Tax World

Sales Tax

Janak Vaghani,
Chartered Accountant

  1. Bank – Dealer

  1. Bank selling pledged ornaments is not a dealer. The Explanation IV inserted in APGST Act, 1957 in section 2(1)(e), defining the term dealer, deeming Financial Corporations Companies and Banks as dealers by Amending Act No. 27 of 1976 from 1-8-1996, cannot be applied to sale of pledged ornaments by auction, which toolk place on August 9, 1987.

Source: Government of AP vs. Corporation Bank (2007) NTN (7 DPH) 402 SC and also (2007) 29 PHT 603 (SC).

  1. The sale of pledged articles by bank falls in the course of banking business. When bank sells pledged articles, do not act as the agent of the borrower. As pledgees, the bank acting under section 176 of the Contract Act, 1972, has right to sell the goods. In view of provision of section 2(viii)(g) of the Kerala General Sales Tax Act, 1963 providing specifically to include bank selling pledged articles, even it takes place outside the banking business, as dealer, the SC held that bank selling such pledged articles is a dealer and liable to pay sales tax on such sales.

Source: Badagora Co-operative Rural Bank Ltd. vs. State of Kerala & Ors. (2007) NTN (Vol. 34) 1 (SC)

  1. Penalty for adopting escaped route :

Levy of penalty u/s. 51(7) of The Punjab VAT Act is not justified for not reporting at ICC by driver, who adopted escaped route for transport of goods within the State of Punjab. The provisions of section 51(4) of The VAT Act applies when the goods are either moving out of Punjab or coming in the Punjab State from outside the State. But it does not apply if the transportation of the goods by the owner is within the State of Punjab from one place to another. Therefore, levy of penalty for not reporting ICC by adopting escaped route by driver is not justified, particularly when there is no evasion of tax.

Source: M/s. Dashmesh Industries, Motia Khan, Mandi Gobindgarh vs. The State of Punjab (2007) NTN [7 DPH] 418, Punjab Tribunal, Chandigarh.

  1. Schedule Entry :

Allahabad High Court held that hand pump is a water pump as such covered by specific entry
No. 38(b) of the notification No. TT-2-3402/XI-9(116)/94-UP Act-15/48-order-94 dated 1-1-1994 attracting rate of tax @ 4% under UP Trade Tax Act. It also held that specific entry excludes the general entry.
Source: Commissioner Trade Tax, U.P., Lucknow vs. S/s. U. P. State Agra Industries, Muzaffernagar, (2007) NTN [7DPH] 398.

  1. Works Contract — Construction of flats/apartments  :

Allotment of proposed houses / flats, to be constructed, to various purchasers by allotment letter, which is subject to execution of registered sale deed by a dealer, is not a case of construction of flats/apartments for and on behalf of the prospective buyer. The ownership in constructed houses/flats continued with the builder till the sale deed is registered. Therefore, it is not a works contract attracting levy of sales tax u/s. 2(m) read with section 3F of the U. P. Trade Tax Act. The case of K. Raheja Development Corporation vs. State of Karnataka (2005) 5 SCC 162 was held as not applicable to the facts of the case.
Source: Assotech Realty Private Ltd. vs. State of U. P. and Another (2007) NTN (Vol. 34) 67 (All)

  1. Advance Tax – Constitutional Validity :

The provision of section 47(16A) of the Kerala VAT Act, 2003 authorising Commissioner to direct payment of tax in advance at the time of import of goods in the State, before taxable event took place, is to prevent evasion of tax. Hence, issue of Circular by Commissioner for identifying “Evasion Prone” goods and classification of goods as “Evasion Prone” for demanding advance tax is to safeguard the interest of revenue, as such not in violation of Art. 14 of the Constitution of India.

Source: M/s. S. P. L. Ltd. & Ors. vs. Commercial Tax Inspector & Ors. (2007) 15 KTR 161 (Ker.)
 

  1. Interest on refund, where no provision in the Scheme or Rules :

The Supreme Court reversed the decision of High Court of Punjab and Haryana directing State Government to grant interest on refund of tax paid, during period from the effective date of permission to the date of order as there is no provision in the Deferment Scheme and the Deferment Rules, 1991 for payment of interest to the dealer. The provision of section 12 of the Punjab General Sales Tax Act, 1948 providing grant of interest on refund, on regular assessment, to the dealer cannot be applied for refund of tax collected and allowed to defer, but paid to avoid possible levy of penalty.

Source: State of Punjab and Others vs. M/s. Atul Fasteners Ltd. (2007) PHT 596 (SC)

  1. Sub-contract :

The sub-contractor is liable to pay tax on Works Contract executed by him and main contractor is liable to pay tax on that part of contract executed by him. Therefore, main contractor cannot be made liable to pay tax on work executed by sub-contractor who has paid tax. Decision of Punjab High Court 75 STC 211 followed.
Source: Indian Railway Construction Co. (Now known as IRCON International Ltd., Kapurthala) vs. State of Punjab (2007) 29 PHT 636 (PVT), Vat Tribunal, Punjab, Chandigarh.


News from Kerala

  1. Input tax credit :

    The Commissioner of Commercial Taxes, Kerala has issued circular No. C1/520/06/CT dated 20-3-2007 clarifying that claim of refund can be made in the return of period in which purchases are accounted or goods are received. Accordingly, it is clarified that the purchasing dealers are entitled to account the purchases during the return periods in which the goods in question are actually delivered to him irrespective of the date of bill or invoice. Such dealers are entitled to claim input tax credit during the return period in which such purchases are accounted in the books of account, subject to maintaining proof of taking delivering of such goods.

    Source: 2007 15 KTR 113.
     

  2. Composition at the rate of Tax on MRP by first seller or manufacturer
    Under section 8(h) of the Kerala VAT Act, 2003, first seller in the State (Importer or Manufacturer) from 1-4-2007 can opt to pay tax at compounded rate on MRP goods, covered under the Standards of weights and Measures (Packaged Commodities) Rules, 1977. Such dealers opting composition will not be entitled to claim any deductions for trade discount, incentives in terms of quantity or cash discount for the purpose of computing tax liability.
    Upon payment of tax at such compounded rate, subsequent sale is exempt from payment of tax subject to obtaining invoice in Form 8HH (proposed).

    Source: Circular No. 15/07, dated 30-3-2007 issued by the Commissioner of Commercial Tax, Kerala State, 2007 15 KTR 116

News from Maharashtra :

  1. Sales to Government Department :

    The earlier notification No. VA–1505/CR–192/Taxation–1, dated 30-12-2006 providing concessional rate of 4% on sale of goods to State and Central Government Department and other Electric and Telephone Company is superseded by issue of another notification No. VAT 1505/CR-192/ Taxation-1 dated
    19-4-2007. Under the new notification, with effect from 1-5-2007, the State Government has withdrawn the concessional rate of 4% on sales of goods to State and Central Governments but continued the concessional rate of 4% on sale of goods to Specified Telephone and Electric Companies or Corporation.

    Source: Trade Circular No. 35T of 2007 dated 26-4-2007 54 STR III 48.
     

  2. Adjustment of refund of 2006-07 towards tax payable for subsequent year 2007-08.

    The Commissioner of Sales Tax, by issue of Trade Circular, has allowed adjustment of refund claimed in March’ 2007 return towards tax payable for subsequent year 2007-08 under the MVAT Act, 2002 or CST Act, 1956.

    Source: Trade Circular No. 41-T and 42-T of 2007 dated 21-5-2007 and.31.05.07