I had prepared a reprsentation on allowance of input tax credit on purchase of LPG to the Hotel Industry. This representation was prepared on behalf of Hotel Industry of Punjab and has already been sent to Dy. Chief Minister of Punjab on 15.05.2015. The Dy. CM Punjab has already forwarded this representation to the Financial Commisasioner Taxation, Punjab for necessary action.
It is worth noting that LPG is a main input tax credit for hotel industry, however, the input tax credit on the purchase of the same is not allowed by the revenue on the basis of section 13(5)(b) of Punjab VAT Act, 2005. The letter of representation is as under:
Dated : 15.05.2015
To,
S.
Sukhbir Singh Badal
The Hon’ble Deputy Chief Minister of
Punjab
Chandigarh.
Subject : Letter
of Representation regarding claim of input tax credit on the purchase of LPG by
hotel industry.
Through : The Grand Windsor Resorts
Ltd (Hotel Raddison), Jalandhar on behalf of the Hotel Industry.
Respected Sir,
This is in reference to the above noted
subject. Please find attached a letter of representation from our association
in the welfare of Hotel industry in Punjab.
You are requested to kindly see into the
matter as soon as possible so that Hotel industry of Punjab may be saved.
Thanks and warm regards,
For
_________(name of the association)
General Secretar/President
Email ID :
LETTER OF REPRESENTATION
(Regarding
claim of input tax credit on purchase of LPG by Hotel Industry)
Respected Sir,
This is a representation regarding
disallowance of claim of input tax credit of taxes paid on purchase of LPG by
the Excise and Taxation Department, Punjab on the basis of provisions of
section 13(5)(b) of Punjab VAT Act, 2005 read in isolation ignoring completely
the provisions of section 13(1) of the
said Act.
By this letter of representation it is urged
that input tax credit on purchase of LPG by the Hotel industry must be allowed
to its fullest extent as the LPG is the main input for the hotel industry for
producing the taxable goods I.e. cooked food and the allowance of input tax
credit is in consonance with the provisions of section 13(1) of the Act.
For this purpose it is further urged that a
clarification in this regard may kindly be issued from the Government or the
provisions of section 13(5)(b) may kindly be suitable amended so as to upheld
the main objects of the VAT system sought to be achieved at the time of
implementation of Punjab VAT Act, 2005. We make the following representation in
this regard, while also simultaneously highlighting and explaining the relevant
legal provisions and the objects behind the VAT system supporting our
legitimate demand as to the claim of ITC on LPG by hotel industry.
Preface: The system of Value Added Tax was introduced in State of Punjab in 2005 by
enactment of Punjab Value Added Tax Act, 2005 w.e.f. 01.04.2005 replacing the
single stage sales tax system administered under the Punjab General Sales Tax
Act, 1948. The VAT system is a multiple
point of taxation system which levies tax at every stage of sale of goods,
however the credit of taxes paid at the previous stage of sale is given set off
against the output tax liability at the next stage.
The main objective behind introduction of VAT
system was to avoid double taxation and the resultant tax cascading which means
tax on tax. Under the sales tax law the manufacturers did not get the set off
of the taxes paid on their inputs i.e. raw material and the sales tax paid on
the purchase of inputs used to become the part of cost of output produced
finally. Thus the single stage taxation system under the old sales tax law
resulted in tax cascading and thereby resulted in increase in prices.
Justification and
objects behind implementation of VAT system: The extracts for white paper on State Level
VAT by Empowered Committe of State Finance Ministers is as reproduced hereunder
so as to clarify the main objects and justification for implementation of VAT:
“In
the existing sales tax structure, there are problems of double taxation of
commodities and multiplicity of taxes, resulting in a cascading tax burden. For
instance, in the existing structure, before a commodity is produced, inputs are
first taxed, and then after the commodity is produced with input tax load, output
is taxed again. This causes an unfair double taxation with cascading effects.
In the VAT, a set-off is given for input tax as well as tax paid on previous
purchases. In the prevailing sales tax structure, there is in several States
also a multiplicity of taxes, such as turnover tax, surcharge on sales tax,
additional surcharge, etc. With introduction of VAT, these other taxes will be
abolished. In addition, Central sales tax is also going to be
phased out. As a result, overall tax burden will be rationalised, and prices in
general will also fall. Moreover, VAT will replace the existing system of
inspection by a system of built-in self-assessment by the dealers and auditing.
The tax structure will become simple and more transparent. That will improve tax
compliance and also augment revenue growth. Thus, to repeat, with the
introduction of VAT, benefits will be as follows:
a
set-off will be given for input tax as well as tax paid on previous purchases
other
taxes, such as turnover tax, surcharge, additional surcharge, etc. will be
abolished
overall
tax burden will be rationalised
prices
will in general fall
there will be self-assessment by dealers
transparency will increase
there will be higher revenue growth
The
VAT will therefore help common people, traders, industrialists and also the
Government. It is indeed a move towards more efficiency, equal competition and
fairness in the taxation system.”
Thus the justification for introduction of VAT
was to rationalize the taxation system and to remove double taxation and the
tax cascading effect.
Statutory
provisions relating to input tax credit under Punjab VAT Act, 2005: One of the most important pillers of the VAT
system is the concept of input tax credit which helps in achieving the primary
object of VAT that is avoiding double taxation and tax cascading.
Section 13 of the Punjab Vat Act, 2005
contains the provisions relating to input tax credit. Section 13(1) of the Act
provides for the input tax credit of taxes paid on the goods purchased if they
are sold or are used in the manfucaturing and processing of taxable goods or
are sold inter-state or in the cource of export outside India.
Sectio 13(1) is produced herebelow:
(1)
A taxable person shall be entitled to the input tax credit, in such
manner and subject to such conditions, as may be prescribed, in respect of
input tax on taxable goods, including capital goods, purchased by him from a
taxable person within the State during the tax period :
PROVIDED THAT such goods
are for sale in the State or in the course of inter-State trade or commerce or
in the course of export or for use in the manufacture, processing or packing
of taxable goods for sale within the State or in the course of inter-State
trade or commerce or in the course of export :
PROVIDED FURTHER THAT a taxable person
shall be entitled to partial input tax credit in any other event, as may be
provided in this section in such manner and subject to such conditions as may
be prescribed :
PROVIDED FURTHER THAT if, purchases are used partially for the purposes
specified in this sub-section and the taxable person is unable to identify the
goods used for such purposes, then the input tax credit shall be allowed
proportionate to the extent, these are used for such purposes, in the
prescribed manner :
PROVIDED FURTHER THAT input tax credit
in respect of purchase tax paid or payable by a taxable person under section
19, shall be allowed subject to the conditions laid therein.
The Liquified Petroleum Gas is directly used
by the hotel industry in manufacturing and processing of taxable goods i.e.
cooked food. The cooked food cannot be produced without the use of LPG. Thus
the taxes paid on the purchase of LPG is eligible for input tax credit as per
the provisions of section 13(1) of the Act.
However section 13(5)(b) of the Act bars the
input tax credit on LPG to all the persons except those who are in the business
of selling LPG. Thus the provisions of section 13(1) are clearly in
contradiction with the bar contained under section 13(5) on claim of LPG so far
the persons using LPG directly in the manufacturing and processing of taxable
goods.
Section 13(5)(b) is produced herebelow for
ready reference
“Section 13(5): A taxable person under this
section, shall not qualify for input tax credit in respect of the tax paid on
purchase of,-
(a)…..
(b) petrol, diesel, aviation turbine fuel,
liquefied petroleum gas and condensed natural gas, unless the taxable person is
in the business of selling such product.”
Claim of input
tax credit on LPG by hotel industry is in accordance with section 13(1): It is worth mentioning here that the
provisions of section 13(1) and 13(5) are independent to each other as neither
of the provisions is subject to the other provision.
It is very much clear from the
provisions of section 13(1) that whatsoever goods are used in the manufacturing
and processing of the taxable goods for sales, taxes paid on such goods is
eligible for input tax credit. Thus section 13(1) clearly allow us to claim
input tax credit on the purchase of LPG.
It should also be noted that the
mechanism of input tax credit is a heart beat of the VAT system without which
VAT system will fail. The basic spirit of VAT system and also the intention of
the legislature behind the provisions of section 13(1) of Punjab VAT Act, 2005
is that whatever taxes are paid on inputs used for production of the output
product, the credit of those taxes would be allowed against the taxes payable
on the output products. Any devation from this intention/principle would defeat
the very purpose of introduction of system of VAT which was to remove tax
cascading effect. Thus the disallowance of input tax credit on LPG could not
have been the intention of the legislature so far as the persons who are using
LPG as raw material.
Since LPG is the main input for the
Hotel industry without which the output goods i.e. cooked food cannot be
produced, hence the allowance of claim of input tax credit on LPG is inevitable and is in the spirit of provisions
of section 13(1) of Punjab Vat Act, 2005.
So far section 13(5)(b) is concerned which
bars the input tax credit on LPG, it bars the credit for those who are using
LPG as just a fuel or as an acilliary product. Section 13(5)(b) is not
applicable to those person for whom it is the main raw material for
manufacturing the taxable goods for sale.
The golden rule of interpretation of
law is the rule of purposive construction which means that if strict
interpretation of a provision leads to
absurdity and defeats the objects of the legislature which were intended to be
achieved by the enactment of law then such interpretation would be made as
would upheld the objects of the legislature which are intended to be achieved.
Even the FAQs of the VAT as existing on the
official website of the Central Government i.e. tinxsys.com also supports the
claim of input tax credit on LPG by those persons for whom the LPG is the main
input without which output product cannot be produced.
The relevant extracts are produced herebelow:
“Will input tax credit be available on all purchases for the
business?
Generally, input tax credit will be eligible on all goods purchased for resale, raw material and packing materials for use in the manufacture of goods or even capital goods as specified. However, eligibility of input tax credit on capital goods is different in the draft VAT legislations of various State Governments.
Generally, input tax credit will be eligible on all goods purchased for resale, raw material and packing materials for use in the manufacture of goods or even capital goods as specified. However, eligibility of input tax credit on capital goods is different in the draft VAT legislations of various State Governments.
Only good purchased from VAT registered dealers in the State will
be eligible for input tax credit. Input tax credit will not be available on
Inter State purchases.
There are likely to be restrictions or denial of input tax credit
on Petroleum products, Tobacco and certain other products. One should refer to
their respective State VAT Acts. Goods ineligible for Input Tax credit are also
referred to as "Input Tax Credit Blocked goods".
"In my opinion, the purchases on which you cannot claim a
credit for your input tax are:
Automobiles, including commercial vehicles, unless you are in the business of dealing in such automobiles;
Spare parts for repair and maintenance of automobiles unless your business is dealing in such automobiles;
Petroleum products unless the petroleum products are used in the production of goods or for industrial use;
Goods used for personal consumption or gifts;
Air-conditioning units unless you are in the business of dealing in such units".
Automobiles, including commercial vehicles, unless you are in the business of dealing in such automobiles;
Spare parts for repair and maintenance of automobiles unless your business is dealing in such automobiles;
Petroleum products unless the petroleum products are used in the production of goods or for industrial use;
Goods used for personal consumption or gifts;
Air-conditioning units unless you are in the business of dealing in such units".
Thus the denial of input tax credit on
petroleum products including LPG was meant for those who are not using the same
in the production of goods or for industrial use.
Since the hotel industry use the LPG directly
in the manufacturing of LPG therefore the ITC on such purchase of LPG cannot be
denied as the same is not only in consonance with the provisions of section
13(1) but also is in the spirit of VAT system.
However despite the clear cut provisions of
section 13(1) the claim of input tax credit on purchase of LPG is being denied
by the Excise and Taxation Department.
Our Recommendations and
demands:-
A. Full input tax credit on
purchase of LPG be allowed to the Hotel industry.
B. A clarification in this regard
kindly be issued from the Excise and Taxation department itself that claim of
input tax credit on purchase of LPG by the hotel industry is in consonance of
scteion 13(1) of Punjab VAT Act, 2005 and section 13(5)(b) is not applicable to
hotel industry so far as purchase of LPG is concerned.
C. Suitably amend section 13(5)(b) so as to allow input tax credit on LPG to the
hotel industry who is using LPG directly in the manufactruring or processing
taxable goods for sale.
We have drafted these recommendations keeping in view interest
of the justice for the Hotel Industry. If these suggestions are accepted, we
assure you that Punjab VAT as well as business of hotel industry in Punjab,
both will increase.
Expecting an early and positive response from your good self to
safeguard the interests of Hotel Industry.
Thanking
You.
_______________
Association name
Jalandhar
City, Punjab
General
Secretary/President
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