Processing fee amount revised under Punjab VAT Rules, 2005-certain points

Punjab Government has revised the amount of processing fee leviable under rule 40-A of the Punjab VAT Rules, 2005. Rule 40-A earlier envisages payment of  annual processing fee of Rs. 800/- by every taxable person under the Punjab VAT Act, 2005.

 Now the different amount of processing fee have been defined for different persons based upon the criteria of payment of taxes by them and their turnover.

Revised amounts of processing fee under the amended rule 40-A are as follows:

"40-A. Annual processing fee.- Every taxable person, shall pay annual processing fee, as specified in the Table given below, in the month of October every year, and shall attach a receiptlchallan , as the case may be, as a proof of payment of such fee along with the quarterly return, namely:-

Serial No.
Category of Dealer
Amount of Processing fee
(in rupees)
Dealers, who have not filed returns during the financial year 2012-13

Dealers, whose gross turnover was nil during previous financial year.
Dealers, who have paid no tax and whose gross
turnover is up-to-rupees,-

(i) .one crore;

(ii) one crore to five crore;

(iii) five crore to ten crore; and

(iv) ten crore and above




All other Dealers

What is "Tax Paid": As is clear form the above table it is clear that the tax paid by a person as compare to his turnover has been made the criteria for determining the amount of processing fee payable by a taxable person.

 However the term tax paid has not been defined in the abovesaid rule. It seems that Government considers tax paid as tax paid in the treasury. 

As per my understanding, entry tax deemed as advance VAT paid by a person u/s 6(7), 6(8) and WCT i.e VAT TDS deducted from the payments made to a contractor u/s 27 of Punjab VAT Act, 2005 should be considered as tax paid for the purpose of Rule 40-A.

Government should understand that under the Value Added Tax system, when a purchaser pays tax to his seller i.e an agent of the Government(as per P&H HC's verdict Gheru Lal Bal Chand vs State of Haryana case) while making purchases, the tax paid by him to his seller is also a tax paid to the government treasury, as the seller will also deposit the same with the exchequer.

 Persons paying tax in the Government treasury directly cannot be considered as the only tax payers in the State, but persons paying taxes to their sellers while making purchases are also paying the taxes indirectly to the Government. 

The reason behind it is that incidence of taxation even after the introduction of system of VAT, is still on the sale or purchase of goods within the State and not on the value addition of the goods(refer entry 54 of the State List of the Seventh Schedule to the Constitution).

Once a person pays tax on his purchases within the State indirectly to the seller, he has paid tax to the exchequer.

Another thing to be noted is that in the table notified for processing fee as stated above under Rule 40-A , the word mentioned is "Dealer" , whereas Dealer word has nowhere find mention under the Punjab VAT Act or Rules, 2005, nor it has been defined anywhere under the Act, rather the words "Taxable Persons" and "Registered Persons" find mention everywhere in the Act as well as in the Rules.  

Is it a fee or a new tax: In my view this processing fee is not a fee as a fee is always for providing service to the payer or it may be regulatory in nature, but this fee seem to have been levied for the efiling and processing of returns, which is not a service at all to the tax payers, rather it is a duty of the Government to provide better tax administration.

It is a new tax levied in the name of fee and a tax cannot be imposed under the Rules, but it should be levied under the Act.

See my earlier article on the constitutionality of processing fee herebelow:




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