DIRECT AND INDIRECT TAXES

Group members:- Sarang 51 Avadhesh 52 Gayatri 53 Nitin 54 Sangita 55

Payment of tax and Recovery Composition of Tax [Section 42]

What is Composition of Tax [Section 42] The state government may provide for a scheme of composition of tax payable by dealers. Composition of tax means payment of an amount in lieu of tax or lumpsum payment of tax. Composition scheme is optional. It is basically meant for small dealers.

Composition scheme is applicable to the following category of dealers:- Retailer Dealers running any eating-house Restaurant, Hotel Works contractor Dealers running bakeries Dealers of second-hand motor vehicles, whose principal business is buying or selling motor vehicles

Exclusion: Following dealers cannot opt for composition scheme : Manufacturer Importer A dealer who purchases goods from a registered dealer and effects sales that are not liable to tax. (i.e. interstate sale or export sale etc). Seller of liquor (including foreign liquor, Indian made foreign liquor or country liquor)

Composition Schemes (except in respect of Works Contract) under the MVAT Act, 2002. The introduction of Value Added Tax (VAT) by almost all the States of our country is one of the important reforms under Indirect Taxation and it is also one of the right steps towards Globalisation of Indian Economy. Accordingly, Maharashtra Government has provided for the Composition Scheme in Section 42 of the Maharashtra Value Added Tax Act, 2002 ( hereinafter referred as MVAT), which came into effect from 01/04/05

Composition Schemes under the MVAT Act Composition Scheme of Retailers:- Under Sub- section (1) of Section 42 of MVAT, State Govt. is empowered to issue Notification for Composition Scheme in respect to dealers, who are engaged in the business of reselling at retail. Composition Scheme for Restaurants:-As per Section 42(2) the State Govt. is empowered to issue Notification for Composition Schemes in respect of :- Eating house, Restaurants, Caterers, etc.,

Composition Scheme for Works Contractors:- Section 42(3) itself has provided for the Composition Scheme in respect of Works Contractor subject to certain conditions and restrictions and Composition Scheme for Decorator:-Section 42(4) itself has provided for the Composition Scheme in respect of sales effected by way of transfer of right to use mandap or tarpauline.

Composition Scheme is not applicable to following types of dealer, who is — Importer. Manufacturer. Who has purchased the goods from a dealer, who is not liable to pay tax u/s. 8(1) of MVAT Act i.e. to a dealer who has purchased the goods in the course of inter-State trade or commerce or

iv)Selling liquor in retail, (both Country as well as IMFL), except as provided in sub-section (2) of this Section. The impact of this is that any dealer who is selling (and not serving) the liquor is not entitled for Composition benefit under this sub-section i.e. as a RETAILER, in respect of sales of any other goods. Thus, the liquor dealer can not claim the benefit of Composition Scheme in respect of sales of any goods or merchandise.

Composition Amount :- Under this Composition Scheme the registered dealer is required to pay Composition amount on six month basis Calculation of Taxable Turnover:- It is an excess of turnover of sales including tax-free goods over the turnover of purchases including tax-free goods. In the first year of operation, dealer can claim the deduction under section 3(2) of MVAT Act, 2002 and only balance turnover shall be taken for calculation purposes. Rate of Composition:- The Composition amount is payable at the rate of 5% on the excess turnover of sales, in case of retailers, whose aggregate turnover of sales of goods covered by Schedule A and goods taxable at the rate of 4% is more than 50% of the total sales and in any other case, the Composition amount is payable at the rate of 8%.

Cont….. a) In case of Registered dealer the Composition amount has been fixed at 4% of first thirty lakh rupees of the total turnover of sales of bakery goods manufactured by baker himself and goods imported from out of Maharashtra State and also including bread in loaf, roll or in slices, toasted or otherwise, b) In case of Unregistered dealer the Composition amount has been fixed at 6% of first thirty lakh rupees of the total turnover of sales of bakery goods manufactured by baker himself and goods imported out of Maharashtra State and also including bread in loaf, roll or in slices, toasted or otherwise c) It means that benefit of Composition amount is also available in respect of bakery products which are imported from outside Maharashtra including sales of bread. In this Scheme the benefit is provided to imported bakery products. Simultaneously, tax has been levied on sales of tax-free goods i.e. on the sale of bread.

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