1. QUERY
We have a godown in Navi Mumbai Municipal Corporation area wherein we store goods which are thereafter dispatched to JNPT for the purpose of using the same in our operations in the Territorial Waters or in the Exclusive Economic Zone. We do some processing on such goods but the goods remain the same even after the processing. The goods remain in such godown for two to three days. We were of the view that CESS or LBT is not payable on such transactions and therefore we did not obtain registration under the respective enactments though such storage is for last several years. Now, the Corporation officials are insisting for registration.Kindly inform us the correct legal position.
OPINION
Our views are expressed qua the provisions of Local Body Tax (LBT) but the same apply mutatis mutandis to the provisions of Cess.
The Maharashtra Municipal Corporations Act (MMC Act) is relatable to Entry 52 of List-II (State List) of the 7th Schedule to the Constitution and the said entry runs as follows :–
“taxes on the entry of goods into a local area for consumption, use or sale therein.”
Clause (31A) of section 2 of the Act defines LBT and it is stated as follows :
“Local Body Tax” means a tax on the entry of goods into the limits of the City, for consumption, use or sale therein, levied in accordance with the provisions of Chapter XIB, but does not include cess as defined in clause (6A) and Octroi as defined in clause (42).
Clause (aaa) of sub-section (2) of section 127 of the Act is quoted below :–
127. Taxes to be imposed under this Act
(1) For the purposes of this Act, the Corporation shall impose the following taxes, namely,
(a) …………….
(b) …………….
(2) In addition to the taxes specified in sub-section (1) the Corporation may for the purpose of this Act and subject to the provisions thereof impose any of the following taxes, namely,–
(a) ………………….
(aa) …………………..
(aaa) Local Body Tax on the entry of the goods into the limits of the City for consumption, use or sale therein, in lieu of octroi or cess, if so directed by the State Government by Notification in the Official Gazzettee.
………………………………………………………………
………………………………………………………………
Section 152P of the MMC Act states that the Corporations to which the provisions of clause (aaa) of sub-section (2) of section 127 apply, may, for the purposes of that Act, levy and collect Local Body Tax on the entry of goods specified by the State Government by Notification in the Official Gazzette, into the limits of the City, for use or consumption or sale therein, at the rates specified on the Notification.
The Government has accordingly issued Notification.
In view of the above legal provisions, LBT can be levied when goods are brought into the LBT area for consumption, use or sale – mere physical entry of the goods into the LBT area would not attract the levy of LBT. Mere physical entry of goods into the LBT limits would not attract levy of LBT unless goods are brought in for use or consumption or sale. Use and consumption would involve conversion of the commodity into a different commercial commodity by subjecting it to some processing. The entry must be for the purpose of consumption, use or sale within the local area. Further, the word “therein” is significant and indicates unambiguously that the consumption, use or sale must take place in the local area and not outside.
The taxable event is the entry of goods into a local area for use ‘therein’. The fundamental ingredient of the taxable event is that the goods will ‘repose’ in the local area for ‘an indefinite period’ and ‘finally and permanently rest within the municipal limits’ and amount to ‘a mixing up of the goods with the mass of property in the local area’.
Words are not to be viewed in isolation and their meaning ascertained only according to dictionaries. The word must be viewed in the light of its setting in the sentence in Entry 52, List II.
We have considered the sentences in Entry 52, List II and in sections 127 and 152P. It seems to us clear beyond doubt that the legislature has been invested with the power to tax entry of goods into a local area for consumption, use or sale therein. The purpose of allowing the State Legislature to impose LBT is to allow taxation of goods that enter into a local area for either consumption, use or sale within the local area. The purpose is not to allow taxation of entry of any goods which enter temporarily into and then exit the local area. If the consumption and sale have to take place within the local area, the ‘use’ must equally take place within the local area.
Blacks Law Dictionary, 8th Edition, gives the meaning of the word “use” as follows:- “The application or employment of something; esp., a long-continued possession and employment of a thing for the purpose for which it is adapted, as distinguished from a possession and employment that is merely temporary or occasional the neighbours complained to the city about the owner’s use of the building as a dance club.” The word “use” thus means the employment of a thing for the purpose for which it is made or adapted.
If the article is imported within the city limits not for use therein but temporarily as in transit, it must be necessarily inferred that the article has not entered for use within the municipal limits. It is settled law that octroi is not leviable if goods are not brought into the octroi area for the purpose of use in the area but for export and, in fact, exported by the importer. In
Burmah-Shell Oil Storage and Distributing Co. of India Ltd. Belgaum vs. Belgaum Borough Municipality, Belgaum [AIR 1963 SC 906], the Supreme Court observed that it is a peculiar requirement to octroi that the goods must not only have entered the area but must be “for the purpose of consumption, use or sale therein. The Supreme Court observed in para 20 as follows:- “……Added to the word “consumption” is the word “use” also. There may be certain commodities which though put to use are not ‘used up’ in the process. A motor-car brought into an area for use is not used up in the same sense as food-stuffs. The two expressions use and consumption together therefore, connote the bringing in of goods and animals not with a view to taking them out again but with a view to their retention either for use without using them up or for consumption in a manner which destroys, wastes, or uses them up. ………”
In the said decision it was not a case of import for the purpose of use, the Supreme Court concluded as follows:— “…..The company was, however, not liable to octroi in respect of goods which it brought into the local area and which were re-exported……”
The Supreme Court in Acqueous Victuals Pvt. Ltd. vs. State of U.P. And ors. [(1998) 5 SCC 474] where the Supreme Court considered the earlier decision on the subject and observed that the word “consumption” is added to the word “use” and in either case the entry within the municipal limits must be with a view to their retention.
The court further observed that, “15. In view of the aforesaid decision, it becomes obvious that the word “retention” is held to be a synonym with the word “repose”, meaning thereby the article concerned must finally rest within the municipal limits. In the light of the aforesaid judgment of the Constitution Bench of this Court, therefore, it is obvious that before a municipality can impose octroi duty on any commodity, it has to be shown that the commodity concerned was brought within the municipal limits for consumption, that is, for being totally used up so that it ceases to exist within the municipal limits themselves or it was to be used for an indefinite period within the municipal limits so that it ultimately rests within the municipal limits and does not go out subsequently, or the commodity concerned must be shown to have been brought within the municipal limits for the purpose of sale within the said limits.
We are therefore of the view that that considering the facts informed by you, you are not liable to pay LBT in Navi Mumbai Municipal Corporation area. However, you have not informed the nature of processing. Please ensure that the processing done by you does not convert the original goods into different commercial commodity.
2. QUERY
Amendment to LBT Provisions w.e.f.1-8-2015
The Government of Maharashtra has amended Rule 3(1) & Rule 17(1) (b) of the Maharashtra Municipal Corporations (Local Body Tax) Rules, 2010, vide Notification No. LBT. 2015/CR-47/UD -32 dated 1-8-2015 as under :
1) In Rule 3 of the Maharashtra Muncipal Corporations (Local Body Tax) Rules, 2010 (hereinafter referred to as “ the Principal Rules) in sub-rule (1) the following shall be added, namely:—
“Provided that for any period starting on or after 1st April 2015, the dealer whose turnover of sales or turnover of purchases, during any year, is not less than 50 Cr. shall be liable for registration.”
2) In Rule 17 of the Principal Rules in sub-rule (1), for clause (b), the following sub-clause shall be substituted, namely:-
“neither the turnover of sales nor the turnover of purchases of a registered dealer, during the year prior to the year starting on 1st April, 2015 has exceeded
Rs. 50 Cr. then, the Certificate of Registration of such dealers shall be deemed to have been cancelled with effect from 1st August 2015.”
In view of the aforesaid amendment in the provisions of LBT law, we request you to kindly examine the issue and let us have your valued opinion in respect of the following queries:
1. As per the amended provisions of LBT law, what is the basis to determine turnover during the year, whether it will be on the basis of the turnover for each Municipal Corporation or total turnover of all Municipal Corporations in Maharashtra State?
2. Presently, my client is discharging LBT liability for 23 Municipal Corporations in State of Maharashtra. In the previous financial Year 2014-2015, out of the 23 Municipal Corporations only 4 Municipal Corporations turnover exceeded
Rs. 50 Crores. Considering the above amendments, whether LBT liability is now to be discharged only for those 4 Municipal Corporations?
3. As per the aforesaid Notification, the amendment is effective from 1st April, 2015. In such case the LBT paid by my client in the remaining 19 Municipal Corporations can be claimed as Refund for the period from April 2015 to July 2015?
OPINION
1. Section 127(aaa) of the Maharashtra Municipal Corporations Act (MMC Act) read with Section 152P of that Act authorises the Corporation to impose Local Body Tax on the entry of the goods into the limits of the city for consumption, use or sale therein if so directed by the State Government by Notification in the Official Gazette.
2. Section 152T of the said MMC Act authorises the Government of Maharashtra to prescribe the Rules for the purposes of the Act. Accordingly, the Government of Maharashtra has notified the Rules vide Notification number LBT-0209/CR-65/09/UD-34 dated 25-3-2010. Rule 3 of the said Rules prescribes the limits of turnover for registration and Rule 17 provides for cancellation of the registration certificate granted under Rule 3 in the circumstances prescribed under the said Rule 17.
3. Rule 3 creates a liability for registration for two categories of dealers. The first one is the importer and second one is the dealer other than the importer. The word “importer” has been defined under clause (28A) of section 2 of the MMC Act to mean a person who brings or causes to be brought any goods into the limits of the City from any place outside the area of the City for use, consumption or sale therein. Sub-clause (a) of rule 3(1) prescribe the limit of such import at
Rs.. 5,000/-. In other words, if the value of the goods brought into the City of that particular Corporation is not less than
Rs. 5,000/- then that dealer is liable for registration under that Corporation, of course if the further conditions of that Rule 3(1)(a) are also complied with. The other category of dealers, who are other than importers. For them clause (b) has been prescribed under Rule 3(1). This clause speaks about the turnover of purchase or sales other than import and has accordingly prescribed the limits.
4. Now the question is, whether the term “turnover of purchases” or “turnover of sales” mentioned in these clauses (a) & (b) apply to those particular Corporations or whether they apply to the entire State. These terms have not been defined under the Rules but have been defined under the main MMC Act. The term ‘Corporation’ has also been defined under clause (10) of section 2 of the MMC Act and means the Municipal Corporation constituted or deemed to have been constituted in larger area known as a City.
5. The ‘turnover of purchases’ and ‘turnover of sales’ have been defined under clauses (70A) and (70B), respectively, of that Section 2 of the MMC Act and mean the aggregate amount of purchase price paid or payable in respect of purchase of goods and sale price received or receivable in respect of sale of goods.
6. If these definitions of “turnover of purchases”, “turnover of sales”, “Importer” and “Corporation” under the Parent Act are carefully examined along with the scheme of Act, then it should be clear that these limits of turnover are meant to apply to particular Corporation. Those limits cannot be interpreted to mean the aggregate turnover of purchases or sales within the entire State of Maharashtra. If that be so, then clause (a) of Rule 3(1) which prescribes the limit for importer would become redundant. The dealer would be liable for registration in all the Corporations in this State on the basis of clause (b) of rule 3(1), if the interpretation of aggregate turnover in the State of Maharashtra is to hold good. For example, the dealer whose purchase turnover of Schedule A goods is of
Rs. 5,500/- and turnover of all the purchases are more than Rs. 1,50,000/- in Navi Mumbai Municipal Corporation Area shall become liable in all Municipal Corporation Areas in the State of Maharashtra even if he does not have any transaction in any other corporation area. It is illogical.
7. You have informed that only in four Municipal Corporations your turnover has exceeded
Rs. 50 Crores in the previous financial year. In our view, you are liable to pay LBT only in those four Municipal Corporations and not in other 19 Municipal Corporations.
8. However, the view expressed by us is not free from doubt. It is especially so, because the Government of Maharashtra is in great financial crises due to the possible postponement of the GST. The speeches made by the Minister on the floor of House at the time of introduction of Bill qua LBT are not admissible for the construction of the statute. The bureaucracy may in future interpret the same to mean the aggregate turnover in the State of Maharashtra. Therefore, we advise you to immediately apply to the Commissioner of all respective Municipal Corporations under Rule 31 of the LBT rules for determination of the correct position in law. The said Rule 31authorises the Commissioner to statutorily determine, on application, whether Local Body Tax is payable qua particular transaction.
9. Section 152R of the MMC Act is to be read with section 152B. Subsection (3) of section 152B states that every dealer who has become so liable for payment of (CESS) LBT shall continue to be so liable until his registration is duly cancelled. The second proviso to rule 17(b) states that the cancellation of certificate of registration on an application of the dealer or otherwise shall not affect the liability of the dealer to pay the local body tax, including any penalty, interest and sum forfeited due for any period prior to the date of cancellation of the certificate of registration. The clause (b) of rule 17(1) which has been substituted by Notification No. LBT.2015/CR-47/UD-32 dated 1-8-2015 states that the certificate of registration of such dealers (whose turnover is below
Rs. 50 Crores in the previous year) should be deemed to have been cancelled with effect from 1-8-2015. Therefore, in our view your liability to pay LBT continued till 31st July, 2015.
STOP PRESS : The Government of Maharashtra has accepted this legal position and has now issued.