Sales Tax Review

October 2007

Current Notes

Refund procedure

The Commr. of Sales Tax has issued a Trade Circular No. 56T of 2007 dt. 23-8-2007 explaining procedure in respect of grant of refund. At last, there is a final word on procedural part relating to grant of refund since it is stated in para 2 of the Circular that instructions contained in this Circular would continue to apply till another Circular is issued. Let us hope that finality is achieved in this respect and procedure relating to grant of refund is not changed at every drop of a hat. The ‘circular raj’ in this respect should be hopefully over.

A surprising factor noticed is that the circular is dated 23-8-2007. There have been drastic changes in sections 50 and 51 relating to refund effective from 15-8-2007 and there is not even a mention about these amendments in the entire circular. Sub-sections 51(2)(a), 51(4) and 51(5) have been substituted and due cognizance thereof ought to have been taken.

There are certain issues cropping up upon issue of the said circular which are discussed in brief as under and clarification thereof should be circulated by the office of the Commr. of Sales Tax.

1. Returns for incorrect periods

In para 3, it is stated that refund will not be granted if returns are filed for incorrect period. Section 51(2) before and after amendment provides that the refund may be granted by a single order for all periods contained in one year. Financial years 2005-06 and 2006-07 are already over and queries relating to filing of returns for incorrect periods have no relevance for these completed years. The deadline given for grant of refund for F.Y. 2005-06; i.e., 31st October 2007 is made subject to fulfilment of other conditions of the circular. Therefore, it would be worthwhile ignoring this condition which does not serve any purpose at this juncture.

Further, Trade Circular No. 26T of 2006 dated 18-9-2006 provides in point No. 15 that dealer can file a revised return only for the month of March 2006 to pay the additional tax liability or claim refund or additional refund so as to give effect to all observations made in the VAT audit report. It is presumed that concessions allowed in the said circular will be applicable to all subsequent years too. In that case, the dealer will revise his last return; i.e., either Q.E. March or for the month of March. He will not revise his earlier returns even if filed for incorrect periods. Therefore, imposing such a condition for grant of refund would be contradictory to this circular and unreasonable too.

2. Additional information

Para 5 suggests three ways of dealing with any application for refund:–

1. Conducting refund audit to confirm the amount of refund.

2. Calling for additional information in respect of the refund claim.

3. Forthwith grant of refund either with or without bank guarantee.

It is not clear what additional information is needed to be furnished and what is the scope of such demand. Time and again, it is represented that annexure required to be attached along with Form 105 is quite voluminous virtually resulting into reproduction of entire purchase register for the full year. Instead of making it obligatory on all the dealers to furnish all the purchase details, it would have been more practical to direct only those dealers whose refund claims are subjected to refund audit. The vendors normally have continuous transactions with the dealer and therefore, information relating to a single month also can provide necessary data as regards the selling vendors. Efforts should be made to make this annexure data as concise and compact as possible to minimise the time and energy of both department and dealers.

Secondly, additional information should be strictly confined to the claim made and this right should not be exercised to gather irrelevant information. The concerned authority must issue a proper notice calling for such information.

Clause (iv) of para 7 states that refund shall be granted within 3 months from the date of application in Form 501 or from the date of submitting the details, i.e. additional information, whichever is later. The amendment effective from 15-8-2007 makes it obligatory (substituted sub Sec. 4 of section 51) to grant the refund within six months from the receipt of the application even if such additional information is not received. This amendment has not been considered at all while prescribing above time limits. This aspect needs to be clarified.

3. CST declarations

Even in absence of any authority under the law, the circular continues to maintain that refund will be reduced by the CST liability arising out of non-receipt of declarations in Form C/D/H/F etc. Although not provided in Form 501, such dealer needs to furnish list of unreceived forms under C.S.T. Act. Further, Commr. of Sales Tax pretends to be kind to allow one opportunity to produce the declarations received after refund order is passed only after six months. Meanwhile, the dealer loses his right to make an appeal. It should have been done in such a manner that the dealer does not lose his right to make such application even if he prefers an appeal since this right is given to him only vide this circular and not under the provisions of the Act.

4. Assessment of the refund period

This is a hanging sword on the heads of the dealer and a weapon in the hands of the authorities. Para 10(i) of the circular grants wide power and discretion to the authorities who can initiate assessment u/s. 23 if additional information is not given or dealer does not co-operate during the course of audit or in the view of the auditor (business audit) assessment is necessary. Thus, everything is left to the sweet will of the officer and refund can be delayed on that count.

There is a clear cut provision under sec. 51(5)(b) that any excess refund granted shall be recovered as if it is tax due and even interest shall be levied for the intervening period. In such a situation, there was no reason to withhold the refund on initiation of the assessment.

5. Refund Audit and Business Audit

Para 11(iv) provides that no separate business audit would be conducted in respect of the same dealer for same period if Refund Audit Branch conducts the audit. However, an exception is carved out where business audit in addition to refund audit can be conducted with the prior approval of concerned Joint Commr. of Sales Tax. It is not clear what are the criteria for conducting these two tier audits. Refund audit is necessarily a part of business audit and therefore, no purpose is served by carrying out separate business audit once again. This procedure will only ensure harassment to the dealers and nothing else.

6. Interest u/s. 52 and 53

Interest u/s. 53 at the rate of 6% p.a. on delayed refund beyond ninety days period is automatic and must be paid along with refund amount. The details prescribed for a refund order under para 13 of the circular do not cover the interest portion. It must be ensured that refund is granted along with due interest as per the provisions of law without requiring the dealers to apply for the same. This is especially needed in view of the fact that interest u/s. 52 is not applicable for refunds u/s. 51 although procedures akin to assessments are followed while granting the said refund.

7. Adjustment of refunds for the years 2005-06 and 2006-07

The Commr. of Sales Tax vide his Trade Circulars No.18T of 2006 dt. 1-8-2006 and 41T of 2007

dt. 21-5-2007 have allowed the dealers to adjust the refunds for F.Y. 2005-06 and 2006-07 against tax liability for the subsequent year. The same facility is confirmed in para 12 of the above circular dt. 23-8-2007. However, para 2 of this circular states that the procedure therein will apply to all claims of refund made before and after the date of circular. At the same time, para 12 stipulates that facility of adjustment of refund against the tax liability of the subsequent year will not be granted henceforth. The dealers in mofussil areas of Maharashtra interpret the said clause as prohibiting such adjustment for the years 2005-06 and 2006-07 inspite of the above Trade Circulars since VAT audit reports in Form 704 and consequent revised returns will be filed after 23-8-2007 in some cases. This is in view of the fact that deadline for filing VAT audit report for the year 2005-06 is extended till 31-10-2007 and last date for filing revised return persuant upon VAT audit report is extended up to 30-11-2007. The misunderstanding is caused due to peculiar wordings in para 12 of the said circular although intention of the department may not be so.

Similarly, Trade Circular No. 18T of 2006 dt. 1-8-2006 allows adjustment of the refund for 2005-06 only against liability of 2006-07. When the last date for filing VAT audit report and consequential revised return is extended this facility also should be extended to F.Y. 2007-08. Otherwise, it means that dealer will have to revise all the returns for the year 2006-07 and claim such refund in F.Y. 2007-08 which is a futile exercise. There is an urgent clarification needed in this regard.