Monday, November 17, 2008
BOOKS TO BE INAUGURATED
Two books in Assamese, namely “Jiwan Darshan” and “Abhibyakti” will be inaugurated on 10th December 2008 at 3 P.M. at the Sangitacharyya Laksmi Ram Barua Sadan of Asam Sahitya Sabha (Guwahati) on the Seventy Second birth anniversary of the writer Shri Mrinal Kanti Chakrabartty.
Tuesday, September 2, 2008
STATUTORY POWER EXERCISING MACHINERIES
VAT LAW IN ASSAM
‘Power conferred’ and ‘power exercised’ are the two inherent and indispensable ingredients of administration of law. The power delegation and power exercise scenario are very much there in the Constitution of India (Constitution) and Laws of the land. Without this, the administration will be one man’s or one authority’s game. Our instant discussions mainly confined to the administration of the Value Added Tax Act of Assam (VAT Act), 2005.
The Supreme authority to exercise powers under the VAT Act is the Commissioner of Taxes, Assam (Commissioner). He is assisted by the taxing authorities, namely; the Additional Commissioners of Taxes, Joint Commissioners of Taxes, Deputy Commissioners of Taxes, Assistant Commissioners of Taxes, Superintendents of Taxes and the Inspectors of Taxes, appointed by the State Government, who can exercise the powers of the Commissioner by virtue of such powers delegated to them in accordance with the provisions of the Act subject to the conditions and restrictions, imposed by the rules prescribed by the Act
There has been some departure/ deviation from the main theme of the VAT Act and the power delegation and power exercise episode sometimes become controversial. A discussion will bring out the points of controversy.
(i) Rule 6 of the VAT Rules specified a table providing way and scope for delegation of powers by the Commissioner to the taxing authorities, appointed to assist him. In the said table, the taxing authority, namely; the Assistant Commissioner of Taxes did not figure at all. While delegating powers by the Commissioner, the Assistant Commissioners of Taxes were accommodated in the power exercise scenario, which seems to be direct clash with the provisions of rule 6, as aforesaid. Though this acute irregularity persists since 1st May, 2005, the State Government did not think it proper to make modification of the same during these long three years’ and four months’ period.
(ii) Rule 6 provided that power of scrutiny of returns (Section 33), Provisional assessment (Section 34), Self assessment (Section 35), Audit assessment (Section 36), Best judgment assessment (Section 37), Assessment in case of the un-registered dealers (Section 38), Assessment of turnover escaping assessment (Section 39), Power to re-assessment in certain cases (Section 41) etc. are to be delegated to the Superintendent of Taxes.
(iii) The Superintendent, as defined in VAT Rules means the Superintendent of Taxes appointed by the Government by that designation within whose jurisdiction the dealer’s place of business is situated or if the dealer has more than one place of business, the Superintendent of Taxes in whose jurisdiction, the principal place of business is located or if the dealer has no place of business, the Superintendent of Taxes, who has been so notified by the Commissioner.
(iv) It aptly implies that there should be one Superintendent of Taxes in respect of a dealer in a particular area where his place of business or the principle place of business is situated.
(v) Contrary to this spirit of law, the Commissioner by notifications dated 28th April, 2005 delegated his powers to the taxing authorities before coming into force of the VAT Act, which did not maintain the rational and judicious approaches
(vi) The Commissioner delegated his power of self- assessment (Section 35) to the Superintendent of Taxes of the area and not the other assessment powers.
(vii) The powers of provisional assessment and escaped assessment (section 34 and 40) were delegated to the Superintendents of Taxes, attached to the Commissioner, who it seems were not appointed as a the taxing authority by the Government to make a base in tax administration.
(viii) The power of audit assessment was delegated to the Audit team, constituted by the Commissioner, which in fact, does not have any locus- standi in the VAT Act.
(ix) Thus it is evident that :
(a) the power of provisional assessment, best judgment assessment, escaped assessment, those are being exercised by the unit Superintendents of Taxes seem to be without any delegation of powers
(b) the ‘Audit Team’, though not enunciated in the Act, is nothing but some sorts of investigation wing, while the ‘Audit Assessment’ is quasi-judicial function, which can not be mingled together in view of the doctrine of separation of power, as laid down in Article 50 of the Constitution.
(c) Similarly, the quasi-judicial power conferred to the Superintendents of Taxes, attached to the tax Commissionerate seems to be a matter of controversy,
(x) The Superintendents of Taxes of the area have not been delegated with the
powers of Registration (Section 21, 22,23 etc.) and thus the registration
proceedings, security demand proceedings etc. are being exercised without
any delegation of powers, which are naturally counted as the matter of controversy
(xi) Rule 6 restricted the delegation of power to compound offences to the
Superintendents of Taxes only, but the Commissioner delegated such powers of Compounding of offences to the Additional Commissioner, Joint Commissioner, Deputy and Assistant Commissioners of Taxes, ignoring the restrictions.
. The General Sales Tax Law in Assam came into operative since December 24th, 1947. The power delegation exercise was methodical, rational and judicious. This long tradition had an erosion since the last part of the twentieth century and it took a diametrically opposite turn in the VAT Law in Assam causing some serious set backs and anomalies in the tax administration forum.
The matter s were discussed in a number of times through the media, but was of no avail.
( Mrinal Kanti Chakrabartty)
“Rudra Bhawan”
R.G.Barua Road,10-Lakhimipath
Guwahati-781024
‘Power conferred’ and ‘power exercised’ are the two inherent and indispensable ingredients of administration of law. The power delegation and power exercise scenario are very much there in the Constitution of India (Constitution) and Laws of the land. Without this, the administration will be one man’s or one authority’s game. Our instant discussions mainly confined to the administration of the Value Added Tax Act of Assam (VAT Act), 2005.
The Supreme authority to exercise powers under the VAT Act is the Commissioner of Taxes, Assam (Commissioner). He is assisted by the taxing authorities, namely; the Additional Commissioners of Taxes, Joint Commissioners of Taxes, Deputy Commissioners of Taxes, Assistant Commissioners of Taxes, Superintendents of Taxes and the Inspectors of Taxes, appointed by the State Government, who can exercise the powers of the Commissioner by virtue of such powers delegated to them in accordance with the provisions of the Act subject to the conditions and restrictions, imposed by the rules prescribed by the Act
There has been some departure/ deviation from the main theme of the VAT Act and the power delegation and power exercise episode sometimes become controversial. A discussion will bring out the points of controversy.
(i) Rule 6 of the VAT Rules specified a table providing way and scope for delegation of powers by the Commissioner to the taxing authorities, appointed to assist him. In the said table, the taxing authority, namely; the Assistant Commissioner of Taxes did not figure at all. While delegating powers by the Commissioner, the Assistant Commissioners of Taxes were accommodated in the power exercise scenario, which seems to be direct clash with the provisions of rule 6, as aforesaid. Though this acute irregularity persists since 1st May, 2005, the State Government did not think it proper to make modification of the same during these long three years’ and four months’ period.
(ii) Rule 6 provided that power of scrutiny of returns (Section 33), Provisional assessment (Section 34), Self assessment (Section 35), Audit assessment (Section 36), Best judgment assessment (Section 37), Assessment in case of the un-registered dealers (Section 38), Assessment of turnover escaping assessment (Section 39), Power to re-assessment in certain cases (Section 41) etc. are to be delegated to the Superintendent of Taxes.
(iii) The Superintendent, as defined in VAT Rules means the Superintendent of Taxes appointed by the Government by that designation within whose jurisdiction the dealer’s place of business is situated or if the dealer has more than one place of business, the Superintendent of Taxes in whose jurisdiction, the principal place of business is located or if the dealer has no place of business, the Superintendent of Taxes, who has been so notified by the Commissioner.
(iv) It aptly implies that there should be one Superintendent of Taxes in respect of a dealer in a particular area where his place of business or the principle place of business is situated.
(v) Contrary to this spirit of law, the Commissioner by notifications dated 28th April, 2005 delegated his powers to the taxing authorities before coming into force of the VAT Act, which did not maintain the rational and judicious approaches
(vi) The Commissioner delegated his power of self- assessment (Section 35) to the Superintendent of Taxes of the area and not the other assessment powers.
(vii) The powers of provisional assessment and escaped assessment (section 34 and 40) were delegated to the Superintendents of Taxes, attached to the Commissioner, who it seems were not appointed as a the taxing authority by the Government to make a base in tax administration.
(viii) The power of audit assessment was delegated to the Audit team, constituted by the Commissioner, which in fact, does not have any locus- standi in the VAT Act.
(ix) Thus it is evident that :
(a) the power of provisional assessment, best judgment assessment, escaped assessment, those are being exercised by the unit Superintendents of Taxes seem to be without any delegation of powers
(b) the ‘Audit Team’, though not enunciated in the Act, is nothing but some sorts of investigation wing, while the ‘Audit Assessment’ is quasi-judicial function, which can not be mingled together in view of the doctrine of separation of power, as laid down in Article 50 of the Constitution.
(c) Similarly, the quasi-judicial power conferred to the Superintendents of Taxes, attached to the tax Commissionerate seems to be a matter of controversy,
(x) The Superintendents of Taxes of the area have not been delegated with the
powers of Registration (Section 21, 22,23 etc.) and thus the registration
proceedings, security demand proceedings etc. are being exercised without
any delegation of powers, which are naturally counted as the matter of controversy
(xi) Rule 6 restricted the delegation of power to compound offences to the
Superintendents of Taxes only, but the Commissioner delegated such powers of Compounding of offences to the Additional Commissioner, Joint Commissioner, Deputy and Assistant Commissioners of Taxes, ignoring the restrictions.
. The General Sales Tax Law in Assam came into operative since December 24th, 1947. The power delegation exercise was methodical, rational and judicious. This long tradition had an erosion since the last part of the twentieth century and it took a diametrically opposite turn in the VAT Law in Assam causing some serious set backs and anomalies in the tax administration forum.
The matter s were discussed in a number of times through the media, but was of no avail.
( Mrinal Kanti Chakrabartty)
“Rudra Bhawan”
R.G.Barua Road,10-Lakhimipath
Guwahati-781024
TAX DOGING: AN ECONOMIC OFFENCE
Tax dodging is a burning problem of the day. It has spread like the cancerous tissues affecting adversely the collection of revenue. A serious threat to the state economy is knocking at the door and naturally mass people are anxious for remedial measures.
Of late, the State Tax Commissioner Mr. Sanjay Kumar Lohia spoke before the news media and it aptly made crystal clear that the extent of evasion of tax has gained the momentum in the state whereby doldrums has been created in the state economy. The honest and necked exposures made by him in relation to the evasion of taxes reflected an ugly picture of the functioning of the check posts vis-à-vis the tax administrative machineries of Assam. The mass people of Assam are constrained to hold that the revenue administration has been getting declined. It is undoubtly well established that the base yards of revenue generation Scheme, namely; the border check post at Sreerampur and Boxirhat, the gateways of Assam, could not be mobilized in a planned and systematic manner. The required infrastructure could not be provided and the qualitative skilled manpower is absent very much. Though the ball entirely rests in the court of the State Govt., it mysteriously maintained a cipher attitude to mend the deficiencies and to do way with the persistent lacunae and odds. Since long floods of advice and suggestions were poured to the State Govt. for acceleration and upgrading the functioning of the check posts, but it reached to the deaf ears and amounted to be a far cry in the wilderness. There is no reaction of the people’s demand and thought provoking advice and suggestions.
One will hardly appreciate that 98 percent of the incoming loaded trucks make their safe and extensive ways into the State without being physically intercepted and checked. Naturally, vehicles with under-weight, mis-classified and unaccounted goods use to enter into Assam without any hindrances and take berth in the trade scenario of Assam abstaining from discharging the statutory obligations and liabilities to pay tax on sale of such goods. Naturally tax-dodging episode spread throughout the state by leaps and bound.
The tax commissioner Mr. Lohia asserted that last year tax evasion amounting Rs. 198 crore was detected but he was not conspicuous in the statement about the out turn derived thereon. Whether it was simply a paper work is not known? The Statement that 40 (forty) crore of evaded taxes were realized by seizing goods vehicles in March, 2008 reflected a horrible picture on the functioning of the Check Post through which the goods vehicles entered into the State of Assam. It has, on the other hand, been noticed that due stress is given for detecting evasion of taxes in Guwahati city, while no effort or endeavour is there in detecting other important commercial places of Assam and such vital task is ignored or neglected. The evaders can safely move the goods vehicle through the North Bank of Brahmaputra without any hindrances and thereby indulge evasion of taxes.
In his own words the tax commissioner is fully aware of the prevailing tax dodging activities, but he is non-committal to dislodge or curb the ugly games played by a section unscrupulous traders, which is of dire necessity at this stage. It can be well construed that tax machinery has been kept paralised jeopardizing the revenue generation exercise.
It is well aware that nullification of Entry Tax Act and reduction of central sale tax have been a dominating factor in the matter of short fall in the matter of collection of revenue, but it is not a denial of fact that scope for recoupment of such pecuniary loss is quite existent by way of making a halt of the tax dodging episode.
The introduction of composite tax payment system contrary to the persistent procedure of tax payment on the sale value of goods has been quite detrimental to the VAT regime exercise. The composite tax system on the production of bricks, on the entire value of works Contract, on the import value of marbles go against the Constitutional themes and guidelines. The concept of tax on sale or purchase of goods has been given a good bye. This measure may end in a fiasco if challenged by any aggrieved or disgruntled traders.
The anticipated curbing of tax evasion by way of erecting composite tax check posts at Sreerampur and Boxirhat will be a long course of action. We can dream, but we should not plunge in deep slumber on such designed activity. The best course of action is to be up and doing in the race.
Tax evasion is an economic offence. It is offensive in the social stature as well. If the tax machineries are cautious and conscious to curb evasion of taxes a serious catastrophe on the state economy will be imminent within a short period of time.
(Mrinal Kanti Chakraborty)
Date – 5/04/2008
Rudra Bhawan
R.G. Baruah Road
10 Lakshmipath
Guwahati-24
Of late, the State Tax Commissioner Mr. Sanjay Kumar Lohia spoke before the news media and it aptly made crystal clear that the extent of evasion of tax has gained the momentum in the state whereby doldrums has been created in the state economy. The honest and necked exposures made by him in relation to the evasion of taxes reflected an ugly picture of the functioning of the check posts vis-à-vis the tax administrative machineries of Assam. The mass people of Assam are constrained to hold that the revenue administration has been getting declined. It is undoubtly well established that the base yards of revenue generation Scheme, namely; the border check post at Sreerampur and Boxirhat, the gateways of Assam, could not be mobilized in a planned and systematic manner. The required infrastructure could not be provided and the qualitative skilled manpower is absent very much. Though the ball entirely rests in the court of the State Govt., it mysteriously maintained a cipher attitude to mend the deficiencies and to do way with the persistent lacunae and odds. Since long floods of advice and suggestions were poured to the State Govt. for acceleration and upgrading the functioning of the check posts, but it reached to the deaf ears and amounted to be a far cry in the wilderness. There is no reaction of the people’s demand and thought provoking advice and suggestions.
One will hardly appreciate that 98 percent of the incoming loaded trucks make their safe and extensive ways into the State without being physically intercepted and checked. Naturally, vehicles with under-weight, mis-classified and unaccounted goods use to enter into Assam without any hindrances and take berth in the trade scenario of Assam abstaining from discharging the statutory obligations and liabilities to pay tax on sale of such goods. Naturally tax-dodging episode spread throughout the state by leaps and bound.
The tax commissioner Mr. Lohia asserted that last year tax evasion amounting Rs. 198 crore was detected but he was not conspicuous in the statement about the out turn derived thereon. Whether it was simply a paper work is not known? The Statement that 40 (forty) crore of evaded taxes were realized by seizing goods vehicles in March, 2008 reflected a horrible picture on the functioning of the Check Post through which the goods vehicles entered into the State of Assam. It has, on the other hand, been noticed that due stress is given for detecting evasion of taxes in Guwahati city, while no effort or endeavour is there in detecting other important commercial places of Assam and such vital task is ignored or neglected. The evaders can safely move the goods vehicle through the North Bank of Brahmaputra without any hindrances and thereby indulge evasion of taxes.
In his own words the tax commissioner is fully aware of the prevailing tax dodging activities, but he is non-committal to dislodge or curb the ugly games played by a section unscrupulous traders, which is of dire necessity at this stage. It can be well construed that tax machinery has been kept paralised jeopardizing the revenue generation exercise.
It is well aware that nullification of Entry Tax Act and reduction of central sale tax have been a dominating factor in the matter of short fall in the matter of collection of revenue, but it is not a denial of fact that scope for recoupment of such pecuniary loss is quite existent by way of making a halt of the tax dodging episode.
The introduction of composite tax payment system contrary to the persistent procedure of tax payment on the sale value of goods has been quite detrimental to the VAT regime exercise. The composite tax system on the production of bricks, on the entire value of works Contract, on the import value of marbles go against the Constitutional themes and guidelines. The concept of tax on sale or purchase of goods has been given a good bye. This measure may end in a fiasco if challenged by any aggrieved or disgruntled traders.
The anticipated curbing of tax evasion by way of erecting composite tax check posts at Sreerampur and Boxirhat will be a long course of action. We can dream, but we should not plunge in deep slumber on such designed activity. The best course of action is to be up and doing in the race.
Tax evasion is an economic offence. It is offensive in the social stature as well. If the tax machineries are cautious and conscious to curb evasion of taxes a serious catastrophe on the state economy will be imminent within a short period of time.
(Mrinal Kanti Chakraborty)
Date – 5/04/2008
Rudra Bhawan
R.G. Baruah Road
10 Lakshmipath
Guwahati-24
Wednesday, August 13, 2008
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)
‘Rudra Bhawan’
R.G. Baruah Road
10 Lakshmipath
Guwahati-24
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)
‘Rudra Bhawan’
R.G. Baruah Road
10 Lakshmipath
Guwahati-24
Tuesday, February 27, 2007
Saturday, February 10, 2007
Paper read out in the Seminar Organised by All India Services Pensioners’ Cell held on 2nd July,2005
VAT-ITS IMPLICATION FOR THE COMMON PEOPLE
Hon’ble Chairman and respected gentlemen :
I am really thankful to you all for giving me an opportunity to speak on the topic “ VAT- its implication for the common people”. I was working in the Assam Taxation Department and retired from service as the Superintendent of Taxes on May, 31st, 1996. The Value Added Tax, popularly known as ‘VAT’ is, therefore, a new subject to me and I am yet to acquire sufficient knowledge on the subject. Even then, I am trying to project some salient features on the concept of VAT, its constitutional base, impact and implication on the common people and other allied matters to the best of ability.
Assam has immense visible and potential natural resources, namely; agricultural, forest, mineral, water resources. A proper utilization and mobilization of such natural resources may have the consequential effect of immense growth of revenue resources. Assam is, in fact, legging far behind in the industrial scenario, compared to other States of India. The trade activities mainly rest with the sales of goods, imported from places out side the State. To speak truly, Assam is a consuming State rather than a manufacturing State, having no adequate industrial base and other infrastructure. The price structure of the commodities, therefore, always runs to a higher side, compared to the same at the source. The VAT is a tax, which is payable at every stage of sale from the purchase of raw materials in the State till the sale of manufactured products made to the level of the consumers. Again, the sales of imported goods by the whole sellers to the retail sellers and then upto level of the consumer’s incidents of tax will be there.
Assam produces jute, superi, ginger, bamboo and different types of oil seeds in abundance. The raw hides and skins, bones of animals can well be had from the carcasses of animals,- domestic and wild. There is, however, no wide platform for manufacturing and processing activities of many of those materials. Those goods are mostly despatched to other States for manufacturing and trade activities. Thus other States are deriving commercial base and fiscal benefits at the cost of these precious resources of Assam.
The tax revenue collection of Assam was Rs. 2332.00 crore in 2004-2005 as against Rs.528.56 crore in 1994-95. The expansion of the businesses, enlargement of the volume of business, introduction of new measures of tax, enhancement of the rates of tax, change of consumers’ pattern in the modern hi-tech era etc. have a large impact on the revenue generation scenario of Assam.. The State tax officers have also been playing a pivotal role in such revenue generation exercise. We are hopeful that the tax revenue target fixed for 2005-06 at Rs. 2900 crore will safely achieve its goal, if the implementation of the VAT system goes in a right and proper direction.
Constitutional back ground on VAT Law
A tax on the sale or purchase of goods is a State subject. The State Legislatures have been empowered to make law on tax on the sale or purchase of goods within the State by Article 246(3) read with entry 54 -List II- (State List) in the Seventh Schedule of the Constitution of India.
Introduction of the system of VAT.
Keeping this object in view, the Legislatures of Assam adopted the Assam Value Added Tax Bill, 2003. The measure of VAT could not be implemented, as there was lack of consensus amongst the States. However, barring a few States, the system of VAT has, of late, been introduced in India. The Assam VAT Bill, 2003 received the assent of the President of India on February, 25th, 2005 and the Act came into force from 1.05.2005.
What is a VAT?
The VAT is a tax on the goods at every stage in the series of sales made by the registered dealer with the provisions of credit of input tax paid at the points of previous purchases thereof. That is to say, ‘VAT is a multi-point tax at different stages of sales, which ends its course when the goods are sold to the consumers’. VAT is based on value addition to the goods sold. It is equivalent to the sales tax at retail level, but such tax is collected through the entire chain of production and distribution within the State. VAT for a dealer is the difference of tax payable on sales effected by him during a period after deducting therefrom the tax paid or payable on the purchases made within the State. It is collected in instalments at each transaction in the production and distribution system. It does not have cascading effect due to the system of deduction or credit mechanism. VAT is a tax on domestic consumption. The final and total burden of tax fully and exclusively is to be born by the domestic consumers of goods and services. No VAT is charged or levied on sales other than in the States in which sales or purchases of goods are effected. Where any purchase or sale is made in the course of inter-State trade or commerce, it is governed by the provisions of the Central Sales Tax Act, 1956, a law enacted by Parliament. The State taxing authorities carry on the administration of this Central Act and it is to be governed by the provisions of the general sales tax law of the State. The VAT law in the State does not have any direct impact on the same. The proper accountability of such sale or purchase to and from the State has, however, an indirect impact in the process of tax revenue generation of the State.
What is Out put tax?
‘Output tax’ is a tax charged or chargeable by a registered dealer on the sales made by him. The out put tax is thus a tax on sales and a registered under the VAT Act can only collect such tax.
What is input tax?
‘Input tax’ 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 That is, for a seller, such tax is an out put tax and for a purchaser, it is an input tax.
What is credit of input tax?
‘The credit of input tax’ means the amount admissible for set-off with reference to the tax paid at the time of previous purchase. In VAT system, a seller is entitled to get set off of the amount of tax paid at the time purchase made in Assam. He is to pay the difference of tax between the tax payable and the tax paid.
Advantages of VAT over other form of sales taxes
VAT has a flexible capacity to generate large and buoyant revenues. It could be designed to be neutral. VAT eliminates cascading and hence no tax- induced distortion in favour or against vertical integration is possible. It tends to lesson incentive for evasion by not concentrating to the impact of tax on any given level. It makes the tax burden transparent. Zero rating of tax on exports in VAT system is easy. It has a large base. Low tax rates could have the same revenue.
Introduction of VAT In other Countries
France was the pioneer Nation to introduce the system of VAT in 1954. The VAT system has a gradual process of evolution and by now about 132 global Nations introduced the system of VAT. In the neighbouring countries of India, namely; Bangladesh, Shree Lanka, Nepal and Pakisthan, the VAT regime took birth much earlier. Except a few States, the system of VAT has, of late, been introduced in India.
Illustration on input credit and reverse credit
Input credit : Since Value Added Tax is a versatile tax, it offers several methods to calculate the quantum of tax payable. The commonly used methods of calculation are:- addition, subtraction and tax credit methods. In addition, method all factors of payments including profits are aggregated to arrive at the total value addition. The applicable rate is then applied on the tax base to calculate tax liability. This type of computation is used mainly with the income of VAT. Subtraction method is also a simple method, where value added by a firm is calculated by subtracting total purchases from total sales. However, tax credit method is generally preferred to subtraction method, as it is easy to calculate tax liability, tax refund and export refund entitlements. The VAT operating countries mostly employed the input tax credit over the invoice method of computing the actual tax payable. In this method, the deduction of taxes paid on inputs is allowed from taxes payable on the sales on the basis of aggregate of taxes, indicated in invoices. The invoices received for the purchase of inputs and sales of VAT commodities give correct indication of tax liability. This method allows easy access to auditors for matching invoices. However, deliberate tax evasion is possible, if a nexus is established between the buyers and sellers for suppressing the real invoice value and sharing the unpaid quantum of tax. If the consumers do not insist for correct invoice or collude with the dealer for under- invoicing, evasion of tax becomes intractable. The whole exercise may prove futile, as a consequence.
So, VAT equals to the tax payable on sales minus the tax paid on purchase. The above equation is the single most important equation scheme of VAT. Firstly, a dealer has to make a total amount paid to other dealers in the State at the time of purchase during the month. Secondly, he has to make a total of the tax amount collected from the buyers during the month at the time of sale. He is to deduct the two to arrive at the actual VAT payable to the Government.
VAT is generally a tax on value addition, which projects the difference between purchase and sale price of goods, but this one to one correspondence between the purchase price and sale price has become emergenceof the input tax credit method. One has to look into the totalities of the input and output taxes and there is absolutely no necessity to link a particular purchase to a particular sale credit excess out of the out put tax, which can be carried over to the next month.. Input tax does not form part of purchase expenses, because it is reimbursed to the dealer in the form of appropriation from the out put tax. Therefore, in all computation concerning the VAT, the element of tax is not to be included, while stating the purchase price.
Reversal of input credit : When any materials are stolen, destroyed or lost or disposed of on sales or disposed of otherwise than in the course of sales, the question of reversal of input tax credit crops up under certain circumstances and conditions. The dealer forfeits his claim of input tax credit and becomes liable to pay the claimed amount by way of treasury challans
Procedure of allowing the input tax credit
(a) A manufacturer purchased raw materials in Assam at Rs. 1000.00 and paid out put tax @ 4 paise in the rupee. The purchase price will thus be Rs. 1040.00. Input tax paid at Rs. 40.00
(b) If he manufactures finished goods and sells such goods to a whole sellers in Assam, say, at Rs. 2000.00 (including manufacturing cost profit margin etc.) and charge tax @ 4 paise in the rupee, such sale value will be Rs. 2080.00. The said dealer paid tax at the time of previous purchase at Rs. 40.00.
So, the credit of input tax will be admissible at (Rs. 80.00-Rs.40.00)= Rs. 40.00 The VAT payable by the seller is Rs. 40.00. The purchaser of the goods is to pay the price of Rs. 2080.00 inclusive of tax Rs. 80.00.
(c) When the whole seller makes sale to a retail seller, say, at Rs. 2500.00 (including profit margin & other charges) and the rate of tax is 4 paise in the rupee, the sale value of the goods will be Rs. 2500.00+ Rs. 100.00 (tax)= Rs. 2600.00. VAT will be payable by the whole seller at Rs. 100.00- Rs. 80.00= Rs. 20.00.The seller will get credit of input tax Rs. 80.00.
(d) If the retail seller makes sale to the consumer at Rs. 3000.00, he will have to pay tax @ 4 paise in the rupee, that is, Rs. 120.00. The sale value of such goods will be Rs. 3120.00..The input tax credit will be admissible at Rs. 100.00. He will be liable to pay VAT at Rs. 20.00
The difference between the tax collected and the tax payable is to be retained by the selling dealer. The final reconciliation is to be made at the time of furnishing of the return and allowance thereof.
It will be seen that right from sale of raw materials to the sale made to the consumer, the State will receive tax of Rs. 40.00+Rs. 40.00+ Rs.20.00+20.00 = Rs.120.00. The sellers at different stages of sales will get the credit of input tax of Rs. 40.00+ 80.00+ Rs. 100.00= Rs.220.00. The consumer will, however, have to bear the burden of tax Rs. 40.00 + Rs. 80.00 + Rs. 100.00 + Rs. 120.00= Rs. 340.00 apart from the increased sale value due to inclusion of the recurring margin of profit and other allied charges.
It is to be noted that credit of input tax is admissible on sale when one registered dealer makes sale to another registered dealer through Tax Invoice. The sale is to be made to the consumer through Retail Invoice.
A similar mode of trade deals may be there in the case of sales of goods (raw materials or finished products), imported from places out side the State. The credit of input tax will not be admissible on the first sale of the raw materials or the finished products, manufactured out of such raw materials or the imported finished products, as the tax on such purchase was paid in other State/ States. Where any sale is effected subsequent to the first sale of such goods, the question of credit of input tax will crop up and the admissibility of credit of input tax will be governed in like manner.
Consumers to bear the burden of heavy price rise
It will be seen from the above analysis that in the process of VAT deals, the value addition by way of margin of profit, other recurring cost and element of tax thereon, make the price hike in each stage of sale. When such goods are sold to the consumer at the point of last sale, it has to bear the burden of high price rise. In fact, the Government will get the legitimate tax on the sales. The common people can neither refute nor refuse, when any tax is charged on exempted goods for want of proper knowledge about the taxability or non-taxability of such goods. The increased value of goods may simply enlarge the margin of profit of such unscrupulous dealers illegally and improperly in the name of VAT. Unless the consumers are cautious and conscious, such type of malpractice will continue.
Tax under pre-VAT system
In pre-VAT system, there was no multiplicity of tax. The tax was payable at one stage of sale. In case first point tax, a tax was payable at the point of first sale in Assam. For second or subsequent sales, no tax was payable provided the selling dealer discharged the onus that the tax was paid at the point of first sale. In case of last point tax, such tax was payable at the point of last sale made to the consumers in Assam. For the earlier sales, a chain was maintained by way of issue of declaration in statutory forms to the effect that the goods, so purchased, were for resale within the State of Assam . No tax was payable on the intermediary sales. There was another measure of tax at the first point and last point of sales. The rate of tax was bifurcated into two under the provisions of law. One is for first point and the other is at the last. This benefit was admissible in respect of the sales -purchase deals made between two registered dealers only. For intermediary sales, made between the registered dealers, no tax was as well payable provided declaration form was issued in an identical manner. When, however, such sale is made at the first point to an unregistered dealer, the rate of tax is chargeable in full on such sale value.
In the VAT system, a reverse position has been maintained to make levy of tax at every stage of sales, whereby the trend will be towards automatic price rice. The system may ensure transparency, no doubt, but the price hike is likely to be detrimental to the interest of the common people.
It is not out of the place to mention here that a section of unscrupulous dealers may as well take full advantage to the VAT system and make price hike on the commodities irrespective of taxable or exempted under with imaginary and unsubstantial pretext.
Sales made through Retail Invoice
When any registered dealer makes sale of goods to an unregistered dealer or to a consumer, such selling dealer is not to issue any Tax Invoice. The issue of a Retail Invoice on such sale will be imperative. The credit of input tax is admissible. In case, any sale is made in the course of inter-State trade or commerce, the seller is also to issue the Retail Invoice. The credit of input tax will be admissible provided the previous purchase was made in the State of Assam. It is the duty of a consumer to demand Retail Invoice in course of any purchase of goods. If this not done, the seller may suppress such sale, though he collected the element of VAT along with the sale value of the goods.
Reverse of input tax credit
It has been discussed earlier, the circumstances under which the question of reversal input tax credit crops up. An illustration in this respect will make the position more clear.-
Say,- A dealer purchased goods worth Rs. 5000.00 locally on payment of VAT A part of such goods, say, valued Rs. 1000.00 has to be returned to the seller of the goods for some obvious reasons. The rate of tax of such goods is, say, 4%. Such dealer would have been entitled to input tax of credit of Rs. 200.00 on the purchase of Rs. 5000.00. Since he returned goods worth Rs. 1000,00 to the seller, he can not lawfully claim input tax credit on the said amount of Rs. 1000.00, say- Rs. 40.00. Such claim of Rs. 40.00 will be reversed or disallowed lowering his claim of input tax credit from Rs. 200.00 to Rs. 200.00- Rs. 40.00)= Rs.160.00. The claim of the original seller will also be lowered to that extent also. Though this is not relevant to the common consumers, but we should have an idea on such implications. In VAT system priority has been given on the question of self-assessment to be made on the basis of returns of turnover submitted by a dealer. Unless, there is proper scrutiny in course of audit assessment, such shortfalls may not come to the sight. There are some obvious conditions for initiation of the audit-assessment proceeding.
Does VAT always mean Value Addition tax?
Suppose, a manufacturer purchases raw materials worth Rs.1000.00 by paying tax of Rs. 40.00 @ 4%. It manufactures finished goods out of such raw materials and sells at Rs. 2000.00, which is taxable @ 12.5 %. Now, the total value of the goods including the tax will be Rs. 2000.00 + Rs. 250.00 (tax)= Rs. 2250.00. The manufacturer cum seller of the goods will be liable to tax after credit of input tax of Rs. 40.00, that is, at Rs. 250.00-Rs. 40.00 =Rs 210.00.
If we take the value added tax portion only, it will be Rs. 2000.00- Rs. 1000.00= Rs. 1000.00 and the tax payable thereon @12.5%. is Rs. 125.00. So, VAT is not always a tax on value addition. The main question for consideration is the out put tax payable- the input tax paid.
Zero-rating of tax
Suppose, a dealer purchased goods at Rs. 1000.00 locally by paying tax @ 4%, that is Rs. 40.00. He subsequently sells such goods in the course of export out of the territory of India or in other Economic Zone area, where rate of tax on sale is zero, such dealer is not liable to pay VAT. He will be rather entitled to get refund of tax paid at the time of purchase made locally in Assam. He paid VAT at Rs. 40.00 on purchase of such goods valued Rs. 1000.00, which will be in full refundable to him provided he proves to the satisfaction of the competent tax authority that sales were actually made in the course of export as well to the exempted zone areas.
Credit sales-accountability thereof
Sale of goods on credit system is a regular trade practice. Such credit sale is not only confined to between one dealer to another, but it extends to the consumers as well. In case of organized sector or whole sellers, the system of issue of credit memo. or bill is there. In other cases, it is generally not. The sellers maintain such accounts in toka- bahi or rough account book, which is an account outside the purview of the main set of the books of accounts. A retail seller making such credit sale to the consumers, likewise, never maintains such credit memo. or credit bill and maintain it identical system of Katcha accounts. In VAT system, issue of Retail Invoice for such credit sale is a must. If the consumers use to ignore the gravity of the matter and makes credit purchases in this manner, it will be an indirect indulgence and encouragement to such dealers to evade taxes. The credit system was there in the past and the credit system would be there in future, but if such credit deals continue to be unaccounted, the trade chain in the VAT system will be lost and the State will be deprived of the lawful revenue.
Unaccounted sale and purchase activities
The unaccounted purchases and sales by a section of dealers by importing goods in fake names or in the name of some fake dealers of other States makes way of evasion of taxes. This, we believe, is still in vogue. Our system of detection of evasion of tax at the source is not upto the mark, as the functioning of the border check posts are not very constructive, scientific and methodical. The requisite infrastructures are still lacking. So, the unaccounted trade deals are paving the way of evasion of taxes. If the consumers are alert against such unaccounted sale deals by not issuing any Retail Invoice or by adopting other fraudulent ways, such unhealthy and unlawful exercise can be frustrated to a great extent.
Evasion and enforcement of law
‘Evasion and avoidance of tax are brothers twine’. Frustration, annoyance with the compliance cost, may cause temptation to a dealer to evade VAT. Straight- forward greed may also tempt a dealer to evade VAT. All tax -payers must be treated equally, if they are expected to pay their share. Enforcement of the law should not rigidly be confined to a particular class or classes of the dealers. A rationality and neutrality should be applied in all case for the sake of equality, fairness and justice. A section of the traders may be liable to VAT, but they avoid to get registered under the VAT law with some false coverage. This dislocates the multi- point chain system in the VAT regime. Exaggerated claims of refund on account the tax paid on the previous purchase is not a healthy sign. The claim of credit input tax is to be tackled in a methodical and scientific way. Unrecorded cash sales made by the farmers without being taped in the VAT- net cause inconveniences to the buyers to get credit of input tax. The use of pad firms (non- existent firms) for the purpose of availing of the credit of input tax, may make way for drainage of revenue. The credit of input tax against taxable purchase, while making sales of exempted good after manufacturing activities in a fraudulent way, may cause loss of revenue. The goods, imported illegally from other States in fake names and sold in the State and VAT charged on unaccounted sales without crediting the same into the Government coffer, may make way for a major evasion of taxes. The under-valuation of goods may as well cause evasion of taxes. Small dealers, flying dealers or casual dealers, collecting VAT, may wound up business and disappear from the business scenario. This may be another way of evasion of taxes. Multiplicity of rates of tax, tax on the sales of unclassified goods at the maximum rate of tax may as well make unhealthy growth of evasion of tax. Irrational price and tax structure, as may be prevalent in neighbouring States, may make way of diversion of trade activities to any such tax free or lower rated tax zones. Manufactured or trade commodities, showing as used for own consumption, may have the consequential adverse impact on VAT revenue of the State. False claim of export and enjoyment of the benefit of refund of input tax with bogus claims may be detrimental to State revenue. The use of barter system between the buyers and sellers without drawing any tax invoice and making any payment of tax, may also have a serious ill- effect in the process of mobilization of VAT revenue. The creative accounting in the system of deals with the sister businesses in fraudulent exercise for diversion of the actual happening, may create confusion and is likely to pave the way of evasion of taxes. The modus operandi of the dealers towards deliberate lapse or negligence in issuing tax invoice and retail invoice needs to be foiled. The self-assessment in VAT system may not always be a successfulrevenue-generated vision and its adverse effect may be counted, side by side. The reason of this type of elaboration is that we the consumers may as well be aware of the tax dodging activities.
Necessity to make aware of the system to all
VAT is a newly born child in the tax -net of Assam. It is now in an infant stage. It is to be nourished properly to give a proper shape. Law is to be enforced methodically, leniently and systematically at this initial stage without causing undue harassment, hardship and inconveniences to the dealers. It will not be out of the place to mention here that from experience, it has found that proper training to the officers, traders and the consumers are yet to be imparted. A very few have acquired the practical knowledge of the system of VAT. If such training was given or received, the same was half-hearted in either side. A co-operation and co-ordination is to be maintained amongst the officer, dealers and the consumers at this maiden stage till the maturity in VAT system is attained. There should be frequent exchanges of views by organizing workshops so that initially, all can work in a common platform with a common aim and approach for successful revenue generation till it takes a final shape.
Measure of Penalty
The VAT Law has been designed in the way of repealed Assam General Sales Tax Act, 1993. A side- track is visible in many cases from the main concept of VAT. The law provided very rigid and harsh actions in preventing and arresting evasion of taxes. Such actions, in our view is to take a gradual process till the maturity is attained in the system.
The taxing machinery is to play the pivotal role in achieving success of the VAT regime. The traders and common people are to extend proper co-operation and co-ordination to make the project a success.
(Paper read out in the Seminar Organised by All India Services Pensioners’ Cell held on 2nd July,2005)
Hon’ble Chairman and respected gentlemen :
I am really thankful to you all for giving me an opportunity to speak on the topic “ VAT- its implication for the common people”. I was working in the Assam Taxation Department and retired from service as the Superintendent of Taxes on May, 31st, 1996. The Value Added Tax, popularly known as ‘VAT’ is, therefore, a new subject to me and I am yet to acquire sufficient knowledge on the subject. Even then, I am trying to project some salient features on the concept of VAT, its constitutional base, impact and implication on the common people and other allied matters to the best of ability.
Assam has immense visible and potential natural resources, namely; agricultural, forest, mineral, water resources. A proper utilization and mobilization of such natural resources may have the consequential effect of immense growth of revenue resources. Assam is, in fact, legging far behind in the industrial scenario, compared to other States of India. The trade activities mainly rest with the sales of goods, imported from places out side the State. To speak truly, Assam is a consuming State rather than a manufacturing State, having no adequate industrial base and other infrastructure. The price structure of the commodities, therefore, always runs to a higher side, compared to the same at the source. The VAT is a tax, which is payable at every stage of sale from the purchase of raw materials in the State till the sale of manufactured products made to the level of the consumers. Again, the sales of imported goods by the whole sellers to the retail sellers and then upto level of the consumer’s incidents of tax will be there.
Assam produces jute, superi, ginger, bamboo and different types of oil seeds in abundance. The raw hides and skins, bones of animals can well be had from the carcasses of animals,- domestic and wild. There is, however, no wide platform for manufacturing and processing activities of many of those materials. Those goods are mostly despatched to other States for manufacturing and trade activities. Thus other States are deriving commercial base and fiscal benefits at the cost of these precious resources of Assam.
The tax revenue collection of Assam was Rs. 2332.00 crore in 2004-2005 as against Rs.528.56 crore in 1994-95. The expansion of the businesses, enlargement of the volume of business, introduction of new measures of tax, enhancement of the rates of tax, change of consumers’ pattern in the modern hi-tech era etc. have a large impact on the revenue generation scenario of Assam.. The State tax officers have also been playing a pivotal role in such revenue generation exercise. We are hopeful that the tax revenue target fixed for 2005-06 at Rs. 2900 crore will safely achieve its goal, if the implementation of the VAT system goes in a right and proper direction.
Constitutional back ground on VAT Law
A tax on the sale or purchase of goods is a State subject. The State Legislatures have been empowered to make law on tax on the sale or purchase of goods within the State by Article 246(3) read with entry 54 -List II- (State List) in the Seventh Schedule of the Constitution of India.
Introduction of the system of VAT.
Keeping this object in view, the Legislatures of Assam adopted the Assam Value Added Tax Bill, 2003. The measure of VAT could not be implemented, as there was lack of consensus amongst the States. However, barring a few States, the system of VAT has, of late, been introduced in India. The Assam VAT Bill, 2003 received the assent of the President of India on February, 25th, 2005 and the Act came into force from 1.05.2005.
What is a VAT?
The VAT is a tax on the goods at every stage in the series of sales made by the registered dealer with the provisions of credit of input tax paid at the points of previous purchases thereof. That is to say, ‘VAT is a multi-point tax at different stages of sales, which ends its course when the goods are sold to the consumers’. VAT is based on value addition to the goods sold. It is equivalent to the sales tax at retail level, but such tax is collected through the entire chain of production and distribution within the State. VAT for a dealer is the difference of tax payable on sales effected by him during a period after deducting therefrom the tax paid or payable on the purchases made within the State. It is collected in instalments at each transaction in the production and distribution system. It does not have cascading effect due to the system of deduction or credit mechanism. VAT is a tax on domestic consumption. The final and total burden of tax fully and exclusively is to be born by the domestic consumers of goods and services. No VAT is charged or levied on sales other than in the States in which sales or purchases of goods are effected. Where any purchase or sale is made in the course of inter-State trade or commerce, it is governed by the provisions of the Central Sales Tax Act, 1956, a law enacted by Parliament. The State taxing authorities carry on the administration of this Central Act and it is to be governed by the provisions of the general sales tax law of the State. The VAT law in the State does not have any direct impact on the same. The proper accountability of such sale or purchase to and from the State has, however, an indirect impact in the process of tax revenue generation of the State.
What is Out put tax?
‘Output tax’ is a tax charged or chargeable by a registered dealer on the sales made by him. The out put tax is thus a tax on sales and a registered under the VAT Act can only collect such tax.
What is input tax?
‘Input tax’ 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 That is, for a seller, such tax is an out put tax and for a purchaser, it is an input tax.
What is credit of input tax?
‘The credit of input tax’ means the amount admissible for set-off with reference to the tax paid at the time of previous purchase. In VAT system, a seller is entitled to get set off of the amount of tax paid at the time purchase made in Assam. He is to pay the difference of tax between the tax payable and the tax paid.
Advantages of VAT over other form of sales taxes
VAT has a flexible capacity to generate large and buoyant revenues. It could be designed to be neutral. VAT eliminates cascading and hence no tax- induced distortion in favour or against vertical integration is possible. It tends to lesson incentive for evasion by not concentrating to the impact of tax on any given level. It makes the tax burden transparent. Zero rating of tax on exports in VAT system is easy. It has a large base. Low tax rates could have the same revenue.
Introduction of VAT In other Countries
France was the pioneer Nation to introduce the system of VAT in 1954. The VAT system has a gradual process of evolution and by now about 132 global Nations introduced the system of VAT. In the neighbouring countries of India, namely; Bangladesh, Shree Lanka, Nepal and Pakisthan, the VAT regime took birth much earlier. Except a few States, the system of VAT has, of late, been introduced in India.
Illustration on input credit and reverse credit
Input credit : Since Value Added Tax is a versatile tax, it offers several methods to calculate the quantum of tax payable. The commonly used methods of calculation are:- addition, subtraction and tax credit methods. In addition, method all factors of payments including profits are aggregated to arrive at the total value addition. The applicable rate is then applied on the tax base to calculate tax liability. This type of computation is used mainly with the income of VAT. Subtraction method is also a simple method, where value added by a firm is calculated by subtracting total purchases from total sales. However, tax credit method is generally preferred to subtraction method, as it is easy to calculate tax liability, tax refund and export refund entitlements. The VAT operating countries mostly employed the input tax credit over the invoice method of computing the actual tax payable. In this method, the deduction of taxes paid on inputs is allowed from taxes payable on the sales on the basis of aggregate of taxes, indicated in invoices. The invoices received for the purchase of inputs and sales of VAT commodities give correct indication of tax liability. This method allows easy access to auditors for matching invoices. However, deliberate tax evasion is possible, if a nexus is established between the buyers and sellers for suppressing the real invoice value and sharing the unpaid quantum of tax. If the consumers do not insist for correct invoice or collude with the dealer for under- invoicing, evasion of tax becomes intractable. The whole exercise may prove futile, as a consequence.
So, VAT equals to the tax payable on sales minus the tax paid on purchase. The above equation is the single most important equation scheme of VAT. Firstly, a dealer has to make a total amount paid to other dealers in the State at the time of purchase during the month. Secondly, he has to make a total of the tax amount collected from the buyers during the month at the time of sale. He is to deduct the two to arrive at the actual VAT payable to the Government.
VAT is generally a tax on value addition, which projects the difference between purchase and sale price of goods, but this one to one correspondence between the purchase price and sale price has become emergenceof the input tax credit method. One has to look into the totalities of the input and output taxes and there is absolutely no necessity to link a particular purchase to a particular sale credit excess out of the out put tax, which can be carried over to the next month.. Input tax does not form part of purchase expenses, because it is reimbursed to the dealer in the form of appropriation from the out put tax. Therefore, in all computation concerning the VAT, the element of tax is not to be included, while stating the purchase price.
Reversal of input credit : When any materials are stolen, destroyed or lost or disposed of on sales or disposed of otherwise than in the course of sales, the question of reversal of input tax credit crops up under certain circumstances and conditions. The dealer forfeits his claim of input tax credit and becomes liable to pay the claimed amount by way of treasury challans
Procedure of allowing the input tax credit
(a) A manufacturer purchased raw materials in Assam at Rs. 1000.00 and paid out put tax @ 4 paise in the rupee. The purchase price will thus be Rs. 1040.00. Input tax paid at Rs. 40.00
(b) If he manufactures finished goods and sells such goods to a whole sellers in Assam, say, at Rs. 2000.00 (including manufacturing cost profit margin etc.) and charge tax @ 4 paise in the rupee, such sale value will be Rs. 2080.00. The said dealer paid tax at the time of previous purchase at Rs. 40.00.
So, the credit of input tax will be admissible at (Rs. 80.00-Rs.40.00)= Rs. 40.00 The VAT payable by the seller is Rs. 40.00. The purchaser of the goods is to pay the price of Rs. 2080.00 inclusive of tax Rs. 80.00.
(c) When the whole seller makes sale to a retail seller, say, at Rs. 2500.00 (including profit margin & other charges) and the rate of tax is 4 paise in the rupee, the sale value of the goods will be Rs. 2500.00+ Rs. 100.00 (tax)= Rs. 2600.00. VAT will be payable by the whole seller at Rs. 100.00- Rs. 80.00= Rs. 20.00.The seller will get credit of input tax Rs. 80.00.
(d) If the retail seller makes sale to the consumer at Rs. 3000.00, he will have to pay tax @ 4 paise in the rupee, that is, Rs. 120.00. The sale value of such goods will be Rs. 3120.00..The input tax credit will be admissible at Rs. 100.00. He will be liable to pay VAT at Rs. 20.00
The difference between the tax collected and the tax payable is to be retained by the selling dealer. The final reconciliation is to be made at the time of furnishing of the return and allowance thereof.
It will be seen that right from sale of raw materials to the sale made to the consumer, the State will receive tax of Rs. 40.00+Rs. 40.00+ Rs.20.00+20.00 = Rs.120.00. The sellers at different stages of sales will get the credit of input tax of Rs. 40.00+ 80.00+ Rs. 100.00= Rs.220.00. The consumer will, however, have to bear the burden of tax Rs. 40.00 + Rs. 80.00 + Rs. 100.00 + Rs. 120.00= Rs. 340.00 apart from the increased sale value due to inclusion of the recurring margin of profit and other allied charges.
It is to be noted that credit of input tax is admissible on sale when one registered dealer makes sale to another registered dealer through Tax Invoice. The sale is to be made to the consumer through Retail Invoice.
A similar mode of trade deals may be there in the case of sales of goods (raw materials or finished products), imported from places out side the State. The credit of input tax will not be admissible on the first sale of the raw materials or the finished products, manufactured out of such raw materials or the imported finished products, as the tax on such purchase was paid in other State/ States. Where any sale is effected subsequent to the first sale of such goods, the question of credit of input tax will crop up and the admissibility of credit of input tax will be governed in like manner.
Consumers to bear the burden of heavy price rise
It will be seen from the above analysis that in the process of VAT deals, the value addition by way of margin of profit, other recurring cost and element of tax thereon, make the price hike in each stage of sale. When such goods are sold to the consumer at the point of last sale, it has to bear the burden of high price rise. In fact, the Government will get the legitimate tax on the sales. The common people can neither refute nor refuse, when any tax is charged on exempted goods for want of proper knowledge about the taxability or non-taxability of such goods. The increased value of goods may simply enlarge the margin of profit of such unscrupulous dealers illegally and improperly in the name of VAT. Unless the consumers are cautious and conscious, such type of malpractice will continue.
Tax under pre-VAT system
In pre-VAT system, there was no multiplicity of tax. The tax was payable at one stage of sale. In case first point tax, a tax was payable at the point of first sale in Assam. For second or subsequent sales, no tax was payable provided the selling dealer discharged the onus that the tax was paid at the point of first sale. In case of last point tax, such tax was payable at the point of last sale made to the consumers in Assam. For the earlier sales, a chain was maintained by way of issue of declaration in statutory forms to the effect that the goods, so purchased, were for resale within the State of Assam . No tax was payable on the intermediary sales. There was another measure of tax at the first point and last point of sales. The rate of tax was bifurcated into two under the provisions of law. One is for first point and the other is at the last. This benefit was admissible in respect of the sales -purchase deals made between two registered dealers only. For intermediary sales, made between the registered dealers, no tax was as well payable provided declaration form was issued in an identical manner. When, however, such sale is made at the first point to an unregistered dealer, the rate of tax is chargeable in full on such sale value.
In the VAT system, a reverse position has been maintained to make levy of tax at every stage of sales, whereby the trend will be towards automatic price rice. The system may ensure transparency, no doubt, but the price hike is likely to be detrimental to the interest of the common people.
It is not out of the place to mention here that a section of unscrupulous dealers may as well take full advantage to the VAT system and make price hike on the commodities irrespective of taxable or exempted under with imaginary and unsubstantial pretext.
Sales made through Retail Invoice
When any registered dealer makes sale of goods to an unregistered dealer or to a consumer, such selling dealer is not to issue any Tax Invoice. The issue of a Retail Invoice on such sale will be imperative. The credit of input tax is admissible. In case, any sale is made in the course of inter-State trade or commerce, the seller is also to issue the Retail Invoice. The credit of input tax will be admissible provided the previous purchase was made in the State of Assam. It is the duty of a consumer to demand Retail Invoice in course of any purchase of goods. If this not done, the seller may suppress such sale, though he collected the element of VAT along with the sale value of the goods.
Reverse of input tax credit
It has been discussed earlier, the circumstances under which the question of reversal input tax credit crops up. An illustration in this respect will make the position more clear.-
Say,- A dealer purchased goods worth Rs. 5000.00 locally on payment of VAT A part of such goods, say, valued Rs. 1000.00 has to be returned to the seller of the goods for some obvious reasons. The rate of tax of such goods is, say, 4%. Such dealer would have been entitled to input tax of credit of Rs. 200.00 on the purchase of Rs. 5000.00. Since he returned goods worth Rs. 1000,00 to the seller, he can not lawfully claim input tax credit on the said amount of Rs. 1000.00, say- Rs. 40.00. Such claim of Rs. 40.00 will be reversed or disallowed lowering his claim of input tax credit from Rs. 200.00 to Rs. 200.00- Rs. 40.00)= Rs.160.00. The claim of the original seller will also be lowered to that extent also. Though this is not relevant to the common consumers, but we should have an idea on such implications. In VAT system priority has been given on the question of self-assessment to be made on the basis of returns of turnover submitted by a dealer. Unless, there is proper scrutiny in course of audit assessment, such shortfalls may not come to the sight. There are some obvious conditions for initiation of the audit-assessment proceeding.
Does VAT always mean Value Addition tax?
Suppose, a manufacturer purchases raw materials worth Rs.1000.00 by paying tax of Rs. 40.00 @ 4%. It manufactures finished goods out of such raw materials and sells at Rs. 2000.00, which is taxable @ 12.5 %. Now, the total value of the goods including the tax will be Rs. 2000.00 + Rs. 250.00 (tax)= Rs. 2250.00. The manufacturer cum seller of the goods will be liable to tax after credit of input tax of Rs. 40.00, that is, at Rs. 250.00-Rs. 40.00 =Rs 210.00.
If we take the value added tax portion only, it will be Rs. 2000.00- Rs. 1000.00= Rs. 1000.00 and the tax payable thereon @12.5%. is Rs. 125.00. So, VAT is not always a tax on value addition. The main question for consideration is the out put tax payable- the input tax paid.
Zero-rating of tax
Suppose, a dealer purchased goods at Rs. 1000.00 locally by paying tax @ 4%, that is Rs. 40.00. He subsequently sells such goods in the course of export out of the territory of India or in other Economic Zone area, where rate of tax on sale is zero, such dealer is not liable to pay VAT. He will be rather entitled to get refund of tax paid at the time of purchase made locally in Assam. He paid VAT at Rs. 40.00 on purchase of such goods valued Rs. 1000.00, which will be in full refundable to him provided he proves to the satisfaction of the competent tax authority that sales were actually made in the course of export as well to the exempted zone areas.
Credit sales-accountability thereof
Sale of goods on credit system is a regular trade practice. Such credit sale is not only confined to between one dealer to another, but it extends to the consumers as well. In case of organized sector or whole sellers, the system of issue of credit memo. or bill is there. In other cases, it is generally not. The sellers maintain such accounts in toka- bahi or rough account book, which is an account outside the purview of the main set of the books of accounts. A retail seller making such credit sale to the consumers, likewise, never maintains such credit memo. or credit bill and maintain it identical system of Katcha accounts. In VAT system, issue of Retail Invoice for such credit sale is a must. If the consumers use to ignore the gravity of the matter and makes credit purchases in this manner, it will be an indirect indulgence and encouragement to such dealers to evade taxes. The credit system was there in the past and the credit system would be there in future, but if such credit deals continue to be unaccounted, the trade chain in the VAT system will be lost and the State will be deprived of the lawful revenue.
Unaccounted sale and purchase activities
The unaccounted purchases and sales by a section of dealers by importing goods in fake names or in the name of some fake dealers of other States makes way of evasion of taxes. This, we believe, is still in vogue. Our system of detection of evasion of tax at the source is not upto the mark, as the functioning of the border check posts are not very constructive, scientific and methodical. The requisite infrastructures are still lacking. So, the unaccounted trade deals are paving the way of evasion of taxes. If the consumers are alert against such unaccounted sale deals by not issuing any Retail Invoice or by adopting other fraudulent ways, such unhealthy and unlawful exercise can be frustrated to a great extent.
Evasion and enforcement of law
‘Evasion and avoidance of tax are brothers twine’. Frustration, annoyance with the compliance cost, may cause temptation to a dealer to evade VAT. Straight- forward greed may also tempt a dealer to evade VAT. All tax -payers must be treated equally, if they are expected to pay their share. Enforcement of the law should not rigidly be confined to a particular class or classes of the dealers. A rationality and neutrality should be applied in all case for the sake of equality, fairness and justice. A section of the traders may be liable to VAT, but they avoid to get registered under the VAT law with some false coverage. This dislocates the multi- point chain system in the VAT regime. Exaggerated claims of refund on account the tax paid on the previous purchase is not a healthy sign. The claim of credit input tax is to be tackled in a methodical and scientific way. Unrecorded cash sales made by the farmers without being taped in the VAT- net cause inconveniences to the buyers to get credit of input tax. The use of pad firms (non- existent firms) for the purpose of availing of the credit of input tax, may make way for drainage of revenue. The credit of input tax against taxable purchase, while making sales of exempted good after manufacturing activities in a fraudulent way, may cause loss of revenue. The goods, imported illegally from other States in fake names and sold in the State and VAT charged on unaccounted sales without crediting the same into the Government coffer, may make way for a major evasion of taxes. The under-valuation of goods may as well cause evasion of taxes. Small dealers, flying dealers or casual dealers, collecting VAT, may wound up business and disappear from the business scenario. This may be another way of evasion of taxes. Multiplicity of rates of tax, tax on the sales of unclassified goods at the maximum rate of tax may as well make unhealthy growth of evasion of tax. Irrational price and tax structure, as may be prevalent in neighbouring States, may make way of diversion of trade activities to any such tax free or lower rated tax zones. Manufactured or trade commodities, showing as used for own consumption, may have the consequential adverse impact on VAT revenue of the State. False claim of export and enjoyment of the benefit of refund of input tax with bogus claims may be detrimental to State revenue. The use of barter system between the buyers and sellers without drawing any tax invoice and making any payment of tax, may also have a serious ill- effect in the process of mobilization of VAT revenue. The creative accounting in the system of deals with the sister businesses in fraudulent exercise for diversion of the actual happening, may create confusion and is likely to pave the way of evasion of taxes. The modus operandi of the dealers towards deliberate lapse or negligence in issuing tax invoice and retail invoice needs to be foiled. The self-assessment in VAT system may not always be a successfulrevenue-generated vision and its adverse effect may be counted, side by side. The reason of this type of elaboration is that we the consumers may as well be aware of the tax dodging activities.
Necessity to make aware of the system to all
VAT is a newly born child in the tax -net of Assam. It is now in an infant stage. It is to be nourished properly to give a proper shape. Law is to be enforced methodically, leniently and systematically at this initial stage without causing undue harassment, hardship and inconveniences to the dealers. It will not be out of the place to mention here that from experience, it has found that proper training to the officers, traders and the consumers are yet to be imparted. A very few have acquired the practical knowledge of the system of VAT. If such training was given or received, the same was half-hearted in either side. A co-operation and co-ordination is to be maintained amongst the officer, dealers and the consumers at this maiden stage till the maturity in VAT system is attained. There should be frequent exchanges of views by organizing workshops so that initially, all can work in a common platform with a common aim and approach for successful revenue generation till it takes a final shape.
Measure of Penalty
The VAT Law has been designed in the way of repealed Assam General Sales Tax Act, 1993. A side- track is visible in many cases from the main concept of VAT. The law provided very rigid and harsh actions in preventing and arresting evasion of taxes. Such actions, in our view is to take a gradual process till the maturity is attained in the system.
The taxing machinery is to play the pivotal role in achieving success of the VAT regime. The traders and common people are to extend proper co-operation and co-ordination to make the project a success.
(Paper read out in the Seminar Organised by All India Services Pensioners’ Cell held on 2nd July,2005)
about me
I introduce myself as a retired tax officer of the State of Assam. Since after my retirement from service on the 31st May, 1996.I dedicated myself towards making study and analysis on the tax structure in Assam. I have already published ten books on taxation laws. My articles on taxation, political, economic, social and religious topics are regularly published in the English and Assamese dailies and weeklies of Assam. I shall be glad if the readers go through my writings and communicate views on the books, articles, as may be floated, from time to time.
M rinal Kanti Chakrabortty
“Rudra Bhawan”
R.G.Barua Road
10-Lakhimipath
Guwahati- 781024,ASSAM
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