thesetoffisnotavailableifthe
dealerhasdischargedthetaxliabilityundertheCompositionScheme;however,itis
availableifthetaxliabilityisnotdischargedundertheCompositionScheme.
Thus,aprudentdealermayfirstclaimthesetoffbynotoptingfortheComposition
schemeinthemonthofpurchasesofsuchgoodsandtheninsubsequentmonths(after

34

claimingthesetoff)hemayoptfortheCompositionScheme,subjecttofulfillingof
otherconditionsandrestrictionsinthisregard.
SinceunderthisSchemetheclaimantdealercanissuetheTAXINVOICE,the
purchasingdealeralsocanclaimthesetoffofCompositionamountpaidunderthis
Composition Scheme. The availability of the setoff will be subject to other
provisionsofSectionsandRules.
Thesetoffisdeniedinrespectofpurchasesmadeonorafter20.06.2006,thedate
on which subsection 42(4) has been inserted in the MVAT Act. However, by
subsequentamendment,thisCompositionschemeismadeeffectivew.e.f.01.04.2005.
However,amendmentintheRule54(j)hasnotbeencarriedouttilltoday.Asaresult
ofthis,presentlyfortheperiod01.04.2005to19.06.2006dealerisentitledforthe
benefitofCompositionSchemeaswellassetoffaspertheprovisionsoflaw.

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36