Vat on deposit
This query is : Resolved
16 November 2015
As per sales definition of MVAT Act, sales price includes deposit received from customers if not refunded within six months.
Nature of business for a company is that it trades in LPG sectors. It imports LPG and fills them in cylinders after LPG is brought at filling plants through its terminals.
When customer comes for LPG then a deposit equal to cost of cylinder is asked for per cylinder which is accounted for as deposit received from customer by assigning special GL indicator in SAP.
When cylinder is returned to company by customer after its closure of business with company then security deposit received is refunded. It may take 1 month, 2 months or even years i.e. its uncertain that when deposit will be refunded.
Now, as per definition of sales price department of sale tax of maharastra has asked for VAT to be paid on cylinder deposit received from customers.
1. As deposit is not revenue for company, is it compulsory for company to pay VAT on deposit as per definition of sales price?
2. Is there any decided case law in this respect either against assessee or revenue?
Nature of business for a company is that it trades in LPG sectors. It imports LPG and fills them in cylinders after LPG is brought at filling plants through its terminals.
When customer comes for LPG then a deposit equal to cost of cylinder is asked for per cylinder which is accounted for as deposit received from customer by assigning special GL indicator in SAP.
When cylinder is returned to company by customer after its closure of business with company then security deposit received is refunded. It may take 1 month, 2 months or even years i.e. its uncertain that when deposit will be refunded.
Now, as per definition of sales price department of sale tax of maharastra has asked for VAT to be paid on cylinder deposit received from customers.
1. As deposit is not revenue for company, is it compulsory for company to pay VAT on deposit as per definition of sales price?
2. Is there any decided case law in this respect either against assessee or revenue?
24 November 2015
No Reaponse till date.. Is any1 handling Maharashtra VAT matters?:
02 August 2025
This is a nuanced issue under MVAT (Maharashtra VAT) regarding **VAT applicability on deposits received from customers**, specifically for cylinder deposits in LPG business. Here's a detailed breakdown to help clarify your query:
---
### 1. **Is VAT applicable on security deposits under Maharashtra VAT?**
* **According to the Maharashtra VAT Act (MVAT), 'sales price' includes deposits received from customers if they are not refunded within six months.**
* This means if the deposit remains unrefunded beyond six months, it is treated as part of the sales price and thus subject to VAT.
* The rationale is that the deposit, if not refunded in time, essentially becomes a sale consideration for the goods (here, the cylinder).
---
### 2. **In your case: LPG Cylinder Deposit**
* The company takes a security deposit equivalent to the cylinder cost.
* Deposit is accounted separately (in SAP) and is refundable on return of the cylinder.
* The period of refund is uncertain (could be 1 month, 2 months, or even years).
* As per MVAT, if the deposit is not refunded within six months, **it is liable to VAT**.
---
### 3. **Is it compulsory to pay VAT on such deposits?**
* **Yes, as per the letter of the law, if the deposit is not refunded within six months, VAT is applicable on the deposit amount as it forms part of the 'sales price'.**
* Even if the deposit is refundable in the long run, the statute presumes the deposit to be sales consideration after six months unless refunded.
* The onus is on the company to refund the deposit timely to avoid VAT liability.
* If deposits are refunded within six months, no VAT applies on them.
---
### 4. **Any case laws or rulings?**
* There have been cases where VAT departments have upheld the levy of VAT on deposits not refunded within six months, especially in Maharashtra.
* However, some assessments have been challenged on the ground that deposits are not revenue until forfeited or converted to sale.
* One common defense by assessees is that deposits are refundable and not sale consideration.
* The **Maharashtra Sales Tax Tribunal (STT)** and High Court rulings vary based on facts, but many times departments have upheld VAT on unrefunded deposits after 6 months.
---
### 5. **Key Points / Recommendations:**
* Maintain **proper documentation and records** of deposits received and refunded with dates.
* Aim to **refund deposits within six months** where possible to avoid VAT on deposits.
* If deposits remain unrefunded beyond six months, be prepared to pay VAT on the deposit amount.
* Check if **any deposit forfeiture clauses** apply (if forfeited, definitely VAT applicable).
* Consider consulting a tax professional for **case-specific advice and representation** if you receive VAT demand.
---
### Summary:
| Aspect | Position |
| ----------------------------------- | ------------------------------------------------------------- |
| Deposit refunded within 6 months | No VAT on deposit |
| Deposit not refunded after 6 months | VAT applicable on deposit amount (considered sales price) |
| Deposit forfeited | VAT definitely applicable on deposit amount |
| Case laws | Mixed rulings, generally department favors VAT after 6 months |
---
If you want, I can help draft a **formal reply to the VAT department** or assist with further research on case laws specific to Maharashtra.
Would you like me to do that?
---
### 1. **Is VAT applicable on security deposits under Maharashtra VAT?**
* **According to the Maharashtra VAT Act (MVAT), 'sales price' includes deposits received from customers if they are not refunded within six months.**
* This means if the deposit remains unrefunded beyond six months, it is treated as part of the sales price and thus subject to VAT.
* The rationale is that the deposit, if not refunded in time, essentially becomes a sale consideration for the goods (here, the cylinder).
---
### 2. **In your case: LPG Cylinder Deposit**
* The company takes a security deposit equivalent to the cylinder cost.
* Deposit is accounted separately (in SAP) and is refundable on return of the cylinder.
* The period of refund is uncertain (could be 1 month, 2 months, or even years).
* As per MVAT, if the deposit is not refunded within six months, **it is liable to VAT**.
---
### 3. **Is it compulsory to pay VAT on such deposits?**
* **Yes, as per the letter of the law, if the deposit is not refunded within six months, VAT is applicable on the deposit amount as it forms part of the 'sales price'.**
* Even if the deposit is refundable in the long run, the statute presumes the deposit to be sales consideration after six months unless refunded.
* The onus is on the company to refund the deposit timely to avoid VAT liability.
* If deposits are refunded within six months, no VAT applies on them.
---
### 4. **Any case laws or rulings?**
* There have been cases where VAT departments have upheld the levy of VAT on deposits not refunded within six months, especially in Maharashtra.
* However, some assessments have been challenged on the ground that deposits are not revenue until forfeited or converted to sale.
* One common defense by assessees is that deposits are refundable and not sale consideration.
* The **Maharashtra Sales Tax Tribunal (STT)** and High Court rulings vary based on facts, but many times departments have upheld VAT on unrefunded deposits after 6 months.
---
### 5. **Key Points / Recommendations:**
* Maintain **proper documentation and records** of deposits received and refunded with dates.
* Aim to **refund deposits within six months** where possible to avoid VAT on deposits.
* If deposits remain unrefunded beyond six months, be prepared to pay VAT on the deposit amount.
* Check if **any deposit forfeiture clauses** apply (if forfeited, definitely VAT applicable).
* Consider consulting a tax professional for **case-specific advice and representation** if you receive VAT demand.
---
### Summary:
| Aspect | Position |
| ----------------------------------- | ------------------------------------------------------------- |
| Deposit refunded within 6 months | No VAT on deposit |
| Deposit not refunded after 6 months | VAT applicable on deposit amount (considered sales price) |
| Deposit forfeited | VAT definitely applicable on deposit amount |
| Case laws | Mixed rulings, generally department favors VAT after 6 months |
---
If you want, I can help draft a **formal reply to the VAT department** or assist with further research on case laws specific to Maharashtra.
Would you like me to do that?
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