Will Local Body Tax have any repercussion on innocent consumer?

Posted on May 14, 2013 by Runjhun

Mr. Rajesh Puranik landed at Mumbai airport from the States last week to shop extensively or his impending wedding and was puzzled to read the slogan ‘No LBT, No OCtroi’ on the shutters of shut down shops. Mr. Puranik left the country today morning without completing the task at his hand. Why so? Why could not Rajesh shop?

The answer is very simple; all the shops in Mumbai have not opened for public for almost a week now.

One may again ask the same question; WHY?

The reason being the traders are protesting against the Local Body Tax (LBT) that will be charged to them. The Chief Minister has clearly stated that the agitation may continue but he is not willing to bend the rules with respect to LBT and all the traders are obliged to abide by the rules.

Why is LBT introduced?

Prior to LBT, Octroi Tax was levied on the traders. Octroi was a local tax collected by the State Government or the City Municipality on articles brought into a town for local use. Levy of Octroi was based on the value, weight, length and number of articles and the basis of levy would vary from State to State or even between different local bodies within a State.

In 1965, Bombay Muncipal Corporation (BMC) introduced Octroi Tax in Mumbai. It was a tax to be levied on specified articles at their time of entry into the limits of the Greater Bombay for consumption, use or sale.

Octroi Tax is an age old concept & it also leads to serious traffic problems at the entry points of city, so a need was felt to replace this act. Till March 2013, almost all the countries in the world abolished Octroi Tax except Euthopia & one Indian State Maharashtra.

Finally in April 2013, Maharashtra abolished the Octroi tax & replaced it with LBT.

What is LBT?

LBT is the tax which will be imposed by BMC on the entry of goods into a local area for consumption, use or sale therein.

It is a self assessment or account based method of paying local tax, where the traders declares their tax liability by submitting records. Unlike in the Octroi regime, trucks carrying goods will not be subjected to physical checking at check posts.

What is the difference between Octroi and LBT?

Octroi, abolished in almost all municipalities in state, is paid every time a consignment enters the city, at octroi check posts whereas LBT attempts to speed up the goods movement, stressing self-declaration of goods by traders who will maintain LBT accounts.

What formalities are required for LBT?

Traders whose annual turnaround is more than Rs. 3,00,000/- have to register themselves with the BMC. Traders have to compile list of all goods procured within the month, feed the matter into the software provided by the BMC to check their LBT liability. They have to make payment once every 40 days using online portals, cheques, demand draft or cash through a designated bank or counters of the civic bodies.

Who is liable to pay LBT?

Any trader with a turnover of purchases and sales more than or equal to Rs 5000/- will have to pay LBT. This will include almost every trader even local kiranawala or even local panwala.

Why are traders opposing LBT?

The LBT Officers can check any vehicle at any point in time; they can inspect traders premises and also verify records for past 5 years. The Officers have the right of attaching traders’ property too.

It is the contention of traders that when Value Added Tax (VAT) was introduced they were promised by the government that after VAT all other taxes like Octroi would be abolished. However two years back, the government decided to increase the VAT by 1-2% stating that the government needed it to cover the amount that was not being collected after Octroi was stopped. The traders’ fraternity hence feels deceived by the Government and also does not want to get involved in additional paperwork required under LBT.

Should a consumer be worried about LBT?

VAT is in place across the country, LBT will be like double-taxation. Prices of goods are affected by VAT as well as by state or municipality-level taxes. Also, complying with various rules on self-declaration, record maintenance, account books, etc. could be an added cost under the LBT regime, which will indirectly be shifted to customers.

Further increment in tax will increase the cost of consumers’ lifestyle too.

For example: There is difference in price of petrol and diesel in various cities, Mumbai prices is higher than Delhi prices because of Octroi. After the introduction of LBT almost all the commodities that the consumers buy in Mumbai will become costlier than any other city.

Picture from here.

Beware! Your Restaurant Is Over-Charging You! The Service Tax-Service Charge Mess.

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Posted on November 5, 2012 by Runjhun

Beware! Complaint Against Restaurant Charging Excessive Service Tax Wrongly!(Picture Credit:Legally India)

Hard Rock Cafe and a bill of around 5K is hardly a surprise.

But it is, when you figure that around 1300 bucks of that meticulously crafted bill were wrongly charged!

When one of my friends came to this rude realization, he immediately dug out a post we had done ages ago (Read ‘Tax’ing-Decoding Your Restaurant Bill! ) on this issue along with a recent notice by Delhi High Court Bar Association (See picture, credit Legally India).

We have been crying hoarse for months now. But we will still refresh your memory so that at least next time when your restaurant overcharges you, you think twice before shelling out those hard earned bucks!

Service Tax is NEVER charged on the whole amount of the bill. It is only charged on the service component of bill which the Finance Ministry has pegged at 40% of the invoice amount. Thus, as per Finance Ministry stipulations, the service tax is to be charged ONLY on 40% of the invoice amount (excluding the VAT charges). Therefore, the effective service tax becomes around 4% of your invoice. (percentage updated as per latest Finance Ministry notification)

Decoding Your Restaurant Bill!

This is more or less what Delhi High Court Bar Association has also told its members albeit with a slight error. According to this notice, service tax is chargeable only on ‘service charge’ which is incorrect. Service tax is chargeable on the service component of the invoice, as pegged by the regulations.

What Bar Council has also not mentioned is that ‘service charge’ in itself is not a legal charge and is more of a discretionary thing. Which means that if you don’t like the restaurant’s services, you can refuse to pay the service charge.

It may or may not work, but it is worth a try. If it is actually a place which cares for its consumers (rare but such places do exist), they will oblige. (This only applies to objective customers who really have an issue with the services and definitely not the ones who believe in baseless tantrums. After all, as consumers, we too have a duty of care and a sense of responsibility which must be adhered to!)

Also, the ‘service tax’ is charged as per ministry guidelines on a percentage of the invoice as determined by ministry regulations. No restaurant can actually vary this component at will, not at least to the disadvantage of the consumers.

If your restaurant is charging service tax on the entire invoice or bill amount, PROTEST and DON’T PAY. This is a seriously disturbing trend, an outright violation of not only consumer rights but the regulations laid down by the concerned authorities and needs to be curbed.

And the ones who can actually really and truly impose an effective curb on the practice, are aware, vigilant and pro-active consumers!

Sale! Sale! Sale! Decoding The Tax Maze Behind That Discount On Your Shirt.

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Posted on July 26, 2012 by Runjhun

Twitter Query On Sale And Taxes

Twitter Query Extra Taxes On Sale Price Allowed

Sale! That is one word that always catches our eye. More so if you belong to that proud section of the population called ‘girls’. There goes our allegiance to the cliche–yes of course, that cliche which demands that we always make a reference to squealing girls whenever the word ‘sale’ is uttered.

Much as the feminist in me pleads to open a debate on how wrong that cliche is, I will steer clear of the issue and concentrate on the query at hand. (Which by the way is an extremely logical question that comes from a girl-who evidently thinks not squeals when she sees a ‘sale’ sign. See-there I made my point!)

So one of our readers, asked us that when they say sale and then taxes extra, is it allowed?

The question, honestly, made us do a double take. The number of times we had gone to a sale and still never noticed this!

A primary research indicated that there are no clear answers to the question. So with a little help from our legal expert, Himani Subramanian, we got down to decoding this tax maze.

Under the Consumer Goods (Mandatory Printing of Cost of Production and Maximum Retail Price) Act, 2006, the consumer cannot be charged over the maximum price printed on the goods by the manufacturer. These guidelines are as follows:

1. Consumer goods mean all goods and items brought in the market for sale and are meant for the use and consumption of the consumers;

2. Cost of production means cost incurred directly or indirectly by the manufacturer in the production of goods;

3.Printing means printing of the cost of production and retail price at a visible place on the product in Hindi and English and the local language of the place it is sold; and

4. Maximum retail price means such price at which the product shall be sold in retail and such price shall include all taxes levied on the product.

The VAT is calculated over and above the Sell Price.

So the calculation is:

Sell Price +	VAT =	MRP
Rs. 95/-	Rs. 5/-	Rs. 100/-

VAT is governed by the State VAT legislation (VAT Acts of the particular State). The percentage of VAT varies from State to State within India.

In other words, MRP includes all taxes including VAT and no retailer can charge a consumer over and above MRP. Below MRP, however, is permissible and fairly common.

We will look at two scenarios

Where flat percentage of discount is offered on the MRP.
Where the cost of goods is reduced to particular amount, that is, the sell price is discounted.

In the first scenario the taxes including the VAT forms part of the MRP and discount is offered on the total MRP. The consumers must note that the ‘Sale’ here should specify that the discount is on MRP. If this is the case, then no extra taxes can be charged and if the retailer does so, he will be liable under the Consumer Protection Act.

For example: If 40% discount on MRP of Rs. 100/- is offered, then the total cost of the item will be Rs. 60/-. No extra taxes can be charged.

We would also like to add that this is not a normal practice and rarely (never!?) do brands offer a discount/sale on MRP.

The second more likely and common scenario is when the discount or sale is offered on the cost of goods which does not include the taxes and consequently, taxes are added on the discounted price.

A possibility here is that of the dealer misrepresenting the MRP as sell price in the advertisement and then charging taxes over and above the price.

For example: There is a sale going at Arrow where the cost of shirts/T Shirts is reduced from Rs. 799/- to Rs. 499/- and additional VAT is charged on Rs. 499/-. The dealer can argue that Rs. 499/- is the sell price and hence VAT is applicable.

If the dealer has misrepresented the discount by making false advertisement, he can be held liable under the Consumer Protection Act, 1986 in addition to relief under the Central Excise Act or the State VAT legislation.

The practice of sale or discount is an industry/market practice and does not really have a legal background and/or regulations.

The only precaution that we can suggest for the consumers here is to ask the right questions and carefully understand the terms of the discount being offered. The consumer has to be sure that the price list does not mention the condition ‘separate taxes applicable’ and if it does, (which is usually the case), take care that the price being discounted is the sell price not the MRP.

Civic Body To Refund Penal Interest

Posted on January 21, 2012 by Runjhun

Following the orders by the UT Consumer Disputes Redressal Forum, Municipal Corporation of Chandigarh will have to refund Rs 6,656 to a family residing at Sector 18. The money was charged as penal interest for late payment of property tax. It has to be refunded because the corporation does not have any proof of the demand notice sent to them.

The forum has also ordered the corporation to pay Rs 5,000 as compensation to the family for harassment caused to them, and Rs 2,000 as cost of litigation.

Background

The complaint was filed by Shwinder Kaur and her son Sanjit Singh and the duo had stated that the MC issued a notice to them demanding property tax for the years 2006-2009. They added that though they deposited the tax within the stipulated period, the MC “forced them” to pay the tax for the years 2004 to 2006 amounting to Rs 20,196, with penal interest. The complainants said that they paid the amount under protest in May 2010.

MC’s Defense

In its defense, the Corporation stated that it had issued a consolidated property tax demand notice amounting to Rs 13,540 to the complainants in February 2006. It said the notice was delivered at SCO 95, Sector 40, Chandigarh through a messenger.

It said that since the complainants failed to deposit property tax within a month of issuing the notice, they were liable to pay interest at the rate of 18 per cent from the date of issuing the notice.

The Verdict

After examining the case in its entirety, the Forum observed that the MC failed to prove that this notice reached the complainants, since it could not produce any acknowledgment signed by the complainants nor the affidavit of the messenger, who delivered the notice.

In the absence of such evidence, it decided that the demand notice did not reach the complainants hence the corporation was not entitled to charge penal interest from the complainants. It thus directed it to refund the amount along with compensation and litigation costs.

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