Tuesday, May 26, 2009


Tax on oils, namely; crude oil, petrol, diesel and other petroleum products; plays a pivotal role in the revenue generation scenario of Assam. Taxes on sales and other allied matters are governed by the Finance Taxation Administration of Assam by way of enforcement of the enacts introduced in this behalf. The collection of tax revenue during the last three years were, as below:-2006-07 – Rs.3046 crore2007-08 - Rs.2864 ”2008-09 - Rs. 3526 ” The shortfall of collection in 2007-08 was, inter-alia, due to inadequate supply of crude oil vis-à-vis the consequential production outturn and sales threto. However, this has been recouped and took an accelerative turn in 2008-09. If things goes on rightly, the tax revenue collection may undoubtedly achieve Rs. 5000 crore within a couple of years. The trend of extracted crude oil sometimes poses to be discouraging and equally, therefore, import of such crude oil from othe States becomes essential. Contrary to the spirit and intention of the Value Added Tax (VAT) ideology, which maintains the steadfast theme of levy of tax on the every stage of sales of taxable goods, subject to the credit of input tax paid at the point of previous purchase of such goods, the State Legislatures accommodated levy of first point tax in the VAT Law of Assam with exemption of such tax at the subsequent stage on discharge of the onus of payment of tax at source without, however, any relaxation or modification, whatsoever on the basic theme, incorporated in the Law.. Simultaneously, therefore, a two-tier system of levy of tax, that is, one at the multi-point sales of goods and other at the first point, has been operating side by side without any fundamental change of ideology and structure in the VAT Law. Obviously, a clash and conflict between the two in the VAT Law has been apparently visible. In the system of levy of tax on the first point sales of oil products, some relaxation has as well been provided in the case of inter-se-sale deals between one oil company and other, implying thereby that, such inter-se-sales between one oil company and other shall not be held as the first point sales in Assam, but the subsequent sales made to the others or to the consumers shall be treated as the first point sales in Assam for the purpose of levy of tax under the VAT Law of Assam. When a particular Law has been framed for a particular purpose for levy of tax, such a deviation without relaxing of the basic theme or vision of the Law seems to be a unique and an unprecedented exercise of power. Clumsiness, complication and controversy on the system are, therefore, well existent. The ideology formulated and maintained in relation to the non- levy on the first sales in the course of inter-se sales between the oil companies obviously defeated the purpose of levy of tax at the point of first sales in Assam and it is doubtful if such a provision did necessarily warrant. The terms set-forth in the VAT Law to provide the tax relief by the first point seller oil company are : (a) that, the purchaser oil company will pay tax on the sales within the State or in the course of inter states sales under the VAT or the Central Sales Law, as the case may be (b) that, in case the purchaser desptaches such purchased oil products to other States not by way of sales, liability to pay tax on the purchase value of such goods, as provided in the VAT Law shall be cropped up. Despatch of goods to other States not by way of sale is apparently a transfer of stock of goods to other State for sale. Article 286(1)(a) of the Constitution of India restricted any levy of tax for sale out side the State. Section 6A of the Central Sales Tax Law, on the other hand, provided the granting of exemption of tax on such stock transfer of goods subject to discharge of onus in this respect. The propriety of levy of tax on the same goods meant for stock transfer on the purchase value is thus a controversial matter. The rate of tax on the purchase value of oil products meant for stock transfer has been specified at 4 paise in the rupee against the normal rates of tax (@ Petrol Rs. 25.75 paise in the rupee and Diesel Rs. 15.50 paise in the rupee) while in the case of other commodies despatched for identical purpose has been specified as per the prevelant rate of tax, specified in the Schedules of the Act.. So, a disparity and discrimination has obviouly been maintained leaving scope for dispute. There has been mysteriously large scale transfer of stock of oil products by the producing oil companies to other States. The entertainment of such claim of stock transfer is subject to enquiry and achieving satisfaction by the Assessing Officers. The Central Sales Tax Rules formulated some guidelines for the same as well. Whether such transfer of stock is consquent upon any pre-contract of sale is a vital point to be examined and ascertaied as any despatch on the basis of such a contract the character and quality of stock transfer is likely to be defeated. The VAT Law also provided benefit of tax at the concessional rate to the inter-se-purchaser oil companies to make stock transfer and thus to indulge the tax dodging activities by adopting frauduleny way of stock transfer. It stands a routine way of life for a section of traders/cosumers to purchase oil products at lower rates of tax at Khanapara Meghalaya), Bandardowa Arunachal Pradesh) and Dimapur (Nagaland) etc. taking advatange of the geographical location and an acute diversion of trade activities is in sight.It is high time that all these aspects may be considered by the State tax administration and to ensure that no drainage of Assam State revenue is there, but proper safe guard is guaranteed at any cost of augmentation of revenue of the State.
(Mrinal Kanti Chakrabarty)10, Lakhimi Path, R.G. Barua RaodGuwahati – 781024, India98642-01694 (M)


VAT is a multiple system of tax leviable at every stage of sales of goods made by a dealer, subject to credit of input tax paid at the time of previous purchase of the goods. ‘Input tax’ and ‘Output tax’ are one and the same thing. The tax paid by the purchaser to the seller is input tax, while the tax realised by the seller from the purchaser and paid to the Govt. is output tax. A controversy is prevalent as to whether ‘Works Contract and Lease’ are VAT Commodities and the taxability on such item come under the purview of VAT tax-net.Following a number of litigations and the Apex Court decisions against levy of the tax on Works Contract and Lease, the Constitution of India was amended in 1982 and ‘the transfer of property in goods involved in ‘Works Contract’ and ‘the transfer of right to use any good without transfer of ownership’ have been brought under the purview of the definition of ‘Sales of goods’. The problem thus got a halt and tax on such transfer of property in goods and transfer of right of goods was well being levied under the Assam General Sales Tax Act, 1993. With the introduction of the Assam Value Added Tax Act, 2003, the basic principle of levy of tax, which has been discussed above, the levy of tax ‘Works Contract’ and ‘Lease’ has become irrelevant in as much as the ‘Works Contract and Lease’ maintain their independent entity and separate bearing. The multiple system of sales clockwise or stage wise in such deal become irrelevant. The VAT Act mainly dwelt in the basic principle of levy of tax on every goods at every stage of sale. It has not accommodated the principle of levy of tax on ‘the transfer of property in goods’ involved in ‘Works Contract’ and the ‘transfer of right to use any goods involved in Lease. There ought to have a provision dispensing with the main theme of VAT so as to accommodate this extra-ingredients in the tax-net of Assam. The scope for levy of tax under the VAT Act has been specified in the Schedule attached to the Act along with the category of taxable goods not specified in other Schedules of the Act with the broad term ‘Works Contract’ and ‘Lease’. The basic principle of levy of tax has not been accommodated. ‘Works Contract’ and ‘Lease’ are not the goods and the concept of levy of tax on ‘Works Contract’ and ‘Lease’ seem to be a deviation from the main spirit and intention of levy of tax on the sales of goods in the VAT ideology.Assuming, but not admitting that the legislatures, while incorporating such measure of tax on ‘Works Contract’ and ‘Lease’, intending to levy tax on the transfer of property in goods involved in Works Contract and on the transfer of right to use such goods involved in lease, the rates of tax specified in Schedule at 12.5 paise in the rupee, is not at par with the rate of commodity-wise tax, specified in the other Schedules of the Act. For instance, the rate of tax on the sales of declared goods is always 4 paise in the rupee and it can not exceed the rate declared by the Govt. of India by enactment of the Central Sales Act, 1996 under the authority of the Constitution of India. Pipes of all varieties, pumps, tractors, ships vessels and many other allied articles, pertaining to ‘Works Contracts’ and ‘Lease’ do not have the rate of tax beyond 4 paise in the rupee. Naturally, there has been strong clash between the rate of the tax specified at 12.5 paise involved in ‘Works Contract’ and ‘Lease’ and the rate of tax of goods specified in the Schedules of the same VAT Act. There can not be double rate of tax on the same commodity for the purpose of ‘Plain Sale’ or ‘Sale in the course of Works Contract’ as well as the alleged sales on ‘Lease’. Obviously, discrimination has been well maintained in tax-net scenario under the VAT Act of Assam.The VAT law in Assam provided the measure of Composition of tax on works contract to be exercised by the works contractors at their own option in dispensing with the requirements of making payment of tax on the sales element under the VAT Act. The rate of tax payable as Composition of tax under such Scheme has been specified at 4 paise in the rupee on the gross value of ‘Works Contract’. Apparently, this is abusive of the principle of levy of tax, as enumerated in the Constitution read with the definition of VAT Act.A transfer of property in goods involved in ‘Works Contract’ is liable to be taxed. A tax is leviable on the taxable commodities and not on the exempted ones. Moreover, labour charges, transport charges and other allied charges involved on the works contract can not be brought under the purview of taxability.Transfer of right to use any goods in connection with lease is not a permanent sale of good. It is casual deal without maintaining any continuity. A lease deal on the same commodity may be frequent on the expiry of the specified period of time, but it may not be on chain system. This has provided scope for levy of tax on the same item leased without any scope for any credit of input tax. The legislatures have not specified the items to be taxed on lease and the levy of tax on lease has been made wide and open. It may naturally have an adverse effect to the lessesors and lessee when to be taxed on small deals of lease. No ‘taxable quantum’ has also been specified on lease deals. A confusion always prevail over the question of ‘Hire’ and ‘Lease’, as it has not been well analysed in the system. In absence of that creation of confusion to the dealer and exercise of powers by the taxing authority arbitrarily can not be ruled out in the matter.Our above projection explaining the propriety of taxability in ‘Works Contract’ and ‘Lease’ ought not to have incorporated in the VAT Act of Assam, which maintain a separate aim and object with separate way of functioning. On the other hand, the levy of tax on transfer of property in goods involved Works Contract and transfer of right to use good on lease can not be given a good bye, as a substantial amount of tax revenue pours into the state coffer annually.A separate enactment of law is considered to be imperative for the sake of better tax administration vis-à-vis proper augmentation of revenue of the State without any scope of disputes or controversy.

(Mrinal Kanti Chakrabarty)

10, Lakhimi Path,

R.G. Barua Raod

Guwahati – 781024, India

98642-01694 (M)