Builders Association Of India vs The State Of Maharashtra
2012 Latest Caselaw 285 Bom

    Tapadia RR


                                    1 / 34                   WPL/2440/2012

          IN THE HIGH COURT OF JUDICATURE AT BOMBAY
             ORDINARY ORIGINAL CIVIL JURISDICTION




                                                                             
             WRIT PETITION (LODG) NO. 2440 OF 2012




                                                     
    Builders Association of India                                 .Petitioner

                                       Vs
    The State of Maharashtra, and                          .. Respondents
    Ors.




                                                    
                                              WITH

                  WRIT PETITION NO. 2502 OF 2012




                                              
    Maharashtra Chamber of                                      .Petitioners
    Housing & Industry and Ors
                          
    The State of Maharashtra, and
                                       Vs
                                                           .. Respondents
    Ors
                         
                                      ........

    Mr. V. Sridharan, Senior Advocate with Mr V. P. Patkar i/b Mr
    M.Vaidya, for the Petitioners.
           


    Mr. Darius J. Khambata, Advocate General with Mr Venkatesh
    Dhond, Senior Advocate, Mr B.B.Sharma, A.G.P and Ms Naira
        



    Jejeebhoy for the Respondents.

                                      .......





                      CORAM :    DR.D.Y.CHANDRACHUD AND
                                 R.G.KETKAR,JJ.

DATE : 30 OCTOBER 2012

ORAL JUDGMENT: (PER DR. D.Y.CHANDRACHUD,J.)

1. Rule. By consent, the Rule is made returnable forthwith.

Counsel appearing on behalf of the Respondents waives service.

By consent, both the Petitions are taken up for final hearing at

this stage.

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2. Both these petitions under Article 226 of the Constitution

essentially seek two reliefs: (i) there is a challenge to the

validity of two Circulars issued on 6 August 2012 and 26

September 2012 by the Commissioner of Sales Tax; (ii) the

Petitioners seek the benefit of a composition scheme notified

under section 42(3A) of the Maharashtra Value Added Tax Act,

2002 by a Notification dated 9 July 2010 in respect of the period

commencing from 26 June 2006 in the same manner as extended

by the Notification to agreements which are registered on or after

1 April 2010. The proceedings before this Court have been

instituted by the Builders Association of India and by the

Maharashtra Chamber of Housing and Industry on behalf of their

members.

3. The Legislature in the State of Maharashtra amended the

provisions of Section 2(24) of the Maharashtra Value Added tax

Act, 2002 initially by Maharashtra Act XXXII of 2006 and

thereafter by Maharashtra Act XXV of 2007. Consequent upon

these amendments, the expression "sale" in Section 2(24) is

defined in the following terms:

"(24) "sale" means a sale of goods made within the State for cash or deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge; and the words "sell", "buy" and "purchase", with all their grammatical variations and cognate expressions, shall be construed accordingly;"

3 / 34 WPL/2440/2012

Explanation (ii) provides that for the purpose of this clause, sale

would include:

"(ii) the transfer of property in goods whether as goods or

in some other form involved in the execution of a works contract including, an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement,

modification, repair or commissioning of any movable or immovable property;"

As a result of the amendment, the State Legislature brought

within the field of taxation under the MVAT Act, the transfer of

property in goods involved in the execution of a works contract

including inter alia agreements for building and construction of

immovable property. The constitutional validity of these

provisions together with those of Rule 58(1A) of the Rules framed

under the Act was challenged in a batch of Writ Petitions before

this Court. The challenge in those cases also involved the

validity of a Trade Circular dated 7 February 2007 and a

Notification dated 9 July 2010. By a Judgment in Maharashtra

Chamber of Housing and Industry and Others Vs. State of

Maharashtra and Others1, this Court repelled the challenges

addressed in the batch of petitions and held inter alia that in

amending section 2(24) the legislature has not transgressed the

limitations prescribed in Article 366(29A)(b) of the Constitution.

1 (2012) 51 VST 168 (Bom)

4 / 34 WPL/2440/2012

The Judgment of the Court held that the amended definition does

not transgress the expanded concept of what constitutes a sale

or purchase of goods for the purpose of Entry 54 of List II of the

Seventh Schedule as defined in Article 366(29A). A batch of

Special Leave Petitions has been filed before the Supreme Court

to challenge the Judgment of this Court.

4. After the Judgment of this Court was delivered on 10 April

2012 the Commissioner of Sales Tax issued a Circular on 6

August 2012 inter alia providing for certain administrative relief

to developers. The Circular inter alia provided that though

ordinarily a delay in obtaining a certificate of registration beyond

a period of five years would be treated as an attempt to evade

tax, in the case of developers such a delay would not be

regarded as an attempt to evade tax and dealers would be

granted administrative relief if they apply for registration before

16 August 2012 and furnish proof of filing returns and the

payment of tax on or before 31 August 2012. In an interim

application filed before the Supreme Court, a stay was sought of

the Circular dated 6 August 2012 besides an order of restraint

against the Sales Tax Authorities from taking coercive steps for

recovery of tax for the period from 2006. In an interim order

dated 28 August 2012 the Supreme Court noted the statement

made by the Advocate General on behalf of the State that the

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time prescribed for registration until 31 August 2012 would stand

extended until 15 October 2012 and the time for filing of returns

would stand extended to 31 October 2012. In view of this

statement, the Supreme Court issued the following interim

directions:

"Having regard to the above statement of the learned Advocate General, we are satisfied that the following interim arrangement shall subserve the ends of justice:

(i) The time for registration by the developers as per clause (1) of the Trade Circular dated August 6, 2012 shall stand extended up to October 15, 2012 and the time for filing

returns by the developers as per clause (m) of the said circular shall stand extended up to October 31, 2012.

(ii) In case the concerned developers pay tax under the

Maharashtra Value Added Tax Act, 2002 (for short "2002 Act") as amended vide section 2(24) w.e.f. June 20, 2006 on or before October 31, 2012, the coercive process for recovery of tax, interest or penalty shall remain stayed.

This shall however not preclude the Assessing Officer to complete the assessment.

(iii) The above payment of tax by the concerned developers shall be subject to the final decision in the matter before this Court.

(iv) In case the amendment in section 2(24) of the 2002

Act is held to be unconstitutional and the tax so deposited/paid by the developers is ordered to be returned by the State Government to the developers, the same shall be returned along with interest at such rate that may be ordered by the court finally at the time of disposal of the matter."

The Supreme Court has directed by way of an interim

arrangement that coercive process for recovery of tax, interest

and penalty shall remain stayed in the case of those developers

who pay tax under the MVAT Act as amended with effect from 20

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June 2006 on or before 31 October 2012. The petition under

Article 226 of the Constitution by the Builders Association of India

was lodged before this Court on 3 October, 2012 while the

petition by the Maharashtra Chamber of Housing and Industry

was lodged on 20 October, 2012, the latter with barely a fortnight

remaining for compliance of the directions issued by the Supreme

Court. Affidavits in reply have been filed by the State of

Maharashtra and we have taken up the petitions for final disposal

in view of the deadline of 31 October, 2012.

5. Before we deal with the merits of the rival submissions, it

would be necessary to set out in brief the import of the two

Circulars dated 6 August 2012 and 26 September 2012 and of

the composition scheme which has been notified by the

Commissioner of Sales Tax on 9 July 2010. As we have noted

earlier, the Circular dated 6 August 2012 inter alia provided for

the grant of certain administrative reliefs to developers. The

Circular inter alia contains the responses of the revenue to

frequently asked questions (FAQs). Among them were the options

available to developers for discharging the tax liability. The

response of the revenue was in the following terms:

"From 20.06.2006 to 31.03.2010

1. Composition Scheme U/s 42 (3)- Under this scheme developer has to pay 5% tax on the agreement value. Land deduction is not available. Input tax credit is available

7 / 34 WPL/2440/2012

subject to the reduction of 4 per cent.

2. Actual Expense Method U/r 58- Under rule 58, the

deduction of Labour and service charges is available on actual basis. Land deduction is also available. Set-off will be

calculated subject to the condition u/r 53 and 54.

3. Standard Deduction Method U/r 58- Under rule 58, the deduction of land cost will be allowed. Thereafter 30% standard deduction from remaining amount will be available as per proviso to sub-rule 1. Set-off will be

calculated subject to the condition u/r 53 and 54. After 01.04.2010 The developers can opt for fourth option also, under this option u/s 42 (3A), developer has to pay 1% tax on

agreement value. No land deduction and input tax credit is available."

In the Circular dated 26 September 2012 the options which were

provided to developers for the payment of VAT were reiterated in

similar terms. The Circular dated 26 September 2012 stipulates

that developers would have to discharge their tax liability by

selecting one option. The Circular then states as follows:

"Some queries have been received regarding liability to be worked out on cost plus basis, i.e. cost of material and profit as per balance sheet. It is now clarified that no method apart from those statutorily prescribed and

mentioned above in the rules will be admissible."

6. Section 42 of the MVAT 2002 provides for composition of

tax. Sub section (3) of Section 42 provides for composition in

respect of a dealer liable to pay tax on sales effected by way of

transfer of property in goods involved in the execution of a works

contract. Under sub section (3) a provision is made for the

payment of a lump-sum by way of composition, subject to the

8 / 34 WPL/2440/2012

restrictions and conditions that may be prescribed, of an amount

equal to (i) five per cent of the total contract value of the works

contract in the case of a construction contract; and (ii) eight per

cent of the total contract value of a works contract in any other

case. Sub section (3A) was introduced by way of an amendment

to section 42 by the Maharashtra Tax Laws (Levy and

Amendment) Act, 2010 with effect from 1 May 2010. Sub-section

(3A) of Section 42 provides as follows:

"(3A) The State Government may, by notification in the

Official Gazette -

(a) to provide a scheme of composition for registered

dealers who undertake the construction of flats, dwellings or buildings or premises and transfer them in pursuance of an agreement along with the land or interest underlying the land;

(b) prescribe the rate of tax by way of composition, in lieu of the amount of tax payable on the transfer of goods

whether as goods or in some other form, in the execution of such works contracts by such registered dealer under this Act."

A Notification was issued by the State Government on 9 July 2010

under section 42 (3A) to provide for a scheme of composition for

registered dealers who undertake the construction of flats,

dwellings, buildings or premises and transfer them in pursuance

of an agreement along with land or interest underlying the land.

The composition amount is 1% of the amount specified in the

agreement or of the value specified for the purpose of stamp

9 / 34 WPL/2440/2012

duty in respect to the agreement under the Bombay Stamp

Act,1958 which is higher. Among the conditions attaching to

the composition scheme is a condition which stipulates that all

agreements which are registered on or after 1 April 2010 shall be

covered under the scheme.

7. Rule 58 of the MVAT Rules provides for determination of the

sale price and of the purchase price in respect of a sale by the

transfer of property in goods involved in the execution of a works

contract. Insofar as is material, the substantive part of sub-rule

(1) provides as follows:

"58. Determination of sale price and of purchase price in respect of sale by transfer of property in goods (whether as good or in some other form) involved in the execution of a works contract.

(1) The value of the goods at the time of the transfer of property in the goods (whether as goods or in some other

form) involved in the execution of a works contract may be determined by effecting the following deductions from the value of the entire contract, in so far as the amounts relating to the deduction pertain to the said works

contract:--

(a) labour and service charges for the execution of the works ;

(b) amounts paid by way of price for sub-contract , if any,

to subcontractors;

(c) charges for planning, designing and architect's fees;

(d) charges for obtaining on hire or otherwise, machinery and tools for the execution of the works contract;

(e) cost of consumables such as water, electricity, fuel used

10 / 34 WPL/2440/2012

in the execution of works contract, the property in which is not transferred in the course of execution of the works

contract;

(f) cost of establishment of the contractor to the extent to

which it is relatable to supply of the said labour and services;

(g) other similar expenses relatable to the said supply of labour and services, where the labour and services are

subsequent to the said transfer of property;

(h) profit earned by the contractor to the extent it is relatable to the supply of said labour and services:"

The proviso to sub rule (1) however stipulates that where the

contractor has not maintained accounts which enable a proper

evaluation of the different deductions as specified above, or

where the accounts maintained by the contractor are not

sufficiently clear or intelligible, the Commissioner may in lieu of

the deductions specified provide a lump-sum deduction as

stipulated in a Table annexed to the proviso. For civil works, such

as construction of buildings, the lump sum deduction is an

amount representing 30%.

8. Sub rule (1A) was introduced into Rule 58 by a Notification

dated 1 June 2009 with effect from 20 June 2006 in the following

terms:

"(1A) In case of a construction contract, where along with the immovable property, the land or, as the case may be, interest in the land, underlying the immovable property is to be conveyed, and the property in the goods (whether as goods or in some other form) involved in the execution of

11 / 34 WPL/2440/2012

the construction contract is also transferred to the purchaser such transfer is liable to tax under this rule. The

value of the said goods at the time of the transfer shall be calculated after making the deductions under sub-rule (1) and the cost of the land from the total agreement value.

The cost of the land shall be determined in accordance with the guidelines appended to the Annual Statement of Rates prepared under the provisions of the Bombay Stamp (Determination of True Market Value of

Property) Rules, 1995, as applicable on the 1st January of the year in which the agreement to sell the property is registered:

Provided that, deduction towards cost of land under this sub-rule shall not exceed 70% of the agreement value."

(The proviso has since been deleted.).

9. Now it is in this background that it would be necessary to

consider the submissions which have been urged on behalf of the

petitioners.

10. Learned Senior Counsel appearing on behalf of the

petitioners in the petition filed by the Builders Association of

India urged the following submissions:

(i) The Circular dated 6 August 2012 essentially requires

compliance of the Judgment of this Court upholding the

constitutional validity of Section 2(24) and is unexceptionable.

The substantive challenge, however, is to the Circular dated 26

September 2012 on the ground that the Circular stipulates that

no method apart from those which are statutorily prescribed will

be admissible for determining the assessable value of the goods

12 / 34 WPL/2440/2012

which are transferred in the execution of a works contract; and

(ii) Rule 58(1) stipulates that the value of the goods at the

time of transfer of property in goods involved in the execution of

a works contract may be determined by effecting certain

specified deductions from the value of the entire contract. The

use of the expression 'may be' is indicative of the legislative

intent that the method prescribed by Rule 58(1) is not the only

permissible method. It would be perfectly open to the assessee

to provide his computation of the assessable value on the basis

of the actual cost of the material supplied coupled with a profit

element and the cost plus method is a recognized method of

valuation. Rule 58(1) does not preclude an assessee while filing

returns from taking recourse to the cost plus method. The

Circular dated 26 September 2012,to the extent to which it

stipulates that no other method than what is statutorily

prescribed would be permissible is contrary to rule 58(1);

(iii) The amended provisions of Section 2(24) came into effect

from 20 June 2006. The composition scheme which has been

notified on 9 July 2010 under section 42 (3A) should therefore be

extended with effect from 20 June 2006 and the Notification of

the State Government to the extent to which it applies the

scheme to all agreements registered from 1 April 2010 is

discriminatory and violative of Article 14 of the Constitution. The

13 / 34 WPL/2440/2012

rate of tax is the same and since the delegate of the legislature

while notifying the scheme for composition indicated that

payment of tax at the rate of 1% of the agreement value would

sufficiently protect the revenue, there is no justification to apply

the scheme for composition only with effect from 1 April 2010.

11. The following submissions have been urged by learned

Senior Counsel in the petition filed by the Maharashtra Chamber

of Housing and Industry:

(i) Rule 58(1) does not provide the only method of

computing assessable value and it is open to each assessee to

provide its own method of computation. Rule 58(1) is not

exhaustive of the methods to be followed nor do clauses 1 (a) to

(h) contain an exhaustive list of deductions which an assessee

may avail;

(ii) Rule 58(1A) contains an incorporation of the provision of

the Bombay Stamp (Determination of True Market Value of

Property) Rules, 1995. Under the Stamp Duty Rules, it is open to

a developer to demonstrate under rule 4(6) that the market value

for the purposes of stamp duty is less than what is prescribed in

the ready reckoner;

(iii) The Circular dated 26 September 2012 is ultra vires

because it prevents a developer from claiming other deductions

and from providing other acceptable methods for computation of

14 / 34 WPL/2440/2012

the assessable value. Though initially the proviso to rule 58(1A)

had stipulated that the deduction towards the cost of land shall

not exceed 70% of the agreement value, this proviso was deleted

by a Notification dated 30 July 2012 from its inception which

would constitute an acknowledgment that the land cost can

extend beyond 70%. The circular to the extent to which it

restricts options available to the developers under the statutory

rules, would be ultra vires;

(iv) There can be no valid distinction between agreements

which were executed from 20 June 2006 until 30 March 2010 and

those registered after 1 April 2010. Both sets of agreements

constitute the same class. Assessment under the composition

scheme of the value of the goods transferred in the execution of

a works contract is determined at 1% of the contract value and

there is no reason why this should not apply to the period

commencing from 20 June 2006 for which such transactions have

come into the fold of value added taxation. Moreover, since the

amendment which was brought out with effect from 20 June

2006, proceedings were pending before this court and there was

no clarity on the issue until the Judgment of the Division Bench

dated 10 April 2012. In these circumstances, the composition

scheme which applies to agreements which have been registered

after 1 April 2010 should equally apply to agreements which were

15 / 34 WPL/2440/2012

registered prior to that date.

12. In response to the submissions which were urged on behalf

of the petitioners, the learned Advocate General urged the

following submissions:

(i) The provisions of Rule 58(1) including the deductions

that are specified in clause (a) to (h) are in conformity with the

Judgment of the Constitution Bench of the Supreme

Court in Gannon Dunkerley and Co and Others Vs State of

Rajasthan and Ors 2. The proviso to Rule 58(1) is similarly in

accordance with the observations of the Supreme Court insofar

as it provides that in those cases where the accounts of the

developer are not intelligible or worthy of credence, a lump sum

deduction can be allowed in lieu of individual deduction that has

been specified earlier;

(ii) in any event rule 58(1A) which has been held to be

constitutionally valid, provides that where the construction

contract involves a transfer of interest in land, the value of the

goods involved in the execution of the works contract shall be

calculated after making deductions under sub rule (1). In other

words, in respect of those construction contracts where an

element of transfer of interest in land is involved, rule 58(1A)

provides for a mandatory method of computing the assessable

2 (1993) 1 Supreme Court Cases 364

16 / 34 WPL/2440/2012

value. The Circular dated 26 September, 2012 only clarifies what

has been provided in Rule 58(1A) and is, therefore, not ultra

vires;

(iii) There is no challenge in these proceedings either to

Rule 58(1) or to rule 58(1A). The circular does not travel beyond

the boundaries which are set out in the rules and, therefore,

cannot be assailed;

(iv) Rule 58(1A) incorporates only the guidelines appended

to the yearly statement of rates in the stamp duty ready

reckoner. The other provision of the Stamp Duty Rules may only

be looked at for understanding the guidelines. However, the

other provisions do not stand incorporated in Rule 58(1A). Rule

58(1A) is mandatory and both the deductions and the land cost

have to be determined in the mode as specified;

(v) In any event, the judgment of the Constitution Bench of

the Supreme Court in Gannon Dunkerley (supra) held this to

be a permissible method. Once it is a permissible method, it is

open to the Legislature or its delegate to adopt one of those

methods on principles of uniformity;

(vi) A composition scheme involves a concession or

exemption which need not be given to everyone in order to be

valid. Under inclusion can never be a ground to set aside a

concession. A composition scheme is not in the nature of an

17 / 34 WPL/2440/2012

amnesty. While providing a scheme of composition, it was

legitimately open to the government as a delegate of the

legislature to prescribe a cut off date and to extend the scheme

to agreements registered on or after that date. Section 42(3A)

was introduced by way of amendment with effect from 1 April

2010 and a view was taken to the effect that the scheme should

be extended to agreements which are registered after 1 April

2010. That in itself would not render the scheme invalid. Section

42(3A), properly construed, is prospective in nature and it was

open to the Government in consequence to apply the scheme of

composition with effect from 1 April 2010.

13. The rival submissions now fall for consideration.

14. The provisions of Section 2(24) of the MVAT 2002 which

defines the expression "sale" were amended with effect from 20

June 2006 so as to bring within the fold of value added taxation,

the transfer of property in goods involved in the execution of a

works contract including inter alia an agreement for building or

construction of immovable property. The expression "sale price"

is defined in Section 2 (25) to mean the amount of valuable

consideration paid or payable to a dealer for any sale made

including any sum charged for anything done by the seller in

respect of goods at the time of or before delivery. The expression

'turnover of sales' is defined in Section 2(33) to mean "the

18 / 34 WPL/2440/2012

aggregate of the amounts of sale price received or receivable by

a dealer in respect of any sale of goods made during a given

period after deducting the amount of (a) sale price, if any,

refunded by the seller, to a purchaser, in respect of any goods

purchased and returned by the purchaser within the prescribed

period; and (b) deposit, if any, refunded in the prescribed period,

by the seller to a purchaser in respect of any goods sold by the

dealer." The constitutional validity of the provisions of section

2(24) as amended, have been upheld by this Court, though, as

noted earlier, a batch of petitions challenging the Judgment is

pending before the Supreme Court. By and as a result of the

interim order of the Supreme Court, coercive processes for the

recovery of tax, interest and penalty shall not be adopted if the

developers pay the tax due under the MVAT Act 2002, as

amended on or before 31 October 2012. Time for registration was

extended until 15 October 2012 while the time for filing of

returns has been extended until 31 October 2012.

15. Rule 58(1), as originally made, provided for the

determination of the value of the goods involved in the execution

of a works contract at the time of the transfer of property in the

goods by making certain specified deductions from the value of

the entire contract. In Gannon Dunkerley and Co Vs. State

of Rajasthan (supra), the Supreme Court considered the

19 / 34 WPL/2440/2012

constitutional validity of the Forty Sixth Amendment by which

clause 29A was inserted into Article 366. During the course of

the Judgment, the Supreme Court dealt with the submissions of

the State that while determining the value of the goods involved

in the execution of a works contract, a more convenient mode

would be to take the value of the works contract as a whole and

to make certain specified deductions therefrom of the cost of

labour and service rendered by the contractor during the course

of the execution of the works contract. This would also ensure

against an evasion of tax. As the Judgment of the Supreme Court

indicates, counsel for the contractors submitted that in that

event certain deductions would have to be made from the value

of the entire contract in order to arrive at the value of the goods

involved in the execution of the works contract. After considering

the rival submissions, the Supreme Court held as follows ;

"The value of the goods involved in the execution of a

works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover:

a) Labour charges for execution of the works;

b) amount paid to a sub-contractor for labour and services;

c) charges for planning, designing and architect's fees;

d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the

20 / 34 WPL/2440/2012

works contract;

e) cost of consumables such as water, electricity, fuel etc. used in the execution of the works contract the property in which is not transferred in the course of

execution of a works contract; and

f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services;

g) other similar expenses relatable to supply of labour and services;

h) profit earned by the contractor to the extent it is

relatable to supply of labour and services;

The amounts deductible under these heads will

have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor."

The Supreme Court held that the value of the goods involved in

the execution of the works contract would have to be determined

after making these deductions and exclusions from the value of

the works contract. When the provisions of Rule 58(1) are read

in juxtaposition with the aforesaid extract of the Judgment of the

Supreme Court, it is evident that the delegate of the legislature

in framing rule 58(1) adopted the very same clauses

representing the deductions that were held to be permissible in

the judgment of the Supreme Court. The Supreme Court however

also noted that there may be cases where the contractor has not

maintained proper accounts or where the accounts maintained

by him are not found to be worthy of credence by the assessing

21 / 34 WPL/2440/2012

authority. To deal with such a situation the Supreme Court held

that it would be permissible for the State Legislature to

prescribed a formula for determining the charges for labour and

service after fixing a particular percentage of the value of the

works contract and to allow a deduction of the amount thus

determined from the total value of the works contract for the

purpose of determining the value of the goods involved in the

execution of the works contract. The proviso to rule 58(1) was

enacted to deal with exactly such a situation where the

Commissioner finds that the accounts of the contractor are not

sufficiently clear. In such cases, in lieu of individual deduction, a

lump sum deduction is provided. In the case of a works contract

involving civil works such as construction of the buildings, there

is a lump sum deduction of 30%.

16. Sub rule (1A) to rule 58 was introduced by a Notification

dated 1 June 2009 with effect from 20 June 2006. In other words,

sub-rule 1A relates back to the date of the amendment to section

2(24) of the MVAT Act 2002. Sub Rule (1A) specifically deals with

that category of construction contracts in which, along with

immovable property, the land or interest in land is to be

conveyed and the property in goods involved in the execution of

the construction contract is also transferred to the purchaser.

Rule 58(1A) stipulates that the value of the goods transferred

22 / 34 WPL/2440/2012

shall be calculated after making the deductions under sub-rule

(1) and the cost of the land from the total agreement value. In

other words, in the case of a construction contract where the

works contract involves not just an element of transfer of

property in goods, but a transfer of land or interest in land, there

is a mandate to apply the provisions of sub-rule (1) in computing

the value of the goods at the time of transfer. Similarly, the cost

of the land has to be deducted from the total agreement value.

That the subordinate legislation has made a mandatory provision

is evident from the use of the expression "shall be calculated

after making the deductions under sub-rule (1) and the cost of

the land from the total agreement value." In so far as the cost of

the land is concerned, rule 58(1A) provides that it shall be

determined in accordance with the guidelines appended to the

annual statement of rates prepared under the provisions of the

Bombay Stamp (Determination of true market value of the

Property) Rules 1995 as applicable on 1 January of the year in

which the agreement to sale is registered. Rule 58(1A)

incorporates not the entirety of the Stamp Duty Rules 1995 but

only the guidelines which are appended to the annual statement

of rates prepared under the provisions of the Rules of 1995. Now,

undoubtedly in understanding the guidelines, it would be open to

the Assessing Authority to have due regard to all the provisions

23 / 34 WPL/2440/2012

of the Rules but this is for understanding that part of the Rules

which has been incorporated by Rule 58(1A). In Surana Steels

Pvt Ltd Vs. Dy. Commissioner of Income tax and Ors 3,

Section 115-J of the Income-tax Act, 1961 which fell for

consideration contained an incorporation of the provisions of

Section 205 of the Companies Act, 1956. The Supreme Court,

while citing the seminal work of Justice G.P.Singh on the

Principles of Statutory Interpretation noted that even though only

particular sections of an earlier Act are incorporated into a later

Act, in construing the incorporated sections it may be at times

necessary and permissible to refer to other parts of the earlier

statute which are not incorporated. In that context the Supreme

Court held that all that remained to be done was to read the

provisions plainly and to apply rules of interpretation if any

ambiguity survives.

17. Essentially, what rule 58(1A) does is to provide a particular

modality for determining the value of goods involved in the

execution of construction contracts where an interest in land or

land is also to be conveyed under the contract. The provisions of

rule 58(1A) are not under challenge. Where the Legislature has

an option of adopting one of several methods of determining

assessable value, it is trite law that the legislature or its delegate

3 (1999) 4 Supreme Court Cases 306

24 / 34 WPL/2440/2012

can choose one among several accepted modalities of

computation. The legislature while enacting law or its delegate

while framing subordinate legislation are legitimately entitled to

provide, in the interest of uniformity, that a particular method of

computation shall be adopted. So long as the method which has

been adopted is not arbitrary and bears a reasonable nexus with

the object of the legislation, the Court would not interfere in a

statutory choice made by the legislature or by its delegate. In

the present case, rule 58(1A) mandates how the value of goods

involved in the execution of a construction contract at the time of

the transfer of property in the goods is to be determined in those

cases where contract also involves a transfer of land or interest

in land. The Circular dated 26.9.2012 does no more than specify

the mandate of the statute. The Circular has not introduced a

condition by way of a restriction which is not found in the statute.

Plainly, rule 58(1A) does not permit the developer to take

recourse to a method of computation other than what is specified

in the provision. Hence the Circular dated 6 September 2012

was only clarificatory. In Commissioner of Wealth Tax Vs

Sharvan Kumar Swarup & Sons4, the Supreme Court dealt

with the provisions of rule 1BB of the Wealth Tax Rules 1957 and

the issue which fell for determination was whether that was a

4 (1994) 210 ITR 886 (SC)

25 / 34 WPL/2440/2012

provision which altered substantive rights or was merely

procedural. The Supreme Court noted that rule 1BB merely

provided a choice amongst well known and well settled modes of

valuation and even in the absence of rule 1BB it would not have

been objectionable, nor would there be any legal impediment, to

adopt the mode of valuation embodied in Rule 1BB, namely, the

method of capitalization of income on a number of years

purchase value. The Supreme Court held that the rule was

intended to impart uniformity in valuations and to avoid vagaries

and disparities resulting from the application of different modes

of valuation in different cases where the nature of the property is

similar. The Supreme Court held that rule 1BB was essentially a

rule of evidence as to the choice of one of the accepted methods

of valuation.

18. The next aspect which needs to be considered is the date

of enforcement of the composition scheme. Section 42(3A) was

introduced by the Maharashtra Tax Laws (Levy and Amendment)

Act, 2010 with effect from 1 May 2010. Under the provision the

State Government is empowered by notification to provide a

scheme of composition for registered dealers who undertake the

construction of flats, dwellings building or premises and transfer

them in pursuance of the agreement along with land or interest

underlying the land. The State Government is also empowered to

26 / 34 WPL/2440/2012

prescribe the rate of tax by way of composition, in lieu of the

amount of tax payable on the transfer of goods in the execution

of such works contracts by a registered dealer under the Act. The

composition scheme was notified on 9 July 2010. The conditions

attaching to the scheme stipulate inter alia that all agreements

which are registered on or after 1 April 2010 shall be covered

under the scheme. The Petitioners contend that the cut off date

is arbitrary and that the composition scheme should extend to all

agreements registered after 20 June 2006.

19. Now as a matter of first principle, in framing a scheme of

composition the revenue has to balance several competing

considerations many of which are of a policy nature. One of the

objects of a scheme of composition is to encourage compliance.

Another consideration that may weigh with the revenue is the

element of burden involved in tax administration if assessments

in the normal course are to be carried out. A scheme of

composition essentially seeks to provide an option under which in

lieu of the tax which is payable under the provisions of the Act a

registered dealer can pay what is described as the composition

amount in discharge of the tax liability. In framing a scheme for

composition the State as a delegate of the legislature has to

balance numerous considerations including the interest of the

revenue, the need to encourage compliance and the burden on

27 / 34 WPL/2440/2012

the tax administration which is obviated by the introduction of a

composition option. A scheme for composition provides an

option to an assessee. The assessee is not compelled to accept

the option which is provided in the scheme of composition. The

composition scheme is not in the nature of amnesty but a

provision which has been made by the State acting as a delegate

of the legislature for composition by a registered dealer

undertaking the construction of flats or dwelling units. The

scheme provides for a rate of tax by way of composition in lieu of

the tax payable on the transfer of goods involved in the

execution of a works contract. A scheme for composition is,

therefore, in the nature of a concession which is granted by the

State to a certain class or category of assessees who fulfill the

conditions which are spelt out in the scheme.

20. In Union of India Vs. Parameswaran Match Works and

Ors 5, a Bench of four learned Judges of the Supreme Court laid

down the governing principles of law in the following

observations:

"In the matter of granting concessions or exemption from

tax, the Government has a wide latitude of discretion. It need not give exemption or concession to everyone in order that it may grant the same to some. As we said, the object of granting the concessional rate of duty was to protect the smaller units in the industry from the competition by the larger ones and that object would have

5 1975 1 Supreme Court Cases 305

28 / 34 WPL/2440/2012

been frustrated, if, by adopting the device of fragmentation, the larger units could become the ultimate

beneficiaries of the bounty. That a classification can be founded on a particular date and yet be reasonable, has been held by this Court in several decisions (see Hathisingh

Mfg. Co. Ltd. v. Union of India (1960) 3 scr 528, Dr. Mohammed Saheb Mahboon Medico v. The Deputy Custodian General-AIR 1961 SC 1657, Bhikuse Yamasa Kshatriya (P.) Ltd. v. Union of India- AIR 1963 SC 1591, and Daruka & Co. v. Union of India : [1973] 2 SCC 617. The

choice of a date as a basis for classification cannot always be dubbed as arbitrary even if no particular reason is forthcoming for the choice unless it is shown to be capricious or whimsical in the circumstances. When it is

seen that a line or a point there must be and there is no mathematical or logical way of fixing it precisely, the decision of the legislature or its delegate must be accepted

unless we can say that it is very wide of the reasonable mark."

In the Judgment of the Supreme Court in International Cotton

Corpn (P) Ltd Vs. Commercial Tax Officer, Hubli 6, the grant

of a concession in respect of transaction of sale under the Central

Sales Tax Act during a certain period was placed in issue on the

ground that transactions which have been undertaken prior to

the period of concession were not given the same benefit. While

repelling the challenge, the Supreme Court observed as follows:

"Firstly, the fact that transactions of sale prior to the period before 10th November 1964 or at least the period between

23-1-1962 and 10-11-64 were not given the same concession as the transactions between 10-11 -64 and 9-6- 1969 does not mean that the latter concession is unconstitutional. A concession is not a matter of right.

Where the Legislature taking into consideration the hardships caused to a certain set of taxpayers gives them a

6 (1975) 3 Supreme Court Cases 585

29 / 34 WPL/2440/2012

certain concession it does not mean that that action is bad as another set of tax-payers similarly situated may not

have been given a similar concession. It would not be proper to strike down the provision of law giving concession to the former on the ground that the latter are not given

such concession. Nor is it possible for this Court to direct that the latter set should be given a similar concession. That would mean legislation by this Court and this Court has no legislative powers."

Extrapolating these observations to the facts of the present case,

what the scheme of composition has done is to make it

applicable to agreements which were registered after 1 April

2010. It would not be proper for this court to strike down the

provision by which the option of composition has been given to

agreements which were registered after 1 April 2010. Nor for

that matter, would the Court be justified in directing that the

same option of composition should be allowed to agreements

which were registered prior to 1 April 2010. By issuing such a

direction the Court in the exercise of its jurisdiction under Article

226 would be legislating by directing the delegate of the

legislature to extend the ambit of the composition of scheme

beyond what was provided in the scheme. That is impermissible.

21. But it is sought to be urged that those agreements

registered after 1 April 2010 and those which have been

registered prior to that date fall in the same category and it

would be open to the Court under Article 226 to direct the State

30 / 34 WPL/2440/2012

Government to extend the same benefit. In support, reliance was

placed on the Judgment of the Supreme Court in D.S.Nakara

and Ors Vs. Union of India 7 . Now Nakara was a case where

an existing scheme of pension was sought to be liberalized

through an upward revision. The Supreme Court made it

abundantly clear that the Court was not dealing with a new

scheme but the revision of an existing scheme. Since pension is

not an incentive but a reward for past service, any revision of an

existing benefit would stand on a different footing than a new

retiral benefit. The decision in Nakara therefore stands on a

completely different foundation. Similarly, the Judgment of the

Supreme Court in State of Rajasthan Vs. Mukun Chand and

Ors 8, dealt with the provisions of the Rajasthan Jagirdars' Debt

Reduction Act, 1957, whose object was to provide for the scaling

down of debts of those Jagirdars whose jagir lands had been

resumed under the provisions of the state land reform legislation.

While defining the expression "debt," Section 2(e) of the Act

excluded certain categories of debts including those due to the

Central Government or State Government, Scheduled Banks and

Co-operative Societies, Waqf, Trust or a person where the debt

was advanced on his behalf by the court of Wards. The

Supreme Court held that the object of the Act being to ameliorate 7 (1983) 1 Supreme Court Cases 305 8 AIR 1964 SC 1633

31 / 34 WPL/2440/2012

the condition of those persons whose capacity to pay debts had

been reduced by the resumption of their lands, the exclusion in

section 2(e) bore no rational relationship with the object sought

to be achieved. Mukun Chand's case therefore dealt with social

welfare legislation that was intended to provide relief by way of

amelioration to those persons whose lands had been resumed by

the State. Having regard to the object of the legislation the Court

held that the exclusion of a certain category of debts would not

subserve the object of the law. The Judgment of the Supreme

Court in Vishnudas Hundumal Vs The State of M.P. 9 dealt

with a situation where holders of stage carriage permits

granted under the Motor Vehicles Act 1939 were operating stage

carriages on routes for which permits were granted. A scheme

was framed by the State Road Transport Corporation under which

certain routes came to be reserved for exclusive operation by the

Corporation. Part of the routes on which the petitioners were

operating overlapped with the notified routes, as a result of

which their permits were curtailed or cancelled by prohibiting

them from operating their stage carriages on a portion of the

routes which overlapped with the notified routes. The Supreme

Court noted that there were other permit holders in the same

class whose routes had overlapped with the notified routes in

9 AIR 1981 SC 1636

32 / 34 WPL/2440/2012

respect of which their permits were neither curtailed nor

cancelled. The Supreme Court held that this was an error or

omission on the part of the Regional Transport Authority which

had resulted in gross discrimination between one class of permit

holders whose routes overlapped with the notified routes. In this

background, the Supreme Court held that the State cannot take

recourse to inadvertence the result of which was to cause a

glaring discrimination. The Supreme Court therefore held that it

was open to the court to remove the cause of discrimination by

placing the petitioners in the same class as those who had

enjoyed favourable treatment by inadvertence on the part of the

Regional Transport Authority. This judgment of the Supreme

Court would not really advance the case of the Petitioners any

further because evidently that was a case where there was an

inadvertent act on the part of the authority as a result of which

19 persons whose routes overlapped with the notified routes

were allowed to ply their stage carriages while the petitioners

were denied similar treatment. In the present case, the date of

1 April 2010 which has been prescribed for composition is not an

act of inadvertence on the part of the delegate of the legislature.

In framing a scheme of composition it is open to the legislature

and its delegate to determine a cut off date with effect from

which an option of composition is available. In view of the

33 / 34 WPL/2440/2012

Judgment of the Supreme Court in Parmeshwaran Match

Works (supra) the legislature in enacting law and the delegate

of the legislature while framing subordinate legislation have a

wide degree of latitude and a concession does not have to be

provided to everyone in order that it should be given to someone.

These observations must apply a fortiori to revenue legislation

where it is well settled that the court would allow a wide degree

of latitude and discretion to the legislature and to its delegate.

The Judgment in Lohara Steel Industries Ltd Vs. State of A.P

and Anr,10 dealt with a case where a taxing statute imposed tax

on the subject which were exempted by the constitution. The

Supreme Court held that if the taxing statute has imposed a tax

which is divisible in nature and subjects which are exempted by

the Constitution are wrongly taxed, the entire taxing statute

could not be declared ultra vires because it would be feasible to

separate taxes levied on authorised subjects from those which

are levied on exempted subjects. That deals with a completely

different situation. Similarly in Trade Links Limited Vs. State

of Uttar Paradesh,11 the provisions of the Act in the State of U.P

expressly contemplated that consideration for a liquor license

could be determined either by auction or by calling tenders or

otherwise. The Supreme Court held that the use of the 10 (1997) 2 Supreme Court Cases 37 11 (1982) 2 Supreme Court Cases 337

34 / 34 WPL/2440/2012

expression 'or otherwise' indicated that several methods were

available.

22. For these reasons, we have come to the conclusion that

there is no merit in the challenges which have been addressed by

the Petitioners before this Court. We hold in consequence that

the Circulars dated 6 August 2012 and 26 September 2012 are

not ultra vires. We have also come to the conclusion that the

composition scheme is not ultra vires in imposing a condition to

the effect that it shall cover all agreements registered after 1

April 2010. During the course of the hearing we have been

informed by counsel appearing on behalf of the Petitioners that

representations have been submitted to the State Government

for extending the benefit of the composition scheme to

agreements which were registered between 20 June 2006 and 31

March 2010. We clarify by way of abundant caution that this

Judgment would not stand in the way of the State Government

taking an appropriate decision on the representations that have

been submitted in that regard.

23. For these reasons, the Petitions are dismissed. Rule is

discharged. There shall be no order as to costs.

(Dr.D.Y.Chandrachud,j.)

(R.G.Ketkar, J.)