Tax treatment of stock of goods as on 31.12.2013 taxable at first stage under Punjab VAT

[AMIT BAJAJ ADVOCATE]

As we all know single stage taxation has been introduced on certain items under the Punjab VAT Act, 2005, whereby the goods notified for such purpose will be taxed at the first stage of their sale in Punjab and thereafter at all subsequent stages such goods will be sold as tax free. This system is applicable from 01.01.2014.

However there has been lot of queries on the issue that what will be the status of Stock as existing on 31.12.2013. There should have been rules framed for dealing with the stock existing on 31.12.2013 under the Punjab VAT Rules, 2005, but instead of any rules a clarification has been issued by the Excise and Taxation Department on the treatment of stock as existing on 31.12.2013.

Tax treatment of stock as on 31.12.2013: I explained in my earlier article namely Implication of tax levied at first point of sales on certain goods under Punjab VAT that there should have been reversals on the stock as existing on 31.12.2013 as per rule 21(4) of Punjab VAT Rules, 2005 and also as per the interpretation of the notification levying first stage tax. This would have been very easy way with which the tax evasion and the consfusion would have been minimum. But the Excise and Taxation Department while giving the clarification on the treatment of stock of goods notified for single taxation system, stated as follows:

"Some of the dealers, trade associations, bar council members etc have requested that they need time to change their SAP / ERP systems and will not be able to print computerized retail invoices at such a short notice. Such dealers are given the time of 1 month to change their systems. But 1st January onwards all the Tax invoices must be stamped as given below:

"The commodities if any taxed at 15.95 percent (14.5 percent + 10 percent surcharge thereon) are under single stage taxation regime. There will be no ITC available to the subsequent dealer i.e wholesalers /distributors and retailers on these commodities.

ITC available to the tune of Rs. to the subsequent dealer."

The Subsequent dealer i.e Wholesalers/Distributors and retailers will also mention on his invoice as below:

"The commodities at 15.95 percent (14.5 percent + 10 percent surcharge thereon) are taxed at Manufacturer/First Importer’s Stage and tax free under single stage taxation regime. There will be no ITC available to the subsequent dealer on these commodities.

ITC available to the tune of Rs. to the subsequent dealer."

The dealers at the subsequent stages after Manufacturer/First Importer have to declare their stock as on 31st December, 2013. The dealers at the subsequent stages after Manufacturer/First Importer will continue to pay the tax according to the provisions of Punjab VAT Act, 2005 on this stock until completely sold or disposed off. The stock purchased by the dealers at the subsequent stages after Manufacturer/First Importer on or after 1st January, 2014, will be tax free at the subsequent stages after Manufacturer/First Importer’s Stage."

Now in the above clarification it has been stated that tax on stock existing as on 31.12.2013 lying with the subsequent dealers will be paid in accordance with the provisions of Punjab VAT Act, 2005 untill such stock is completely sold or disposed off and the subsequent dealers will also have to declare their stock in the format given in the declaration.The clarification seem to have missed the effect of rule 21(4) completely.

Really the above clarification has not given answer to many other questions.

Rate of tax on the stock as on 31.12.2013:First is what is the rate of tax applicable to the stock of goods as existing on 31.12.2013, the clarification does not say anything about it, but the stock declaration form as given below the clarification provides a line as below:

"I understand that I shall be liable to pay tax on the value addition on the above mentioned stock as per the provisions of Punjab VAT Act, 2005 at the rate of tax prevalent before 1st January, 2014 as and when I sell/dispose this stock."

This gives an idea that the rate of tax applicable on the stock of goods notified for single taxation system existing on 31.12.2013 would be 14.30 percent when sold after 01.01.2014. The input tax credit as available on such stock of goods will be available.

It should be noted hereby that as per the above clarification it is only the subsequent stage dealer has to make declaration of the stock of such goods as existing on 31.12.2013. The person who is holding the stock of such goods on 31.12.2013 as first importer/manufacturer, need not to make such declaration.

VAT invoice or Retail invoice: Another question is, it is stated in the clarification that the tax on such stock as existing on 31.12.2013 would be paid in accordance with the provisions of Punjab VAT Act, 2005, does that mean the person selling the such stock of goods after 01.01.2014 will be issuing VAT invoice if he is selling such goods to a taxable person? The answer seems like yes. If the answer is yes then whether the subsequent stage dealer would also be eligible for input tax credit on such goods purchased at the old rate, is a question to be asked.

The clarification also clarifies certain things about the goods which are notified for the purpose of single taxation system as follows:

"Some lawyers have pointed out that some of the items notified now like tea, bread etc. were earlier taxed on the rates mentioned in Schedule –B or were tax free and covered under Schedule A. But, now after this notification, their rate seems to have been substantially increased to 14.5 percent . In this context, it is clarified that the above mentioned notifications cover only those items which were in Schedule-F earlier (13 percent rate of tax). In case any item was earlier covered in Schedule-B or Schedule A, then that item continues to remain in Schedule-B or Schedule A as the case may be.

Moreover, the words mentioned in the notification – the words “such as”, “like” and “etc.” have been used for further addition of goods in future. This notification is applicable only on the goods specifically notified therein.

In Serial 19 of Schedule-E, Only Branded items will be taxable under Schedule-E at the rate of 15.95 percent .

In Serial No. 20 of Schedule-E and 91 of Schedule-A, word or shall be read as and."

It is clear from the above clarification that if any goods are covered under Schedule B of Punjab VAT Act, 2005 i.e. they are taxable at 6.05 percent then such items would not be deemed to be covered under Schedule E under the single stage tax system.

It has been further clarified that words 'such as', "like", "etc." used in the notification amending Schedule E and Schedule A, are only for further addition of goods in near future.

That means only the goods specificaly written in the notification will only be covered under the new rates and single stage taxation system and the goods which would have been included in the catagory of goods, due to use of the words "such as", "like", "etc." would not be covered.

Concluding remarks are the clarification has left choas and confusion among the dealers. Clarification clarifies the existing law and does not make new law or rules but this clarification seem to have the violated the spirit of delegated legislation by introducing new declartion form, introducing new procedure for tax treatment of goods without having any rules notified for the same.

Also read:

Clarifications Regarding Single Stage Taxation by Excise and Taxation Department

Implications of tax levied at first point of sales on certain goods under Punjab VAT

Single point of taxation introduced in Punjab VAT.