23-08-2013, 03:04 PM
Procedural reforms under vat in India
Abstract
Value Added Tax is modern and progressive tax system now adopted in over 130 countries around the world. In India, this was initially tried out on Central Excise and after its success, extended to service tax levy. Since at both levels value added tax (VAT) has been successfully integrated in the tax system, the same has now been extended to state sales tax levies. VAT was introduced in 22 states in India w.e.f. 1-April-2005 by replacing the single point sales tax system. Considering the fact that VAT has been successful in most of the states which has implemented the VAT, the states like Gujarat, Chhattisgarh, Jharkhand, Madhya Pradesh and Rajasthan with a view to integrate with the rest of country implemented VAT in their respective states w.e.f. 1-April 2006. Punjab is one of the states which have introduced the value added tax system since April 2005. The basic difference between the earlier states sales tax and VAT is that the framework of taxation is now almost identical in all states and thus ensures uniformity. Earlier, there were problems of double taxation of commodities and multiplicity of taxes, resulting in cascading tax burden.
The present paper discusses the various procedural reforms under VAT in India with special reference to Punjab Value Added Tax Act 2005. It studies the working of value added tax, incidence of tax, input tax credit mechanism, payment of VAT, filing of returns and refund procedure under VAT. The paper attempts to study and compare the present state value added tax and earlier state sale tax on the basis of incidence of tax and other procedural requirements. Under earlier sales tax structure, before commodity was produced, inputs were first taxed and then taxed again with input tax load after commodity was produced thus causing an unfair double taxation with cascading effects. On the other hand, under the VAT, set-off is given for input tax as well as tax paid on previous purchases. Further, there was multiplicity of taxes in several states like turnover tax, surcharge on sales tax, additional surcharge etc. But with introduction of VAT, these other taxes have been abolished resulting in overall rationalization of tax burden. Moreover, VAT has replaced the earlier system of inspection by a system of built-in self-assessment by the dealers. The study concludes that the present state value added tax system of taxation is more simple and transparent as compared to the earlier state sale tax system of taxation.
INTRODUCTION:
The Empowered Committee of the State Finance Ministers in a conference
held on 16 November 1999 issued a ‘White Paper’ for introduction of the
VAT in India. Accordingly, the Committee unanimously decided in January
2002 to implement VAT. The white paper envisaged that after the
introduction of VAT:
the cascading effect of the existing taxation laws of the States would be
eliminated due to credit of tax paid on purchase for resale or for use in
manufacture;
other taxes would be abolished and the overall tax burden would be
rationalised. The Central Sales Tax (CST) would also be phased out;
the overall tax would increase and there would be higher revenue
growth; and
there would be self assessment by the dealers and set off would be given
for input and tax paid on previous purchases.
Deficiencies in the Act and the Rules
There are some lacunae in the provisions of PVAT Act and Rules, which were
not redressed by the Department even after five years of implementation of
the Act in the State. These are described below:
(a) The PGST Act has since be enrepealed, but instructions forassessment under the D&E Rules in the VAT regime have not been issued so far.
(b) The State Government amended Section 19(5) of the PVAT Act in March 2008 for allowing ITC on purchase tax paid equal to CST chargeable on the products of goods specified in Schedule H. But the matter regarding allowance of credit of ITC on purchase tax payable prior to the issue of notification of March 2008 had remained without clarification.
In an illustrative case, we found that a dealer under the jurisdiction of AETC Mohali who had filed self assessment returns for the year 200607, had claimed and was allowed credit of ITC on the purchase of cotton corresponding to ISS of cotton yarn valued RS.8.74 crore at the rate of four percent instead of two per cent. This resulted in excess allowance of ITC of RS. 5.87 lakh due to deficiency in the above mentioned Rules during the period from April 2005 to March 2008.
Loss due to time barred assessments
We found that in the exercise of his powers under the Act ibid, the ETC Punjab, Patiala had granted (April 2008) extension in 1,464 cases pertaining to the assessment year 200405 upto 31 March 2009 for finalising the assessment. Aggrieved by this order, six dealers approached the VAT Tribunal, Punjab, which set aside the impugned order on the ground that:
(i) the reasons given in the order for granting extension in the period of limitation
that the dealers had not furnished C forms and other documents and thus, the
assessment could not be completed in 1,464 pending cases, were not valid and
acceptable; and
(ii) the opportunity of being heard was not provided to the appellants. When the assessment under the Act could have been completed within the time of limitation without waiting for the assesses to produce C forms or other documents, why the Department waited so long till the assessment cases became time barred lacked justification. Consequent upon the 33 assessment cases wherein the demands for tax of RS. 12.76 crore becoming time barred, the State suffered a loss of revenue of RS.12.76 crore. Though the Department was asked to clarify whether any appeal has been filed, no reply has been furnished (October 2010).