Value Added Tax, for short “VAT” is apt abbreviation thereof etymologically. It has its acknowledged merits and demerits. Protagonists of this VAT system of indirect tax, used bombastic expressions, that this system is transparent; it eliminates cascading effect; it is single tax replacing multiple tax and surcharge; it enables set off for tax paid on purchases from tax payable on sales through original tax invoice; it helps determination of tax through self-assessment; the system is rational; easy to comply with; reducing tax burden and lowering prices in general; soon on and so forth.

Two years of VAT have passed; what is our experience? National Development Council, in its meeting held on 9-12-2006, resolved that 9% GDP is possible; 5% and odd inflation is the cause of worry. Chief Minister of West Bengal clamoured about revenue buoyancy during VAT regime; other States have similarly claimed, neutralising their fear for possible loss of revenue after the Central Sales Tax is phased out; but how this inflation can be arrested?

It is known to everybody that each and every country inclusion Great Britain and France suffered the pang of inflation minimum 5% after introduction of VAT system. Chile suffered the maximum 147% inflation. Today be practical and compute your financial position after completion of each day’s marketing. It is a mystery how men below poverty level are surviving in these days.

Coming to the drafting of VAT Acts of the States in our Eastern Zone, I will have to say that persons who drafted the Act, suffered from crisis of confidence and for that reason, series of amendments are coming after they presented voluminous and probably all the more cumbersome VAT Act. The recently released survey by the World Bank has revealed that India has the most voluminous tax legislation consisting of 9,000 pages, as against 300 pages, Switzerland and 5,300 pages in USA.

To start with I give below the value of VAT only :-

Dealers, their consultants and officers are out of their depth to comply with these voluminous formalities ; slight deviation of which may be costly.

As I am now in Orissa I will try to restrict myself with Orissa VAT Act.

The preamble of any statute is key to the understating of a Stature, as observed by Supreme Court in the case of Kochuni vs. States of Madras and Kerala, reported in AIR 1960 SC 1080; but, in these days we find that no attention is given to the necessity of preamble. Manipur VAT is without preamble.

Going through the preamble of all other VAT Acts, it is seen that vital effect of Article 366(29A) of the Constitution of India, has not been taken care of by any State, except Delhi. State of Kerala has managed the show in a different way to some extent.

The definition of the word “goods” in section 2(21) of the Orissa VAT Act, however, has made good that lacuna by including “as good or in some other form”. This vital expression “in some other form”.

Obviously means, from movable form of goods to immovable form, property which can also be transferred, when involved in the execution of works contract.

Sec. 2(B) relates to “Capital goods” which does not take care of the works contractors who are not only required to purchase enabling materials, but also their capital goods, viz. costly crane, bulldozers, concrete mixers, road rollers and so on, which are connected with the business of the work contractor who is a dealer and falls within the definition of the word ‘business’. It is really unthinkable that the works contractors will be deprived of the benefit of section 20(5), particularly in respect of enabling materials.

It is really awkward drafting to use the word ‘building’ which is noun in sec. 2(63). If ‘manufacture’ is treated as “works contract” that will be in conflict with the definition of ‘manufacture’ as given in section 2(28). We have to keep in our mind that the word ‘incidental’ used by a two-Judge Bench decision of Supreme Court in the case of State of Maharashtra vs. Sarvodaya Printing Press Fine Art Printers, reported in 114 STC 242, has been criticized by a three-Judge Bench decision of Supreme Court reported in 124 STC 59; in case of Associated Cement Co Ltd. vs. Commissioner of Customs by observing that “the question is whether the paper or diskettes etc, containing advice and/or information are goods for the purpose of the Customs Act. The answer in our view, is in the affirmative.” In the said momentous judgment it was also observed that the two-Judge Bench decision of Supreme Court in Rainbow Colour Lab case, report in 118 STC 9 is not correct; requires reconsideration.

Instead of adverting to the anomalies in other chapters, let me switch over to the Central Sales Tax Act, 1956, vis-à-vis VAT Act.

It will be interesting to note that with the birth of Explanation to Article 286(1), come the destination based taxation which had to be buried consequently upon difference of opinion in the Supreme Court in the State of Bombay vs. United Motors and Bengal Immunity Co vs. State of Bihar, reported in 4 STC, 133 and 6 STC 446 respectively. After that burial of the ‘Explanation’ origin-based Central Sales Tax Act, 1956 was born. Now after the birth of VAT which is destination-based, Central Sales Tax will have to make way for destination-based VAT.
As a first step to that burial, Government of India, by virtue of the Taxation Laws (Amendment) Act, 2007, made the following changes with effect from 1-4-2007

1. All inter-State sales to a registered dealer are taxable @ 3% provided that such sales are supported by Form “C”.

2. All inter-state sales to unregistered dealers or the Government are taxable at the rate of VAT/State Sales Tax applicable in the State of selling dealer, because ‘D’ form has been withdrawn.

3. Enabling provisions have been made for the States to levy VAT on tobacco which has been dropped from the First Schedule of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 as also from the list of declared goods.

Unfortunately, the Central Sales Tax (Orissa) Amendment Rules, 2006, which were notified on 6-7-2006 should be read in accordance with the notification of Government of India, as aforesaid, unless such amendments have already been made.