Bombay HC confirms powers of the legislature to determine measure of tax; upholds stage-wise taxability under Rule 58 of MVAT Rules

 

This Tax Alert summarizes a recent decision of the Bombay High Court (HC) in the case Confederation of Real Estates Developers Association of India v. State of Maharashtra and Commissioner of Sales Tax, Maharashtra.

 

The issue arose when a group of writ petitions were filed challenging constitutional validity and propriety of Notification dated 29 January 2014, amending Rule 58 of Maharashtra Value Added Tax Rules, 2005 and Trade Circulars, 7T of 2014 and 12T of 2014.

 

HC held that it is legislature's power to legislate in respect of the basis for determining the measure of tax. It is open for the legislature to adopt any basis for determining the value of a taxable article. The measure for assessing the levy need not correspond completely to the nature of levy, and no fault can be found with the measure so long as it bears nexus with the charge. HC thus, upheld the validity of the Notification and Trade Circulars and  that stage-wise taxability under Rule 58 stands confirmed.

 

Considering the judicial precedent so far, it appears to be a settled position that the measure employed for computing the tax is subtly different from the incidence of tax. The power and flexibility of legislature in devising such a measure for tax cannot be unconstitutional so long as it is not arbitrary and meets with the object of the Legislation. The Rules however need to provide clarity on deduction of consideration paid towards acquisition of FSI / TDR and other payments made for acquisition of land while computing the taxable turnover.