Mvat & cst


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Mvat & cst

  1. 1. Management Accounting Indirect Tax MVAT INTRODUCTION 1. VAT AND THE CENTRAL TAXES: (article written in 2002) VAT is introduced in India. What is nature of true VAT and how it is proposed to be introduced in India? How it will affect the Central Sales Tax? What measures are necessary to make VAT palatable to Economists as well as politicians? We have tried to get answers to all such queries with reference to Vat in Maharashtra. VAT Council of States, the body of State Finance Ministers and Standing Council Of Commissioners have agreed that the VAT should be implemented all over India From 1-4-2001. However, subsequently, after taking into consideration the fact that the groundwork is still in progress, the date has been extended to 1-4-2002.One thing is certain that the word ‘VAT’ [Value Added Tax] is a symbol of Globalization and Liberalization, which is a universal phenomenon for the current age, is bond to be implemented in India. MBA SEMESTER 1 1
  2. 2. Management Accounting Indirect Tax 2. SUCCESSFUL TAX SYSTEM: Among many other things, the successful tax system always tries to avoid Cascading effect of the tax. The VAT, being Value Added Tax, it presupposes That, if the tax is levied on sale value, all the taxes paid while making purchases as Well as all the taxes paid during the process of manufacture or import are to be Refunded. The CREDIT method or INVOICE method of VAT system ensures that the taxes shown in the purchase bills are given the credit to the dealers. The Uncontrolled incidence of tax always shrinks the industry and trade and keeps Away from the developing process of the national economy. The tax system has to be neutral so far as its effect on the choice of inputs and outputs for the Manufacturer and choice of the goods for a consumer is concerned. At the same time multiplicity of the rates has to be removed in a model system of Taxation. That’s why the Finance Ministers Committee has agreed to keep the Number of rates to four. Widespread taxation encourages the vertical integration of Industries and thus discourages small-scale ancillary industries. Heterogeneity in the structure of tax, that is having different taxes like Sales Tax, Turnover Tax, Surcharge, Additional Tax, makes the system so much complicated that either There is tendency towards evasion or it makes a way for clashes between the Administration and the assesses. MBA SEMESTER 1 2
  3. 3. Management Accounting Indirect Tax 3. STEPS TOWARDS VAT: 3.1 As pointed above VAT Council of States, and Standing Council of Commissioners have agreed that the VAT should be implemented from 1-4-2002. It was also agreed that there should be floor rates common to all the States. Though Maharashtra State had introduced the floor rates from 1-1 2000.But due to the pressure from people they were corrected on 13-1-2000 and 22-1-2000. However some fine-tuning of the classification has yet to be done Giving another look at the grouping of the goods in to four-rate categories and Floor-rates. 3.2 Abolition of the tax-related incentives scheme is another step in the direction of Bringing VAT in to operation. In fact the States have taken this opportunity to Stop the incentives to be given in the name of Backward Area. This will not only Raise the revenue of the States but will also put end to the war among the States In the form of harmful competition of reducing tax rates to give tax incentives. 3.3 Draft model of VAT legislation has been prepared by the National Institute of Public Finance and Policy. The circulation of papers on VAT will certainly be creating the atmosphere towards readiness to accept VAT. MBA SEMESTER 1 3
  4. 4. Management Accounting Indirect Tax 4. EXPERIENCE OF VAT IN MAHARASTRA: 4.1 During the period from 1-10-1995 to 31-3-1999 Maharashtra had VAT in a Limited sense. Initially the limit covering the dealers under VAT was Rest. One Core but was brought down on 1-7-1997 to Rest. 40 laces. Though the additional Tax and Turnover Tax was abolished the rates were over all increased to cover those taxes [most of the goods taxable at 10% were taxed at 13%]. Some 12 Industries and 100% export units were allowed the full set-off of the sale tax Paid on inputs. 4.2 It is said that the VAT was abolished from 1-4-1999 due to fall in the Sales Tax Revenue. But the Economists do not agree to such reasoning. Since there was a General recession in the industry during 1996 to 1999 the govt could not have expected the increase in the tax revenue on implementation of VAT. In fact the fall in the tax revenue augmented by the set-off policy of giving refund to Manufacturers manufacturing tax-free goods, 100% exporting Units, 12 Preferred industries and reduction in the burden of taxes on inputs from 4% to 3% to all manufacturers. The decision to abolish Vat in Maharashtra was thus a Non-economic one, tinted with political surroundings. MBA SEMESTER 1 4
  5. 5. Management Accounting Indirect Tax Assessment under VAT In Maharashtra state Bombay Sales Tax has been replaced by VAT from 1-4-2005. Attempt is made in this article to visualize the process of assessment under MVAT Act. The real picture will be clear only after 2 years when the actual process of assessment will start. 1. Long awaited VAT has seen the light of the day on 1-4-2005. Much was advertised by The Govt about the VAT. By now the time for submission of first return is over and the dealers as well as practicetioners in taxation, after filing the first return, are thinking of the stage of ‘assessment’ to come. 2. SELF ASSESSMENT AND NOTICES: Right from Mr. Chidambaram & Mr. Asim Das to Mr. Jayant Patil had said several times that the VAT brings the era of ‘Self assessment’. But the Maharashtra Value Added Tax Act 2002 [MVAT Act] does not contain a single provision about self assessment of Acceptance of returns except only Margin-heading of section 20. But this section 20 is in fact Is a provision for submission of returns. On the contrary under old Act, section 33[2] of BST Act 1959, in clear words provided that if the Commissioner is satisfied that the returns are Correct and complete he may assess according to the returns. Thus MVAT Act is more Regressive than the BST Act. The section 21 of the original MVAT Act was for self assessment. It provided for the intimation to be given about the dues or refund. It had also provided that if such intimation is Not received by the dealers, the acknowledgement of the returns will serve as the intimation. This means that the acknowledgement is the evidence of acceptance of the returns. MBA SEMESTER 1 5
  6. 6. Management Accounting Indirect Tax But now amended section 21 does not provide, neither for assessment as per returns nor for the acceptance of the returns. Section 21 provides only for a restriction that the notice for assessment can not be issued after 2 years if the returns are filed in time; and after 3 years if the returns are not filed by the prescribed date. [However this limit is extended Upto 4 years In case of the period ending on 31-3-2008.] But what is the position of returns and assessment if the said notices are not issued is not clearly mentioned anywhere in MVAT Act. 3. ASSESSMENT OF DEALERS: The assessment in particular is provided in section 23 of MVAT Act. Surprisingly it starts with the provision for assessment in cases of defaulters, as if the defaulters will be the order of the day in VAT regime. Under section 23[1], if the dealer files the return late, the Commissioner, [that is, the STO/AC/DC], will pass expert assessment order without issuing any notice and without any Opportunity of hearing. Such order can not be passed after three years. The power to pass the Best judgment assessment order against the principles of natural justice may be the singular Model among 126 countries where the VAT is said to have been introduced. The power of passing the order against the dealer without calling him and without giving hearing may Be the meaning of ‘transparency’ much published in White Paper and the Govt advertisements about VAT. If such expert order is passed by the STO/AC/DC, then the only way out for the MBA SEMESTER 1 6
  7. 7. Management Accounting Indirect Tax Dealer is to file the writ in the High Court because under section 85[1][1- b] such order is non appealable. If the dealer has filed the return and has paid the taxes then he can put the application in form 304 attaching the proof of submission of return and payment of taxes. Thereafter the STO/AC/DC will cancel the expert assessment order passed by him if the payment of tax was made before issue of notice. If the payment of tax is made after issue of the notice how it will affect the expert assessment and total payment of taxes is not clear in the MVAT Act. This section 23[1] is the best example of excessive delegation of the powers granted to STO/AC/DC to pass the order without notice and take it back if on his satisfaction. Looking In to the big volume and the task involved in collection of returns from the Banks and their Dispatch to the respective STO/AC/DC and the present experience in this respect, it is very evident that the new source of enormous work will be created for the STO/AC/DC.The dealers who have filed the returns in time will be assessed u/s 23[2]. By issue of notice in form 301 [similar to old form 27], the STO/AC/DC can call for the evidence on the basis of which the returns are filed by the dealer and after considering that evidence he will pass the assessment order. The date fixed for hearing should not be less than 15 days from the date of service [rule 21 of MVAT Rules 2005]. The assessment order will be in form 303 [similar to old form 30]. The notice can be served at any time but the assessment order can not be passed after the expiry of 3 years from the end of the year containing the period which is being assessed. The dealers who have filed the returns late will be assessed u/s 23[3]. But notice in form 301 has to be served with in 3 years and the assessment order has to be passed within 4 years. The dealers can be assessed for the unregistered period MBA SEMESTER 1 7
  8. 8. Management Accounting Indirect Tax u/s 23[4] by issue of notice in form 301 within 5 years but such assessment order has to be passed within 8 years. 4. ASSESSMENT OF TRANSACTION: Section 23[5] provides for the assessment of the transaction or of the claim. The prescribed authority for this sub-section is not the Commissioner but, the STO. AC, DC, or Sr. DC is prescribed authorities under Rule 21[2]. The notice in form 302 [rule 21] can be issued to the dealer if the prescribed authority is satisfied that the tax is being evaded by not recording or by incorrect recording the transactions or any claim in incorrectly made. Even if the notice for regular assessment is issued by the STO/AC/DC, the notice under this sub section can be issued. If, during the search, the STO/AC/DC finds that the tax is being evaded, then the visiting officer can make the assessment of such transaction, even though the proceedings are not transferred to him u/s 59. The assessment order can be passed separately for each transaction. If there are 100 bills which could not be explained by the dealer to the satisfaction of the visiting offer at the time of visit, there will be 100 assessment orders in a single year. This is unique provision giving powers to the visiting officer who takes the search of the premises of the dealer to assess the dealer though he may not be within his jurisdiction. [Good example of excessive delegation to bureaucracy]. The STO/AC/DC having a regular jurisdiction can also take up the regular assessment of the dealer. Thus there will be two or more assessing authorities for one dealer, assessing the same period with out any transfer of proceedings. MVAT Act has really provided the polyandry in MBA SEMESTER 1 8
  9. 9. Management Accounting Indirect Tax the days when even polygamy is condemned. However the MVAT Act is very kind to provide that no tax will be levied again in the regular assessment if it is already levied in transaction-wise assessment [proviso to sec 23[5][d]]. 5. RE-ASSESSMENT BEFORE ASSESSMENT: The MVAT has found out, for the first time in taxation history of Maharashtra, the concept of reassessment of escaped turn over before the assessment. Section 23[6] gives powers to the STO/AC/DC to assess the dealer who in his opinion has, - Not disclosed the turn over of sales or purchases in the returns, - paid tax at a lower rate, - set-off has been wrongly claimed, - any deduction has been wrongly claimed. Notice in form 315 [similar to old form 28] is to be issued for this purpose and 15 days time from the date of service, has to be given for hearing [rule 21]. Though the notice in from 301 & 302 for assessment can not be issued after 2 years in case of dealer filing returns in time and 3 years in case of defaulters, the notice in form 315 for deemed reassessment u/s 23[6], can be issued with in 5 years from the end of the period which is to be assessed. The assessment order under this section has to be passed within 6 years. Looking into the past experience about allowance of claims and the dispute about rate of tax, each and every dealer is likely to be covered by 4 defaults mentioned above. Therefore the limit of 2 or 3 years MBA SEMESTER 1 9
  10. 10. Management Accounting Indirect Tax kept for assessment will be meaning less and all the dealers will be covered by the time limit of 6 years, though they commit bonafide mistakes. 6. FRESH ASSESSMENT AFTER REMAND: Where the appeal is filed against the assessment order, the appellate authority [except Tribunal] has no power to remand the case for fresh assessment. In case the Tribunal remands the case for fresh assessment, the assessing authority has to complete the same within 36 months as provided in section 23[7]. The period of 36 months can be counted from the date of supply of the copy of the appeal order by the dealer to the assessing authority. 7. DIRECTIONS BY THE COMMISSIONER: A novel provision has been made in the MVAT Act for seeking the directions of the Commissioner during the course of assessment. A dealer can apply in form 305 to the Commissioner [likely to be delegated to Jt. Commissioner] seeking his guidance in any assessment case. The Commissioner can examine the matter, hear the dealer and then give directions as to the completion of the assessment. Such directions will be binding on the STO/AC/DC. The practical utility of this provision can be very much disputed because at one Place the Commissioner is empowered to pass the orders contrary to the law laid down by the Tribunal and if that is the policy, the chances are very rare that the directions will in favour of the dealer. MBA SEMESTER 1 10
  11. 11. Management Accounting Indirect Tax 8. SINGLE ORDER FOR DIFFERENT PERIODS: A provision is made u/s 23[10] for issue of single notice for different periods and passing of single order for different periods if all such periods are comprised in one year. It is not clear from the Rules as how the notice in form 301 and 315 which are differently worded and for different purposes, can be issued in one single piece even if the different periods are covered by one and same year. 9. UNFETTERED OMNI-POWER OF THE MONARCH: In the biggest land of democracy, where the rule of law is implemented through the Constriction, the MVAT Act 2002 gives unfettered powers of the monarch to the Commissioner [in turn to STO/AC/DC]. Section 23[8], which is the sub section of provisions related to assessment, gives powers to the Commissioner to call for record of any matter. Mind the words ‘matter’ and not ‘assessment’, which will mean he can call for any file of assessment, appeal, revision, grant of registration certificate or issue of documents etc. He can also call for the evidence from the dealer. And thereafter he can pass appropriate order. The meaning of the word ‘appropriate’ is very well known to the persons practicing in taxation. The order to be passed by him need not be ‘just & proper’. Thank the Creator that the provision is made for the hearing of the concerned. There is no time limit for issue of notice or for passing the order. No statutory notice is provided in this sub-section nor is any form prescribed for notice. For assessment, reassessment or review different time limits from 2 years to 8 years are provided, but for this sub-section the matter is open till eternity. The ‘appropriate’ order under this sub- section can be the order which is totally and wholly against the law laid MBA SEMESTER 1 11
  12. 12. Management Accounting Indirect Tax down by the Tribunal, if the Govt is in reference or appeal against that decision before the High Court or Supreme Court. Again thank the Creator that he has made the provision that the recovery can not be effected in pursuance of such order passed u/s 23[8] till the High Court or Supreme Court decides the issue. REALLY, THE KING IS VERY KIND ! Rectification under VAT The provisions relating rectification under MVAT Act 2002, which is in force in Maharashtra State, are discussed in the article. By N.T.Nirale, M.A. M.Com. LL.B. D.M.S. Advocate RECTIFICATION In the earlier article, we have seen the assessment provisions under VAT Act. When the assessment is over, the next step is concerned with the corrections to be made in the assessment order. From the view point of the dealer, two important corrective measures are Rectification and the other Appeal. Section 24 provides for Rectification and section 26 provides for Appeals. RECTIFICATION OF APPARENT MISTAKE - The mistake is apparent when it is very clear and glaring. That means to expose the mistake, long drawn arguments are not necessary. Time limit - Rectification provisions u/s 24 of VAT Act are almost similar to old section 62 of the BST Act. Section 24[1] fixes the time limit of 2 years from the end of a financial year in which the order is passed. Who can apply - Any person can bring to the notice of the commissioner any MBA SEMESTER 1 12
  13. 13. Management Accounting Indirect Tax mistake. Similarly the commissioner can suomoto rectify the mistake. Procedure - If the rectification is resulting in demand then it is compulsory of the Commissioner to give reasonable opportunity of hearing to the dealer. Even if the application of rectification is to be rejected if there is no mistake, the hearing is necessary. Stay of recovery - Provision is also made for stay of recovery if the application for Rectification is pending. But later on, if the dues are confirmed then there will be interest the stay order will be in form 308. Forms - As per Rule 27 the Commissioner has to give notice in Form 306 before Passing the rectification order. As per Rule 28, the dealer has to make application for rectification in form 307. There is no Court Fess for rectification application. There is form 311 for application requesting Stay order in appeal proceedings but there is no form of application for stay in rectification proceedings. The stay order for rectification is in Form 308. RECTIFICATION OF MISTAKE WHICH IS NOT APPARENT - New provision was made from 1-7-2004 in BST Act for the mistake, which was not apparent. Similar provision is incorporated in section 24[2]. If the dealer has claimed any deduction for sales against declarations or certificates and he has not received the same till the time of assessment, then even if that claim is disallowed and the tax is levied on the same, the dealer can apply, with in 2 years from the end of the financial year in which that assessment order was received, for rectification if receives those declarations or certificates. If the dealer wants to take advantage of this type of rectification, then he should not have filed the appeal. This suggests that if he had filed the MBA SEMESTER 1 13
  14. 14. Management Accounting Indirect Tax appeal and at the time of hearing of appeal, he had not received the declarations, then he cannot go for rectification if he receives the missing declarations within two years. For such rectification, the Commissioner has to give hearing and verify the forms and allow the same. The dealer can take advantage of this type of rectification only one time for one assessment order. So it is advisable to wait for 23 months and then file the application for rectification on account of receipt of missing forms. RECTIFICATION BY APPELLATE AUTHORITIES: Provision is made in section 24[3] for rectification of the mistakes made by appellate authorities. The provisions of rectification applicable to assessing authority are also applicable to mistakes to be rectified by appeal authorities. However the proviso to section 24[3] is very threatening. It empowers the appellate authority to rectify any mistake though that particular point was not challenged in the appeal. This means any point, which is not raised in appeal, can also be rectified by the appellate authority. This proviso was not in the old section 62 BST Act and is introduced for the first time. This proviso to section 24[3] overrides the entire VAT Act. Does this mean that the time limit of two years will not apply to the actions of rectification under proviso to section 24[3] is question which is not easy to answer. Perhaps this will be another example of unfettered powers of the Monarch as pointed out in my earlier article on assessment provisions. It is to be seen whether the dealer can, on application, take the benefit of this proviso to section MBA SEMESTER 1 14
  15. 15. Management Accounting Indirect Tax 24[3].Thank the Creator that he has made the provision in section 24[4] for refund of the amount found to be paid in excess. APPEALS under VAT The provisions relating appeals under MVAT Act 2002, which is in force in Maharashtra State, are discussed in the article N.T.Nirale, Advocate In a leading case of Hoosier Kamas Dada the Supreme Court has pointed out that the right to appeal is not merely a matter of procedure; it is a matter of substantive right. [4 STC 114]. Right to appeal is vested in a dealer when the return is filed or on the date, the return was due. In case of Vijay Parsed [72 STC 324 SC], Hon Justice Sabyacachi Kukri has said, “Right to appeal is neither an absolute right nor an ingredient of Natural Justice. Right to appeal is a statuary right which is circumscribed by the conditions of grant”. VAT drafters are very kind that they have provided for right of appeal under section 26 and 27 of VAT Act. To whom appeal lies: The provisions of section 26 govern the right of appeal under VAT Act, which is similar to old section 55 of BST Act. If the order is passed by the STO or AC the appeal can be filed to the Deputy Commissioner of Sales Tax. If it is passed by the DC or Sr. DC then the appeal will lie to Joint Commissioner. If the order is passed by the Jet. Commissioner, Addle Commissioner or the Commissioner then it will lie to the Tribunal. [The copy of the notification changing the designations of the Sales Tax authorities is not yet available with the PRO of the Sales Tax dept. It is said that all Class I STOs will be designated as ACs, all ACs will be designated as DCs and all DCs will be designated as Jet. Commissioners. After introduction of VAT, one has not yet experienced MBA SEMESTER 1 15
  16. 16. Management Accounting Indirect Tax the increase in transparency, but there is certainly increase in the nominal structure of the authorities due to introduction of VAT.] The second appeal against the order passed in appeal by the DC or JT. Commissioner will lie to the Tribunal. Unlike to old provision giving option to file second appeal either to Commissioner or to the Tribunal, new provision of section 26[2] provides the second appeal only to the Tribunal. Non-appeable Orders: All orders are not appeable but section 85[2] bars filing of appeal against certain notices and order viz. -- i] Any notice, ii] Summons, iii] Exparte assessment order where any Return is not filed by the dealer by the prescribed date, iv] Installment order, v] notice or order for recovery as arrears of land revenue, vi] seizure order, vii] order transferring the proceedings, viii] part payment and stay order passed by appellate authority. [Though the appeal against the part payment order is barred, the admission of appeal is not dependent of the payment of the part payment amount.] As under old law, under new VAT Act also, all appeal orders are final, but they can be reviewed [revised] u/s 25 or rectified u/s 24 of VAT Act. The time limit for filing the appeal is 60 days from the date of communication MBA SEMESTER 1 16
  17. 17. Management Accounting Indirect Tax of the order appealed against. The power of the appellate authority to condone the delay in filing the appeal for sufficient cause is not taken away under VAT Act. [See how kind is the King !] The provisions of section 4 & 12 of Limitation Act are made applicable by section 80 of VAT Act and the power to condone the delay is granted by section 81 of VAT Act. However, the delay cannot be condoned on the ground that any judgment or decision, on which reliance is placed, was delivered after the limitation period was over. Powers under appeal: The powers of appellate authorities u/s 26[5] have been classified under four categories, viz. a] Appeal against assessment orders - In this case the appellate authority gets the power to confirm, reduce, enhance or cancel the assessment. The power to remand the case is only with the Tribunal. It can only direct to make fresh assessment of the appellant. b] Appeal against the penalty, the appellate authority gets the power to confirm or cancel , or modify the penalty. The words “ in accordance with the provisions of the Act” are added under VAT Act, these words were not in the BST Act. When the appellate authorities are the officers appointed under the Act for the carrying out the purposes of the Act, there is no significance to the newly added words. Only the time will show the purpose of this addition. c] Appeal against the interest - Here the appellate authority gets the power to confirm, cancel or modify it in accordance with the provisions of the act. MBA SEMESTER 1 17
  18. 18. Management Accounting Indirect Tax d] In case of appeal of any other kind, the appellate authority gets the power to pass ‘just and proper order.’ The BST Act section 55[7] had provided that the appellate authority could pass the appeal order against the point decided by the Tribunal, if the State had gone in reference against that decision to High Court. But VAT Act does not provide so in section giving powers to appellate authority. However section 23[8] provides for passing the appropriate order of assessment even against the judgment of the Tribunal. Whether this power can be used by the appellate authority is a question to be decided. Power to grant Stay: The appellate authority has u/s 26[6], a power to grant stay against the operation of the order appealed against. He can ask for the part payment and can put some conditions before granting such stay. Priorities and Senior citizen: In India, the law does not recognize a person of particular age to be senior citizen. For railway concession, Sr. Citizen should be 60 old, but for income tax, he should be 65 old. According VAT Act {proviso to section 26[7]}, the person does not become old unless he attends age of 75 years. As per section 26[7] the appeals are to be decided on the prescribed priorities, but the rules have not yet prescribed the list of priorities. If the proprietor, partner or a director has attained the age of 75 years, as per Rule 34, he can apply in form 313, for the disposal of his appeal on priority. MBA SEMESTER 1 18
  19. 19. Management Accounting Indirect Tax Appeal to High Court: Section 27 of VAT Act provides for appeal to High Court against the order of the Tribunal. Under sec 61 of BST Act it was called Reference, and it was to be routed through the Tribunal. Now, against the Tribunal decision, the appeal can be directly filed to Bombay High Court. However, such appeals are restricted to the points of Law only. Thus, Tribunal is still a final body on the points of Facts. However, unlike to the reference, the High Court can now decide the issue, which has not been determined by the Tribunal. The High Court has no power to grant stay when the appeal is filed to High Court. The Tribunal has to give the effect to the judgment of the High Court. Power to assess the turn over under any other Law: Section 28 of VAT Act gives unique power to assess the turn over under any other Law. If the appellate authority sets aside, any assessment on the grounds that it should have been assessed under any other law other than the law under which it was assessed, then such turn over can be by the Sales Tax authorities. The time limit of 5 years is put for correction of such assessments. Imagine an example where the AC levies tax on certain transaction and the dealer files appeal to DC. In appeal, if the DC finds that the tax cannot be assessed on that transaction, as it is a ‘service’ transaction on which the service tax could have been levied. Do the wordings of section 28 suggest that the Sales Tax authorities get the power to levy service tax, which is a Central tax, is the question calling attention. If the answer is no, then the purpose of such power to assess the turnover related to ‘Other Law’ is beyond imagination of the man of ordinary prudence. MBA SEMESTER 1 19
  20. 20. Management Accounting Indirect Tax Procedure for appeal: The appeal has to be filed in form 310. It is felt that under VAT the appeal cannot be filed on plain paper giving all the details required by VAT Rule 31. Under BST Rule 58 it was provided that the appeal should be ‘as far as possible in accordance with Form 37’ but VAT Rule 31 is differently worded and it says that, ‘the appeal including second appeal shall be made in form 310’. The details and enclosures to be given in appeal form are almost similar to old form No. 37 of BST Act. If the dealer wants stay order against the recovery as per order appealed against, the application in form 311 is to be made to appellate authority. The stay order will be issued inform 312. This form 312 is like old admission - cum - stay order. When the admission is not conditional on payment of the dues, it is not understood why this order is called as ‘admission memo cum stay order’? Before the stage of final hearing, the appeal can be summarily rejected under Rule 35, if the appeal memo omits to give the particulars required or if the authenticated copy of order is dispute is not enclosed or any other sufficient ground. But before rejecting the appeal summarily, the opportunity of hearing has to be given to the appellant to correct the omissions. The application for restoration can be made within 30 days. If the appellate authority is satisfied that the notice of hearing was not served on him or that, he was prevented by sufficient cause from amending the appeal memo or from appearing, then the summery rejection order can be set aside and the appeal can be restored. If the appellate authority does not pass any order on the restoration application within 30 days, it will be presumed that the appeal is restored. {Look how kind is the creator?} As per Rule 36, the intimation of fixing appeal for final hearing has to be given 10 days in advance. If any date is to be given, it should be after 10 MBA SEMESTER 1 20
  21. 21. Management Accounting Indirect Tax days, unless the appellant agrees for earlier date. If on the date fixed the appellant remains absent the appeal can be decided expert. Such expert appeal order can also be restored on application if it is found that the notice was not served or that there was sufficient cause for his absence. Rule 36[2] expects the appellate authority including the Tribunal, to maintain the Register showing the date of filing of appeal and the disputed quantum in that appeal. Rule36[4] prescribes that the appellate authority including the Tribunal should in any month fix 50% appeals which are against the DDQ orders passed u/s 56 and old appeals and 50% out of appeals involving highest quantum of relief sought. Copy of the appeal order: The certified copy of appeal order is to be supplied free of cost by the appellate authority to the appellant as per Rule 37, and one copy has to be sent to the officer against whose order was appealed. Award of Costs by Tribunal: Rule 38 of VAT Rules empowers the Tribunal to award the costs at its discretion. However, before awarding the costs the dealer or the person against whom the costs are being awarded has to be given the opportunity of hearing. Court Fees: Rule 73 prescribes the court fees to be paid. The appeal memo requires the CF of Rs. 100/- if the amount of relief is less then Rs. 1 lac. If it is 1 lac or more then the CF is equal to 10% of the relief or maximum Rs. 1000/-. Where there is no amount in dispute the CF will be Rs. 100/-. MBA SEMESTER 1 21
  22. 22. Management Accounting Indirect Tax There is no distinction as to first or second appeal or appeal to Tribunal. The CF for restoration application is Rs. 10/-. The CF for stay application is Rs. 25/-.On application by Sr. Citizen for taking, the appeal on priority there is no CF.There is no CF for application of condonation of delay. The adjournment application and the miscellaneous also do not require CF. Amendments to MVAT Act 1. Brand Name: Sec. 2 (3-a) w.e.f. 20-6-2006 : Except two entries in Schedule A this phrase is not used in any other schedule . The newly inserted definition of brand name is restrictive as it is defined for the purpose of schedule only. It states ‘ “brand name" when used in the Schedule means a brand name, (whether registered or not), that is to say, a name or a mark such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to a product for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person. 2. Purchase price: Sec. 2(20) w.e.f 1-4-2005: Explanation IV added to definition of purchase price is contrary to the circular issued by Commissioner (28T 20-9-2005) regarding grant of setoff. It was decided that, when tax has been paid at the time of the first sale on the MRP of medicines and subsequently the medicines are sent on inter-State consignment, the reduction of 4% would be effected only on the actual purchase price of the dealer making the inter-State consignments. The MBA SEMESTER 1 22
  23. 23. Management Accounting Indirect Tax new explanation states that ‘The amount of valuable consideration paid or payable by a dealer for the purchase of drugs specified in entry 29 of Schedule C shall be the maximum retail price printed on the package containing the drugs; “The retrospective amendment may prove burdensome for dealers who have claimed benefit of earlier circular. 3. Works contract defined : Sec. 2 (24)(b)(ii) w.e.f. 20-6-2006: So far what is works contract was not defined under MVAT Act though CST Act did provide for definition in 2002. The definition of sale is amended. Transfer of property in the works contracts mentioned in the new definition only would be subject to tax namely, an agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property. The new definition is similar to the definition of the term in K. Raheja’s case and will open flood gates of litigation. 4. Registration: Sec. 3 w.e.f. 20-6-2006. In sub-sections 4 & 5 of sec. 3:The word Turnover is replaced by ‘Turnover of sales’. The reference to turnover of purchase is deleted. Thus it is now crystal clear that turnover of sales only would be determining the liability for registration under MVAT Act. MBA SEMESTER 1 23
  24. 24. Management Accounting Indirect Tax 5. Liability to Register: Sec. 3 w.e.f. 20-6-2006. Sub-section 7 of sec. 3 is deleted as a result now the dealer registered under C S T Act will be liable for registration only on exceeding the prescribed turnover under MVAT Act else he can obtain voluntary registration by paying Rs. 5,000 fees. 6. Developer of the Special Economic Zone Sec. 8 w.e.f. 20-6-2006: A unit in SEZ will also include a Developer of the Special Economic Zone. The explanation ‘e’ added to sec. 8(3) includes developer to mean (i) undertaking development, repairs, maintenance and improvement of the Special Economic Zone, and (ii) who has been certified by the Commissioner ; The scope of dealers eligible for exemption is enhanced. Similarly New explanation ‘f’ further enhances the scope of exemption. A SEZ unit now includes an establishment situated within the Special Economic Zone. This would promote and facilitate the sales amongst the SEZ units. 7. Sales to dealers specified in export trade policy Sec. 8 (3A) w.e.f. 20-6-2006: This amendment empowers the State Government by general or special order, published in the Official Gazette, and subject to such conditions, exceptions and restrictions as may be specified in the said order, to exempt from payment of tax any class or classes of sales of goods made by any registered dealer to any class of dealers specified in the Export Trade Policy notified from time to time, by the Government of India. MBA SEMESTER 1 24
  25. 25. Management Accounting Indirect Tax 8. Sales to Canteen Stores Department Sec. 8 (3B) w.e.f. 20-6-2006: This amendment empowers the State Government, by general or special order, published in the Official Gazette, and subject to such conditions, exceptions and restrictions, as may be specified in the said order, to exempt fully or partly, from .payment of tax any class or classes of sales of goods made by a. Any registered dealer to the Canteen Stores Department or the Indian b.The Canteen Stores Department or the Indian Naval Canteen Services to the unit run canteens or members of the Armed forces, c. The unit runs canteens to the members of the Armed forces. Please refer to Notification VAT-1505/178/taxation-1 dt. 27th July, 2006 9. Sales to the State Government, the Central Government etc., Sec. 8 (5) w.e.f. 20-6-2006: Newly inserted sub-section 8(5) empowers the State Government by general or special order, published in the Official Gazette, and subject to such conditions and restrictions, if any, as may be specified in the said order to exempt fully or partly, from payment of tax, any sales or classes of sales of goods made by any registered dealer to,— a. The State Government, b. The Central Government, c. A generating company, as defined in the Electricity Act, 2003, for use in generation of electricity, d. A registered dealer, holding a licence for transmission under the Electricity Act, 2003, for use in transmission of electricity, MBA SEMESTER 1 25
  26. 26. Management Accounting Indirect Tax e. A registered dealer, holding a licence for distribution of electricity under the Electricity Act, 2003, for use in distribution of electricity, f. the Mahanagar Telephone Nigam Limited, g. the Bharat Sanchar Nigam Limited, h. any telephone service provider, holding a licence granted under the Indian Telegraph Act, 1885 and the Indian Wireless Telegraphy Act, 1933, to establish, maintain and operate telephone services up to subscribers terminal connection. Please refer to NotificationVAT/1505/192/Taxation-1 dt. 28th July, 2006 10. Registration Sec. 16(6) Shifting of POB w.e.f. 20-6-2006: As a result of this amendment now merely for shifting of place of business the Registration granted u/s 16 will not be cancelled. The Explanation appended to this sub-section is deleted as redundant. 11. Separate returns by different branches /units Sec. 20(2) w.e.f. 20-6- 2006: Despite the provision of one T I N NO for all branches of a dealer in Maharashtra, looking to the practical problems of the dealers this sub- section is substituted. Now the Commissioner may, subject to such terms and conditions, as may be prescribed, permit any dealer to file separate return:— MBA SEMESTER 1 26
  27. 27. Management Accounting Indirect Tax A. For all or any of the places of business of the dealer, whether or not situated within the jurisdiction of the same registering authority, or B. For different constituents of his business to such authority as he may direct. 12. Revised returns Sec. 20(4) w.e.f. 20-6-2006: The time for filling revised return is extended to eight months to facilitate filling of revised returns as a result of audit. 13. Where to file a fresh return or a revised return- Sec. 20(5) w.e.f. 20- 6-2006: As per this new sub-section where a dealer is required to file a fresh return or, as the case may be, a revised return, he shall file such fresh or revised return with the authority prescribed and if any amount of tax is required to be paid in accordance with such fresh or revised return, then he shall pay such amount in the Government Treasury and attach a self attested true copy of the receipted challan with the fresh or revised return. 14.Limitation for Assessment Sec. 21 w.e.f. 20-6-2006: By this amendment the Assessing Authority can now issue notice for assessment within a period of six years from the year containing the said period. This provision shall apply to any period ending before 31st March, 2008. 15.Business Audit Sec. 22 w.e.f. 20-6-2006 : An amendment is made to this section by which the Officers conducting business audit can visit any MBA SEMESTER 1 27
  28. 28. Management Accounting Indirect Tax day after the day fixed for Business Audit. 16. Cancellation of ex parte Assessment Sec. 23 (11) w.e.f. 20-6-2006 : By this beneficial amendment a dealer who has been assessed ex parte under sub-section (2), (3) or (4) can make an application in the prescribed form to the Commissioner within thirty days of the date of service of the assessment order, for cancellation of the assessment on the ground that he had not been able to attend or remain present before the Commissioner at the time of hearing when the assessment order had been passed. The Commissioner shall, after verifying that the contention of the applicant is correct and that the prescribed conditions have been fulfilled, cancel, by order in writing, the said assessment including any penalty or interest levied in relation to or in consequence of the said assessment and shall make a fresh assessment in accordance with the provisions of sub-section (2), (3) or (4), including levy of interest or penalty, as the case may be. It is also provided that, only one application for cancellation shall be entertained under this sub- section in respect of any period of assessment. 17.Contravention of conditions of Exemption Sec. 29(5) w.e.f. 20-6- 2006: This new sub-section provides for levy of penalty on purchasers eligible for exemption u/s 8 (3), (3A), (3B), or (5) for failure to comply with the conditions or restrictions subject to which the exemption is granted. The penalty is prescribed as equal to one and a half times the tax which would have become payable on the sale if the said exemption MBA SEMESTER 1 28
  29. 29. Management Accounting Indirect Tax was not available on the said sale. 18.TDS Provisions Sec. 31 w.e.f. 20-6-2006: Few small but important amendments are made to TDS provisions. i. It is now specifically provided to exclude not only tax but also service tax component for determining the amount subject to TDS . ii. The certificate for no deduction of tax will be issued by the Commissioner of Sales Tax only when the contract is not works contract. iii. Certificate referred to in ii above once issued can be amended or modified by CST later on his own motion. iv. Employers who are not notified will not be granted permission for TDS v. The credit for TDS can be claimed by the contractor in the period in which the certificate for payment is furnished to him by the person deducting tax in accordance with the provisions of this section. vi. Requirement of obtaining TDS number as also of filling annual TDS return is done away with by deleting sub sections 8 and 10 of sec. 31. 19.Exemption to petroleum dealers Sec. 41 (4) w.e.f. 1-4-2005: As per this amendment the State Government may, by notification in the Official Gazette, provide for exemption from the payment of full or part of the tax MBA SEMESTER 1 29
  30. 30. Management Accounting Indirect Tax payable, Subject to such conditions as it may impose on the sales of motor spirits and petroleum products made by an oil company to another oil company and also on sales at retail outlets of motor spirits, other than aviation turbine fuel and aviation gasoline. As clarified by the Explanation.— for the purposes of this sub-section, motor spirits and petroleum products shall mean such products as the State Government may, notify from time to time, in the Official Gazette. 20.Composition under Sec. 42 w.e.f.20-6-2006: The effect of few amendments made to sec. 42 are as follows: i. The turnover of liquor/country liquor will be excluded to arrive at the amount eligible for composition for hoteliers ii. New composition scheme is now provided for vendors of various types of liquor iii. New works contract composition now allows composition as (a) equal to five per cent of the total contract value of the works contract in the case of a construction contract, and (b) eight per cent of the total contract value of the works contract in any other case, after deducting from the total contract value of the works contract, the amount payable towards sub-contract involving goods to a registered sub-contractor. iv. The explanation provides for following definitions: a. “construction contract“ shall mean construction contract as may be notified by the State Government in the Official Gazette, from time to MBA SEMESTER 1 30
  31. 31. Management Accounting Indirect Tax time, and b. the amount payable towards sub-contract involving goods “ means the aggregate value of the goods on which tax is paid and the quantum of said tax paid by the sub-contractor or the sub-contract value on which tax by way of composition is paid by the sub-contractor, as the case may be. v. A dealer who is liable to pay tax on sales effected by way of the transfer of the right to use mandap or tarpaulin (whether or not for a specified period), may, subject to such conditions and restrictions, as may be prescribed, pay in lieu of the amount of tax payable by him a sum equal to one and half per cent of the turnover of sales effected by him. For the purposes of this sub-section, the transfer of the right to use mandap includes the transfer of the right to use mandap, pandal, shamiana or the decoration of such mandap, pandal or shamiana and the transfer of the right to use furniture, fixtures, lights and light fittings, floor coverings, utensils and other articles ordinarily used along with a mandap, pandal or shamiana as per the Explanation. 21.Adjustment of refund Sec. 50 w.e.f. 20-6-2006: The refund under the MVAT Act shall be available only as per order By Commissioner of Sales Tax. If a registered dealer has filed any returns, fresh returns or revised returns in respect of any period contained in any year and any amount is refundable to the said dealer according to the return, fresh return or revised return, then subject to rules, the dealer may adjust such refund against the amount due as per any return, fresh return or revised return for any subsequent period contained in the said year, filed MBA SEMESTER 1 31
  32. 32. Management Accounting Indirect Tax under this Act or the Central Sales Tax Act, 1956 or the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002. 22.Grant of Refunds Sec. 51 w.e.f. 20-6-2006: The procedures and conditions for grant of refund are drastically amended. Please refer to the latest detailed circular by Commissioner of Sales Tax dt. 1-8-2006 23. Interest on delayed refund Sec 53 w.e.f. 20-6-2006: As per this amendment if an amount required to be refunded by the Commissioner to any person, by virtue of the provisions contained in section 51 or by virtue of an order passed under any other provision of this Act, is not so refunded to him within ninety days of the end of the respective period provided in section 51 or, as the case may be, of the date of the said order, the Commissioner shall pay such person simple interest at the prescribed rate on the said amount from the date immediately following the expiry of the period of ninety days to the date of the refund. 24.Electronic records Sec. 86(5) w.e.f. 1-4-2005: Under this sub section the Commissioner can on receipt of application by any dealer permit him to maintain the records of the bills or cash memorandum on such electronic system as may be approved by the Commissioner. On such permission being granted, the dealer shall stand exempted for the purposes of sub-section (3) regarding keeping counterfoils or duplicates of the said bills or cash memoranda and of signing the bill or cash memorandum. MBA SEMESTER 1 32
  33. 33. Management Accounting Indirect Tax 25.On going Works Contracts—Sec. 96 (g) w.e.f. 1-4-2005: Section 96 of the MVAT Act, is amended with effect from 1st April, 2005. The contractors executing ongoing contracts in the VAT period are now required to pay tax as per the rates prescribed under the repealed Works Contract Act, 1989. In other words, if the contractor is paying 4% composition under Repealed Act, he has to pay the same amount of tax under the VAT Act. (Sec. 96(g)) and he will not get any setoff. This amendment is made retrospective w.e.f. 1-4-2005. MBA SEMESTER 1 33
  34. 34. Management Accounting Indirect Tax CST Introduction Objects and Basic Scheme of the CST Act, 1956 The objects of the Act, as stated in preamble of the CST Act are - To formulate principles for determining (a) when a sale or purchase takes place in the course of inter-state trade or commerce (b) When a sale or purchase takes place outside a State (c) When a sale or purchase takes place in the course of imports into or export from India To provide for levy, collection and distribution of taxes on sales of goods in the course of inter-state trade or commerce To declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on sale or purchase of such goods of special importance (called as declared goods) shall be subject. As explained later, * Entry 92A of List I (Union List) empowers Central Government to impose tax on inter-state sales * Article 269(3) and Article 286(2) of Constitution authorises Parliament to formulate principles for determining when the sale or purchase takes place outside a State or in the course of imports and exports. * Article 286(3) of Constitution authorises Parliament to place restrictions on tax on 'declared goods'. CST Act imposes the tax on inter state sales and states the principles and restrictions as per the powers conferred by Constitution. MBA SEMESTER 1 34
  35. 35. Management Accounting Indirect Tax Basic scheme of the CST Act - The basic scheme of the CST Act is as follows. SALES TAX REVENUE TO STATES - The CST Act provides for levy on Inter- State sales and also defines what is ‘Inter-State Sale’. However, the concept that revenue from sales tax should be collected by States has been retained. Thus, though it is called Central Sales Tax Act, the tax collected under the Act in each State is kept by that State only. This is provided in Article 269(1)(g) of Constitution of India. - - CST in each State is administered by local sales tax authorities of each State. TAX COLLECTED IN THE STATE WHERE MOVEMENT OF GOODS COMMENCES - The scheme of CST Act is that Central Sales Tax is payable in the State from which movement of goods commences (i.e. from which goods are sold). The tax collected is retained by the State in which it is collected. CST Act is administered by Sales Tax authorities of each State. Thus, the State Government Sales Tax officer who collects and assesses local (State) sales tax also collects and assesses Central Sales Tax. TAX ON INTER STATE SALE OF GOODS - CST is tax on inter State sale of goods. Sale is Inter-State when (a) sale occasions movement of goods from one State to another or (b) is effected by transfer of documents during their movement from one State to another. STATE SALES TAX LAW APPLICABLE IN MANY ASPECTS - CST Act makes provisions for very few procedures and rules. In respect of provisions like return, assessment, appeals etc., provisions of General Sales Tax law of the State applies. MBA SEMESTER 1 35
  36. 36. Management Accounting Indirect Tax CST ACT DEFINES SOME CONCEPTS - Under the authority of Constitution, the CST Act defines concepts of ‘Sale Outside the State’ and ‘sale during the course of import/import’. DECLARED GOODS - Some goods are declared as goods of special importance and restrictions are placed on power of State Governments to levy tax on such goods. Inter-State and Intra-State Sale - Entry 92A of List I - Union List reads : ‘Taxes on the sale and purchase of goods other than newspapers, where such sale or purchase takes place in the course of Inter-state trade or commerce’. Entry 54 of list II - State List - reads : ‘Tax on sale or purchase of goods other than newspapers except tax on Inter State sale or purchase’. Thus, sale within the State (Intra-State sale) is within the authority of State Government, while sale outside State (Inter-State sale) is within the authority of Central Government. Sale where both buyer and seller are from same State is Intra-State sale e.g. from * Mumbai to Pune or * Ahmedabad to Surat * Howrah to Kolkata * Mysore to Bangalore etc. These are Intra-State sales. However, when buyer and seller are in different States, it is Inter-state sales. e.g. : Chennai (Tamil Nadu) to Trivandrum (Kerala) * Allahabad (UP) to Hyderabad (Andhra Pradesh) * Bhubaneshwar (Orissa) to Daman (Union Territory) etc. NEWSPAPER SPECIFICALLY EXCLUDED - It can be seen that ‘newspapers’ are specifically excluded from purview of both Union as well as State list. The obvious reason is that newspapers have a very vital role to play in a democratic society. Freedom of speech and free flow of information is the backbone of democracy and hence newspapers have been excluded from tax. [Otherwise, ‘newspaper’ are ‘goods’, but for the exclusion]. MBA SEMESTER 1 36
  37. 37. Management Accounting Indirect Tax TAXABLE EVENT IN SALES TAX - In re Sea Customs Act - AIR 1963 STC 437= (1964) 3 SCR 827 (SC 9 member bench), it was held that in case of sales tax, taxable event is the act of sale. It is not a tax directly on goods. Categories of Sales - Sales can be broadly classified in three categories. (a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e. within the State) sale. - Murli Manohar and Co. v. State of Haryana (1990) 4 CLA 304 (SC) = (1991) 80 STC 79 = 1990(2) SCALE 821 = (1991) 1 SCC 377 (SC 3 member bench). In this case, it was observed that they cannot conceive fourth category of sale. If sale or purchase to Marketing Agency is in same State, it will be an Intra- State sale even if goods are despatched outside the state as per instructions of the marketing agency. - ACC v. CST - AIR 1991 SC 1122. Tax on Inter-State sale is levied by Union (i.e. Central) Government while tax on Intra-State sale is levied by State Government of the State in which sale takes place. No tax is levied on sales during import or export. SALE WITHIN THE STATE IS ‘RESIDUARY SALE’ – As we will see later, ‘sale within State’ is residuary sale. Thus, first we have to decide if sale is ‘Inter State’. If not, we have to find if it is ‘Sale during export or import’. If not, then the sale is ‘Intra State’. Thus, if a sale is Inter State of during export or import, it cannot be ‘Sale within the State’. MODE OF A SALES TRANSACTION - Initially, buyer places an order on seller for supply of goods, called ‘Purchase Order’. After the goods ordered are ready, the buyer may come to the business place (godown, factory or warehouse) of seller and obtain delivery of goods. This will be ‘Sale within the State’. Alternatively, buyer may ask seller to send the goods by transport. In MBA SEMESTER 1 37
  38. 38. Management Accounting Indirect Tax such cases, the seller will book the consignment by rail, road, ship or air as per requirement of buyer to the destination where buyer requires the goods. In such a case, generally, (a) if buyer and seller are in the same State, it is Intra- State sale (b) if they are in different States, it is Inter-State sale (c) if buyer is outside India, it is sale during export (d) if seller is outside India, it is sale during import. Recovery from customer is not essential for sales tax – Normally, sales tax is treated as indirect tax as it can be and is usually recovered from buyer. However, the liability to pay tax is on the dealer, whether or not he collects if from buyer. Background of CST Sales Tax is one of the most important Indirect Tax for purpose of taxation by State Governments. Revenue from CST goes to State from which movement of goods commences. Total CST revenue in 98-99 was Rs 8,538 Crores. Revenue of some major States was - Maharashtra - Rs 1,442 Crores. Tamilnadu - Rs 934 Crores. West Bengal - Rs 799 Crores. Gujarat - Rs 787 Crores, Haryana - Rs 739 Crores. [ET, Bom 21.7.2000]. CST is proving to be a hindrance in introducing VAT. CST has been reduced to 3% (from 4%) w.e.f. 1-4-2007. It is announced that it will be reduced by 1% every year and made Nil by 1-4-2010. CST RATES Rate of Central Sales Tax CST rate w.e.f. 1-4-2007 in case of sale to registered and unregistered dealer - Position w.e.f. 1-4-2007 is as follows – MBA SEMESTER 1 38
  39. 39. Management Accounting Indirect Tax In case where local sales tax rate is 4%, CST applicable in case of sale to unregistered dealer will be only 4% as against 10% as was applicable upto 31-3-2007. In case of sale to registered dealers, the CST rate will be 3%. In case where local sales tax rate is 12.5%, CST applicable in case of sale to unregistered dealer will be 12.5%. This position is same as was applicable upto 31-3-2007. In case of sale to registered dealers, the CST rate will be 3%. In case where local sales tax rate is 1 to 3%, CST applicable in case of sale to unregistered dealer will also be 1 to 3%, as against 10% as was applicable upto 31-3-2007. The rate will be 1% even when sale to unregistered dealer is by transfer of documents. In case of sale to registered dealers, the CST rate will be 1 to 3% as applicable to the goods within the State. In case where local sales tax is Nil, CST applicable in case of sale to unregistered dealer will also be Nil. This position is same as was applicable upto 31-3-2007. In case of sale to registered dealers, the CST rate will be Nil. Sale to Government will be equivalent to sale to unregistered dealer w.e.f. 1- 4-2007 Welcome change – The change is really welcome. In case of goods where State sales tax rate is 4%, if the buyer does not furnish C form, the selling dealer will be liable to pay tax @ 4% instead of 3%. So far, in such cases, he was required to pay CST @ 10%, which was indeed a very heavy penalty. Thus, risks involved in not getting C form from buyer have been considerably reduced. In view of this, harassment in getting blank C form from department and ‘charges’ payable for getting blank C forms should come down. Of curse, MBA SEMESTER 1 39
  40. 40. Management Accounting Indirect Tax provision of submitting C form on quarterly basis continues. Thus, ‘expenses’ involved in getting blank C forms from department cannot be avoided. Of course, the tax burden is heavy where local sales tax rate is 12.5%, since in that case, the selling dealer will have to pay CST @ 12.5%, instead of @ 3%, if the buyer fails to furnish C form. Sales tax rate for sale within the State CST rate in case of sale to registered dealers CST rate in case of sale to unregistered dealers NIL NIL NIL 1% 1% 1% 2% 2% 2% 3% 3% 3% 4% 3% 4% 8% 3% 8% 10% 3% 10% 12.5% 3% 12.5% 20% 3% 20% Note – Usually, State Vat rates of 2%, 3%, 8% and 10% do not exist. However, these rates are given only to explain the principle. State sales tax to be inclusive of additional tax / surcharge / turnover tax - Many State Governments have introduced ‘Additional Sales Tax’, turnover tax or surcharge on tax. It has been held that this additional sales tax is also sales tax for purposes of deciding the rate of duty. Goods included in central sales tax MBA SEMESTER 1 40
  41. 41. Management Accounting Indirect Tax Sales tax liability is on ‘goods’. Section 2(d) of CST Act defines that ‘goods’ includes all materials, articles, commodities and all kinds of movable property, but does not include newspapers, actionable claims, stocks, shares and securities. Following should be noted. Goods must be ‘movable’ - Goods includes all movable property. It includes * steam - Nizam Sugar Factory Ltd. v. CST - (1957) 8 STC 61 (AP HC) * Electrical energy - CST v. MP Electricity Board - (1970) 25 STC 188 (SC) * animals and bird in captivity - K J Abraham v. Asst. STO - (1960) 11 STC 291 (Ker HC) * Goods include uprooted trees, second hand goods, rejected goods, worn out goods etc. NO TAX ON IMMOVABLE PROPERTY - Section 3(14) of General Clauses Act define that ‘Immovable property’ includes land, benefits arising out of land and things attached to the earth or permanently fastened to anything that is attached to the earth. However, as per section 2(7) of Sale of Goods Act, goods include standing crop, grass and things attached to and forming part of the land, which is agreed to be severed before sale or under contract of sale. No tax on Newspapers though they are ‘goods’ - Newspapers are in fact ‘goods’, but are specifically excluded in view of entry No. 92A of List I to Seventh Schedule to Constitution of India (Union List) where newspapers are specifically excluded from purview of tax on inter-State sales of goods. It may also be noted that entry 54 of List II (State List) authorises States to levy tax on sale of goods other than newspapers only. Weeklies and magazines like ‘Illustrated Weekly of India’ and ‘Eastern Economist’ have been held as ‘newspaper’. - A H Wheeler and Co. (P.) Ltd. v. State of Bihar - (1960) 11 STC 18 (Bihar Board). MBA SEMESTER 1 41
  42. 42. Management Accounting Indirect Tax Supreme Court in Printers (Mysore) Ltd. v. Asst. CTO - JT 1994 (1) SC 692 = (1994) 93 STC 95 (SC) = (1994) 9 MTJ 444 (SC), has held that though newspapers are not liable to CST, they can purchase their raw materials at concessional rate on submission of C form. Goods of intangible character are ‘goods’ - Goods of incorporal or intangible character like patents, lottery ticket, advance licenses, copyright can be liable to sales tax. Can there be inter-state sale of intangible goods ? – Goods must move physically from one State to another to constitute an inter-state sale. In case of sale of advance license/DEPB, the license/pass book can physically move from one State to another. However, in case of certain intangible goods like patent, copyright and trade mark, there is no physical movement of goods from one State to another. These goods cannot be said to be located at a particular place. In view of this, it seems that sale is concluded at a place where agreement of sale is executed, as property in ‘goods’ can be said to have passed in that State. Plant & machinery assembled at site is not ‘goods’ - Plant and Machinery or structure assembled and erected at site cannot be treated as 'goods' for the purpose of levy of sales tax, if it is not marketable and movable. Following case law would be relevant, even if it is under Central Excise. Recent amendments Recent Changes – Following are recent change in CST Law. 12th May 2000 - Following changes were made vide Finance Act, 2000, effective from 12-5-2000. MBA SEMESTER 1 42
  43. 43. Management Accounting Indirect Tax PROVISION OF INTEREST ON DELAYED PAYMENT - Section 9(2) and 9(2A) were amended to provide for recovery of interest for delayed payment of Central Sales Tax (CST). Section 9(2B) was inserted to provide that provisions in general sales tax law of each State relating to due date of payment of tax, rate of interest for delayed payment and assessment and collection of interest, shall apply to assessment and recovery of interest on Central Sales Tax also. As per section 120 of Finance Act, 2000, the provisions were given full retrospective effect. The word 'interest' was not present in section 9(2) earlier. In - India Carbon Ltd. v. State of Assam 1997(5) SCALE 51 = (1997) 106 STC 460 (SC) = 1997(6) SCC 479 = 1997 AIR SCW 3091 = 26 CLA 152 = AIR 1997 SC 3054 = (1998) 8 CC (Reports) 276 (SC), it was held that that interest for delayed payment cannot be levied on CST. (Since, there was no provision under CST Act). The section 9(2) of CST was amended with retrospective effect to nullify the effect of the judgment. 11th September 2001 – Provisions in respect of Central Sales Tax Appellate Authority have been introduced by adding sections 19 to 26 w.e.f. 11-9-2001. The Appellate Authority has been constituted on 3-12-2001. - - However, the sections have not been made effective till April, 2003. 11th May 2002 - Substantial and far reaching changes have been made in CST Act, vide Finance Act, 2002. Some of these are made to facilitate introduction of VAT provisions in sales tax, while some are made to overcome difficulties created by some Supreme Court Judgments. Major changes made by Finance Act, 2002 are as follows - WIDENING OF DEFINITION OF SALE - Definition of ‘sale’ is amended by including (i) Transfer other that by contract (compulsory transfer) (ii) Goods MBA SEMESTER 1 43
  44. 44. Management Accounting Indirect Tax involved in Works contract (iii) Transfer of right to use goods (like - leasing) (iv) Transfer among members of unincorporated association (v) Supply of food articles [Hire purchase was covered earlier also [New section 2(g)]. So far, there was no CST for inter state transactions of works contract, leasing or sale of food articles. Since there was no CST on leasing transactions, dealers were avoiding sales tax by showing transaction as ‘inter state sale’. Only lease agreement was executed in one State while goods were delivered in another State. Now, even if lease is held as inter state, CST will be payable. F FORM MADE MANDATORY TO PROVE STOCK TRANSFER - Submission of ‘F’ form to prove stock transfer made mandatory. If not furnished, the transfer will be treated as occasioned as a result of sale. [So far, stock transfer could be proved by other evidence also] [Amendment to section 6A(1)] CST RATE 3% OR LOCAL SALES TAX RATE WHICHEVER LOWER IF UNDER C FORM - Section 8(1) is amended to provide that rate of CST to registered dealer will be 3% or at the rate applicable for sale within the State, whichever is lower. Section 8(2) has been amended to provide that if certain goods are exempt generally from state sales tax, CST payable on such goods will be Nil, even if sold to unregistered dealer. STATE GOVERNMENT CANNOT WAIVE CONDITION OF C/D FORM - Section 8(5) empowers State Government to reduce the sales tax rate applicable in Inter State Sale, by issuing a notification. This section has been amended to provide that such reduction can be given only after fulfilling conditions of section 8(4), i.e. on submission of C/D form. Section 8(5)(a) and 8(5)(b) are also amended to provide that the State Government can reduce MBA SEMESTER 1 44
  45. 45. Management Accounting Indirect Tax CST rates only for sale to registered dealers / Government. Thus, reduction in CST rate made by State Government will apply only if sale is to registered dealer / Government. The lower rate will not apply if sale is to unregistered dealer (as he cannot provide C form). Person liable to pay CST Section 8(1) specifies that every dealer who in the course of inter State trade or commerce sales the goods shall be liable to pay tax under the Act. Thus, liability is on the dealer who 'sells' the goods. Dealer - Section 2(b) defines that “dealer” means any person who carries on (whether regularly or otherwise) the business of buying, selling, supplying or distribution of goods, directly or indirectly, for cash, or for deferred payment, or for valuable consideration, and includes (a) a local authority, a body corporate, a company, any cooperative society, club, firm, Hindu undivided family or other association of persons which carries on such business (b) a factor, broker, commission agent, del credere agent, or any other mercantile agent, by whatever name called, and whether the same description as herein before mentioned or not, who carries on the business of buying, selling, supplying or distribution, goods belonging to any principal whether disclosed or not and (c) an auctioneer who carries on the business of selling or auctioning goods belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of principal. There are two explanations to the definition of ‘Dealer’. Explanation 1 states that a mercantile agent, agent handling goods, agent for collection of payment and every branch or officer in a State of a firm of Company which is outside MBA SEMESTER 1 45
  46. 46. Management Accounting Indirect Tax the State is also a ‘dealer’. Explanation 2 states that ‘Government’ is also a dealer except in case of sale of old and discarded stores or waste. Government as dealer - Explanation 2 to section 2(b) clarifies that Government, which, whether or not in the course of business; buys, sells, supplies or distributes; goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration shall be a dealer. The exception is sale, supply or distribution of un-serviceable or old stores or old materials or waste products or obsolete or discarded machinery or parts or accessories. This exception is made as all Government departments have to make such sale of old goods. However, this exception is only to Government and not for private enterprises. Public Sector Undertakings (PSU i.e. Government Companies) are not ‘Government’ and hence are not exempted under this clause. GOVERNMENT CAN BE DEALER IF SPECIFICALLY INCLUDED IN THE DEFINITION OF ‘DEALER’ – In State of Uttar Pradesh v. UOI 2003(130) STC 1 (SC judgment dated 4-2-2003), the definition of dealer was inclusive definition and it read ‘Dealer includes Government which (whether in the course of business or otherwise) undertakes buying, selling, supplying or distribution of goods. - - In view of this definition, it was held that Department of Telecommunications (DOT) which is supplying telephone is a ‘dealer’. ‘Carrying on business’ is not required. [in view of specific definition] Ancillary, incidental and casual business is also covered - It has been held that any activity which is incidental or ancillary to the main business also constitutes business and thereby the person engaged in such business becomes a dealer - Member, Board of Revenue v. Controller of Stores AIR MBA SEMESTER 1 46
  47. 47. Management Accounting Indirect Tax 1989 SC 1468 = (1989) 74 STC 5 (SC). In State of Orissa v. Orissa Road Transport Co. Ltd. 1997 AIR SCW 3489 = 107 STC 204 = (1997) 5 SCALE 589 = AIR 1997 SC 3409 (SC 3 member), it was held that occasional sale of disposable un-serviceable spare parts at yearly interval by a transport company would make the organisation 'dealer'. [Decision on basis of definition under Orissa Act, but relevant for CST]. Club as a dealer – A members’ club whether incorporated or unincorporated is a ‘dealer’ and will require registration. – Cosmopolitan Club v. State of Tamil Nadu 1999(115) STC 183 (TNTST) * All India Skin & Hides Tanners v. CTO (1999( 115) STC 388 (TNTST). [Article 366(29A)(e) of Constitution of India specifically states that supply of goods by unincorporated body to its members will be ‘sale’]. Collection of tax only by registered dealer - A 'register dealer' means a dealer who is registered under CST Act. [section 2(f)]. Section 9A specifies that only a registered dealer can collect taxes in respect of sales made by him in Inter State Trade. He can collect taxes only according to CST Act and rules. Further, a person who is not a registered dealer cannot collect any amount representing as CST. C-form Forms for Declarations A dealer has to issue certain declarations in prescribed forms to buyers/sellers. These forms are prescribed in Central Sales Tax (Registration and Turnover) Rules, 1957. Out of these forms, forms C, E-I, E-II, F and H are printed and supplied by Sales Tax authorities and are supplied by them. MBA SEMESTER 1 47
  48. 48. Management Accounting Indirect Tax Dealer has to issue declarations in the forms printed and supplied by the Sales Tax authorities only. These forms are in triplicate. [Form D was to be issued by Government and can be printed/typed by the Government department making purchases. Now form D has been abolished w.e.f. 1-4- 2007]. Declaration in Form C - As per section 8(1)(b) of CST Act, sales tax on Inter State sale is 4% or sales tax rate for sale within the State whichever is lower, if sale is to registered dealer and the goods are covered in the registration certificate of the purchasing dealer. Otherwise the tax is higher - (10% or tax leviable on sale of goods inside the State, whichever is higher). If the selling dealer pays CST @ 4% or lower (if applicable), he has to produce proof to his sales tax assessing authority that the purchasing dealer is eligible to get these goods at concessional rate. Otherwise, the selling dealer will be asked to pay balance tax payable plus penalty as applicable. Section 8(4)(a), therefore, provides that concessional rate is applicable only if purchasing dealer submits a declaration in prescribed form ‘C’. AUTHORITY TO ISSUE BLANK C FORM - The blank C form has to be obtained by purchasing dealer from Sales Tax authority in the State in which goods are delivered, which is usually the place where purchasing dealer is registered. However, in case on Inter State sale by transfer of documents, the purchasing dealer may not be registered with the sales tax authorities in the State where the goods are delivered. In such case, he can obtain blank C form from sales tax authority where he is registered. C Form is mandatory to avail concessional rate - Submission of C form is mandatory and unless C form is submitted, concessional rate of sales tax will not apply. It has been held that this procedure is designed to prevent fraud MBA SEMESTER 1 48
  49. 49. Management Accounting Indirect Tax and collusion, and facilitate administrative efficiency. Hence it is mandatory. Concession can be denied if the form is not submitted - Kedarnath Jute Mfg Co. v. CTO - (1965) 3 SCR 626 = (1965) 16 STC 607 (SC) = AIR 1966 SC 12. STATE GOVERNMENT CANNOT WAIVE THE CONDITION OF C/D FORM - Section 8(5) has been amended w.e.f. 11th May 2002 to provide that State Government can issue an exemption subject to fulfillment of requirements of section 8(4). This sub-section requires declaration form registered dealer/Government. Thus, State Government cannot waive condition of C/D form. Number of Transactions per ‘C’ certificate - One declaration in C form can cover all transactions in one whole financial year, irrespective of total amount/value of transactions during the year. [rule 12 amended w.e.f. 7-8- 1998]. ONE CERTIFICATE FOR EACH FINANCIAL YEAR - If a transaction covers more than one financial year, separate C form is required for each financial year. Provision of one 'C' form per financial year has been upheld in Laxmi Agarbatti Factory v. UOI (1996) 102 STC 248 (MP HC DB). Procedure in case of Loss of C form - If duly completed or blank C form is lost when it was in custody of purchasing dealer or when the form was in transit to selling dealer, the purchasing dealer will have to furnish ‘Indemnity Bond’ to sales tax authority (from whom the blank forms were obtained) in prescribed ‘G’ form. If the duly completed C form is lost after it is received by selling dealer, he has to submit indemnity bond to sales tax authority of his State. MBA SEMESTER 1 49
  50. 50. Management Accounting Indirect Tax MBA SEMESTER 1 50