Recently
while filing the fourth quarter return of year 2013-14, the Excise and Taxation
Department, Punjab asked for the closing stock
of Iron and steel goods lying in stock of dealers as on 29.01.2014 for the
purpose of making reversal on such stock at the rate of 2.20% of the available
Input tax credit on such closing stock. The reason for such action was the
newly added rule 21(8) in Punjab VAT Rules, 2005, which was introduced w.e.f.
01.02.2014.
This
rule 21(8) runs as under:
“Where
some goods as input or output are lying in the stock of a taxable person and
where rate of tax on such goods is reduced from a particular date, then from
that date, input tax credit shall be admissible to the taxable person on the
sale of goods lying in stock or on using the goods as input for manufacturing
taxable goods, at the reduced rate.”
As
the rate of tax on iron and steel goods was reduced from 4.95% to 2.75%,
therefore the Department asked for the reversal of available ITC on such stock.
It is to be noted that the rate of tax on iron and steel goods was reduced with
immediate effect as per the notification dated 25.01.2014 bearing No. S.O.
9/P.A 8/2005/S.8/2014, which was published in the official gazette on
29.01.2014, meaning thereby the rate of tax on iron and steel goods was reduced
w.e.f. 29.01.2014.
I
also had written an article earlier stating that reversal on stock of iron and
steel goods is to be made only if the input tax credit is available at all and
if no input tax credit is available on the date of reduction of rate of tax,
then no reversal is required to be made.
However,
I have come across a very astonishing discrepency whereby a big question has
arisen i.e whether any reversal under rule 21(8) of input tax credit on account
of reduction of rate of tax on iron and steel goods is warranted at all?
The
reason for it is that Rule 21(8) of the Punjab VAT Rules, as stated above has
been introduced prospectively w.e.f 01.02.2014, which means that reversal under
rule 21(8) will be made in case of only those goods on which rate of tax has
been reduced on or after 01.02.2014.
In
case of iron and steel goods the rate of tax was reduced w.e.f 29.01.2014 as
per the notification stated above. Once it is clear that the rate of tax on
iron and steel goods was reduced before the introduction of rule 21(8),
therefore rule 21(8) cannot have any bearing on the reduced rate of tax on iron
and steel goods, as the sub-rule 8 of rule 21 was introduced prospectively
w.e.f. 01.02.2014 and not retrospectively.
Hence
the conclusion should be that no reversal of input tax credit on iron and steel
goods is warranted at all under rule 21(8) of Punjab VAT Rules, 2005, which the
Department has sought by asking the dealers to declare their closing stock of
iron and steel goods on the date of reduction of rate of tax.
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