15th January, 2005
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Sales Tax Amnesty 2004 extended
The second phase of Sales Tax Amnesty 2004 is
extended for two more months by Government Resolution dated 29th
November, 2004. As per this GR the second phase of Amnesty is extended
up to 31st January, 2004. The terms and conditions of the earlier scheme
remain unchanged.
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Special Relief to Entitlement Certificate holder
of power generation promotion policy
An amendment was made to Rule 31AA (2)(b) on
31-3-2003 w.e.f. 1-4-1999. Rule 31AA (2)(b) relates to calculation of
CQB for the eligible units covered by N.E. E-11 and E-3.
The amendment provided for inclusive of surcharge in
addition to sales tax and turnover tax for calculating sum of benefits
in respect of purchase of raw materials on form BD by EC holder. This
would result in additional demand of tax, interest and penalty. To
redress the grievances of payment of additional demand in the aforesaid
circumstances the administrative concessions is granted by way of
Circular No. 34T/04 dt. 19-10-2004. This concession is to dealers under
Notification E-11, who hold valid Entitlement certificate for the period
2003-04 and 2004-05. Such dealers are free to opt for adjustment of
debit of such additional demand of tax for the period 1-4-1999 to
31-3-2003 against the monetary ceiling of sales tax held by them for
2003-04 and 2004-05 under the power generation policy. Any penalty
and/or interest leviable payable for the period 1-4-1999 to 31-3-2003
due to the additional demand raised on account of retrospective
amendment dt. 31-3-2003 will be waived.
This is a limited administrative concession not to be
extended to any other class of dealer.
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Exemption of Surgarcane Purchase Tax
Yet one more beneficial notification was issued by
State of Maharashtra on 19th August, 2004. This notification grants
exemption to purchases of sugarcane by occupier of a factory or unit
from purchase tax subject to the condition that no tax is recovered or
paid by such unit. If the tax is recovered in part the exemption will be
restricted to unpaid tax only (Circular No. 35T/04 dt. 20-10-2004).
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Clarification about pending proceeding due to
reference pending in High Court (Circular 36T/04 dt. 23-11-2004)
The sales tax authorities so far were keeping the
appeals or assessment (33 4A) pending if a reference filed by the State
involving identical issue is pending before High Court or Supreme Court.
In view of amendment to section 55 of BST Act w.e.f. 1st July 2004 the
Hon’ble Commissioner has now directed the authorities to decide the
cases as if there is no adverse judgment by Tribunal against the
Revenue. The recovery can be kept pending by assessing authority u/s.
33(4C). Similarly the appellate authority may also finalise appeals.
There will be no recovery in respect of such due till the issue is
finally decided by High Court. It is specifically provided that the
orders in assessment, appeal or revision must specifically mention the
two types of demand; i.e., demand which can be recovered immediately and
the demand which is stayed. The assessing authorities are directed to
specifically pin point in the order legal issue regarding which a
reference is filed to High Court.
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DEPB added as finished product in 1993 & 1988 PSI
An amendment is made to rule 31AA of Bombay Sales Tax
Rule, 1959 by retrospectively adding explanation on 1st November, 2004
w.e.f. 1-4-1997. The explanation states that for the purpose of both the
package scheme of incentives 1988 and 1993, the expression finished
products shall be deemed to include credit of DEPB which is earned by
the dealer eligible under above scheme by exporting out of the territory
of India the goods manufactured in the eligible unit. This benefit is
available irrespective of the fact that the eligibility certificate
granted to the dealer donot mention this product. The only condition is
that on the sale of such DEPB No. tax either in full or part is paid by
such dealer.
By one more notification issued on the same day;
i.e., 1st November 2004 an explanation V is added to notification E-3.
This explanation states that for the purpose of sub-entry 2 & 3 of
notification E-3, the words goods manufactured and finished products
shall be deem to include credit of DEPB earned by dealer by exporting
the goods manufactured in eligible unit. The explanation is applicable
only if no tax either in full or part is paid on sale.
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VAT Update — With the State Governments gearing up
for VAT from April, 2005 onwards I give hereinbelow extract of certain
news reports to keep the readers updated on VAT
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The white paper on VAT which was assured to be
released by empowered committee after 15-12-2004 is likely to be
released by end of January, 2005.
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Mr. Asim Dass Gupta, Chairman of the empowered
Committee of State Finance Minister on VAT has on press release on 4th
January, 2005 given certain highlights of the proposed VAT. The
proposed VAT will allow traders to make self assessment of the VAT
liability. The states are directed to include this provision in the
VAT Bill.
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It is also proposed that penalty in the VAT bill
will not be more stringent than the existing Sales Tax Act.
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In the VAT regime it will be mandatory for all
dealers with gross turnover of Rs. 5 lakhs or more to register. New
dealer will be allowed 30 days from the date of eligibility to get
registered.
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It is also proposed that VAT will be calculated by
deducting input tax credit from the tax collected by the dealer during
the payment period.
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Input tax credit would be given to both traders and
manufactures for the purpose of input and supplies for sale within the
State or in other State.
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Tax paid on inputs procured from other State
through interstate sale and/or branch transfer will not be eligible
for input tax credit.
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For ensuring smooth transition in the new regime it
is proposed that all tax paid goods purchased on or after 1-4-2004 and
in stock as on 1-4-2005 will be eligible for input tax credit subject
to submission of requisite documents.
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There will be negative list of capital goods not
eligible for input tax credit.
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Small dealers with gross annual turnover not
exceeding Rs. 5 lakhs will not be liable to VAT
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Dealers with annual gross turnover not exceeding of
Rs. 50 lakhs, who are otherwise liable to pay tax will have option for
a composition scheme at a small percentage of gross turnover. The
State will have flexibility in fixing threshold limit within Rs. 5
lakhs.
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An 11 digit identification No. for tax- payer will
be introduced throughout the country of which first 2 character will
represent State code.
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Liquor, Lottery Ticket, Petrol, Diesel, Aviation
Turbine Fuel and other motor spirit would be outside the VAT regime.
These items will continue to be taxed under the Sales Tax Act.
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VAT will not have any cascading effect and traders
will save on input cost that will be free of taxes. Because of this
prices are expected to come down.
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As against above announcement by the empowered
committee the Confederation of All India Traders had demanded reduction
of rate of tax to 1% on cereals and pulses. They have demanded 4% tax on
the raw material and 8% on the finished products instead of 12.5% as
proposed by the empowered committee.
18th February, 2005
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Sales Tax Amnesty extended
The extended Phase-II of Amnesty 2004 is again extended by
one more month; i.e., up to 28-2-2005. Kindly refer to Circular No. 5T
of 2005
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Cir. No. 1 of 2005
Recently Commissioner of Sales Tax has vide circular dated
14-1-2005 called for information regarding purchases made locally from
Registered Dealer in the prescribed format.
The following class of dealers are directed to submit the
details in the required format.
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The dealers who have claimed set off exceeding Rs. 4
lakhs
O R
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The dealer who have claimed refund more than Rs. 1 lakh
A N D
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Annual turnover of either purchase or Sale exceeds Rs.
40 lakhs
The information is to be furnished for the year 2003-04 as
also for the unassessed period prior to that.
This information is to be submitted as per the proforma
given by the Commissioner in respect of every supplier where total purchases
from such supplier has exceeded Rs. 1 lakh during the year.
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Amendment to Central Sales Tax Act
These amendments are already explained in the summary of
the Finance Bill in July 2004 Income Tax Review. They relate to expansion of
scope of exemption for SEZ as also amendment to procedural aspect of SEZ.
The amendments are also made to the provision relating to
Central Appellate Authority summary of which has already given while
discussing the Finance Bill. Circular
No. 2 and 3 of 2005 of the Commissioner of Sales Tax dated 18-1-2005 explains
the amendment made by Finance Act, 2004.
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Classification / Notification for set off u/r 44D
By the Notification dated 6-1-2005 the Government has
notified that Rule amended at Sr. No. 16 of the Gazette dated 30-7-2004 shall
come into force from 1-10-2002 and rest of the amendments shall come into
force from
1-7-2004. This amendment was also explained in the October 2004 Review under
the article Recent Amendment or Bombay Sales Tax Rules.
16. Amendment to rule 44D
The entry tax on import of certain goods under the
Maharashtra Tax on the Entry of Goods into Local Act, 2003 was brought into
effect on 1st October, 2002. Sometimes these entry tax borne goods are used in
the manufacturing process or are exported. Hence rule 44D is amended so that
the dealer can claim set off under rules 41D, 41F, 41G, 42AC and 43D treating
the tax on Entry of goods paid on import of such purchases as a Sales Tax paid
and accordingly subject to reductions, if any, provided in the respective
rules, set-off can be claimed in respect of the said entry tax.
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Amendment to Lease Act
Vide Notification dated 5-1-2005 the following amendments
are made to Maharashtra Sales Tax on Transfer of right to use on any goods for
any purpose Rules :
Rule 16 (a) is newly inserted.
Section 4B of the Lease Act introduced with effect from
1-7-2004 provided exemption from payment of tax on sale (lease) by Registered
Dealer to a certified registered dealer if such RD furnishes to the selling
registered dealer declaration in the prescribed form. Certified Registered
Dealer, Developer of SEZ or Industrial Unit or other establishment certified
as SEZ.
The new rules now provides for the said declaration to be
in Form XXV–A. This form is to be submitted by certified Registered Dealer;
i.e., the selling dealer who holds the certificate issued for the purpose of
section 4-B issued by the Commissioner of Sales Tax. The claimant dealer shall
not be entitled to claim refund in respect of purchase of goods used in
manufacture or packing of goods mentioned in the certificate issued. On
failure to comply with the recitals or conditions of the declaration, the
exemption granted by the certificate will be liable for cancellation. The
dealer certified by the Commissioner of Sales Tax is required to furnish the
account of goods referred in certificate for each financial year by 30th June
of the subsequent years. The certificate to be furnished in Form XXV-A should
bear the seal and signature of the assessing authority in triplicate, out of
which two parts would be furnished to the selling dealer to enable him to
furnish the original copy to the assessing authority at the time of
assessment. Certain more conditions are prescribed for the use and safe
custody of the said form. The purchasing dealer has to certify that the goods
purchased in Form XXV-A shall be used within the SEZ area in manufacturing the
goods for export out of territory of India or in packing of goods for
manufacture or to resell to any other certified industrial unit certified in
SEZ area.
Rule 16-B is inserted whereby the Commissioner can on an
application pass the order sanctioning the interest on refund or delayed
refund. No time limit is prescribed for the Commissioner to pass such order on
receipt of the application. On issue of the order sanctioning interest the
Commissioner shall under rule 16-C issue to the applicant an interest payment
order in Form XXVI.
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Amendment to Maharashtra Tax on Luxury Rules
Rule 19-A is inserted vide notification dated
5-1-2005. This rule is for calculation of cumulative quantum of benefits by a
registered hotelier who is granted EC under the new package scheme of
incentive of tourism package 1999-2000. As per the new rule the CQB for such
hotelier under the PSI scheme shall be the sum equal to amount of luxury tax
which would have been payable to the Government in respect of the luxury
provided by the hotelier in the eligible unit had the said hotelier not been
holding the said certificate. This means the CQB would be luxury tax which the
normal hotelier would have paid had it not been granted EC.
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CST Notification u/s 8(5)
Vide notification dated 1-5-2002 u/s 8(5) of CST Act the
rate of tax on interstate sale by a dealer having place of business in the
State of Maharashtra in respect of sale of motor vehicle having 4 wheels and
having engine capacity of 950cc, covered under Schedule Entry
C-II-102(1) of the Bombay Sales Tax Act was reduced to 2%.
Vide Notification dated 1-1-2005 the earlier notification
dated 1-5-2002 is amended and the benefit given to the motor vehicles having 4
or more wheels and having engine capacity of 950cc or more is now made
available to all types of motor vehicles having 4 or more wheels. The
restriction relating to engine capacity of 950 cc or more is deleted. This
amendment would be with effect from 1-1-2005.
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Amendment to Cst Rules
Vide extraordinary Gazette dated 5-1-2005 the Central Sales
Tax Bombay Rules are amended Form-III D which was directed to be filed along
with Form N-18 D for the period 2003-04 is now officially inserted in the
rules. The Annexure to Form XXX BB is also added. This annexure is identical
to the Annexure-A appended to the Bombay Sales Tax Annual Return. One more
Rule 9-D is added which provides for application for cancellation of
assessment order. This provision is in line with sec. 36 (3D) of CST Act where
against an ex parte order an application for cancellation of assessment
order can be filed by the dealer. These are consequential amendments
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Amendment to Group-H u/s 41
Notification u/s 41 Group-H grants exemption from whole of
tax in case of sales of potable alcohol and in any other case in excess of 1%
for the sales to Canteen Stores Dept. or Indian Naval Canteen Services, of
goods listed in price list, except those specified in the Appendix to the said
Notification. This notification was subject to condition of furnishing of
H-form as also the condition of non collection of tax by the selling dealer.
The goods purchased on the strength of H-form were for resale directly or
through Canteen Stores, anywhere within the territory of India to the Members
of Armed Forces of India at the prices fixed by Government of India. The said
notification is now hatched with one more condition; namely, if the goods
purchased on the strength of declaration in Form-H are resold directly or
through Canteen to the persons other Members of Armed Forces of India, there
shall be levied Sales Tax on the turnover of sale of such goods as per the
provisions of Bombay Sales Tax Act. This amendment would be effective from
16-12-2004.
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Assessment by Enforcement Branch
On 25-1-2005 the Hon’ble Commissioner of Sales Tax has vide
Circular No. 40T of 2005 clarified that the powers of Enforcement Branch
Officers under newly substituted sub-section 33 (6B) will also be applied to
the pending proceedings in sec. 33 (6B). This sub-section empowers Enforcement
Branch Officers to assess only the transaction where dealer has evaded or
attempted to evade the tax.
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Amendment to Notification
No. A-148
Vide Notification dated 1-1-2005 this notification is
amended. This notification grants reduction of rate of tax to 4% to sales made
by RD to the manufacturer of motor vehicle with engine capacity of 950cc or
more covered by C-II-102. The description of the goods is now changed to
"manufacturer of motor vehicle having four or more wheels covered by Schedule
Entry C-II-102." This means the benefit of notification would now be available
to all the vehicle irrespective of engine capacity as also available to
vehicles of more than four wheels.
VAT UPDATE
B) White Paper on Vat
The much awaited white paper on State level Value Added Tax
by the Empowered Committee of State Finance Ministers is released on 17-1-2005.
This white paper is divided into 3 parts. Part (1) gives the details about
background and justification of VAT; Part (2) gives main design of VAT and Part
(3) gives other related issues for effective implementation of VAT
Part-I : JUSTIFICATION OF VAT and BACKGROUND
It is stated that present tax systems causes unfair double
taxation with cascading effect since the commodity produced has the input tax
load as also output tax load.
There is also multiplicity of tax such as turnover tax and
surcharge etc. With introduction of VAT such other taxes would be abolished and
Central Sales Tax will be phased out. As a result of this overall tax burden
will be rationalized and the price in general will fall. It is also stated that
VAT will replace the existing system of inspection by a system built-in-self
assessment by the dealers and auditing. The tax structure is supposed to become
simple and more transparent to improve tax compliance and brought in revenue.
In VAT set off will be given for input tax as well as tax
paid on previous purchases.
In India a VAT system is introduced by Government of India
for the last about 10 years in respect of Central Excise Duty.
In the first meeting convened by
Dr. Manmohan Singh, the then Finance Minister in the year 1995 the discussion on
the VAT had started. The significant date thereafter was 16-11-1999 when for the
first time all Chief Ministers and the then Finance Ministers took 3 important
decisions: (1) To introduce State level VAT (2) To harmonise State level tax by
implementing uniform floor rate (3) To discontinue the sales tax related
industrial incentive scheme. It was in this meeting that it was decided that
State level VAT after adequate preparation would be introduced .
Thereafter series of meetings of the empowered committee was
attended by the State Finance Ministers, Finance Secretaries and Commissioners
of Sales Tax of all States for systemic preparation of VAT especially to avoid
unhealthy competition amongst the States. The necessary training in
computerization as also trade and industry at State level was specially
emphasized.
The VAT was thus to be introduced from
1-4-2003. 29 States and Union Territories sent their Bills to the Ministry of
Finance for prior vetting. The VAT bills were thereafter passed by respective
State Legislatures and forwarded for Presidential assent. The VAT which could
not introduce on 1-4-2003 is now proposed to be introduced from 1-4-2005.
INPUT TAX CREDIT (ITC)
Who will get Input Tax Credit? Both manufacturers and traders
will be given ITC for purchase of input/purchase meant for sale within
Maharashtra as well as outside the State. Even the stock transfer and
consignment sale outside the State would be eligible for ITC what tax paid in
excess of 4%.
THE POSITION OF REFUND ON
EXCESS ITC
It is suggested in the white paper that if the credit exceeds
the tax payable on sale in a month, the excess credit will be carried forward to
the end of the next financial year. If there is excess ITC at the end of second
year then the same will be eligible for refund.
CAPITAL GOODS
The capital goods will also be eligible for ITC to traders as
well as to manufacturers. This tax credit on capital goods would be adjusted
over period of maximum 36 equal monthly installments. It is also provided that
there will be negative list for capital goods not eligible for ITC.
CONCEPT OF VAT
The provision for providing set off of tax paid on input is
given effect to the concept of input tax credit/rebate. As per the example given
in the white paper the assessee would be entitled to set off of the tax paid on
the purchase irrespective of the quantum of sale during the year which also
means there will be no withholding of set off on stock
TREATMENT TO EXPORTS
The exporters would be eligible for tax paid within the State
and the refund would be paid within 3 months. Units located in SEZ or EOU would
be granted exemption from grant of ITC or refund of ITC within 3 months.
TREATMENT TO INPUTS PURCHASED FROM OTHER STATES
Tax paid on the goods purchased from other States or
consigned from the other States will not be eligible for ITC. However when the
CST is phased out it will be benefited. To phase out the CST the comprehensive
interstate tax information exchange system is being set up.
TREATMENT TO OPENING STOCK
All tax paid goods purchased on or after
1-4-2004 and in stock as on 1-4-2005 will be eligible to receive the ITC. This
benefit would be available to reseller as well as to manufacturer. VAT will be
levied on the goods as and when sold after 1-4-2005. The ITC on the opening
stock would be available over period of 6 months after initial 3 months needed
for verification.
IMPORTANCE OF TAX INVOICE, CASH MEMO and BILL
The most crucial part of VAT is tax invoice, cash memo or
Bill. Every registered dealer having turnover of sales above limit specified
with the prescribed particulars. This tax invoice would be signed and dated by
the dealer or its regular employee. The counter foil or duplicate of such
invoice duly signed and dated would be kept with the dealer. Failure to comply
with the condition of the tax invoice will attract penalty.
REGISTRATION UNDER VAT
White paper has proposed compulsory registration of VAT
dealer above Rs. 5 lakhs turnover. The provision for voluntary registration will
continue. The existing Registered Dealer will automatically get registered under
the VAT. The dealers below the turnover of Rs. 5 lakhs will not be liable for
payment of tax.
COMPOSITION SCHEME
Small dealers with annual turnover not exceeding Rs. 50 lakhs
will have the option for composition scheme at a small percentage of gross
turnover with the only condition that they will not be entitled to input tax
credit.
TPIN
Every tax-payer throughout the country will have TPIN (Tax
Payer Identification No.). First two characters of the No. will represent the
State Code and the balance would be given as per the Pin code within the State.
In Maharashtra we already have the Registration No. with the pin code number
prefixed to the dealer’s identity.
RETURN PROVISIONS
The State would be at liberty to specify filing of monthly or
quarterly return accompanied with payment of challan. White paper provides
expeditious scrutinization of the Return within prescribed time limit . So that
on detection of any technical mistake the dealer can pay the deficit amount.
SELF ASSESSMENT OF VAT LIABILITY
The simplification under the VAT is proposed to be achieved
by self assessment by the dealer themselves. The States are required to keep
simple return form as well as other procedures. It would be an end of the era of
compulsory assessment. It is provided that if no specific notice is issued by
the Dept. proposing audit of the books of account within the specified time
limit, the dealer will deem to have self assessed.
AUDIT
Correctness of the self assessment will be checked through a
system of departmental audit. Certain percentage of dealers would be selected
every year for audit on a scientific basis. If evasion is detected in audit the
previous period would also be taken up for audit. To remove any bias the
auditing will be totally de-linked from the tax collection wing. Audit will have
to be completed within six months and the report would be sent to the dealer
also.
CROSS CHECKING
A system of cross checking of computerized system is being
worked out on the basis of co-ordination between Tax Authorities of the State
Government Central Excise Authorities and Income Tax Authorities to compare the
tax returns. Under VAT this comprehensive tax check system would reduce to tax
evasion and add buoyancy to the tax revenue.
ABOLITION OF CONCESSIONAL TAX DECLARATION FORM
All the concessional declaration form would be withdrawn.
BACKWARD AREA UNIT
The existing State incentive schemes would be continued in
the manner appropriate in the individual State after ascertaining that VAT is
not affected.,
PROVISION OF OTHER TAXES
Turnover Tax Surcharge Additional Tax etc. would be
abolished. The Entry Tax if introduced by the State would be made vatable
However the entry tax levied in lieu of octroi will not be vatable.
PENAL PROVISIONS
The penal provisions under the VAT should not be more
stringent than the existing sales tax laws.
COVERAGE OF GOODS UNDER VAT
In general all the goods including declared goods would get
benefit of ITC with the few exception of goods like liquor, lottery tickets,
petrol, diesel aviation turbine fuel, and other motor spirit. All these would
continue to be taxed under the local sale tax laws or may be under special
provisions under the VAT Act.
VAT Rates & Classification of commodities
The list of 550 items is agreed upon by the State
representatives There will be only two basic rates under the VAT Act 4% and
12.5% with specific category of tax free goods and special vat rate of 1% for
gold and silver ornaments only. 46 commodities are agreed upon in the exemption
category. Maximum 10 commodities taxation would be left to the individual states
from the list of goods finalized by the Empowered Committee. The largest
commodities would be under 4% category which would be basic necessities such as
drugs/medicines, industrial goods capital goods and declared goods etc.
Remaining goods will fall under 12.5%. VAT on goods subject to ADE namely sugar
textile and tobacco is postponed for one year after introduction of VAT.
EFFECT OF VAT SYSTEM
The total effect of VAT is aimed at to rationalize tax burden
and bring down price level and trade diversion amongst the States. It is
expected that tax compliance would be increased resulting in revenue growth.
PREPARATION BY THE STATES
Most of the States are stated to have modified or agreed to
modify the VAT Bill to incorporate common point of convergence and are taking
other preparatory steps towards VAT 2005. The draft VAT rules are under
preparation The preparation for computerization up to the assessing officers and
at check post is initiated. The appropriate Central funds for this purpose are
being released by Government of India.
OTHER RELATED ISSUES
Although the VAT is likely to result in revenue growth it is
feared that there may be loss of revenue in some States in the initial years of
transition. The Government of India has agreed to compensate the States for 100%
loss in the first year, 75% second year, 50% in the third year after
introduction of VAT. This loss would be calculated on agreed formula. The need
for phasing out CST after introduction of VAT is realized. However the States
are now collecting Rs.15,000 crores every year from CST. There is also critical
need for setting up taxation information exchange system.
For successful implementation of VAT the Empowered Committee
has set up consultation committee with one representative from each chamber of
commerce and national level traders organization . The process of inter action
is supposed to continue regularly to sort out the problems of introduction of
VAT.
It is specifically mentioned that all the States have agreed
to effect amendment of VAT Bills so as to broadly design it as elaborated in the
White Paper.
