Wednesday, March 26, 2014
Restriction Of Input Tax Credit And Admissibilty Of Tax Set-Off On Liquor And Tea (Causing drainage of revenue)
The levy of tax on the sales or purchases of the goods within a State along with the other allied and ancillary matters is governed by the Assam Value Added Tax Act, 2003. ‘Value Added Tax’ means ‘a tax on the sale of any goods at every point in the series of sales made by the registered dealer with the provision of credit of input tax paid at the points of previous purchases thereof’. ‘Output -tax’ in relation to a registered dealer means ‘the tax charged or chargeable under the Value Added Tax Act in respect of the goods sold by a dealer’. ‘Input -tax’, on the other hand, means- ‘the amount paid or payable by way of tax under this Act by a purchasing registered dealer to a selling registered dealer on the purchase of goods in the course of business.’ ’The ‘Out put tax’ and ‘the Input tax’ are the two sides of the same coin. The former is a tax on sales of goods, while the latter is a tax on the purchases of same goods without any numeral change. For the seller it is an out-put tax and for the purchaser it is an input tax.
The Value Added Tax (VAT) is thus a tax, which is to be levied on the series of sales made from the manufacturers’ level to the consumers’ level or from the importers’ level to the consumers’ level. Such tax is to be levied at each stage of sale, subject to credit of input tax paid at the time of the previous purchases made. The State gets the rightful and legitimate tax on the deals; the traders are benefited by making payment of the difference of the amount of tax; but the burden of multiple of tax is to be shouldered by the consumers, which results in heavy price hike of the commodities.
By making a deviation on the principle of VAT law even without any proper explanations thereof, a series of goods were brought under the purview of the First point sale of goods in Assam in the Fourth Schedule of the said said Act. Crude Oil, Petrol, Diesel, Petroleum products, Foreign liquor, (whether made in India or not), Pre-owned cars, Tea and many other commodities were identified in the first point tax-net of Assam, meaning thereby; that no tax is payable on the subsequent sales of such commodities, subject to discharge of onus that the taxes were paid at the point of the first sale made in Assam. No in-put tax credit is admissible in respect of the tax paid on the previous purchase of such goods, covered by the Fourth Schedule of the VAT Act, as laid down in section 14 (1) of the said Act.
Our point of discussion in this instant paper is on the question of input tax credit/ set off in respect of two commodities, namely; ‘Foreign Liquor’ and ‘Tea’. An idea on the concept of input- tax credit has been given above. ‘Set-off’ means a thing heightening the quality by contrast, to serve as a contrast or foil for enhance. Sub-Section (6) of Section 14 of the VAT Act of Assam laid down- “No input tax credit shall be claimed by a registered dealer or shall be allowed to him for- the tax paid purchases of goods used in exploration, extraction, manufacture, processing or packing of goods specified in the First and Fourth Schedule (First Schedule contains the list of the goods, exempted from tax, while the Fourth Schedule is in relation to the goods taxable at the point of first sale in Assam.) Naturally, therefore, the input credit taxes are not admissible on the sales of Foreign Liquor and Tea, sold in the State of Assam in view of the restriction, imposed.
That being the spirit of the VAT Act, some contradictory provisions are found to have been incorporated subsequent to the original enactment:
Potable liquor- Section 10 (1A), was incorporated in the VAT Act, which reads:- “Notwithstanding anything in this Act, the retail ‘on’ license holder for potable liquor mentioned in the fourth Schedule, except country spirit, shall pay out- put tax on sale made by him at the applicable rate specified therein and he shall be eligible for set-off of the amount of tax paid by him at the time of purchase of such potable liquor from the bonded warehouse.”
Tea- Clause (iii) of sub- section (3) of Section of the VAT Act was amended and reads- “A dealer, who purchases tea through such tea auction centre and then sells such tea inside the State shall be deemed to be the first point seller and he shall be entitled to get set-off of the amount of tax paid on purchase, from the amount of tax payable by him on sale under this Act”.
Section 10 of the Act is a tax charging measure. It provided the power of levy of tax on the sales of the commodities, as per the Schedules, annexed to the Act. There ought not to have been question of allowing any set-off of the tax, side by side. In the said Section of the Act, it was specified that the inter-se-sale of the petroleum products from one Oil Company to the other, are not to be treated as the first point of sale in Assam and no tax was chargeable or leviable on such sales, subject to production of a declaration in this respect. This is obviously a departure from the real spirit of the said law. This seems to be a unique exercise in the tax scenario of Assam. In the case of potable liquor, however, the tax was to be charged and paid, but it was subsequently inserted that the taxes, so paid, will be admissible for set-off. Likewise, in the case of tea, the tax was to be charged, paid and the amount of tax so paid is admissible for set-off.
There seems to have been some extra curriculum activities ignoring the basic principle and all such enactments/amendments were designed to provide fiscal benefits to the traders at the cost of revenue of the State. Consequently, there has been huge drainage of revenue years after years from the State Exchequer. The State tax machineries ought to have examined these practical aspects of law and to come forward so that the revenue of the State is properly safe-guarded.
In fact, liquor and tea have multifarious stages of sales and the State could have earned a substantial amount of revenue on such series of sales, but mysteriously enough, the said commodities were brought under the purview of the first point tax -net of Assam with provisions for set-off of the amount of tax paid, which obviously paved the way for the loss of revenue.