Set-off and tax collection
Rule 52(1)(a) of MVAT Rules 2005 grants full input credit of the taxes collected separately from any registered dealer if the purchases are debited to profit & loss account or trading account. Rule 53 has not prescribed any restriction for reducing set-off available if the goods are used in manufacturing of taxable goods. However, the STRA people feels that whatever taxes are collected must be as per Schedule rate as they prescribe. Sometimes even though the VAT rate is 4% or 5%, still for the sake of precaution when the Schedule rate is not clear the seller charges 12.5% and deposits the same with his returns. Still the STRA people object in granting full set-off.
Queries
1. Whether the assessing authority can refuse grant of input credit specially when the vendor has deposited full collections and the same has been verified after cross check?
Reply
The set-off is granted under Rule 52 of the MVAT Rules, 2005. The said rule reads as under:
“52. Claim and grant of set-off in respect of purchases made in the periods commencing on or after the appointed day. –
(1) In assessing the amount of tax payable in respect of any period starting on or after the appointed day, by a registered dealer (hereinafter, in this rule, referred to as “the claimant dealer”) the Commissioner shall in respect of the purchases of goods made by the claimant dealer on or after the appointed day, grant him a set-off of the aggregate of the following sums, that is to say,-
(a) The sum collected separately from the claimant dealer by the other registered dealer by way of tax on the purchases made by the claimant dealer from the said registered dealer of goods being capital assets and goods the purchases of which are debited to the profit and loss account or, as the case may be, the trading account
(b) Tax paid in respect of any entry made after the appointed day under the Maharashtra Tax on the Entry of Motor Vehicles into Local Areas Act, 1987, and
(c) The tax paid in respect of any entry made after the appointed day under the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2003.”
Thus, set-off is allowed of the sum collected by the selling dealer as tax from the claimant dealer.
There is no reference to tax collection at particular rate. The reference is to tax amount. So, as per plain language, whatever amount is collected as tax by the vendor is eligible for set- off.
It cannot also be argued that the tax collected more than prescribed rate is not tax amount. In the invoice the amount is represented as tax amount and hence it has to be considered as tax amount only and not any other amount.
The above issue is also supported by number of judgments like in case of
Ingersoll Rand (India) Ltd. v. State of Gujarat (92 STC 548)(Guj.). The small gist of judgment is as under:
“Departure form the legislative dictionary or statutory meaning of words is not only permitted but justified. If literal interpretation or interpretation according to the legislative dictionary is likely to lead to unjust result or is not likely to achieve the object of the provision wherein the words occur.
The word “tax” is not used in the Gujarat Sales Tax Act, 1969 in one sense only. An amount which is levied and collected in excess of the amount really due and payable under the Act is also treated as tax for certain purposes.
Set-off means adjustment or deduction from the tax payable by a repurchasing dealer to the Government of the amount to be returned to such purchasing dealer in respect of the purchase tax paid by him or as representing the amount of sale tax or general sales tax collected from him by his vendor. Deduction drawback or set-off are an integral part of the scheme of single point tax. In this context the word “tax” in Rule 42(B)(i)(a) of the Gujarat Sales Tax Rules 1970, should be interpreted to mean the amount of sales tax or general sales tax actually paid and recovered by way of tax, and not only the amount of tax which could have been legally recovered.
Held accordingly that the dealer was entitled to set-off at the rate of 8 per cent, the rate at which tax was paid on its purchases and not at 3 per cent or 4 per cent the rate determined by the Commissioner to have been applicable to its purchases.”
Otherwise also there cannot be any grievance about allowing set off at full amount from the revenue side. The excess collection, if any, will definitely get forfeited and hence there is payment of amount by the vendor and under the VAT principle, the said amount should be available as set-off to the buyer.
2. When the Schedule rate of tax on commodity is not clear, whether the Assessing Authority assessing the buyer or claimant dealer can determine the rate of VAT even though tax is leviable on sales and not purchases?
Reply
Assessment is a comprehensive appreciation of the various claims including set-off. Therefore, the assessing authority can certainly look into the tax invoice and tax charged. It can observe about rate of tax, though as discussed above, there is no justification for disallowing set-off, even if the rate is determined at lower rate.
C. B. Thakar
Advocate