Query No. 1
A registered dealer, manufacturer of power cables, is
registered under the MVAT and CST Acts and having its factories in Maharashtra
and Silvassa. At times, the unit in Maharashtra buys the raw Material; i.e.,
Copper Rods/Aluminium Rods from the suppliers outside the State with or without
CST 4% against Form ‘C’. The said materials are being converted into conductors,
form without adding any other material. Such conductors are transferred to
Silvassa factory for use in manufacturing the final products i.e. power cables.
The final product is being sold from Silvassa factory to our various customers.
Under the circumstances, whether Rule 53(3) of MVAT Rules,
2005 is applicable to our case? Whether we are still required to reduce the
set-off of vat to the extent of 4% on the purchase price of corresponding
taxable goods even though the raw materials in question are purchased in
inter-State transaction on which NO VAT credit is available? What is the best
method to adopt to legally avoid the reduction of set-off in such situation?
P. V. Mahadevan
Reply
Since the materials are purchased from inter-State sources on
which no set off is claimed, the reduction contemplated in Rule 53(3) will not
apply. You have to maintain identification for claiming no reduction.
Query No. 2
My clients are resellers in edible oil which they buy in bulk
quantity in tanker, repack it in plastic bottles of different small quantity and
thereafter resale to the dealers, who finally sale the same to consumers. Their
goods comprise of tax paid R.D. purchases as also non R.Ds., mostly from OMS.
They pay tax on non R.D. goods on presumption basis by adding expenses and G.P.
and pay tax on sale value in each quarter and file the return accordingly. They
issue sale invoices as Resale indicating therein "inclusive of tax" However,
being resales, they do not collect tax separately or do they make any indication
on any quotation or order to the effect that 4% tax is calculated and/or
included in sale invoice. As normal trade practice, they write in all the sale
invoices Resale "inclusive of tax". This practice is being followed since
inception of their business and has been accepted year after year by the
department.
In the latest case of their assessment for the year 2000-01,
the assessing authority has raised an objection whereby "Resale claim" is
proposed being disallowed on the ground that -
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Since dealer’s sale invoices pertaining to resale claim
include remark of the following nature at the end as "Resale No tax" "Resale
inclusive of tax", Sale price inclusive of all taxes, etc.
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They have claimed deduction u/r 64A in respect of taxable
sales of the goods purchased from Non-R.Ds while calculating the tax liability
on the taxable sales.
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The dealer has forged the signature on ‘F’ forms, Sale
patties and agency agreements and therefore contemplating prosecution action
for the alleged forgery. Factually speaking, all such documentary evidence had
been accepted by the departmental authorities and none including STRA has
raised any objection in this regard.
In my humble opinion, the learned assessing authority’s
argument was not justified in the context of the facts of the case. Further, he
was not prepared to listen to dealer’s contention as follows:
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By merely mentioning the phrase "Sale or Resale inclusive
of tax" in the sale invoice, by any stretch of imagination, would not amount
to "tax collected separately".
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It means that sale price is the gross price inclusive of
all charges namely sales tax paid by the vendor on his purchases and if any
tax is payable on the said sale invoice, the purchaser; i.e., customer shall
not be called upon to pay tax but the same shall be borne by the vendor alone.
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The departmental authorities have accepted the aforesaid
method for calculation & payment of tax in the last number of years in many
cases and at no stage any objection was raised by any authority so far.
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The case law on the above point in regard to similar facts
under BST Act, 1959 in the case of M/s. Subhash Iron & Steel Rolling
Industries vs. State or Gujarat (STC-50 page 305) was cited in support of
dealers submission.
Your considered opinion is hereby sought in the above matter,
which if not defended properly or if we surrender to the assessing authority’s
contention based on a wrong surmise, it will be a bad precedent. I would,
therefore, request you that you may suggest some other legal remedy, if any. I
feel in such case, we may make proper representation at proper forum to
Commissioner through service cell or by way of complaint for undue harassment
being caused to genuine dealers.
R. D. Oswal
Reply
Your claim of resale is allowable. As per section 8(1)(ii) of
BST Act the resale is required to be allowed if the goods are purchased from
Registered dealer, supported by invoice containing certificate as per section
12A. If at all any question, it can be with regard to excess collection; i.e.,
as resale is allowable the tax collected on sale can be said to be excess
collection and can be subject to provisions of forfeiture. In your case there is
no such collection. Inclusive of tax cannot be equated with separate collection,
which can be liable to forfeiture. Therefore the proposed action of assessing
authority is unjustified in eyes of law, i.e. neither resale is disallowable nor
forefeiture is possible. Your paying tax on OMS purchases by G.P. addition also
appears to be correct, on facts of the case, more particularly when the method
is followed in past years. Consistency is also one of the approved aspects of
taxation and assessing authority cannot change the same at his sweet will.
Regarding harassment, it can be mentioned that the issue is
about particular facts and hence it will be better if individual complaint is
filed with the Commissioner of Sales Tax. In the alternative the issue can be
forwarded to Law & Representation Committee of the STPAM so as to be taken up
with Commissioner of Sales Tax in due course. For allegation of false
representation you can submit your reply appropriately with copies of same to
Commissioner of Sales Tax and other superior officers. Making unsupported
allegations amounts to vexatious action which can be taken up with the
Commissioner of Sales Tax by filing complaint.
Query No. 3
My client is a registered dealer under Vat Act & is Reseller
in Electrical Goods –A Proprietary Concern.
He has purchased a new motor car for the business purpose
from Regd dealer in Sept. 2006 and has paid full Vat Tax. As the motor car is in
negative list No Set Off Can be Claimed. However if he sells this car in Apr,
2007 at the Book value (i.e. Value arrived at after Depreciation)
Whether my client will be required to pay Vat on sale of such
car in Apr. 07, Even though Value Addition is not made?
Secondly what would be the Vat Tax position if the Existing
Business is being take over by the Pvt Ltd Company along with all Assets &
Liabilities
My view in this case No Vat Tax need to be paid as no value
addition is done and at the time of purchase whole of the vat tax is paid. If I
am wrong please clarify my doubt.
Avinash B. Katti
Reply
In relation to sale of a car, as rightly stated by you, the
negative clause (Rule 54(a)) will apply. The car is purchased in September, 2006
and will be sold in April, 2007. It clearly appears that the car will be treated
as capital asset. If you sell the car without treating it as capital asset, then
set off of tax paid on purchase of car will be available. However, if you treat
it as capital asset then by virtue of Rule 54(a). no set-off will be allowable.
In other words, inspite of paying full tax at the time of purchase, full tax on
sale price will be payable and no set off will be available. Even if car is sold
at loss, on such lower price received for car, tax will be payable. Under MVAT,
though it is named as Value Added Tax, the tax is payable on the sale price of
goods and set-off is to be claimed of the tax paid on purchase. Therefore even
if no value addition, you will be liable to pay tax. Had you been entitled to
set-off the excess of tax paid on purchase, as compared to tax payable on sale,
would have been available as refund. However in your case there is no set off,
being goods in negative list. The result is that you will be liable to pay tax
on sale price without any set-off.
If Pvt. Ltd. Co. takes over business as running business then
it will be a case of change in Constitution and no liability as sale/purchase
can arise.
Query No. 4
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In Part-1 of Form 704 the certificate comprises of
paragraphs from serial Nos. 1 to 9. The auditor has made qualification by
adding his observations in respect of the first six items out of nine.
The auditor in respect of one of the paragraphs has deleted certain portion
and added his own observation.
Do the above changes/additions/deletions amount to amending the Form 704,
which is prescribed by law?
Can the department reject such audit report and penalize the dealer for not
having submitted audit report in the prescribed form?
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The dealer has purchased televisions from a manufacturer,
who has charged vat at 12.5% Same model is also supplied by him from his PSI
Unit on which no vat is charged.
In respect of the above sales the manufacturer has issued
credit notes on which vat is not shown separately. Neither he has mentioned
whether the credit note is for taxable or non taxable goods. Even there is no
such certificate or particulars which is required to be given on the tax
invoice u/r. 77 of the MVAT Rules.
Whether such credit notes are required to be ignored for
the purpose of determining the turnover
of purchases because vat is not shown?
In the alternative what treatment is to be given to such
credit notes in the books of accounts ?
Moti Totlani
Reply
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In my opinion, no change can be made in prescribed form.
Whatever the auditor wants to say can first be mentioned and subject to the
said observations, the opinion mentioned in Part I can be given as it is. For
example, in relation to item I in Part I, the auditor has not got original
invoices for verification. He can mention that "due to flood the invoice
record is spoiled. The dealer has created duplicate record by collecting zerox
copies of the relevant invoices. The audit is based on above record. Subject
to above (Point I will appear as it is)". Thus the purpose of disclosure will
be served without changing any prescribed column in the report itself.
The audit experience is new. The extreme view can be that
since the report is not in prescribed form it is not a report in eyes of law
and the action can be taken as not filing of report. The other view is that
the Dept. can ask for fresh report without changing the prescribed form and on
submission of same the report can be considered to be filed on original date
of filing and no action can be warranted.
The third option is that the Department can consider
substance of the said report and consider the report to be as per law, without
taking any action for technical default.
Ultimately for not submitting report the penalty can be
levied. The dealer can always defend his case as he has done whatever was in
his hands. For lapse on the part of auditor, he cannot be held responsible and
in my view, penalty provision cannot be invoked. At the most, the Department
may seek disciplinary action against auditor, as per The Chartered Accountants
Act, 1949.
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As per section 63(6) when the Credit notes are issued which
have effect of varying the sale price the credit notes should show the tax
separately. If it is not shown the presumption is that no variation is made in
the sale price shown in the original sale bills. Accordingly, prima facie
the purchaser can ignore such credit notes for sales tax purpose.
However ultimately the law of VAT is based on set-off
system. Section 48(5) provides that no set off should be allowed in excess of
tax received on the said goods in Government treasury. Therefore if it
transpires that in his assessment or returns the vendor has taken credit for
such credit notes and paid lower tax to Government on said sales, the set off
allowable to you can also be curtailed. Therefore, in spite of the fact that
no tax is shown separately on credit notes, the set-off reduction is possible.
Therefore, the right course of action will be to take clarification from the
vendor about nature of credit notes and treatment given to it by him. The
purchaser should accordingly give treatment in his accounts and get the credit
notes amended, if necessary.
