ITC on capital goods not to be reduced to 4% when tax on the same is paid at 12.5%-Punjab VAT Tribunal

0 comments Friday, August 30, 2013
Punjab VAT Tribunal has held in L.S. Rice Exports Pvt. Ltd. vs State of Punjab (2013) 45 PHT 597 (PVT) that reduction of input tax credit on capital goods from 12.5% to 4% when the purchases made by the assessee are on 12.5% is not sustainable. So the assessee is entitled to full ITC.
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Notice for reassessment u/s 147 can be issued only after time limit for issuing notice u/s 143(2) has expired

0 comments Tuesday, August 20, 2013
Amritsar ITAT has held in DCIT vs Mangat Ram that jurisdiction under section 147 can be acquired only after limitation to issue notice under section 143(2) has expired.

 In this case it has been held by the ITAT that The Assessing Officer cannot acquire two jurisdictions to issue notice under section 148 as well as under section 143(2), especially when there is a time left for issuing notice under section 143(2) with respect to the original return filed by the assessee on 13-3-2008. 

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Statement of Object and reasons behind Etrip in Punjab now disclosed by the Governement

0 comments Sunday, August 18, 2013
Few days back I had written an article namely “Etrip in Punjab-an Uncontrolled delegated legislation” in which I had raised a point that while giving discretionary power to the Commissioner to specify the goods for the purpose of Etrip certain policy should or guidelines should have been laid down according to which the Commissioner has to exercise its power to specify the goods for the purpose of Etrip under Rule 2(hh) read with rule 64-A and rule 64-B  of Punjab VAT Rules, 2005.
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Claim of entry tax deemed as advance tax under Punjab VAT Act not to be conditional

Introducton: Entry Tax is a tax levied under the Punjab Tax on Entry of Goods into Local Areas Act, 2000. It is levied u/s 3-A of the said Act on a dealer who is bringing the goods into local areas of Punjab. 

Entry tax can be claimed as input tax credit by a person paying such entry tax against his output tax liability. However such claim of input tax credit of entry tax is available subject to the conditions mentioned u/s 13-A of the Punjab VAT Act, 2005. Section 13-A runs as under

"Subject to the provisions of this Act, a taxable person shall be entitled to input tax credit in respect of the tax, paid by him under the Punjab Tax on Entry of Goods into Local Areas Act, 2000, if such goods are for sale in the State or in the cource of inter-state trade or commerce or in the cource of export or for use in manufacture, processing or packing of taxable goods for sale within the State or in the cource of inter-state trade or commerce or in the cource of export."

Thus claim of entry tax as input tax credit u/s 13-A is available only in the circumstances mentioned above in the section. As per the provisons of section 13-A if a person pays entry tax on raw material to be used in the manufacturing of tax free goods, his claim of entry tax as input tax credit will be restricted.

 However it is notable here that the provisions of section 13-A of the Punjab VAT Act, 2005 are not a complete code in it self as non-abstante clause is missing therein, infact the provisons of section 13-A are subject to the other provisions of the Act.

Position after entry tax deemed as advance tax: A very important change has been brought about the status of entry tax under the Punjab VAT Act, 2005 after the introduction of the provisions contained in sub-section (7) and (8) of section 6 the said Act w.e.f 12-08-2011, which needs to be understood before giving the input tax credit of entry tax paid.

Provisions of section 6(7) and 6(8) runs as under:

(7) Notwithstanding anything contained in sub-section (1) to sub-section (6), the State Government shall charge the tax in advance on the import of goods to be notified in such manner, as may be precribed, and at such rates, as may be notified, but not exceeding the rates applicable on such goods under this Act:

PROVIDED THAT such goods are meant for sale or use in manufacturing or processing of any goods for sale:

PROVIDED FURTHER THAT such tax collected in advance, shall be counted towards final liability of the taxable person at the end of each tax paid.

(8) The tax collected under the Punjab Tax on Entry of Goods into Local Areas Act, 2000(Punjab Act No. 9 of 2000), shall be deemed to have been collected under the provisions of sub-section (7).

A new incidence of taxation (that too with a non-abstante clause i.e irrespective of the taxable quantum of a person) has been created u/s 6(7) which is called as advance tax to be levied on the import of goods. 

Whether such advance tax is within the purview of the Entry 54 of the State List or not wherein State Government can levy tax only on the sale and purchase of goods within the State, remains to be seen. However here in this article only status and claim of entry tax under the current provisions are discussed.

 Such tax in advance is to be charged only on the goods which are meant for sale or use in manufacturing or processing of any goods for sale. Second proviso to section 6(7) further provides that such tax collected in advance shall be counted towards final liability of the taxable person.

No goods have been notified as yet u/s 6(7) on which tax in advance is to be charged, however section 6(8) creates a deeming legal fiction by which entry tax has been considered as tax in advance u/s 6(7).

Entry tax deemed as advance tax to be counted toward final liability: After the introduction of provisions of section 6(7) and 6(8) the status of entry tax is of a tax in advance under the provisions of Punjab VAT Act, 2005. Therefore its adjustment and claim towards the output liability should be allowed as advance tax and not as entry tax, as per the second proviso to sub-section 7 of section 6.

Meaning thereby if a person pays entry tax (now advance tax) on certain goods and uses them in manufacturing of tax free goods then claim of such entry tax(deemed as advance tax) should be allowed as per the IInd proviso to section 6(7). 

Thus a person manufacturing tax free goods having nil final liability is liable to get the refund of entry tax paid by him as such entry tax paid(deemed advance tax) has to be counted towards final liability of the taxable person.

The question may be raised that provisions of section 13-A will restrict input tax credit of entry tax paid in the above mentioned case, but it should be noted that provisions of section 13-A starts with words "Subject to other provisions of this Act", therefore section 13-A is bound by the provisions of section 6(7) and 6(8) of Punjab VAT Act, 2005.Hence credit of entry tax deemed as advance tax is no more conditional one as per the provisons of section 13-A.


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Validity of processing fee under rule 40-A of Punjab VAT Rules, 2005

0 comments Thursday, August 15, 2013
Punjab Government levied an annual processing fee of Rs. 800 last year by way of Rule 40-A of Punjab VAT Rules, 2005 on all the taxable persons. Rule 40-A of Punjab VAT Rules, 2005 runs as under:

"Every Taxable person shall pay annual processing fee of rupees eight hundred in the month of October every year and proof of the payment thereof shall be attached alongwith quarterly return."
Thus this processing fee has been imposed on all the Taxable persons i.e on the persons having VAT registration. Persons having TOT registration are exempted from this levy. It is notable here that this processing fee has been levied after the introduction of facility of efiling of returns. 
'Taxation' is defined in clause (28) of Article 366 of the Constitution of India to mean : "taxation" includes the imposition of any tax or impost, whether general or local or special, and "tax" shall be construed accordingly;" The Constitution of India postulates either a tax or a fee. However, the use of expression 'tax' or 'fee' in a statute is not decisive; as on a proper construction thereof and having regard to its scope and purport, 'fee' may also be held to be a tax. The definition of 'tax' in terms of Clause (28) of Article 366 of the Constitution is wide-CCE vs Chhata Sugar Co. Ltd. (2004) 3 SCC 466.

 A fee is ussualy a charge for a service provided to the payer by the receipient of such fee. Processing fee is ussualy levied on a person who obtains a loan, a credit card, or hires someone to perform some type of service.Processing fees is ussualy used to pay for paperwork services or other kinds of miscellaneous charges. 

Although rule 40-A doesnot specify the service in lieu of which this processing fee has been levied. But one may persume from the name of the fee that such fee has been levied in lieu of the service of processing of returns, documents, efiling of retuns, etc. 

The question here is now, whether providing better tax administration is a service to the taxpayer? Isnt it the duty of the exchequer to facilitate the tax administration so as to encourage payment of taxes by the general public.Recently Central Government has also announced for setting up tax administration reformation commission. Income Tax Department also provide the better facilities of efiling and processing of tax returns but no fee is charged. 

Improving tax administration helps in improving tax collection and it is beyond understanding that how improving it is a service to the taxpayer. Charging a processing fee seems a levy imposed as administration charges.  At this juncture certain relevant judgements are quoted herebelow:

Imposition of some administrative charges to collect levy cannot be stated to be just a fee. Rather it is a tax. So, there has to be legal authority for imposition of administrative charges.-CCE v Chhata Sugar Co. Ltd. (2004) 3 SCC 466.

Tax by itself doesnot confer any special benefit on the person taxed. There is no quid pro que element between a taxpayer and the taxing authority; on the other hand, fee is a charge for any service rendered by the receiving authority to the payer. Fee may be imposed by rules or bye laws-Commr., Hindu Religious Endowments v Sri Lakshmindra ZThirtha Swamiar of sri Shirur Mutt AIR 1954 SC 282.

It has been held in Bimal Chand Banerjee v State of M.P. (1970) 2 SCC 467; Ahmedabad Urban Development Authority v Sharadkumar Jayantikumar Paswalla (1992) 3 SCC 285; K.T. Moopil Nair v State of Kerala AIR 1961 SC 552.that a tax under article 265 of the Constitution can be imposed only by way of legislation. It is not permissible to impose some tax by way of bye-laws or rules.

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Criterias for selection of cases for scrutiny assessment for F.Y. 2013-14 under Income Tax Act, 1961

0 comments Wednesday, August 7, 2013
CBDT has laid down and disclosed the guidelines for selection of cases for scrutiny assessment under section 143(2) of Income Tax Act, 1961 for the financial year 2013-14. This disclosure has been made after the direction of Delhi High Court in a recent case namely Joginder Pal Gulati vs OSD-CPIO, to disclose the norms of scrutiny assessment.

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E-trip in Punjab-an uncontrolled delegated legislation?

0 comments Tuesday, August 6, 2013
The area of trade, commerce and business is at present under a rigourous administrative regulation. Broad powers to regulate trade and commerce have been conferred on administrative authorities through statutes or rules. 

Legislature sometimes leave a large amount of discretion in the hands of administrative authorities. Legislation conferring powers on the executive sometimes is drafted in broad and general terms that it leaves a large area of choice to the administrator to apply the law at his sweet will, and such legislation sometimes does not specify clearly the conditions and circumstances subject to which, and the norms with reference to which, the executive must use the powers conferred on it, which endangers a legal proverb coming true i.e "power corrupts a man and absolute power corrupts a man absolutely."

The latest example of such legialation can be found in the law implementing E-Trip in Punjab under the Punjab VAT Act, 2005. E-Trip means the reporting of intra-state transactions meant for trade relating to the specified goods  on the virtual information collection centre i.e on the official website of the Excise and Taxation Department. In simple terms it is a mandatory reporting of any movement of specified goods within the state meant for trade on the Department's website before such movement starts.

Specified goods for the purpose of E-trip have been defined u/r 2(hh) of Punjab VAT Rules, 2005, which says that specified goods means the goods of certain value for the purpose of rules 64-A and 64-B, respectively, as specified by the Commissioner from time to time.

The commissioner has been given a very wide discretionary power to impose E-trip on any goods and on any value of the goods without any check and control and without any criteria prescribed for exercising such power. Furthermore relevant rules for E-trip i.e rules 64-A and 64-B also confers discretionary power on the Commissioner to also prescribe maximum transition time for delivery of such goods from one destination to another.

Thus Commissioner has been given absolute power not only to regulate the inter-state as well as intra-state movement of goods in terms of its pre-reporting but also regulating the transition time for such movement of goods from one destination to the other.

No doubt conferment of administrative discretionary power is neccessary for the smooth implementation of any law, but how much discretion can be conferred on the executive to control and regulate trade and commerce is a question to be asked.

The general principle in this connection should be that the power conferred on the executive should not be arbitrary, unregulated by any rule or principle and that it should not be left entirely to the discretion of any authority to do anything it likes without any check or control by any higher authority. 

A law or order which confers arbitrary and uncontrolled power upon the executive in the matter of regulating trade or business in normally available commodities cannot but be held to be unreasonable-Dwarka Pd. vs State of U.P. AIR 1954 SC 224.

The law while granting a discretionary power to the executive should also lay down grounds and norms subject to which such discretionary power is to be exercised. 

Rule 2(hh) and Rules 64-A and Rules 64-B no where have prescribed such guidelines or grounds or criteria for exercising discretionary power by the Commissioner to specify the goods for the purposes of e-trip. The power given under Rule 2(hh) seems uncontrolled. There seems to be no check on the discretionary power granted to the executive relating to e-trip.

At present E-trip has been imposed on few items only keeping the other items out of its ambit and the limit fixed for the transaction is Rs 50000. What is the criteria for determining this monetary limit or the goods, nobody knows. In the current scenario where the inflation is at its peak, prices of goods rising high, monetary limit of Rs. 50000/- is too small for the businessmen operating at small scale who still may not have any access to computers and internet and thereby adding to their costs and hindering their trade.

 Tomorrow e-trip may be implemented on a transaction of Rs. 1000/- also, as no criteria whatsoever has been prescribed for specifying the goods or determinng the monetary limit and the Commissioner also need not have any prior permission of the State Government for regulating the trade and commerce in the grab of implementing etrip on any goods.

There should have been provision laying down the norms or criteria for exercising the power under Rule 2(hh) or under the rules relevant to e-trip or there should have been a check on such absolute power by the State Government. 

In nut shell broad powers present possibilities of being misused and exercised in an arbitrary manner. Therefore it becomes neccessary to devise proper safeguards against such an eventuality so that injustice is not done, trade and commerce are not effected and the fundamental rights especially of freedom of trade and profession guaranteed under article 19(1)(g) of Constuitution remains uneffected. Courts have to play a major role in the process of controlling the functioning of the administration.

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