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