The Punjab Value Added Tax (Second Amendment) Act, 2013 (Punjab Act No. 38 of 2013) has brought about major and very important changes under the Punjab VAT Act, 2005. All the changes are disucssed and analysed herebelow for the benefit of all blog readers:
Amendment in section 4 of Punjab VAT Act: Section 4(2) elating to the constitution of VAT Tribunal has been amended so as to provide that the Tribunal may consist of a chairman and three other members to be appointed by the State Government.
It is notable here that recently Punjab & Haryana High Court directed the Punjab Government for the appointment of all the members of the Tribunal, as till that time only Chairman was alone carrying on the operations of the Tribunal.
The word "shall" has been replaced with the word "may" in the aforesaid amendment. It means that now appointment of all the Chairman all the members in the Tribunal will not be compulsory and even a member or two without the Chairman can also run the Tribunal.
Amendments relating to Advance VAT: Wording of section 6(7) which relates to advance VAT has been changed. Earlier it contained the words "State Government shall charge the tax in advance on the import of goods" But now it has been amended so as to provide that "State Government may by notification specify the goods on which a taxable person shall pay tax in advance".
It is notable here that recently the writ petitions challenging the constitutional validity of Advance VAT were filed in Punjab & Haryana High Court as the incidence of taxation in advance VAT was made the import of goods which is a central subject. But the question now is, can the amended provision be persumed to be not creating incidence of taxation on the import of goods?
Another thing to be noted is whether advance VAT is justifiable in indirect tax, when it is to be deposited not from one's own pocket but after collecting the same from the buyer of the goods.
Full credit of advance VAT, no reversals: The amended section 6(7) provides that the advance VAT will be counted towards final liability of the taxable person. Section 13(1-A) which provided that Advance VAT is to be treated as input tax credit has been omitted w.e.f 04.10.2013.
That means credit of advance VAT will be available without any reversals u/s 13 because it is to be counted towards final tax liability and since it is not to be treated as input tax credit therefore reversals applicable on input tax credit will not be applicable on Advance VAT.
Although in the explanation it is stated that the taxable person who imports the goods into the State, shall pay advance VAT on it on a rebuttable presumption that such goods are meant for sale or for use in manufacture or processing of goods meant for sale and such goods will not be sold below the price at which such goods have been purchased and imported in the State.
It has not been clarified in section 6(7) what will be the consequences if the above presumptions are rebutted that is to say if the goods on which advance VAT is paid are disposed off otherwise than as sale or are being sold at lesser price than on which they have been purchased and imported.
Whether in such circumstances Advance VAT will be subject to reversals or not remains to be seen. However in my view no reversal of advance VAT should be made in any case.
In my view if the above presumption is rebutted the person importing the goods should not be charged advance VAT on such goods imported.
It is notable here that recently the writ petitions challenging the constitutional validity of Advance VAT were filed in Punjab & Haryana High Court as the incidence of taxation in advance VAT was made the import of goods which is a central subject. But the question now is, can the amended provision be persumed to be not creating incidence of taxation on the import of goods?
Another thing to be noted is whether advance VAT is justifiable in indirect tax, when it is to be deposited not from one's own pocket but after collecting the same from the buyer of the goods.
Full credit of advance VAT, no reversals: The amended section 6(7) provides that the advance VAT will be counted towards final liability of the taxable person. Section 13(1-A) which provided that Advance VAT is to be treated as input tax credit has been omitted w.e.f 04.10.2013.
That means credit of advance VAT will be available without any reversals u/s 13 because it is to be counted towards final tax liability and since it is not to be treated as input tax credit therefore reversals applicable on input tax credit will not be applicable on Advance VAT.
Although in the explanation it is stated that the taxable person who imports the goods into the State, shall pay advance VAT on it on a rebuttable presumption that such goods are meant for sale or for use in manufacture or processing of goods meant for sale and such goods will not be sold below the price at which such goods have been purchased and imported in the State.
It has not been clarified in section 6(7) what will be the consequences if the above presumptions are rebutted that is to say if the goods on which advance VAT is paid are disposed off otherwise than as sale or are being sold at lesser price than on which they have been purchased and imported.
Whether in such circumstances Advance VAT will be subject to reversals or not remains to be seen. However in my view no reversal of advance VAT should be made in any case.
In my view if the above presumption is rebutted the person importing the goods should not be charged advance VAT on such goods imported.
Exemption from payment of advance VAT: Second proviso to section 6(7) also provides that a taxable person may apply for the exemption from the payment of advance VAT to the Commissioner or the Designated officer, who can allow such application subject to such terms and conditions as may be deemed fit.
Levy of VAT on Maximum Retail Price: A new Section 8-C has been introduced which has authorised the State Government to levy VAT in respect of any goods covered under the Standards of Weight and Measures (Packaged Commodities) Rules, 1977 on the maximum retail price of such goods as printed on such goods.
However such payment of tax on the MRP is optional and is applicable on the manufacturer or the first importer of goods at their option.
Such option once chosen can also be cancelled by making an application to the designated officer. Section 8-C(2) clarifies that a person who opts to pay tax on MRP has to issue invoice showing value of goods and tax seperately , as MRP printed would be inclusive of the tax payable.
It has also been provided in the provisions that for computing the tax liability in such case, taxable person shall not be entitled to claim any deduction on account of any trader discount or incentive in terms of quantity or cash discount that he may have given to the purchaser.
Section 8-C(4) further provides that all subsequent taxable persons buying such goods on which tax on MRP has been paid, shall be exempted from payment of tax on the sale of such goods.
Constitutional validity of tax on MRP: The power of State Government to levy VAT and sales tax is governed by the Entry 54 of the State List of the Seventh Schedule to the Constitution of India, which authorizes State Government to levy tax on the sale and purchase of goods with the State.
The Supreme Court in Rajasthan Chemists Association [2006] 147 STC 542 (SC); [2006] 6 SCC 773, while considering the validity
of a provision levying tax on MRP, had upheld the view of the Rajasthan High Court that it is not permissible for the Legislature of a State to levy tax on the sale of goods by adopting a notional price as a measure of tax; such a legislative measure is held to be outside the ambit of entry 54 of List II of the Seventh Schedule to the Constitution of India.
In view of the settled law by the Supreme Court in above judgement, the thing remains to be seen, how far such tax on MRP will survive, it is matter of time as to how soon it is challenged before the High Court.
To be continued.....
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