Simplifying Delhi Value Added Tax – Legal & Procedural Relaxations Expected

[CA.Ankit Gulgulia]

Delhi Value added tax simplification has been one of major agendas of all state governments. It has been largely felt and outlined that procedural relaxation is a must to ensure smooth trade in the city or outside. At the same time it is well understood that blanket relaxations would have the other side of the coin also and can lead to undesirable situation for the government including unethical revenue leakages.

Considering the upcoming Delhi budget, few of the relaxations on both legal and procedural ends can be as under:-

1. Procedural Changes

1. 2A-2B Mismatch Assessment

Mismatch assessments based on 2A-2B filed by purchasers and sellers have been a major obstacle for traders in Delhi. One needs to keep a check literally on the all vendors he deals with and even enquire on his tax filing status and tax paid by his vendor. The situation is clearly undesirable as even the bonafide purchasers are being made to suffer on non-compliances by selling dealers.

Even the law backs this undesirable situation as the input tax credit can be disallowed to purchasing dealer if the selling dealer has not paid tax and not filed his return correctly allocating buyer’s TIN in his returns.

A simple solution to this can be linking 2A-2B on invoice based mechanism. Once individual invoices can be generated and linked directly from dvat system this hassle can be neutralized effectively. Though making such infrastructure can be challenging.

2. T-2 Relaxation

Currently Form T-2 is required to be filed for all the goods entering in Delhi except in few cases including GTO being less than 1 Crore. It is noteworthy that recently even Haryana government abolished its similar transit form VAT D-3 in light of its cumbersomeness. T-2 can be either abolished and state tracking can be maintained at border level or the limits can be raised to say a GTO of 5 Crores or more.

3. Hard Copy filing of DVAT-56

Currently in Delhi, if you have filed a return without using digital signature then one must deposit the hard filed copy of dvat-56 within prescribed time to avoid the late fees. This hard filing can be eliminated to move to paperless concept on similar track of ACES (Service tax and Central Excise return filing).

4. WCT Certificates hard copy submission

In case of contractee WCT returns, normally the wct certificate issued to contractors are also seeked at the hard copy. This can be dispensed away.

5. Comprehensive DVAT System - Need of the day

It is crucial the dvat systems evolves into a system which is transparent and user friendly at the same time. Department has done commendable efforts to improve its systems. As a part of further evolving process, the system can be made to :-

• Generate TIN based linked invoices
• Automate Returns (subject to manual adjustments, if any) based on generated and punched invoices and credit notes
• Email Notifications for mismatches based on 2A-2B.
• Maintenance of all statutory registers on the portal itself. This would allow real time access to the information to both the dealer / officials, which in turn can reduce departmental interventions in routine course of dealer.

6. Registration

The registration processes have been simplified to a great extent by the department. Further, the process can be streamlined further on following aspects:-

• Randomization of inspection officials.
• Closure of RC Issuance or notice for cancellation within 48 Hours (for example)
• To ensure more smooth registration, the TIN shall be provided along with RC only. The time gap between TIN number issuance and RC issuances may result in several transactions in the intervening period which have its effects.

7. Amendment in Registration

This can be further simplified. Currently, the complete DP-1 / DVAT-07 has to be filed for amendment. As a process, the amendments can be identified in different categories viz, change in name, constitution, contact details, items etc. If only that amended portion is seeked and filed online, it can radically reduce the time frame and hassles.

8. Ward Change - Based on Address Change

In my view, this requires thought process at the strategical level. In an ideal sense, where the address has changed and ward jurisdiction shall change accordingly or not cannot be a blanket decision. In normal cases and subject to outgoing jurisdictional VATO confirmation it can be allowed straight away.

2. Legal Changes

9. Very Heavy Late Return filing fees

It is noteworthy that per day of delay in filing a return attracts a late fees of ₹ 500/- day in Delhi. If you are registered in both VAT / CST then late fees would be ₹ 1,000/- per day (VAT and CST Return are separate returns). This quantum of per day late fees can be re-considered in light of many dealers including small retailers filing very low tax returns or even nil returns.

10. Works Contract Composition Scheme

• Composition scheme currently is sub-distributed based on category of works contracts and modalities of operation choosed by the dealer into three parts and two sub-schemes.
• Further, a specific clause or clarification can be issued on applicability of scheme in case of non monetary consideration agreements of works contract like in case of area sharing agreements.

11. Flat rate of tax i.e. 12.5% in works contract can be revisited

In Delhi, if the material is sold pursuant to the works contract then the rate of tax shall be always 12.5% unless in case of printing contracts or declared goods. Such a provision can be relooked and the items shall be made taxable as per their listing in the schedules to DVAT Act to bring parity between tax cost of normal sales and deemed sales of works contract.

Similar provisions of taxing the items as per schedule rates even if transferred pursuant to works contract exists in states like Haryana and Uttar Pradesh as well.

12. Rule 3 of DVAT Rules

As per proviso to Rule 3(2),

“PROVIDED that where amount of charges towards labour, services and other like charges are not ascertainable from the books of accounts of the dealer, the amount of such charges shall be calculated at the percentages specified in the following table”

The above provision instead of being a second resort to department (where the books of accounts cannot be utilized for computation of labour and service charges) can be made optional at dealer’s end. This can reduce litigation largely and provide certainty to works contract valuation.

13. Limitation period for filing objection against mismatch assessments

The Section 74 of the Act provides a deadline of 2 months from the date of service of notice and further condonation of delay of 2 months. In cases of mismatch assessments being newly implemented and required immense external documentation since demand / objection of purchasing dealer will depend on documents / returns / invoices and challans of selling dealer is always a time consuming effort.

In view of the above, the mismatch assessments objections can be separately dealt with in the Act, may be vide a proviso insertion to this effect.

14. Input tax credit hindrance

The biggest problem the dealers are facing today is undoubtedly the 2A-2B mismatches. As per section 9, the input tax credit can be denied to the purchasing dealer if:-

“ to the dealers or class of dealers unless the tax paid by the purchasing dealer has actually been deposited by the selling dealer with the Government or has been lawfully adjusted against output tax liability and correctly reflected in the return filed for the respective tax period”

This provision requires a revisit in all means. Where the purchasing dealer in all bonafide intention has paid his tax to the selling dealer and selling dealer has then not discharged his obligations of tax payments and return filing, the purchasing dealer shall be not be denied the input tax credit. The tax shall be recovered from the selling dealer only.

Traders cannot be expected to obtain return copies of each and every vendor they transact with.

15. Composition scheme for retailers

The threshold limit of composition dealer can be revisited and if required further increased. A suitable rate and threshold turnover for eligibility would prompt more tax compliance from small retail dealers much to the benefit of economics and sentiments.

16. Audits and Search - Seizure related matters

For audits and search / seizure / survey matters, it is essential to note that these matters are to play a balancing roles between avoiding harassment to tax paying dealers and making tax evading dealers to comply the law of the state. Though no blanket provisions can be introduced to this effect, audits can be exempted to a suitable threshold gross turnover and it is can made once in three / five years for certain class of dealers.

Before parting…

The Delhi VAT department has evolved in very significant manner over a period of time. Further evolving is always the desired route for both state government and Delhi dealers. The above can be few areas among many where the processes and rules require a revisit and the interest in large of dealers and revenue both needs a equivalent safeguard.

I intend to receive constructive comments and views of esteemed readership.

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About the Author:

CA Ankit Gulgulia (Jain)

Author is Practicing Chartered Accountant in New Delhi/NCR and his area of interest includes Indirect Taxes, Corporate Laws and Transfer Pricing. He can be reached at [email protected].

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Discussions to this article

[Deepak Whorra]

The author has really concentrated on many insignificant issues except for Form T2 and mismatch assessments. Here too the solutions offerred are changes in procedures or thresh hold limits and not abolishing these two provisions altogether

One of the major impediments and issues to raising revenue in a tax free environment is with regard of the incomplete definitions of " Mixed Material"

Often a product falls in a particular category and 90 to 99% of its cost or selling price is comprised of the main material. However , for technical or many other reasons , other materials may needed to be added and thus the whole product can be classified as mixed material. Litigation / inquiries have been made on, say, a pre-fitted car sterio or a mobile phone charger in a package of a mobile phone, or cover/box of a lap top or wooden handle of an aluminium pan or lac filling of a gold bangle or so on and on and on

Thus each definition of a product mkust mention the percentage of value below which it will be called mixed material

Just a case in point

many times descriptions of products are not clear and this leads to many fruitless litigations

This is where the focus has to be with only exceptions mentioned and not leaving to interpretations

Once this is cleared then the majority of complications will be removed