Various amendments were proposed in the budget by Hon’ble Finance Minister based on which VAT Amendment Bill 2016 was published in MP Gazette dated 17-3-2016 and the same has been passed by the Legislature ignoring objections raised by public at large on certain issues. Most of the amendments made in the Act shall adversely affect the trade and industry of the State. Few amendments are discussed hereunder :
1. Input tax rebate
In Section 14(1)(a), sub-clause (1a) has been inserted whereby resale of goods in the course of Inter-State Trade & Commerce has been classified separately. Corresponding amendment in sub-clause (6) of section 14(1a) of the Act reads as under :
“In the case of goods referred to in sub-clause (1a), which is equal to the amount of Central Sales tax payable under the Central Sales tax Act, 1956 on such sale”.
At present full input tax rebate was being claimed and allowed to a trader on purchases effected from registered dealer of MP on resale of such goods in the course of Inter State Trade. After aforesaid amendment, with effect from 1-4-2016, a trader will be eligible to claim input tax rebate on purchases equal to Central Sales tax payable by him on resale of such goods in the course of Inter-State Trade and balance input tax rebate in excess of CST liability will not be allowed.
2. Interest payable on delayed/non-payment – Section 18
It was proposed in the budget that interest will be payable @ 2% per month when delay in payment exceeds three months and delay of less than three months will be liable for interest @ 1.5% per month. Section 18(4)(a)(iv) has been amended whereby interest will be levied @ 2% per month on delayed payment of tax including on additional demand created by assessment order.
Interest rate of 24% per annum is exorbitant and Government has attempted to make it a source of revenue, ignoring genuine financial crisis. No prudent businessman wants to delay the payment because interest @ 18% per month is itself much higher than the bank interest on borrowings. Logically, interest charged is always compensatory in nature and keeping the interest rate of 24% per annum cannot be termed as compensatory but it is penal in nature. Under section 37 of VAT Act interest is payable to a dealer on refund due to him @ 12% per annum only. Though interest is payable on failure to pay tax due as per the accounts yet interest is being levied and confirmed u/s. 18(4)(a) even by the Appellate Board on additional demand of tax created. Such additional demand is neither provided for in the accounts nor collected in sale invoices. It is being raised due to difference of opinion on any legal issue or mismatch of ITR etc. Interest @ 24% per annum on such extra demand will be levied after a period of 2 ½ years from the end of the Financial year up to the date of assessment order. Under Income-tax Act also interest for delayed payment of taxes is 12% per annum only. Therefore, it is not fair on the part of the Government to increase the rate of interest to 24% per annum.
3. Tax deduction at source – Section 26(1)
At present an obligation u/s. 26(1) of the Act is cast upon Central Government/State Government or a notified Public Sector undertaking to deduct an amount equal to the amount of VAT payable on the purchases, where such purchases are in excess of
Rs. 5,000/-. The amount so deducted is required to be deposited by the deductor before 10th of next month.
Section 26(1) and Explanation given thereunder, has been amended so as to include all Public Limited Companies, all Dental Colleges & Hospitals recognised by Dental Council of India; all Medical Colleges & Hospitals recognized by medical council of India and all recognized Universities in the above category.
The object behind such amendment may be to check tax evasion on supplies made by traders to service providers or there may be intention to collect more taxes through TDS provisions because under Income-tax Act, major collection is made through TDS.
Following issues shall create hardship to trade and industry
a) On purchases effected from 1-4-2016 onwards, all Public Limited Companies and Medical Colleges & Hospitals will have to deduct VAT charged in the invoices by the selling dealer and deposit the same in the treasury by 10th of the next month.
b) Such deduction is unlike to section 26A on “notified goods” hence credit of TDS will be claimed by the selling dealer and will be allowed to it because tax deducted is not being retained by the purchaser but deposited in next month.
c) The suppliers will have to collect certificates and claim the credit thereof in the return. Therefore, to obtain blank certificate form No. 31 and to issue the same to all selling dealers (in duplicate) within ten days of the deposit of such amount will be a tremendous job for the Public Limited Companies, Medical Colleges, Hospitals and Universities as well for suppliers.
d) Substantial amount of input tax credit will be blocked in cases of suppliers of public limited companies. Not only small and medium scale industries, manufacturing allied products, but the traders will also be adversely affected.
By this amendment entire VAT regime will be distorted and small traders as well all SSI units being suppliers of goods to public limited companies would be in financial crisis. Is it a movement towards “Ease of Doing Business” or “Make in India”?. It is not a step to ban the trading community and SSI units in the States who are supplied the goods to public limited companies?
4. Section 28A – Provisional attachment to protect revenue
New section has been inserted whereby, notwithstanding anything contained in any law for the time being, powers have been given to the Commissioner to provisionally attach any money due or which may become due to a person or dealer from any other person or any money which any other person holds or may subsequently hold for and on behalf of such person to protect the interest of the Revenue.
The power can be exercised during the course of an inquiry in any proceedings including any inspection or search where some amount of tax evasion is suspected. Thus, even during assessment proceedings the attachment is possible. Such provisional attachment shall be effective for a period of one year from the date of service of the order of such attachment. The period can further be extended which shall not exceed two years. The powers can be exercised by the Commissioner, Addl. Commissioner and Dy. Commissioner to whom such powers are delegated by notification.
The person shall be personally liable to pay the amount of money so attached till the order is not revoked. If a person or dealer files an application within fifteen days of the date of service of the order, the Commissioner may confirm, modify or revoke the order having regard to the circumstances of the case. An appeal can be filed against the order passed under sub-section (5) before the Appellate Board.
i) Form 49 will be required to be generated and produced at the check post on incoming of the goods on all taxable commodities covered under Schedule-II of VAT Act. Similarly, transit pass will be required to be carried by the transporter while transporting of all kinds of iron and steel, oil seeds, edible oil, pan masala and tea within the State. No threshold limit has been prescribed regarding movement of goods within State for small and medium dealers.
ii) Annual return will only be required to be submitted instead of four quarterly returns by the dealers having turnover less than
Rs. 40 lakh as against present limit of Rs. 20 lakh per annum.
iii) Due date for making payment of monthly tax will be sixth of every month instead of tenth of every month for first and second month of the quarter for dealers who are depositing total tax of
Rs. 25 crore annually or Rs. 6.25 crore quarterly.
iv) Tax will be required to be deducted at source @ 3% instead of 2% when any works contract is given to an unregistered contractor.
v) Input tax rebate will be allowed in excess of 2% to manufacturers of exercise books, graph books, drawing books and laboratory books. (Notification No.18 dated 31-3-2016). The manufacturers will not get refund of ITR on paper @ 3%.
vi) In case of ex-parte order, if an application u/s. 34 is submitted, the assessing officer will reopen the case and pass the order within sixty days.
With an object to reduce pending litigations, it was proposed in the budget that Kar Vivad Samadhan Scheme will be announced in relation to all appeals pending under VAT Act, CST Act and Entry tax Act, but till date it has not been announced. It was also proposed in the budget that e-commerce transactions will be covered in the tax net by levy of Entry tax @ 6% thereon. Such proposal has not been covered in the amendment Act till date.
I) Amendment in Schedule-I : Tax free goods
Following goods have been included in Schedule-I
Entry Nos. (90) to (94) – Bio-insecticides and bio-pesticides; dry ber and ber powder; all kinds of electric/battery run two wheelers; car and autorickshaw; milking machine; bags and envelopes made of biodegradable material.
II) Amendment in Schedule II
• Rate of tax on soya milk, parts and accessories of bio-fuel based smokeless stove, and induction cook top, dialysis machine and dialysis consumables, reduced from 14% to 5%.
• Tax on goods being sold to Central police canteen, through Canteen stores is reduced @ 4%. The facility of concessional rate of tax on sales by Canteen Stores Department will be available to officers and soldiers of BSF also.
• Tax on heavy transport vehicles (over 12 MT capacity) reduced from 15% to 14%.
• Tax on cups, glasses, plates, bowls, thali, katori, and dona-pattal which are made from paper to be tax @5%. In Entry No.(29) of Part-II of Schedule-II the word “plastics” has been omitted.
• Entry No. 39A omitted from Part-II of Schedule-II hence rate of tax on glass mirror will be 14% as against 5%.
• Entry No.55(205) – All kinds of bags & sacks for packing of goods (excluding woven sacks and bags made of HDPE/LDPE/PP, Polythene Bags, Plastic Bags and sacks) and articles of plastics for packing of goods – 5%. The effect would be that woven sacks and bags made of HDPE/LDPE/PP, Polythene Bags, Plastic Bags and sacks will be taxable @ 14%. It will adversely affect industrial units manufacturing such products because the consumer units will purchase the goods from Inter State against form ‘C’. The traders of grains, dalhan etc. will also suffer because after reversal of ITR on bags, they will have to claim refund of ITR of 9%.
• All bicycles were covered in Schedule-I i.e. tax free. Now bicycles having sale price of which exceeds
Rs. 10,000/- and parts thereof will be taxable @ 5%.
CENTRAL SALES TAX ACT
Soya de-oiled cake, cotton seed, mustered de-oiled cake, corn cake are presently taxable @ 1% on sales during the course of Inter State. As per Notification No.(19) dated 31-3-2016, a dealer shall not be liable to pay tax on Inter State sales of de-oiled cake including soya meal, cotton seed oil cake, mustard oil cake and makka khali subject to fulfillment of requirement u/s. 8(4) of CST Act. Therefore, submission of form ‘C’ will be a mandatory requirement to claim sales of aforesaid goods as non taxable.