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     Basic Concept & Levy     Exemption from VAT      Works Contract  

The Maharashtra Value Added Tax Act, 2002 (“MVAT”) came in to force with effect from 01.04.05. The basic idea behind introducing VAT is to ensure uniformity of tax rate throughout India and to avoid cascading effect. Each state has its own VAT law.

Basic Concept & Levy:

MVAT is a multi-stage sales tax. As a name suggest that it is a tax on value addition. It provides for setoff of tax paid on purchases. For the purpose of act goods are classified as under following categories:

Category Rate of Tax
Schedule - A Tax Free
Schedule - B 1%
Schedule - C 4%
Schedule - D Between 20% to 40%
Schedule - E(Residual Category) 12.50%

Exemption from VAT:

  • Under the VAT laws, it has been provided that dealer is not liable to pay VAT, if his turnover does not exceed Rs. 5 Lakh
  • Sales made to Special Economic Zones (SEZs)
  • Export or Sale in the course of Export
  • Import or Sale in the course of Import
  • Sale in Transit
  • Sales made to notified persons

Works Contract:

Works Contracts are deemed sales and attract VAT. Under works contract there is transfer of property in goods involved in the execution of works contract for e.g. Construction Contract, Printing Contract etc. There are various methods for calculation of tax liability such as:

  • Composition Scheme:
    —> normally 8% (with 64% setoff on material purchased) —> 5% on construction contract (with 4% reduction in setoff on material)
  • By reducing ad-hoc deduction from total consideration (generally 25%) (Full setoff on purchases).
  • By determination of sale price and of purchase price under Rule 58.
TDS has to be deducted from payments made to works contractors at following rates if the annual value of works contracts exceeds Rs. 5 lakhs.
  • 2% from Registered Dealer
  • 4% from Unregistered Dealer

Set-Off under MVAT:

The provisions regarding setoff are as under:

Set-off is available on —>Purchases during the year from a Registered Dealer —>Plant & Machinery used for the purposes of the business —>Capital Assets used for the purposes of the business (after retention of 2%) —>Expenses debited to Profit & Loss accountant such as Printing and Stationery etc. Some other retentions include —>Use for Branch Transfers (2%) —>Use for Tax Free Goods (2%) —>Use for Works Contracts (4% of purchase price or 36% of the amount of set-off, as the case may be) offered for composition In the following cases, set-off is not available —>Motor Cars as Capital Assets —>Motor Spirits —>Job Worker —>Intangible Goods (unless resold) —>Works Contracts resulting in immoveable properties —>Purchase of building materials used in immoveable properties.

Periodicity of Filing Returns

Previous year’s Tax Liability Periodicity
0-1,00,000 Half yearly basis
1,00,000-10,00,000 Quaterly basis
10,00,000+ Monthly basis

All returns to be e-filed only.

Rate of Interest:

Interest is charge at the rate of 15% per annum on a late payment of tax. Interest is calculated on a daily basis.

MVAT Audit:

Audit under sales tax is introduced for the first time under MVAT with effect from 01.04.05. Dealers having turnover of sales/purchases above Rs. 40 lakhs or holding liquor license are required to get their accounts audited within the prescribed due date.


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