CONTROVERSIAL ASPECTS OF ASSAM VAT LAW

The Assam Value Added Tax Law (VAT Law) remained in the womb for couple of years and got its birth on the 1st day of May 2005 after the Govt. of India accorded the green signal. The Law, however, did not attain the requisite maturity, as expected and the structure remained crazy and rickety after a good deal of expensive exercise.
VAT is, no doubt, a unique and transparent tax measure having its self steering wheels to achieve the goal, but it has some obvious deficiency and confronted its implementation in a large federal structure of country like India, where there is diversity and disparity amongst the States in the matter of revenue administration. In a State like Assam where, major section traders are illiterate or half-literate, the clock-wise chain of the VAT System always slips away from the main orbit and gets the system topsy-turvy
VAT means a tax on the sale or purchase of any goods at every point in the series of sales made by the registered dealers with provisions of credit of input tax paid at the point of previous purchase thereof. The ‘input tax’ and ‘output tax’ are reckonable ingredients in the VAT exercise. ‘Input Tax’ means amount paid or payable by way of tax under the Act by a purchasing registered dealer to a selling registered dealer on the purchase of goods in the course of business, while ‘Output Tax’ in relation to a registered dealer means a tax charged or chargeable under the Act in respect of the goods sold by that dealer. In a plain meaning, the ‘Input Tax’ and the ‘Output Tax’ are one and the same. For the purchasers, it is termed as ‘input tax’ and for the sellers it is ‘output tax.’
VAT law was enacted by the Legislature of Assam under the authority of Article 246 (3) read with entry 54 of List II (State List) in the Seventh Schedule of the Constitution of India keeping in view the broad based principle that it is a tax on the sale or purchase of goods at every point in the series of sales. A sharp deviation has been maintained in the said Law, where simultaneously the provisions of levy of tax at the point of first sales in Assam has been accommodated without any power or authority incorporated in the Law in this behalf. Fantastically, 23 items including Crude Oil, Petrol, Diesel, Petroleum products etc. were termed as taxable at the first point sale in Assam. The items like tea, biscuits, medicines, liquor, drugs etc, which have the multifarious stages of sales in the trade scenario of Assam, were included in the Schedule of first point sales, making thereby, an unexpected departure from spirit and intention of the VAT theme. While the administration of VAT Law with its Rules is beset with a broad based principle, i.e. a tax on multiple stages of sales, the accommodation of first point tax system created the administrative spheres more clumsy and cumbersome. A careful study and analysis made it transparent that the collection of tax on such first point of sales occupied about 44% of the collection of sales tax in 2005-06 while about 50% in 2006-2007, which apparently shows that the collection of VAT is not up to the mark. It will be fair to place in the record that the growth of VAT revenue in 2006-2007 is Assam was 19.2% in Assam, while it was 22.4% in all India sales tax scenario, which was in no way encouraging or promising. It has further been degraded in 2007-2008 as projected by the media from time to time. The Govt. of India has reviewed the situation and is contemplating to introduce ‘Goods and Services Tax’ in replacement of VAT regime with effect from 1st April 2010. There have been experiments and re experiments on the State Sales tax matters, by the Govt. of India, but the State maintained a cipher attitude and failed to raise their voice of disagreement to safeguard the State revenue interest.
A very unique and unprecedented projection have been exhibited in the VAT Law of Assam by way of empowering the Govt. of Assam to notify the system Composition of Tax (Lump Sum Tax) in lieu of the tax on sales payable by a trader at every point of sale. The principle-adopted contrary to the spirit of VAT in this behalf and the notification issued to levy and realise such composition of tax represented the following:
1. From the retail seller up to the limit of 40 Lakhs of rupees sales in a year irrespective of sales taxable and exempted goods slap wise ignoring the First Schedule of the VAT Law.

2. From the Works Contractors on the full value of Contract works without confining it to the transfer of property in goods, as rigidly occurred in Article 366 (29 A) (b) of the Constitution of India.

3. On the productive capacity of the brick fields without properly adhering to the tax on sales of bricks produced in the brickfield as envisaged in the Schedule II of the VAT Law.
4. On the import of marbles (earlier on potato, onion and garlic also) instead of sales and obviously making direct clash with entry 52 of List II (State List) in the Seventh Schedule of the Constitution of India read with the Assam Entry Tax Act, formulating or providing measures for the levy of such tax or entry on importing goods.

The measure of composition of tax in the VAT regime seems to be an extra-territorial exercise and it amounted to be an slaught on the Constitution and the Law of the land. The Composition of tax providing relief to the traders to adopt the legal formality like submission of returns, production of accounts and other allied obligations always goes to a higher side, but it seems that the measure of tax has been scaled at a much lower side to provide fiscal benefit to the traders for some obvious reasons behind. The traders have, therefore, no reason to grumble or to be aggrieved
We hope, the controversial aspects of the VAT Law, as discussed above will attract attention of the State Govt. and the tax machinery and a constructive approach will be forthcoming for safe guard generation and augmentation of the revenue of the state.





Phone- 2457734
Mobile- 98642-01694
Date – 6/08/2008(Mrinal Kanti Chakrabartty)
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