In this article the implications of a latest amendment in the Punjab VAT Act, 2005 are analysed, whereby system of single point of taxation has been introduced in respect of certain goods by two notifications dated 13.12.2013, applicable w.e.f 01-01-2014.
By notification no. S.O.116/P.A8/2005/S.8/2005/S.8/2013 dated 13-12-2013 certain goods have been made tax free and the pre-condition for such goods to become tax free is that tax has already been paid at the first point of sale i.e manufacturer or first importer’s stage.
By notification No. S.O 117/P.A.8/2005/S.8/2013 dated 13-12-2013 the same goods which have been made tax free, have been made taxable at special rates of 14.5% and 22.5% at the first point of sale of such goods i.e. first manufacturer or first importer's stage.
Single point of taxation is not an optional levy on MRP under newly added section 8-C: During past few days many people have raised query whether such levy of tax at the first stage of sale is a levy under newly added section 8-C which purposes to levy an optional tax on the MRP of certain goods whereby subsequent sales will be exempted from tax.
It should be noted that the above levy on the first stage is not a levy on the MRP of the goods and nor the notification has been issued u/s 8-C, rather the above notifications have been issued u/s 8(3) of PVAT Act, which means that the above said levy on the first point of sale is mandatory in respect of the all the taxable persons and the levy on the first stage is not an optional levy on MRP under newly added section 8-C of Punjab VAT Act, 2005.
Tax implications of Stock existing as on 31.12.2013: Another question which frequently coming into everybody's mind is that what will be the status of the stock of such goods lying on 31-12-2013 which have been made taxable at the first stage of sales in the above notification .
To find out answer to the above question, one will have to answer certain questions.
First question: whether the said notification No. 116 while imposing the condition of tax being paid at the first point of sale for making such goods as tax free, refers to the tax paid on the first point of sale payable at the rates as mentioned in the later notification No. 117 or tax paid on first point of sales at any rate as existing before 31-12-2013.
By notification no. S.O.116/P.A8/2005/S.8/2005/S.8/2013 dated 13-12-2013 certain goods have been made tax free and the pre-condition for such goods to become tax free is that tax has already been paid at the first point of sale i.e manufacturer or first importer’s stage.
By notification No. S.O 117/P.A.8/2005/S.8/2013 dated 13-12-2013 the same goods which have been made tax free, have been made taxable at special rates of 14.5% and 22.5% at the first point of sale of such goods i.e. first manufacturer or first importer's stage.
Single point of taxation is not an optional levy on MRP under newly added section 8-C: During past few days many people have raised query whether such levy of tax at the first stage of sale is a levy under newly added section 8-C which purposes to levy an optional tax on the MRP of certain goods whereby subsequent sales will be exempted from tax.
It should be noted that the above levy on the first stage is not a levy on the MRP of the goods and nor the notification has been issued u/s 8-C, rather the above notifications have been issued u/s 8(3) of PVAT Act, which means that the above said levy on the first point of sale is mandatory in respect of the all the taxable persons and the levy on the first stage is not an optional levy on MRP under newly added section 8-C of Punjab VAT Act, 2005.
Tax implications of Stock existing as on 31.12.2013: Another question which frequently coming into everybody's mind is that what will be the status of the stock of such goods lying on 31-12-2013 which have been made taxable at the first stage of sales in the above notification .
To find out answer to the above question, one will have to answer certain questions.
First question: whether the said notification No. 116 while imposing the condition of tax being paid at the first point of sale for making such goods as tax free, refers to the tax paid on the first point of sale payable at the rates as mentioned in the later notification No. 117 or tax paid on first point of sales at any rate as existing before 31-12-2013.
The answer to the above question has not been given in any of the notifications no. 116 or 117. In the absence of any clarification, as per the rule of strict construction, it should be presumed that notification is referring to tax at any rate i.e rate existing before 31-12-2013 and also after 31-12-2013.
Second question: Thus going by above interpretation, the next question is whether stock of such goods as being made taxable at first point of sale in the above said notifications, as existing on 31-12-2013, whether have suffered tax at first stage of sale?
Before the above said notifications no. 116 and 117, the goods notified therein suffered tax at all stages including the first stage of sales, as per the multiple point of taxation system of VAT.
Therefore the stock of such goods as existing on 31-12-2013, have definately suffered tax on the first stage of sales, if they were purchased from within the State of Punjab at a stage later than the first stage of sales, thus once the goods have suffered tax at the first stage of sales, such tax at first stage must also have been paid either by cash or by adjustment of credit of tax paid on the inputs.
Thus concluding, the stock of such goods (which have been made taxable at first stage of sale), as existing on 31-12-2013 should also be treated as tax free after 01-01-2014 as per notification No. 116, (if the same were purchased at a stage later than the first stage of sales in Punjab) as the condition of tax being paid at the first stage of sales stands fulfilled in case of goods remaining in stock on 31-12-2013.
Before the above said notifications no. 116 and 117, the goods notified therein suffered tax at all stages including the first stage of sales, as per the multiple point of taxation system of VAT.
Therefore the stock of such goods as existing on 31-12-2013, have definately suffered tax on the first stage of sales, if they were purchased from within the State of Punjab at a stage later than the first stage of sales, thus once the goods have suffered tax at the first stage of sales, such tax at first stage must also have been paid either by cash or by adjustment of credit of tax paid on the inputs.
Thus concluding, the stock of such goods (which have been made taxable at first stage of sale), as existing on 31-12-2013 should also be treated as tax free after 01-01-2014 as per notification No. 116, (if the same were purchased at a stage later than the first stage of sales in Punjab) as the condition of tax being paid at the first stage of sales stands fulfilled in case of goods remaining in stock on 31-12-2013.
In case if the stock of such goods as existing on 31-12-2013 includes goods purchased from outside the State of Punjab by the owner of such stock, then such goods will become taxable w.e.f 01.01.2014 as the same would be sold at the first stage of sales.
The further question is whether dealers should bifurcate their stock of such goods into the goods which would be taxable at first stage and which would be tax free, of their own only as no stock declaration to that effect has been asked for.
Whether any reversals are required to be made on the stock as on 31.12.2013-Role of Rule 21(4) of Punjab VAT Rules, 2005: Rule 21(4) of Punjab VAT Rules, 2005 provides that where some goods as input or output are lying in the stock of a taxable person and where such goods become tax free from a particular date, then from that date, no input tax credit shall be admissible to the taxable person on the sale of such goods lying in the stock or on using the goods as input for making such tax free goods.
Thus the input tax credit if any standing on the stock of such goods which have been made taxable at first stage of sales and on which tax at the first stage has been paid, would have to be reversed and no input tax credit would be available on the sales of such goods w.e.f. 01.01.2014.
There may be some cases where the stock of such goods exists on 31.12.2013 but no corresponding ITC is standing in the books of a dealer, due to the fact that ITC on such stock of goods has been already utilised against other output tax liability by such dealer.
In such case whether such dealer should reverse the Input tax credit on the stock of such goods on which tax has already been paid at first stage of sales, is a question to be asked, because if the input tax credit on such goods have been already utilised, that would mean that tax paid on the previous stages of purchase such goods has been realised by the such owner of the stock.
No Declaration form prescribed for the first stage dealer: The person who has sold the goods at first stage of sales w.e.f 01.01.2014 and paid the tax on it, no declaration form has been prescribed for such person, declaring that the tax has been paid at the first stage of sales.
In the absence of such a form it would be difficult for the third and fourth stage dealers to prove that tax on first stage of sales has been paid and it may also lead to tax evasion.
In nut shell more clarifications are required from the Excise and Taxation Department to address the above issues before implementing the single point of taxation system.
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