DISCUSSION PAPER ON AMENDMENTS MADE UNDER MP VAT ACT
- CA. P.D. Nagar
Various amendments were proposed in the budget by Hon’ble Finance Minister based on which VAT amendment Bill 2016 was published in MP Gazette dated 17.03.2016 and the same has been passed by the Legislature ignoring objections raised by public at large on certain issues. Most of the amendments made in the Act shall adversely affect the trade and industry of the State.
We are aware that the Central Govt. under the leadership of worthy Prime Minister announces the plans through slogans “Achhe din”; “Ease Of Doing Business” and “Make in India” but such amendments will lead to disaster for existing industry as well trading community. Few amendments which needs discussion and strong representation to the Govt. to reconsider the same are discussed hereunder :-
01) In Section 14(1)(a), sub-clause (1a) has been inserted whereby resale of goods in the course of Inter State Trade & Commerce has been classified separately. Corresponding amendment in sub clause (6) of section 14(1a) of the Act reads as under :-
“In the case of goods referred to in sub-clause (1a), which is equal to the amount of Central Sales tax payable under the Central Sales tax Act, 1956 on such sale”.
A trader is eligible to claim input tax rebate on purchases from another registered dealer but in case of resale of such goods in the course of Inter State Trade, input tax rebate will not be allowed to the extent of Central Sales tax payable thereon.
To illustrate :-
a) Goods purchased in MP for Rs. One lac after payment of VAT @ 14% = Rs.14,000/
b) Resale of above goods in Inter State for Rs.1,10,000/- against form ‘C’ – tax payable @ 2% = Rs.2,200/- and without ‘C’ form tax @ 14% = Rs.15,400/- .
c) Sales may be against ‘C’ form but ‘C’ form may not received from buyer hence tax will be payable @ 14% though collected @ 2% only.
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Issues :-
i) Input tax rebate not permissible u/s 14(6) on above sale equal to the amount of CST payable on such sale. Whether Rs.2,200/- or Rs.15,400/-?.
ii) CST will be payable on sale but no input tax rebate permissible hence will it not result
into double taxation ?.
i) In case of simultaneous Inter State purchases or goods received on consignment for sale from outside State, how the input tax rebate will be disallowed ?.
ii) Whether a dealer can claim that goods purchased from Inter State was sold in Inter State hence full credit of ITR on purchases within MP should be allowed or whether proportionate basis will be applied like ITR reversal?.
iii) If possible, the traders will convert the sales into subsequent sales u/s 6(2) of the Act.
iv) A tendency may develop to claim such sales as outside State (SOS) with proper documentation and in that case ITR reversal will be 5% only instead of loosing full credit of ITR. The State Govt. will loose expected revenue.
v) Whether such amendment can be challenged on the ground of Constitutional rights of free trade by a citizen as well on the ground of discrimination between the traders and the manufacturers ?.
vi) Many litigations on aforesaid issues will generate hence it is most irrational provision for traders and may be a better provision for Tax Practitioners.
02) Amendment in Section 18
It was proposed in the budget that interest will be payable @ 2% per month when delay in payment exceeds three months and delay of less than three months will be liable for interest @ 1.5% per month. Section 18(4)(a)(iv) has been amended whereby interest will be levied @ 2% per month on delayed payment of tax including on additional demand created by assessment order.
Issues
a) Interest rate of 24% per annum is exorbitant and Govt. has attempted to make it a source of revenue, ignoring genuine financial crisis. No prudent business man wants to delay the payment because interest @ 18% per month is itself much higher than the bank interest on borrowings.
b) Logically, interest charged is always compensatory in nature and keeping the interest rate of 24% per annum will definitely be termed as penal in nature.
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c) Under Income tax Act also interest for delayed payment of taxes is 12% per annum only.
d) Under section 37 of VAT Act interest is payable to a dealer on refund due to him @ @ 12% per annum.
e) Though interest is payable on failure to pay tax due as per the accounts yet interest is being levied and confirmed u/s 18(4)(a) even by the Appellate Board on additional demand of tax created. Such additional demand is neither provided for in the accounts nor collected in sale invoices. It is being raised due to difference of opinion on any legal issue or mismatch of ITR etc. Interest @ 24% per annum on such extra demand will be levied after a period of 2 ½ years from the end of the Financial year upto the date of assessment order. Is it fair on the part of the Govt. to increase the rate of interest to 24% per annum?
03) Amendment in Section 26
This amendment will also adversely affect the trade and industry. At present an obligation u/s 26(1) of the Act is casted upon Central Govt,/State Govt. or a notified Public Sector undertaking to deduct an amount equal to the amount of VAT payable on the purchases, where such purchases are in excess of Rs.5,000/-. The amount so deducted is required to be deposited by the deductor before 10th of next month in challan no. 27A
Section 26(1) and Explanation given there under, has been amended so as to include all Public Limited Companies, all Dental Colleges & Hospitals recognized by Dental Council of India; all Medical Colleges & Hospitals recognized by medical council of India and all recognized Universitiesin the above category.
The Object behind such amendment may be to check tax evasion on supplies made by traders to service providers and there may be intention to collect more taxes through TDS provisions because under Income tax Act, major collection is made through TDS.
Following Issues shall create hardships to trade and industry :-
a) On purchases effected from 01.04.2016 onwards, all Public Limited Companies and medical colleges & Hospitals will have to deduct VAT charged in the invoices by the selling dealer and deposit the same in the treasury by 10th of the next month.
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b) In case a Public limited company effects sale of the goods to any other public limited company (registered in the State of MP); that company will also deduct VAT charged in sale invoice raised and deposit the same.
c) Such deduction is not being made under section 26A on notified goods hence credit of TDS will be claimed by the selling dealer and will be allowed to it because tax deducted is not being retained by the purchaser but deposited in next month.
d) The suppliers will have to collect certificates and claim the credit thereof in the return. Therefore, to obtain blank certificate forms no. 31 and to issue the same to all selling dealers (in duplicate) within ten days of the deposit of such amount will be a tremendous job for the public limited company and medical colleges & Hospitals and Universities as well for suppliers.
e) Substantial amount of input tax credit will be blocked in cases of suppliers of public limited companies. Not only small and medium scale industries, manufacturing allied products but the traders will also be adversely effected.
To illustrate -
a) Cement purchased by a dealer from sale depot of “Ultratech”, worth Rs.3.5 lacs (1000 bags) after payment of VAT @ 14% i.e. Rs.49,000/-.
b) Resale of cement to M/s. V.E. Commercials Limited for Rs.3,60,000/- VAT separately charged Rs.50,400/-.
c) M/s. V.E. Commercials Limited will deduct VAT charged i.e. Rs.50,400/- and deposit the same in Treasury u/s 26(A) of the Act as against net VAT liability of the dealer Rs. 1,400/-.
d) Selling Dealer will claim credit of payment of tax (TDS) as well ITR based on purchase invoice of Ultratech Cement resulting into refund due at Rs.49,000/- which will be refunded to the dealer after assessment without any interest.
The present provisions of section 26(1) are sufficient enough since 1956 Act whereby Central and State Govt. have been authorized to deduct tax on purchases effected by them. Same provisions continued in Section 34 of MP Commercial tax Act 1994 and under MP VAT Act since 2006 which were not objected by any person. By this amendment entire VAT regime will be distorted and small traders as well all SSI units being suppliers of goods to public limited companies would be in financial crisis. Provisions of Income tax Act being direct tax, should not be incorporated in VAT Act without considering the impact thereof.
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It is a matter of regret that in the budget proposal it was announced that “other agencies will also be authorized for deduction of tax at source”. The authorization given to medical and dental colleges, hospitals and universities for deduction of tax may be considered as agencies but public limited companies should not have been covered u/s 26(1).
Since beginning, it is being announced that the Govt. will trust upon the manufacturers and traders for proper compliance of tax laws which is not reflected by aforesaid amendment. Is it a movement towards “Ease of Doing Business” or “Making in India”?. It is not a step to ban the trading community and SSI units in the States who are supplied the goods to public limited companies ?.
04) Section 28A : – Provisional attachment to protect revenue :
New section has been inserted whereby, notwithstanding anything contained in any law for the time being, powers have been given to the Commissioner to provisionally attach any money due or which may become due to a person or dealer from any other person or any money which any other person holds or may subsequently hold for and on behalf of such person to protect the interest of the Revenue.
Issues
1) The power can be exercised during the course of an inquiry in any proceedings including any inspection or search where some amount of tax evasion is suspected. Thus, even during assessment proceedings the attachment is possible.
2) Such provisional attachment shall be effective for a period of one year from the date of service of the order of such attachment. The period can further be extended which shall not exceed two years.
3) The powers can be exercised by the Commissioner, Addl. Commissioner and Dy. Commissioner to whom such powers are delegated by Notification.
4) The person shall be personally liable to pay the amount of money so attached till the order is not revoked.
5) If a person or dealer files an application within fifteen days of the date of service of the order, the Commissioner may confirm, modify or revoke the order having regard to the circumstances of the case.
6) An appeal can be filed against the order passed under sub-section (5) before the Appellate Board.
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Issues
1) Whether during the pendency of quantum of any tax evasion, such provisional attachment based on suspicion is valid ?.
2) The power may be misused by the officers on the ground of suspicion and the amount lying with any debtor can be attached.
Other Amendments
i) Form 49 will be required to be generated and produced at the check post on incoming as well outgoing of the goods on all commodities covered under Schedule-II of VAT Act i.e. all taxable goods. Similarly, transit pass will be required to be carried by the transporter while transporting of all kinds of iron and steel, oil seeds, edible oil, pan masala and tea within the State. No threshold limit has been prescribed regarding movement of goods within State for small and medium dealers.
ii) Annual return will only be required to be submitted instead of four quarterly returns by the dealers having turnover less than Rs.40 lacs as against present limit of Rs.20 lacs per annum.
iii) To reduce pending litigations Kar Vivad Samadhan Scheme will be proposed in relation to all appeals pending under VAT Act, CST Act and Entry tax Act upto F.Y. 2011-12.
iv) Due date for making payment of monthly tax will be sixth of every month instead of tenth of every month for first and second month of the quarter for dealers who are depositing total tax of Rs.25 crores annually or Rs.6.25 crores quarterly.
v) Tax will be required to be deducted at source @ 3% instead of 2% when any works contract is given to an unregistered contractor.
vi) Input tax rebate will be allowed in excess of 2% to manufacturers of exercise books, graph books, drawing books and laboratory books. (Notification no.18 dated 31.03.2016). The manufacturers will not get refund of ITR on paper @ 3%.