Microsoft cannot be penalised for legally exercising statutory right to file six-monthly returns, rules the Bombay High Court while holding interest under Section 30(2) of the Maharashtra VAT Act cannot be levied on an assessee who has filed six-monthly returns and paid tax strictly in accordance with Rule 17(4) read with Rule 41 of the MVAT Rules, merely because the turnover in the relevant year was substantial.
The High Court ruled that the concept of ‘unjust enrichment’ has no statutory basis under the MVAT Act in relation to return periodicity or timing of tax payment where the dealer has acted in compliance with the prescribed Rules, and the revenue cannot rewrite or read down delegated legislation on the basis of its own perception of legislative intent. The Court declared the levy of interest as dehors the statutory provisions and constitutionally impermissible in violation of Article 265 of the Constitution, observing that interest being a fiscal levy can be imposed only with the authority of law.
The Court distinguished the principle laid down in McDowell and Company Limited vs. Commercial Tax Officer [(1985) 3 SCC 543] on colourable devices, holding that tax planning within the framework of law is permissible and the assessee cannot be accused of adopting dubious methods merely because it structured its registration and prior-year transactions to legitimately avail of the six-monthly return periodicity.
The Division Bench comprising Justice M. S. Karnik and Justice Sandesh D. Patil observed that the Petitioner was admittedly legally entitled to file six-monthly returns under Rule 17(4) of the MVAT Rules, as its prior year tax liability was undisputedly less than Rs. 1 lakh. The impugned order itself recorded that the Petitioner could file six-monthly returns in view of Rule 17 yet proceeded to levy interest on the reasoning of ‘unjust enrichment’ and ‘dubious tax planning’.
The Court noted that though the theory of ‘unjust enrichment’ sounded attractive, there was hardly any material on record or sanction of law to draw such an inference, and the order was passed on the surmises of respondent No. 4. The Court observed that the impugned orders expressly acknowledged compliance with Rule 17 and Rule 41 of the MVAT Rules, but the legislative intent supplied by the department did not have the sanction of law.
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Briefly, Microsoft Corporation (India) Pvt Ltd. (Petitioner) is engaged in the business of sale and distribution of software products and allied services. The Petitioner voluntarily obtained registration under the Maharashtra Value Added Tax Act, 2002 (MVAT Act) and the Central Sales Tax Act, 1956 (CST Act) with effect from 3 September 2012.
For FY 2012-2013, the Petitioner filed returns and discharged a total CST liability of only Rs. 19,200/- against a single transaction of Rs. 1.72 lakhs, with no MVAT liability. Since the tax liability in the preceding year was below the prescribed threshold of Rs. 1 lakh, in terms of Rule 17(4) read with Rule 41 of the Maharashtra Value Added Tax Rules, 2005 (MVAT Rules), the Petitioner became eligible to file six-monthly returns for FY 2013-2014.
In compliance with the statutory provisions, the Petitioner filed six-monthly returns for FY 2013-2014 and discharged tax of approximately Rs. 41.35 crores (taxable turnover of Rs. 981 crores) within the due dates. The Petitioner collected Rs. 1.44 crores as tax from customers in April 2013, which was remitted to the Government only on 28 October 2013.
Subsequently, assessment proceedings culminated in two Assessment Orders dated 31 March 2018, and the Petitioner filed statutory appeals. During the appellate proceedings, respondent No. 4 issued a show cause notice dated 28 October 2024 proposing to levy interest under Section 30(2) of the MVAT Act. By the impugned orders dated 14 February 2025, respondent No. 4 levied interest under Section 30(2) on the premise that tax ought to have been paid on a monthly basis instead of six-monthly basis, and also demanded tax and interest on alleged disallowance of credit notes. The total net confirmed demand under challenge was Rs. 1.47 crores.
