Is VAT applicable on OCTROI amount?
The question is whether VAT is payable on the amount of Octroi.
When you purchase some goods you have to pay VAT. Vat is the tax on sale [and not on purchase]. VAT is levied by the Govt upon the seller. But the seller recovers the VAT paid by him from his customers. Thus the purchaser feels that he is paying VAT, which is in fact paid by the seller to the Govt.
The VAT is a tax on the sale and therefore it is lived on the sale price.
Ordinarily sale price is the amount given to the seller for the value of the goods. But under VAT Act the words ‘sale price’ have been defined, as under -
– ‘Sale price’ means 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 the goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged. [Please see Maharashtra VAT Act 2002, - Sec. 2 [25].
Thus the definition of the ‘sale price’ suggests that it is not only the price of the goods, but includes the amounts charged by the seller for any thing done before the delivery of the goods.
Octroi is normally paid by the seller to the local authority [say Municipal corporation], when the goods are brought by the seller in the godown situated in that local area. Since the price is generally fixed at all India level, the additions for local charges are made in the sale price.
Therefore the octroi charge is the payment for putting the goods in to deliverable stage. It is supposed to be the sum charged before the deliver of the goods. That is why octroi charges become the part of the sale price and therefore it is liable for VAT.
It will be a different case where the seller sells the goods on ‘ex-factory’ basis and the goods are to be sent to the site of the purchaser where he has to pay octroi. In such a case the sale is complete at the gate of the factory and the payment of octroi is made for subsequent movement of goods. Therefore VAT will not be payable on such type of octroi, because it is related to the payment after the delivery of the goods.
CASE LAW
In case of Associated Cement Companies Ltd. Vs. The State of Bombay – [1956] 007 STC 0373, the Bombay High Court observed that,
“The applicants who were dealers in cement charged in their bills the price of cement at the controlled rate of Rs. 89-8-0 per ton plus sales tax at half anna per rupee and town duty at one rupee per ton paid by them at the time of the import of cement into the city of Bombay. The question was whether the Sales Tax Authorities were justified in adding to the sale price the town duty paid by the applicants. The HC held that the view taken by the Sales Tax Authorities were correct.”
The Maharsashtra Sales Tax Tribuanl has observed in case of M/s Albright Morarji [Second Appeal No. 450/1999 dt. 28-9-95], that unless sale was ex-works, octroi formed the part of sale price for levy of tax.
Written by admin on May 31st, 2010 with comments disabled.
Read more articles on Vat.