Sales Tax Review

February  2008

Replies to Queries

Query No. 1

1. The turnover of Compo. Dealer has exceeded the limit of 50 lakhs in 2006-07. Whether he is automatically out of Scheme on the date of exceeded turnover?

2. In URD period whether set-off is available of purchases cost of exempted goods?

A. I. Hasmani

Reply

1. In notification dated 1-6-2005 about composition scheme for retailers, there is no condition that on exceeding the turnover of Rs. 50 lakhs, the dealer will be out of scheme automatically. On the contrary as per clause (vii) in condition column, the composition scheme, once available on beginning of year will continue till end of year. Therefore, in our opinion, on exceeding turnover of Rs. 50 lakhs in 2006-07, the dealer will not be out of scheme for 2006-07 and it will continue till 31-3-2007. However, he will not be eligible for the scheme in 2007-08.

2. It appears that the query is about taking reduction of purchase price from sale price for purchases from backward area units. As per Rule 57(2) the deduction is available to Registered Dealer. Therefore, the URD will not be entitled to said deduction.

Query No. 2

That in composition scheme if a dealer is having stock of Rs. 10 lakhs as on 31st March and he wants to convert his tax liability system from composition to VAT system, then what about the stock which is belonging to him as on 31st March.

1. Whether the set-off on paid bills in Tax invoice bills (from that Rs. 10 lakhs) the set-off will be able in the month of April or not. I mean to say from 1st April onwards whether the set-off will be to claim available on older stock which is of March or February month or not.

2. What is the rate of tax on CD pouches & CD covers made of PVC plastic.

3. What is the rate of tax on flaps of plastic, used to store paper & etc. which is called as plastic paper folder.

4. If the dealer having registered at (A) as ABC is a main place of business and (B) DEF a additional place of business, then in that case whether he is liable to get C form is (B) DEF or he will get C form as (A) ABC as main place of business. He had applied for (B) DEF as a second name and additional place of business in his RC. But yet not received the RCs from department, then in that case what should the dealer has to do please reply soon.

Doulat J. Rohra

Reply

(i) As per composition, the tax is paid on difference between sale turnover and purchase turnover of 6 months. Once the purchase is considered for such reduction it will be difficult to say that the dealer is again eligible for set-off on the same. However, in condition (ii) in notification for retailer dated 1-6-2005, it is mentioned that set-off will not be eligible on purchases corresponding to goods sold. So one can say that technically he is entitled to set-off on purchases which are in stock. Of course, such set-off will be required to be taken in the period of purchase, as under MVAT, set- off is available as per date of purchase. I feel the issue requires favourable clarification on above lines from authorities also. As on today, in my opinion, you can claim set-off on closing stock as per date of purchase.

(ii) & (iii) For finding out rate of tax, the excise classification and other relevant details are required. Without such details no reply can be given.

(iv) You should get RC amended for second name and address by proper follow up. In any case, based on your application for additional place you are entitled to obtain ‘C’ forms in second name also. You can represent to relevant authorities, if finding difficulties in the matter, including approach to Grievance cell formed by Commissioner of Sales Tax.

Query No. 3

• Employer "A" gives contract to principal "B" for Rs. 100 crore. Principal "B" gives the whole work to sub-contractor "C" for Rs. 90 crore; i.e., full work will be performed by "C" and "B" will not be performing any work on the contract work.

What will be the liability of "B"?

What will be the liability of "C"?

Is "B" supposed to deduct tax at source from "C"?

If "B" is liable to VAT, then what will be the rate of tax because "B" does not have any information regarding the goods used in works contract by "C".

• In above case, if "B" has deducted WCT (TDS) from "C" but does not deposit the same in bank. Instead, he writes the details of tax deposited by "A" in the certificate issued to "C".

What will be the consequences?

G. N. Gadhia

Reply

In this case, B is liable to discharge liability on Rs.100 crores. If ‘B’ does not discharge liability on whole amount of Rs.100 crores, then ‘C’ will be liable to discharge liability on Rs. 90 crores. B, on getting supporting certificates from C, will not be liable for making payment on such turnover of Rs. 90 crores. Accordingly, in such case, B will be liable to discharge liability on difference amount of Rs. 10 crores.

No, B is not required to deduct TDS from C.

B cannot issue TDS certificate, as such, to ‘C’, based on deduction made by A. At the most B can issue authority-cum-no objection letter to ‘C’ to take credit of TDS made by A from his payment. Since B and C are principal and agent the credit available to B can be passed on to C.

Not making payment of amount deducted from ‘C’ will not be any issue, as between B and C relationship is not as employer and contractor but as principal and agent. Therefore, deduction will only have effect on mutual accounting entries but such amount cannot be considered as TDS in true sense to have any consequences.