VAT on Textiles

So a day long bandh has been observed by Textile Business Sector in the State of Assam. As per media, the bandh was a grand success. I may be allowed to discuss the back ground of this huge protest.

The Government of Assam has levied tax (VAT)  @ 5% on sales/ purchases of ‘Textiles fabric including textile made-ups i.e. fabric that has undergone  a stitching process’ w.e.f. 28/06/2012 vide  Notification No. FTX.55/2005/Pt-V/255 dated 28^th June 2012. The readers may be aware that the textiles has been brought under the ambit of the Assam Entry Tax Act, 2008 and currently 2% Entry tax is leviable on import (bringing from out-side the local area) of textiles. It is worth to be noted that under Entry tax Act, there is no system of adjusting the entry tax on raw materials against the VAT liability of the finished products.

This may be a mystery for the common man that why the textiles fabrics (unstitched) were tax exempted before the said date and what was the reason that the Government of Assam, which do not mind to levy tax on petrol @ 27.5% had not levied any VAT on this commodity. Let me take an attempt to demystify the issue.

The textiles along with some other commodities were subject matter of  “the Additional Duties of Excise (Goods of Special Importance) Act, 1957” (popularly known as AED-GSI) for levying of additional duties of excise. The commodities covered under this AED-GSI are listed in the First Schedule to the Act. The States were entitled for getting their shares against the collection of such duties. However, such entitlement was subject to a restriction that the States which levy a tax on the sale or purchase of these commodities after the 1st April, 1958 shall not participate in the distribution of the net proceeds. It is thus apparent that the additional duty of excise (AED-GSI) was actually in lieu of Sales tax. As per my little knowledge, this may be an important reason for keeping the textiles in Schedule 1 of the Assam Value Added Tax Act, 2003.

The Central Government had however exempted the goods under First Schedule of vide Central Excise Notification dated 01.03.2006. Thus fabric enjoyed exemption from both the excise duty and sales tax. When this exemption was introduced it was widely perceived that the levy of sales tax on fabric was just a matter of time. But that was not to be. While the rate of AED-GSI was reduced to 0%, the taxable items continued to remain to be listed in the said First Schedule. The state governments were thus prevented from levying sales tax on Fabric because this product enjoyed the protection of being listed in the First Schedule to the AED-GSI Act 1957, though the rate of tax was 0%.

The situation changed, when the Central Government vide Finance Bill 2011 had removed the textiles from the First Schedule of the AED-GSI Act 1957. So as soon as Finance Act was passed, the State legislatures were become free to impose sales tax on textiles.

As it has been heard that VAT on textiles have been introduced in some other States also, such as Andhra Pradesh, Maharashtra, Punjab etc. In all the States the Textiles sector has vehemently opposed the imposition of VAT.  It has been heard that Chief Minister of Goa, had announced that his Government is going to remove VAT on fabrics.

TEXTILES ARE NOW TAXABLE UNDER AVAT ACT, 2003

As per Notification no. FTX.55/2005/Pt-V/255, “textiles fabric including textile made-ups, i.e. fabric that has gone undergone  a stitching process” are made taxable @ 5% w.e.f. 28^th June, 2012.

A new entry at Sl. No. 124 has been inserted in Second Schedule (Part- A), which reads as “Textiles fabric including textile made-ups, i.e. fabric that has gone undergone  a stitching process”. 

It will be a new task for the dealers to claim refund of entry tax paid on unsold stock of such goods as on 28/06/2012 (opening).

SUGAR IS NOW NOT SO SWEET

‘SUGAR’ IS NOW NOT A TAX FREE ITEM

As per Notification no. FTX.55/2005/Pt-V/255, Sugar is made taxable @ 5% w.e.f. 28^th June, 2012.

Input tax credit on lease transaction of Vehicles

Clarification dated 22nd March, 2006 bearing distinctive number CTS-16/2005/483 issued from Authority at Kar Bhawan, Guwahati has been brought to my knowledge for academic discussion. The clarification is relating to eligibility of Input Tax Credit on Vehicles which are used for leasing (transfer of right to use). After referring to the provisions of section 14(6)(f) and the seventh schedule of the Act, it has been clarified that Input Tax Credit is not allowable to the dealer on purchase of vehicles even if such vehicles are used by him for leasing (transfer of right to use) business.

The above clarification is mainly based on the ground that ‘Vehicle’ is enumerated in the negative list (seventh schedule) and as per the provisions of section 14(6)(f) I.T.C. is not allowed on purchase of capital goods specified in the Seventh Schedule. The best part of this clarification is that it had not restricted the ITC on other Capital goods purchased for transfer of right to use of goods.

By 46th amendment in the Constitution, clause 29A was inserted in Article 366 and the meaning of the term “tax on the sale or purchase of goods” has been stretched to include tax on few deemed sales in its ambit. At the end of this sub-clause, it has been specified that “and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made”.

Thus, the clause 29A, which has empowered the States to levy tax on the transfer of the right to use any goods for any purpose for cash, deferred payment or other valuable consideration also specifies that such transfer or delivery of goods shall be deemed to be a sale of such goods. In the instant case of the transfer of right to use of vehicle, there is a deemed sale of ‘vehicle’. Accordingly for the purpose of taxation under the Assam Value Added Tax Act, 2003, it can be said that when there is a transfer of right to use motor vehicles in a leasing agreement, there is a resale of those vehicles in an unmodified form and thus ITC may be allowed on purchase of such vehicles under section 14(3)(a).

I don’t think it will be reasonable to treat the vehicle as tradable goods for the purpose of levying of taxes and to treat the same as capital goods for the purpose of disallowing the benefit of Input Tax Credit.

Opinions of esteemed readers are awaited on this issue........

Problem in CST registration

In order to get the benefit of concessional rate of tax on inter-State purchases, the class or classes of goods must be specified in the Certificate of Registration issued under the Central Sales Tax Act, 1956.

While issuing registration to dealers, the authorities in Assam rely on an online module for specifying the goods to be imported for different purposes. The registration form provided in the module requires that the registering authority select the class or class of goods from a dropdown list. Now all class or classes of goods cannot possibly be enumerated in a list. So whenever a dealer applies for registering some goods which is not specified in the online dropdown list, it is conveniently entered as “Others”. The worrying part of it is that when the residuary category is selected, no place is provided to specify what that “Others” denote. And so, that class of goods simply find mention in the Registration Certificate as “Others”

To a person examining that registration certificate with an intent to examine what goods are covered under the registration, that ‘Others’ may either denote -

a)      goods applied for in the registration but which do not find mention in the online drop down list; (both lists would not normally be available before him and hence he cannot possibly find out ); or

b)      all such goods which are not enumerated in the online list (which again will not normally be available to the reader); or

c)      any goods whatsoever (which will leave the reader in more than a spot of worry);

Add to it the fact that the online list, not being a statutory one, can change from time to time on the whims and fancies of administrators or programmers, the position of the examiner will indeed be very worrisome.

So if I am an outside dealer selling goods to a Assam Dealer, will I be applying concessional rates of tax if the registration certificate contains the vague term “Others”? If I am well aware of the penal consequences for violation of provisions of section 8, I will definitely play safe and deny concessional tax rate.

I therefore find no reason as to why proper amendments should not be carried out in the online module. An additional box which reads “If Others, Specify” will be more than sufficient. This will ensure that the registration certificate carries the class or classes of goods as per the requirements of the dealer seeking registration and as per the requirements of law.

Your honour, please.........................

Whether 'duplicate part' of C form is sufficient?

Recently in a group discussion the following question was raised:-


Whether filing of the ‘Original’ part of the ‘C’ form is must for concessional rate of tax under CST Act, 1956 in the State of Assam? Is there any bar on allowing the benefit of concessional rate of tax, if the dealer had deposited ‘duplicate’ part of the ‘C’ form?

You may agree that neither the Central Sales Tax Act, 1956 nor the Central Sales Tax Registration & Turnover) Rules, 1957 prescribes that the ‘original’ portion of the ‘C’ form is must for availing the benefit of concessional rate of tax. However, rule 8(2) of the Central Sales Tax (Assam) Rules, 1957, as amended by notification no. ‘FTX.90/2004/Pt-II/2’ dated 5th June 2009, makes it clear that a registered dealer, who claims to have made a sale in the course of inter-state trade or commerce to another registered dealer, shall furnish to the assessing authority, within the time specified in rule 12 of the Central Rules, the portion marked “Original” of the Declaration Form “C” received by him from the purchasing dealer. Thus if we analysis the provisions of section 8(4) of CST Act together with rule 8(2) of Assam Rules in the light of the judgment of the Apex Court in the case of – ‘India Agencies (Regd.) Vs. Additional Commissioner of Commercial Taxes, Bangalore, [2005] 139 STC 329’, there remains no doubt that filing of the ‘original’ part of the C form is mandatory.

But, the rule 8(2) of Assam Rules was not same before the amendment dated 5th June, 2009. It will be interesting to study the cases prior to the said amendment. I invite the learned readers to think that whether I will be wrong in saying that for the cases prior to 5th June 2009, concessional rate of tax can be legally allowed in the State of Assam, even if the dealer had filed ‘duplicate part’ of the C form.

मैं बचकर रहना चाहता हूँ

एक समाचार पत्र के रिपोर्टर ने राह चलते एक व्यक्ति से पूछा ,"दो गुने दो कितने होते हैं "

"चार, पर इसमे पूछने की क्या बात है ? दो गुने दो चार होते हैं. " उस व्यक्ति का उत्तर था.

"क्या आपको पुरा विश्वास है की दो गुने दो चार ही होते हैं "

"हाँ ,दो गुने दो चार ही होते हैं ."

"सचमुच ?"

"हाँ, सचमुच.मैं इस बात पर ख़ुद को दाव पर लगाने को तैयार हूँ "

"वाह ! क्या कहने ,अच्छा तो आप मुझे यह बात लिख कर दे सकतें हैं ?"

"क्या ?"

"यही की दो गुने दो चार होते हैं ..बस आप यह लिखकर आज की तारीख डालकर निचे अपने दस्तखत कर दीजिये "

"आप बड़े मुर्ख जान पड़ते है.खैर मेरे पास कलम नही है "

"आप कलम की चिंता न करें मेरी कलम से लिख दीजिये"

"मैं दूसरों की कलम का उपयोग नही करता इससे छूत का भय रहता है "

"अच्छा चलिए मैं आपको नई कलम खरीद कर देता हूँ "

"तुमने क्या मुझे भिखारी समझ रखा है .मेरे घर पर मेरी अपनी बीसिओं कलमें हैं "

"कोई बात नही .क्या आज शाम को मैं आपके घर आ सकता हूँ ?"

"यदि तुम मेरे घर आओगे तो मैं तुम्हे धक्के मारकर निकाल दूंगा "

"अच्छा! तो यह बताइए दस्तखत करने में क्यों हिचकिचा रहे हैं? आपने अभी-अभी कहा है की दो गुने दो चार होते हैं ,और इस बात पर आप ख़ुद को दाव लगाने को तैयार है. "

"हाँ यह तो है ही ,पर मैं कभी भी तुम्हे यह लिखकर नही दूंगा. तुम उसे बाद में कभी भी किसी को भी दिखा सकते हो "

"तो इससे क्या हुआ? दो गुने दो तो हमेसा चार ही होते हैं न ?"

"हाँ ,होतें हैं पर भाई देखो मैं बाल -बच्चे वाला आदमी हूँ कभी राजनीती के चक्कर में नही पड़ता "

"पर यह राजनीती नही है "

"यह मैं नही जानता,पर मैं बचकर रहना चाहता हूँ. मैं नही चाहता की तुम्हे ऐसा लिखकर देने के कारन मैं किसी परेशानी में पड़ जाऊँ "

"अच्छा तो आप एक काम करें मैं स्वंय एक कागज पर लिख देता हूँ कि दो गुने दो चार होते हैं.बस आप उसपर दस्तखत कर दीजिये तब आपकी भी छुट्टी और मेरी भी, और आपको किसी भी प्रकार की परेशानी का खतरा भी नही रहेगा "

"यह तो वही बात हुई ! अगर तुम चाहो तो मैं यह लिखकर दे सकता हूँ कि आजकल सामान्यतः लोग मानते हैं कि दो गुने दो चार होते हैं .ठीक है न ? "

"नही .मैं आपकी राय जानना चाहता हूँ क्योंकि मैं लोगों के निर्भीक वक्तव्य एकत्र कर रहा हूँ "

"तब तुम भाड़ में जाओ मैं कुछ भी लिख कर देने वाला नही ."

"ठीक है ,पर यह भी याद रखिये. मैं सब लोगों से कह दूंगा की आपने कहा था, दो गुने दो चार होते हैं "

"मुझे इसकी चिंता नही मैं इंकार कर दूंगा की मैंने ऐसा कभी कहा था"

Courtsey- kadambani

Tax on deemed sale of exempted goods (Works contract).

If we go through section 11 of the Assam Value Added Tax Act, 2003, we can find that there is no scope for deducting the value of the exempted goods (First Schedule goods) from the gross turnover/ value of the works contract. In other words as per the Assam Value Added Tax Act, 2003, in case of works contract, the TIN holder contractor is liable to pay VAT @ 13.5% also on deemed sales of exempted goods.

The Constitution bench of the Supreme Court in Gannon Dunkerley (1993)’s case had clarified that “In our opinion, therefore, it would be permissible for the State Legislature to tax all the goods involved in the execution of a works contract at a uniform rate which may be different from the rates applicable to individual goods because the goods which are involved in the execution of the works contract when incorporated in the works can be classified into a separate category for the purpose of imposing the tax and a uniform rate may be prescribed for sale of such goods.” (para-236, 237).

Accordingly, it seems that the states are authorized to charge tax at a uniform rate in a works contract, but if we read the para 235 of the same judgment, it appears that the Supreme Court  had made it clear that, while calculating value of goods involved in the execution of works contract, the value of few goods are to be excluded. The Court clarified that:-:

 “We may, however, make it clear that apart from the deductions referred to above, it will be necessary to exclude from the value of the works contract the value of the goods which are not taxable in view of sections 3, 4 and 5 of the Central Sales Tax Act and goods covered by sections 14 and 15 of the Central Sales Tax Act as well as goods which are exempt from tax under the sales tax legislation of the State. The value of goods involved in the execution of a works contract will have to be determined after making these deductions and exclusions from the value of the works contract.” (para-235)

If we read all the above said three paras of the order, it appears that the power of State legislature in charging the tax at uniform rate is applicable only on the value of goods calculated as per the above said clarification of the Court. Now, I leave the matter for esteemed readers of this blog to think that, “whether in terms of the aforesaid judgment, tax on exempted goods can be levied”?

Note: Similarly, there is no provision in the Act to tax the deemed sales of declared goods in case of works contract @ 5%, but the department is levying tax @5% in view of the order of Hon'ble Gauhati High Court.

Whether Rule-8(1) has been amended……….?

Rule 8(1) of the Central Sales Tax (Assam) Rules, 1967 reads as under:-

“A registered dealer, who wishes to purchase goods from other such dealer on payment of tax at the rate applicable under the Act to sales of goods by one registered dealer to another for the purpose specified in the purchasing dealer's certificate of registration, shall obtain from the Superintendent of Taxes of his area, subject to rule 8F, a blank declaration Form 'C' for furnishing it to the selling dealer. Before furnishing the declaration to the selling dealer the purchasing dealer, or any responsible person authorised by him in this behalf, shall fill in all particulars required to be filled in the Form and shall also affix his usual signature in the space provided in the Form for this purpose. Thereafter the counterfoil of the Form shall be retained by the purchasing dealer and the other two portions marked "Original" and "Duplicate" shall be made over by him to the selling dealer”.

I don’t know whether the aforesaid rule is amended recently!!!!!!!!

TAX COLLECTED BY FOREST DEPARTMENT ON ROYALTY

It is a well known fact that in the State of Assam, the department of forest use to collect VAT on royalty paid by the vendors. The collection of VAT is made similarly as tax collected at source under Income Tax Act. The vendors from whom such taxes are collected are in dilemma regarding the way to get credit of such taxes.

The first set of questions, which emerges, amy be summarised as below:-

·         Whether the forest department is collecting tax as a seller of goods?

·         Whether the forest royalty is sale price?

·         Whether the forest department is a dealer?

·         If it is a dealer, has it been registered under the Assam Value Added Tax Act, 2003?

·         Is it issuing any retail or tax invoices?

·         If the tax has been collected on sale as an unregistered dealer, is it not a violation of    the provisions of section 31?

·         Whether the tax collected should not be forfeited as per the provisions of section 31(2)? 

·         Whether the tax payers are not entitled for refund of such tax?

It has been said that forest department is collecting VAT on behalf of the Government as per the provisions of section 31(1)(b). Most respectfully, I differ on this issue. Neither, section 31 and nor section 47 of the Act empowers any authority to collect tax unless and otherwise he is a registered dealer.

Even if for the sake of argument it is assumed that collection of tax in the instant case is legitimate, let me ask a further question- what is the mechanism and provision in the Act to provide the credit on such tax to the vendors?

In my opinion, the royalty collected by forest department is for the right to use specified immovable property and the said transaction does not falls under the ambit of ‘sale of goods’. The forest department is collecting tax at source for which there is no provision in the Act. The concern of the department for proper collection of tax on forest products can be appreciated, but it is to be remembered that the said collection should be constitutional and lawful. It is true that there is no constitutional bar on collection of tax at source, but for being lawful, the said collection must be authorised by the embedded provisions of law.

Even, if the revenue wants to continue with the present system of tax collection at source, at least a direction should be issued by the highest authority to the prescribed authorities to provide credit of the tax so collected to the respective dealers. In my humble opinion, such credit should not be in the form of input tax credit.

Let the justice prevail.

O.P. Agarwalla

MISHRI - EXEMPTED GOODS!!!!!!!!!!

Mishri is a form of sugar …. It is not sugar………

Recently a clarification bearing distinctive no. CTS-69/2006/88 has been issued on 27^th April, 2012 and it has been clarified that Makhana, Nakuldana and Mishri are nothing but sugar and is exempted under the Assam Value Added Tax Act, 2003.

I may be forgiven for saying something in contrary to the aforesaid clarification. What is being exempted under the Assam Value Added Tax Act, 2003 is ‘sugar’ and not ‘sugar in any form’.

Sugar as defined in the Central Excise Tariff Act, 1985 and adopted in section 14 of the Central Sales Tax Act, 1956 means any form of sugar in which the sucrose content would be more than 90%. Whereas the Schedule-I appended to the Assam Value Added Tax Act, 2003 exempt ‘sugar’. It may be emphasized that there is difference between two terms, i.e.‘any form of sugar’ and ‘sugar’. Mishri, Batasa etc. are undoubtedly a form of sugar, but as per my little knowledge, these goods cannot be treated as ‘Sugar’.  Case of ‘Commissioner of Sales Tax vs. Puran Chand and Sons [48 STC 284 (DEL)]’ may also be referred to, wherein the Hon’ble Court held “We are of the view that the definition of the term "sugar" given in the Central Act is given for purposes of that Act. Sugar as used in the local Act in entry 9 of the Second Schedule must be understood to be sugar which is understood to be that commodity by the common man or by a shopkeeper or a trader or a customer”.  A reference may also be made to an earlier clarification no. CTS-77/2007/270 dated 22^nd November, 2011 issued by then Commissioner of Taxes, Government of Assam.

I leave it upon the learned readers to think and decide that whether the aforesaid goods such as Makhana, Nakuldana and Mishri are exempted as ‘sugar’. In my humble opinion the aforesaid goods are ‘sugar’ as stipulated in CST Act and the said goods are liable to be taxed as declared goods.

If the aforesaid clarification is given an extended meaning, many new issues may be emerged in near future, such as:- Vermicilli/ Sewai is nothing but Maida and should exempted! Besan is nothing but pulses or gram,  and so on…….

Your honour .. please………

O.P. Agarwalla