KETA/40/469/2006-2007 2 February, 2007
Sri. T.M. Thomas Issac
Hon. Finance Minister of Kerala
North Block, Secretariate
Thiruvananthapuram
Respected Sir,
Sub: 2007-2008 -Pre-Budget Discussion
We thank you very much for inviting us for Pre- Budget discussion. We feel highly honoured and give our suggestions for your favourable consideration.
1) Audit report in form 13 and its redundancy :
The most important features of VAT being self compliance, self policing and self assmt, the assessment for each return period is deemed to be completed on receipt of returns u/s 21 of the KVAT Act, subject to the provisions of Sec 22, 24&25 in regard to correction of defects, audit assmt etc. As these provisions contain inbuilt mechanisms to check the veracity of the returns and to detect evasion of tax , filing of the audited statements as provided in sec 42 appear to be redundant and unnecessary. Filing or non-filing of these statements does not prevent the VAT authorities from proceeding u/s 22, 24, 25 etc. Preparation of the cumbersome statements and certification by Chartered Accountant is a burdensome task for a dealer. Even for a technical delay, the dealers are penalized. Therefore, it is requested that filing of audited report may be dispensed with.
In the alternative, it is requested that the threshold limit of Rs.40 lakhs turn over may be enhanced to Rs.1 crore. The scheme of audit was introduced by inserting sec 27A in the KGST Act as early as 1-4-1992 with the same turn over limit of Rs 40 lakhs. Even after the elapse of more than 14 years, this remains unchanged. Considering the fall in money value due to inflation and increase in prices, the threshold limit of Rs.40 lakhs deserves immediate revision to Rupees one crore.
2) Delay in notifying defects & audit assessment
The proponents of VAT including the Empowered Committee often project abolition of the old type of harassing yearly “Desk Assessment” as the most innovative feature of VAT by substituting the system of “audit assmt” in the case of selected dealers on scientific basis.
In the White Paper released by the Empowered Committee, it was stated that the audit team will conduct its work in a time bound manner and audit will be completed within 6 months (Para 2.13 of the White Paper). But without any time stipulation, audit is made by calling for the books of accounts and records at a stretch for the whole year and more. There are several instances of issuance of notices for audit assmts for the whole year 2005-06 & 4/06 onwards together. Also notices u/s 22 for curing the defects are issued long after filing the same for months together. Such delayed process will defeat the very letter and spirit of VAT concepts. Delay in audit assessment and filing of revised returns u/s 22 put arbitrary burden of tax and interest on the dealers. Levy of interest on assessed tax is against the settled dictums of the Apex Court and the High Court.
It is requested that necessary provision may be made in the Act for proceeding u/s 22, 23 &24 within a reasonable time frame, say 3 months. Files may be selected for audit scientifically based on cogent materials.
3) Acknowledgement of returns and letters
Despite specific mention for acknowledgement of the returns in form 10, the VAT authorities never do so. Even letters and other communications addressed to the VAT authorities are returned summarily if they contain any objectionable points unpalatable for them. Such incoherent attitude of the officers may be discouraged especially in the changing scenario of Right to Information Act.
4) Refund of tax as per 21CC
Refund claim as per form 21CC is being denied by some of the officers raising hyper technical objections. The amount of excess tax paid for 3/05 under the KGST Act adjusted under Rule 22(9) of the KVAT Rules carried forward to 2005-06 is separated and disallowed from the claim as per 21CC. This action of the Authorities are not legally sound. The dealers having been prevented from adjusting the excess tax as on 31-3-2005 towards VAT for 2006-07, it is only just and necessary that the entire claim as per 21CC is refunded.
5) Format of invoice to be simplified
The law prescribes 5 formats of sale bill from form 8 to 8D. These forms really undermine the simplicity and transparency of VAT. Even on substantial compliance with the format, the VAT authorities penalize the dealers alleging technical defects. It is highly necessary that the bill forms are simplified into one single form with the precise details like name and address of the selling dealer. regn nos, name of buyer with TIN, if available etc
6) Credit notes for sales return
Deduction for sales return may be allowed based on credit notes without insisting on corresponding debit notes from buyers which is practically impossible.
7) Discount and trade incentive
Only discount and other trade incentives allowed at the time of raising the sale bill and shown separately in invoices are eligible for deduction. It is submitted that cash discounts and trade discounts were forms of discounts recognized in trade and statutes. Rule 9 (a) of the KGST Rules 63, allowed such deductions from 1-4-1963. Travancore - Cochin General Sales Tax Rules, 1950 1125 Act also had similar provision. With more than 1/6th of the world population settling down in this part of the sub-continent, the market forces of supply and demand are prominent. Price mechanism has assumed unprecedented proportions with the line-up of Trans/ Multi National Companies along with Indian companies. Even retail market is being taken over by giant multi- national companies. Cut-throat competition is strengthening. Amidst this spiraling situation, incentives to traders depending on time- bound off-takes are being used as effective tools in maximization of sale proceeds. Normally, such incentives allowed being part of the value of goods sold and sale price, are determinable at specified periods, ie; monthly, quarterly etc or the end of the financial year. For the last 56 years, such incentives were being allowed as admissible deductions under the TC GST Rules,1950 & the KGST Rules, 63 Hence the law denying deduction on discount and trade incentive allowed after raising bills, may be amended in view of the hard realities in the trade sector.
In this connection, it is to be noted that explanation VII to Clause III of Sec 2 of the KVAT Act imposes tax liability on the discount or trade incentive received against purchases of goods sold at lower prices. This provision runs counter to the reasoning for denying exemption on discount allowed after raising sale bills. This provision is against the concept of VAT which is a retail sales tax. Levy of tax on trade incentive on the purchase value is not only illegal but also unethical. It is also pertinent to say that reduction in purchase price legally binds the dealer to pay reverse tax on the input related to the value reduced. In these circumstances, it is only just to afford exemption on all discounts and incentives without any restriction. The provision to levy tax on discount against purchase may be withdrawn.
8) Disparities in rate of tax and avaricious clarification and circulars
Integration of tax rates by adopting the HSN code at national level is said to be one of the salient features of the VAT system, as agreed upon by the members of the Empowered Committee comprising of almost all the states. But contrary to the decisions of the above committee, the Government of Kerala has introduced the new rate structure of 20% for goods of general importance in infrastructure and construction like flooring materials, paints, sanitary wares. Kerala is the only state to deviate from the All India rate structure
Heavy increase in the rate of tax from 12.5% to 20 % is causing diversion of trade to neighboring states. “Rate war” and distortion of trade adversely affect trade and industry. Several anomalies occur in the VAT rate structure in Kerala. In all other states, more than 90% of the electrical goods are classified under 4% schedule. For e.g. In Gujarat most of Industrial & Electrical goods attract 4% of tax and in Hariyana Cable Joining Kits at 4%, in Madhya Pradhesh all solar item at 4% and in West Bengal Electrical motors at 4% But in our states most of the electrical items are taxable at 12.5% RNR. There arise lots of confusions in applying the rates inspite of assignment of HSN code. The Commissioner clarifies the rate of tax in several cases bypassing the schedules enacted by the legislature and ignoring the specific HSN code. The decisions of the Commissioner including the circular instructions are avaricious in favour of the revenue. To cite some examples: mosquito repellants clarified@12.5% despite 4 digits HSN in Schedule III. Rain guarding Compound @12.5% despite High Court judgment. Metallic hanger and kitchen stand with plastic powder coating @12.5% as against 4% falling under iron articles in Schedule III etc.
Schedules are amended retroactively. Eg. Photographic machineries deleted from Sch III wef 1-7-06 without any budget proposal. The dealers are prevented from collecting tax at the differential rate of 8.5%.
It is requested that uniform rate structure be adopted throughout the country, as approved by the Empowered Committee. Retrospective enhancement of tax rate may be avoided. Clarifications and circulars be issued in conformity with the statute and the law declared by the Courts.
9) Introduction of Advance tax in lieu of Entry Tax
The Supreme Court as well as the High Court have declared the Entry Tax legislation as void ab initio. But the Commissioner has issued circular to levy advance tax in respect of evasion prone commodities. This is an indirect way of imposing entry tax. Remittance of advance tax causes severs hardships to regd dealers and it is a harassment. At the point of sale, tax is paid to the state exchequer. Therefore this form of illegal levy of tax may be withdrawn.
10) Intermittent amendments of rate and provision
Amendments brought in piecemeal often create complexities. For the financial year 2006-07, the VAT provisions were amended three times. The last full fledged amendment was passed as per the Finance Act passed on 24th October 2006. As under Income Tax Act, the amendment be made as on 1st of the financial year. This will be of great convenience to the dealers and the Officials.
11) Issue of VAT&CST Certificates
Even after the expiry of 21 months, the VAT authorities have not issued the Certificates. Kindly arrange to issue the certificates at once.
12) Grievance Cell and interaction with traders
For the successful implementation of VAT, close interaction with trade and industry is specially important. Though the Grievance Cell has been constituted at District level, its functioning is ineffective for want of adequate representation of at least the prominent trade organizations like the KETA, EKM Merchants Union, Apex Council of Commerce & Trade, Ernakulam etc. The Grievance Cell may kindly be reconstituted by including nominees of live organizations like ours.
On the behalf of Electrical Trading Community, we request you to kindly consider the above points favourably. Expecting positive result.
Thanking you,
Yours faithfully,
For THE KERALA ELECTRIC TRADES ASSOCIATION
MOHAN PRASAAD
(Secretary)
Copy to : Commissioner of Commercial Taxes,
Thiruvananthapuram
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