Wednesday, August 22, 2012
“No Government can exist without taxation. The money must necessary be levied on the people; and the grand art consists of levying so as not to oppress the people”- Frederik the Great of Russia. The famous diplomat and economist in the Mauryya empire, “ Chanakya” or ‘Kautilya”, on the other hand, observed- “The king shall first reform the administration, by punishing appropriately those officers, who deal in wealth; they duly being corrected, shall use the right punishment to ensure good conduct of the people of the town and the countryside.” These two folds of observation are indeed the guide-lines in proper conduct of tax administration in the State as well the country as a whole.
Law is a weapon to carry on the administration in a proper and smooth way, so as to ensure proper collection of tax revenue as well to augment the position of the State Exchequer, by way of undertaking and implementing the plans and programmes for the welfare of the people as well as the development of the State. Our instant topic of discussion is on “tax on sales or purchases of goods within Assam or in the course of inter-State trade or commerce under the banner of the taxation laws, operative within the State of Assam.”
Taxation laws on sales or purchases of goods locally in Assam
The State tax machineries are equipped with two folds of taxation laws for the purpose of administration in the matter of levy and collection of taxes with other allied matters, connected therewith. Those are : “The Assam Value Added Tax Act, 2003 (VAT Act), operative from 01.05.2005” and “The Central Sales Tax Act, 1956 (Central Act), operative from 05.01.1957.” .The former is an State Act, enacted at the behest of the Legislatures of Assam, while the second one is a Central Act, enacted by Parliament long 55 years aback. The former taxation law was adopted by the State Legislatures of the State under clause (3) of Article 246 read with entry 54 of List-II (State List) in the Seventh Schedule of the Constitution of India (Constitution), while the latter was enacted by Parliament by virtue of the powers conferred by clause (1) of Article 246 read with entry 92A of List-I (Union List).
The ‘Sales tax law in Assam’ had a long background. Under the authority conferred by the Government of India Act, 1935 in sub-section (3) of Section 100 read with entry 48 of List II (State List), the Provincial Legislative of Assam first enacted “ The Assam Sales of Motor Spirit and Lubricants Taxation Act, 1939”, which was repealed and substituted by the “ The Assam (Sales of Petroleum and Petroleum Products, including Motor Spirit and Lubricants) Taxation Act, 1955” with effect from 01.05.1956. Thereafter, under the said authority conferred by the Government of India Act, 1935, a tax law on sales or purchases of goods within the State of Assam came into force from 24.12.1947 in the post- independence period. After adoption of the Constitution on 26.01.1950, the Legislature of Assam enacted “The Assam Finance (Sales Tax) Act, 1956” with effect from 01.07.1956 with a view to levy tax on the goods, imported from the places out side the State of Assam and also on the goods manufactured and processed in Assam under the authority of entry 54 of the State List, as discussed in the first para above read with clause (a) of Article 304 of the Constitution Likewise, a tax on the last purchase of goods in Assam was enacted under the title “ The Assam Purchase Tax Act, 1967”on the same footing of the Constitution and it came into effect from 03.07.1971.” All these Acts were amalgamated, consolidated and amended and a new Act, namely; “The Assam General Sales Tax Act, 1993” was brought into existence with the date of operation from 01.07.1993. The VAT Act is a new measure of tax in supersession of the AGST Act.
The liability to pay tax under the VAT Act arises at every stage of sale affected in Assam, subject to credit of input tax paid at the time of previous purchase of goods with the way of functioning, designed in this respect. The measure of tax on such goods were adopted in respect of some specified goods with the rates of tax, presently @ 5 paise in the rupee @ 1 and 2 paise in the rupee, some unclassified goods, transfer of property in goods, involved in works contract and transfer of right to use any goods for a specified period under lease @ 13.5 paise in the rupee.
In addition to the above, a series of goods with different rates of taxes were incorporated in the Schedules of the VAT Act, which were designed as taxable at the point of first sales in Assam, contrary to the principle laid down in the theme of the VAT Act for levy of tax at every stage of sales of goods made within the State of Assam. This tax measure seems to be irrelevant in the VAT scenario, which is nothing but a measure of value added tax in the series of multiple points of tax right from the manufacturer or importer upto the level of the sales made to the consumers. However, the administration of the VAT Act is being carried on with yield of increased quantum of collection, which reached to Rs. 5136.36 crores in the year 2011-12 against Rs. 3952.20 crores in the year 2010-11. The collection of tax and proper administration of tax laws can not be at par and both have separate entity.
Taxation law on the sales or purchases of goods in the course of inter-State trade or commerce
The taxation law on the sales or purchases of goods in the course of inter-State trade or commerce, namely; the Central Act has been made operative since 05.01.1957, as stated above, and the administration in the matter of levy of tax under the said Act with other allied matters, is being carried on till now. The enactment of this Act was a product of authority conferred by amendment of Article 269 of Constitution vis-à-vis insertion of a new entry 92A in the Seven Schedule of the Union List, when it was felt incumbent that the levy of tax was imperative on the continuous growing trend of the sales or purchases of goods in the course of inter-State trade or commerce.
Powers and functions of the Central Act to be governed by the general sales tax law of the State (viz VAT Act)
Sub-section (2) of Section 9 of the Central Act provided :- “The authorities, empowered to assess, re-assess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall on behalf of the Government of India assess, re-assess, collect or enforce payment of tax including any interest or penalty, payable by a dealer under this Act, as if the tax or interest or penalty payable under the general sales law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State. The said sub-section also laid down that all the provisions relating to return, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of tax liability of a person carrying on business on transferee of or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the event of any dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, review, revisions, references, refunds, rebates, penalties charging or payment of interest, compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly.”
Sub-section (2A) of the said Section 9 of the Central Act, on the other hand, laid down, as follows:
“All provisions relating to offences, interest and penalties (including provisions relating to penalties, in lieu of prosecution for an offence in addition to the penalties or punishment for an offence,( but excluding the provisions relating to matters provided in Section 10 and 10A) of the general sales tax law of such State, shall with necessary modification shall apply in relation to the assessment, re-assessment, collection and enforcement payment of payment of any tax required to be collected under this Act in such State or in relation to any process connected with such assessment, re-assessment, collection or enforcement of payment, as if, the tax payable under this Act were a tax under such sales tax law.”
The implication of the above provisions of the Central Act is very clear. It provided a broad guide line to carry on the administration in certain matters in respect of the provision of the said Act under the provisions of the VAT Act.
The Central Act contained some independent provisions of law , which are to be administered independently without taking resort to the provisions of Sub-section (2) and (2A) of Section 9 of the said Act. Those are, inter-alia, “(i) Provisions relating to Import and Export (Section 5); (ii) Liabilities to pay tax on inter-State sales, exemption in course of sales of goods by transfer of the title of the goods during the course of movement from one State to another (Section 6); (iii) Transfer of stock of goods out side the State ( Section 6A));(iv) Registration of the dealers (Section 7); (v) Rate of tax on the sale in course of inter-State trade or commerce(Section 8); (vi) Penalties (institution of case in the court of law) (Section 10); (vii) Imposition of penalty in lieu of prosecution (Section 10A), (viii) Cognizance of offences- sanction and trial (Section 11)………..”
It will be seen that the above provisions of the Central Act were not incorporated in Sub-sections (2) and (2A) of Section 9 of the Central Act and as such the same are to be administered independently under the statutory provisions of the said Act itself, implying thereby that, the aforesaid provisions will have no scope for governance towards carrying on the administration under the provisions of the VAT Act. For the present, we take up for discussion on a particular topic ‘Registration’, as occurred in Section 7 of the Central Act.
The Government of India by a Notification No. SRO 643 dated 22.02. 1957, issued under Sub-section (1) of Section 7 of the Central Act, specified the competent authorities to whom the application of registration under the Central Act is to be filed vis-à-vis the onward action to be taken in the matter. Such competent authority, specified in the aforesaid notification, is inter-alia, the authority, competent to register a dealer under the general sales tax law of the State (that, is the VAT Act), if any such dealer is liable for registration. There is no question of delegation of power under the VAT Act or any power of governance in the matter of administration of the registration proceedings under the provisions of the VAT Act.
The fragments of Section 7 of the Central Act relation to registration are :-“ (i) Sub-section (1) -A dealer liable to pay tax is to apply for registration; (ii) Sub-section (2) : A dealer, purchasing goods from other State in the course of inter- State trade or commerce, is to apply for registration; (iii) Sub-section (3) - Registration of a dealer for liabilities under Sub-section (1) & (2); (iv) Sub-section (2A) Security required to be furnished by a dealer for reasons to be recorded by the competent authority thereof; (v) Sub-section (3A) – Additional security to be furnished by the dealer for proper payment of tax and proper custody and use of the Forms to be furnished by dealer for reasons to be recorded by the competent authority thereof; (vi) Sub-section (3-B) Security or additional security are required to be furnished by the competent authority after giving an opportunity of being heard; (vii) Sub-Section (3BB)- The quantum of payment of the amount of security or additional security made in the form of surety bond and such surety, if becomes insolvent or dies, the dealer is to inform the competent authority in this respect and to furnish fresh surety for the amount of the bond; (viii) Sub-section (3D) forfeiture of the amount of security in full or part thereof for realization of amount of tax and penalty to recover the loss for misuse of the Forms, subject to providing of an opportunity provided to the dealer of being heard; (ix) Sub-section (3E)- To demand fresh security, in case the amount of security is found to be insufficient; (x) Sub-section 3(F)- Refusal to issue fresh Form for non-compliance with requirements to furnish security; (xi) Sub-section 3(G) -To refund the amount of security or part thereof by the competent authority on application to be filed in this behalf by the dealer, when it is not required for the purpose of the Central Act; (xii) Sub-section 3(H), 3(I) and 3(G) – filing of appeal before the appellate authority, when a dealer is aggrieved by the order of the competent authority in relation to order for furnishing security or additional security, hearing and order passed thereon; (Sub-section (4) & (5) Amendment or cancellation of the Certificate of Registration on application by the dealer or on motion by the competent authority, granting the same.
Apparently, therefore, the competent authority, notified under sub-section is the actual authority to exercise the powers under Section 7 of the Central Act, except the power of the appellate authority against the order of security and additional security is to be exercised by a separate forum on application filed in Form 5A, specified in the Assam Rules of the Central Act. The ‘appellate authority’ has been defined in clause (aaa) of rule 2 of the Assam Rules of the Central Act, but the rule is not very much clear in regard to such appellate authority.
It has been found that confusions have been cropped up in the spheres of administration of the provisions of Section 7 of the Central Act and the matters connected therewith, like; demand of security, additional security, forfeiture and refund of security and additional security amongst the taxing authority, competent to make administration of the Central Act. In the matter of requiring to furnish the additional security, the mandatory provisions of the sub-section (3A) and (3B) of Section 7 of the Central Act are neither observed nor given proper cognizance to the same. Some matters, as it seem, are sought to be governed by the provisions of the VAT Act, which ,in fact, seems to be unwarranted and irrelevant with a wrong coverage given to cause acute hardship and inconveniences to the dealers by way of misinterpretation of the provisions of the Central Act. A farce is in sight in the name of refund of security instead of forfeiture of security at the intermediary stage in the normal way of functioning.
In order to make a halt in respect of such a shortfall, it is hoped that the implications of the relevant provisions of the Central Act, where the power of administration of the Central Act has been vested to function independently, without resorting to the provisions of the VAT Act, may be studied properly and a review is made by the highest authority of the tax administration of the State so as to make a solution of the prevailing controversy. For that purpose, a free and constructive dialogue is considered necessary to come to a consensus.