An amendment which defeats the spirit of VAT

An amendment which defeats the spirit of VAT

Submitted by Editor on Mon, 2016-03-28 16:15 Bengaluru: The Budget-2016 presented by CM Siddaramaiah proposed a change in the section 10(3) of the KVAT Act 2003 so as to overcome the impracticality and difficulties arising out of the decision rendered in Centum Industries case so as to cater to the need of the trade. The Hon’ble Court ruled that the input tax credit (ITC) to be claimed in the month of the bill date only, whereas practically the said procedure is impossible in many cases of late delivery of goods-bills or goods which are subject to various checks-inspection at the time of receipt. The implementation of VAT laws itself is based on the idea of pay tax and take credit of the said payment towards inputs while paying output tax so as to avoid the cascading effect of tax on the product. Further, the said law has also provided for restrictions in some cases explicitly, like that of ITC on exempted goods, stock transfer and schedule-V goods, whereas there was no restriction of ITC on the basis of date of bill. (i.e to claim ITC only in the month of date of bill). However, with due respect to the Hon’ble High Court in the case of Centum Industries which was delivered in July’14 ruled that the claim for ITC should be in the “month”(tax period) of date of bill only not later. Considering the pragmatic impact and difficulties to the trading community as well as the burden to the common man as it impacts the general price level, the said section of 10(3) of the KVAT Act’2003 was substituted in Budget’2015. The main intention of the said proposal was to remove the confusion in claiming of ITC as well as to allow such ITC any time within 6 months from the date of bill (the time allowed U/s 35(4) to file the revise returns under the Act). The said amendment was more like corrigendum in nature to remove the interpretation which was against the spirit of the law, arising out of the said decision of the court in above said case. Whereas, during the year 2015-16, the commercial tax department was under tremendous pressure to mop up the budgeted revenue wanted to swell the revenue whatever mode is possible. Accordingly, they took the tool of very same Centum Industries so as to restrict the input tax paid on eligible goods with justification that the said amendment was only prospective from 01.04.2015. Several crores mopped up in this mode and litigation again started on this aspect, which again reached the Hon’ble Karnataka Appellate Tribunal, wherein in the case of BEML, the said tribunal ruled that the said section was in the nature of giving more clarification and more over “the said section 10(3) is substituted” once the provision is substituted it will have the effect retrospectively since Act came in to force, ie. from 01.04.2005. By reading this judgment, the department thought it has lost everything and thought it had been pushed to the wall. Being furious on the said order, it took it so seriously without analysing the preamble and statement of fact of the very Act itself. The department wanted to negate the impact of the ruling in any way possible. So, I presume being doubtful of getting success in the appeal to higher court has resorted for this change in Budget-16 silently.  So, they had the masterstroke of budget-16 and inserted small phrase “w.e.f 01.04.2015” means the said amendment was prospective from 01.04.2015. Which is really an attempt to defeat the very spirit of the VAT law as well as preamble to the VAT Act. The amendment is absolutely impractical and defeat the very purpose of “Tax on Value addition” and result in “tax on tax”. The said amendment will open the Pandora’s box in opening-re-opening of assessments and refunds and creation of huge demand on the trade which means double taxation along with interest and penalty and other demands which is not at all the intention of the statute of VAT laws which the department as well as the Government failed to understand completely! It’s a surprise that even the such a veteran finance minister and now chief minister, who is presenting his 11th Budget and who is well versed with these laws, has failed to understand the departments attempt to cover their failure in meeting the budgeted revenue to various socio-economic reasons. It even throws the light on the “babu” lobby in the implementation of the laws and the representatives of people, also called “legislators” (which they completely forgot the duties associated to it), are unaware of the impact of the changes proposed in the bill which shows how our democracy is heading in the wrong path.   (The author is an Chartered Accountant)