Entry Tax Act in Punjab amended-an attempt to remove defects?

2 comments Sunday, November 20, 2011
Punjab Government has promuglated a new ordinance so as to amend the Punjab Tax on Entry of Goods into Local Areas Act, 2000. By this ordinance word  "Goods" in the said Act has been defined,  section 3-A  and section 4 of the said Act has also been amended. 

Amendments in entry tax:  Collection of tax under section 3-A of the said Act was stayed by Punjab & Haryana High Court in Bhushan Steel case recently.One of the grounds for the grant of such stay was that charging section in the Entry Tax Act was section 3 whereas tax was levied u/s 3-A, which did not even prescribe the taxable event i.e the words "tax on the entry of goods into local areas" was  nowhere mentioned u/s 3-A. Section 3-A simply stated that tax may be levied by State Government on such goods at such rates as may be prescribed.

Another ground for stay of entry tax was that entry tax was leviable on  goods mentioned in the schedule appended to the Act. But no goods were being mentioned in the schedule.

By the newly promuglated ordinance the Government has seemed to remove these defects in the Act. Section 3-A has been amended which now runs as under:

 "3-A  Notwithstanding anything contained in sub-sections (1),(2) and (3) of section 3, there shall be levied a tax on under this act on entry of goods into local areas at such rates, as may be specified from time to time by the State Government by notification in the Official Gazette, even if the tax is payable on those goods under the Punjab Value Added Tax Act,2005 or the Central Sales Tax Act, 1956 and in respect of those goods, the provisions of sub-section (5) of section 3, shall not apply. Such tax shall be payable and paid by the dealer in the manner as may be prescribed:    
Now newly amended section 3-A provides that there shall be levied a tax on entry of goods into local areas at such rates as may be specified from time to time. Now newly amended section 3-A  states the taxable event i.e entry of goods into local areas, thus may it be now treated as charging section?

The definition of Goods have been incorporated now in the section 2(2)(dd) which defines Goods as   "the goods notified for the purpose of entry tax under this  Act;"   The question now is whether by the above amendments, deferments from entry tax which have been earlier taken by many persons on the behalf of stay granted by Punjab & Haryana High Court have come to an end?

Advance tax under VAT justified?: Newly added sub-sections 6(7) & 6(8)  under the Punjab VAT Act provide for levy of  advance tax on certain goods which are to be notified and also state that entry tax under the said Entry tax Act will be treated as advance tax of VAT.

It should be noted that tax levied under Entry Tax Act is being levied under entry 52 of State list of Seventh Schedule to the Constitution of India, whereas Punjab VAT Act has been enacted under entry 54 of the State list. Where entry tax is a tax on the entry of goods into local areas of a State and should be a compensatory tax in nature, VAT is a tax on the sale and purchase of goods within the jurisdiction of the State.

The question is whether levy of a single tax under one entry in the State list can be treated as tax levied in the other entry also, when the sphere of both the entries is different altogether?

First proviso to newly added section 6(7) provides that advance tax shall be leviable only if such goods are meant for sale or use in manufacturing or processing of any goods for sale. 

It means that if goods are being imported in the State otherwise than as sale then no advance tax will be payable on such import of goods. One more point is notable here that if goods are imported and used in the manufacturing of tax free goods even then advance tax will be payable as the words used u/s 6(7) is any goods.  

However second proviso to section 6(7) provides that such tax collected in advance shall be calculated towards the final liability of the taxable person at the end of each tax period.

Thus it means that if a person imports some goods on which advance VAT is leviable and thereafter manufacture tax free goods out of it then his final liability will be nil as a result of which if advance tax paid by him has to be counted towards his final liability then such advance tax should be refunded to him at the end of such tax period.

It is settled law that collection of tax on some transaction on which otherwise no levy of tax can be made, will not be justified even if there is a provision for refund of such tax afterwards. In  CWP No. 19355 of 2010 -KRBL Limited v State of Punjab and others, decided on 14.1.2011, it was held by P&H HC that recovery can be effected only if it is within the competence of the State Legislature. It cannot be recovered initially providing the remedy of refund later on. 

Thus the above observation also raises a question mark on the levy of advance tax on goods imported iof such goods are being used in manufacture of tax free goods.  

All the above questions require due consideration and discussion from the legal fraternity as well as the judiciary.

 The full Ordinances relating to entry tax amendment and relating to advance tax can be downloaded herebelow:

Entry Tax ordinance Act of 2011

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Addition u/s 68 for unexplained creditors not sustainable when trading results are accepted

10 comments Wednesday, November 16, 2011

Delhi ITAT has held in the following case that where trading results are accepted no addition u/s 68 for unexplained sundry creditors can be made. In this case the assessee could not give the address of creditors nor was able to get the creditors standing in his balance sheet verified, due to the fact that his books of accounts were destroyed in fire and also because of the fact that the creditors were small time karigars who were unregistered with sales tax department and have not filed their return of income due to their income being below the exempted limit. The Tribunal held that when trading results i.e sale and purchases have been accepted then there is no reason why addition for corresponding creditors should be made.
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Quantification of remuneration in partnership deed is must-Delhi HC takes divergent view than H.P. HC

5 comments Monday, November 14, 2011
Delhi High Court has taken a strict view on quantification of remuneration in a partnership deed for the purpose of deduction u/s 40(b)(v) of Income Tax Act, 1961. High Court has held that quantification of remuneration in partnership deed is a must before deduction u/s 40(b)(v) is allowed. It should be noted that Himachal Pardesh High Court had taken a contrary view in an earlier judgment namely Commissioner of Income tax vs. Anil Hardware Store, [2010] 323 ITR 368 (HP) wherein it was held that quantification of remuneration in a partnership deed is not mandatory so as to claim deduction u/s 40(b)(v).
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WCT on works contractors enhanced to 5% under PVAT Act-Public Notice

2 comments Wednesday, November 9, 2011
A public notice has been issued  by Excise and Taxation Department, Punjab stating that rate of VAT TDS on payments made to works contractors u/s 27(1) of PVAT Act, 2005, has been enhanced to 5%. Earlier such rate was 4%. However no notification to this effect is publically available as yet on the official website of Department. The public notice also doesnot state from which date the said amendment is effective, it just states at the end that it is effective immidiately. The said Public Notice has been published on 09/11/2011 in a daily newspaper.
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Registration Process under Punjab VAT Act, 2005 needs to be changed?

3 comments Sunday, November 6, 2011
Section 21 of Punjab VAT Act, 2005 read with Rules 3,4,5,6 of Punjab VAT Rules provides the process for registration. Second proviso to section 21(3) of Punjab Vat Act, 2005  provides that during the pendency of an application for registration the applicant shall file return and pay the due amount of tax, in the prescribed manner.

Section 21(3) of PVAT Act is being produced herebelow:

“If the designated officer is satisfied that the application for registration is in order, he shall, in accordance with such manner and on payment of such fee, as may be prescribed, register the applicant and grant him a registration certificate in the prescribed form:
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Section 68-Assessee's AO cannot question his creditor's return of income-Calcutta HC

0 comments Saturday, November 5, 2011
Calcutta High Court in an important case has held that AO of an assessee cannot himself examine the return of income of his creditor instead he should ask creditor's AO and if creditor's AO has accepted claim of assessee in creditor's return of income then he is bound to accept the same.
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Brought forward losses can be set off even if subsequent year's returns not filed within time u/s 139(1)-Mumbai ITAT

Mumbai ITAT has held that assessee can set off brought forward loss in the subsequent years even if subsequent year's return of income is not filed within time as prescribed u/s 139(1). It is being held that Once loss is determined in the return file u/s.139(3), the assessee becomes eligible for set off against the income of the subsequent years irrespective of the fact whether the returns of such later years are filed u/s.139(1) or not. Sec. 80 read with sec. 139(3) requires the submission of return for loss before the due date. There is no such requirement that the subsequent years,   in which the set off is claimed,  must also fulfill the requirement of furnishing the returns within the time required u/s.139(1). 
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Service Tax- Penalty u/s 76 and 78 mutually exclusive, cannot be imposed simultaneously

Punjab & Haryana High Court in CCE vs Cool Tech Corporation has upheld that penalty u/s 76 and 76 of Finance Act, 1994 cannot be imposed simultaneously after the amendment of 16-05-2008 whereby both the sections became mutually exclusive. In this case the matter was of  before the said amendment. The appellate authority deleted the penalty u/s 76. 
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Penalty u/s 271(1)(c) on voluntry Surrunder of Income in the absense of any detection by revenue is not sustainable

0 comments Thursday, November 3, 2011
Delhi High Court has held in CIT Vs Harnarain that   surrender of the amount by the Assessee after receipt of the questionnaire could not lead to an inference that it was not voluntary, in the absence of any material on record to suggest that it was bogus or untrue. It is further evident that there was neither any detection nor any information in the possession of the Revenue which might lead to a conclusion that there was a detection by the Revenue of concealment.
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Facility of self E-updation of profile to all the dealers in Punjab is provided till 25th November, 2011

0 comments Wednesday, November 2, 2011
Excise and Taxation Department in Punjab has given an opportunity to all the dealers in Punjab to update/validiate/amend the data relating to their profiles on the website of Department till 25th of November 2011. If any information relating to a dealer is not being updated then such dealer can update information by loging to the  e-Updation/Validation of Dealer Profile  with the same login credentials (i.e username and password) as are being used in Efiling of VAT Returns.  
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No sales tax on SIM cards, Recharge coupans, mobile rental on pre-paid connections, VAS -A.P High Court


Andhra Pradesh High Court has held that no sales tax is leviable on the SIM cards, recharge coupon vouchers, mobile telephone rentals on post paid connections, value added services such as ring tones, music down loads, wall papers etc.

 The following conclusions have been drawn by the High Court in its verdict in the said judgment:
1.       SIM cards, recharge coupon vouchers, mobile telephone rentals on post paid connections, value added services such as ring tones, music down loads, wall papers etc., and proceeds received on sharing of infrastructure cannot be subjected to tax either under Section 4(1) or Section 4(8) of the Act.
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