Normally VAT is leviable on the sales of goods by a dealer but in certain circumstances and on certain goods tax is also levied on the purchases made under Punjab VAT Act 2005. Chapter III of Punjab VAT Act 2005 deals with the purchase tax. The provisions relating to purchase tax under PVAT Act are discussed as follows.
When purchase tax is levied: Purchase tax is levied under PVAT Act 2005 in two cases firstly in respect of some goods specified in schedule H and secondly on the taxable turnover of purchase of goods in certain circumstances.
1. Purchase Tax on certain Goods: Section 19 of PVAT Act deals with the levy of purchase tax on certain goods. Some important points from the provisions of section 19 are provided as follows:
Non-obstante clause: Firstly the provisions of section 19(1) starts with the word “Notwithstanding any thing contained in this Act” which means that its an non-obstante clause that is to say section 19 will have applicability irrespective of any provision existing contrary to section 19 in the Act.
Purchase tax u/s 19 to be only on goods mentioned in Schedule H : Secondly from section 19(1) it is clear that VAT under PVAT Act 2005 will be levied on the taxable turnover of purchase of the goods specified in Schedule H at the rate applicable to such goods as per the schedules.
There are five goods which have been prescribed in schedule H
- Sugar cane
- Milk, when purchased for use in manufacture of any goods other than tax free goods.
Purchase tax u/s 19 to be levied only on the first purchase: Section 19(2) provides the manner of leving of purchase tax on the schedule H goods. It lays down that tax shall be leviable on the first purchase of these goods from within the state. However in case of Milk the first purchase, on which purchase tax will be leviable, will be the purchase when is made by a manufacturer of taxable goods. Here first purchase must mean purchasing of goods for the first time mentioned in schedule H after their production.
Leviability of purchase tax on schedule H goods doesn’t exempt the subsequent sales of such goods from VAT. Proviso to section 19(2) clearly provides that subsequent sales of such goods(on which purchase tax has been paid) shall be liable to VAT as per the provisions of the Act.
Rate of Purchase tax: Since the purchase tax on schedule H goods is applicable as per the rates of tax on such goods as applicable in the schedules appended to PVAT Act therefore we need to see the rates in the said schedules. Paddy, wheat and cotton are declared goods under section 14 of CST Act 1956 and are taxable @4% whereas Sugarcane and Milk, when purchased for use in manufacture of any goods other than tax free goods are schedule B items and are taxable @ 5% currently. Hence purchase tax will be 4% on Paddy, Wheat, cotton and on Sugarcane, Milk when purchased for use in manufacture of any goods other than tax free goods, will be 5%, (after adding surcharge it will be 5.5%).
Input tax credit of purchase tax paid: As per section 19(4) that purchase tax paid by a taxable person on goods mentioned in schedule H shall be admissible as input tax credit only if the following conditions are satisfied:
- The goods are sold within state or
- The goods are used for manufacture of taxable goods in the state for sale or
- The goods are sold in the course of interstate trade or commerce or
- The goods are sold in the course of export.
Proviso to section 19(4) provides that if purchases of schedule H goods i.e on which purchase tax is leviable, are used partially for the purpose of manufacture of taxable goods and partially for the purpose of tax free goods, then purchase tax paid on such goods shall be admissible as input tax credit proportionately, to the extent, the purchases are used for such purposes in the manner prescribed.
ITC of purchase tax to be limited to the extent of CST only if goods sold interstate: Sub section 5 of section 19 provides that if the goods mentioned in schedule H are sold interstate then ITC of purchase tax paid on such goods will be available only to the extent of CST chargeable under CST Act 1956. Thus it means if purchase tax @ 5.5% has been paid on a schedule H good say sugarcane, and such sugarcane is sold interstate by charging CST @ 2% then ITC of purchase tax will be available only to the extent of 2%.
2. Purchase Tax on turnover of purchase of goods in certain circumstances: Section 20 of PVAT Act provides certain circumstances where tax on the purchase of a Registered or Taxable person may be levied. These circumstances have been enumerated so as to ensure that no taxable turnover of any Taxable or Registered person may escape tax under the Act. However this levy of tax on purchase turnover u/s 20 is subject to levy of purchase tax u/s 19 of the Act. Since the proviso to section 19(1) provides that if a tax has already has been paid u/s 19 on certain goods then no tax shall be levied u/s 20 even though circumstances as enumerated u/s 20 exists.
Circumstances under which purchase tax u/s 20 may be levied are provided as follows:
Where a taxable person purchases taxable goods from a person other than a taxable person or a registered person, and -
(a) Uses such goods in the manufacture of goods, declared tax-free under section 16; or
(b) uses such goods in the manufacture of any goods other than those specified in Schedule-A, and sends the goods so manufactured outside the State otherwise than by way of sale in the course of inter-State trade or commerce or exports out of India; or
(c) disposes of such goods in any manner other than by way of sale in the State; or
(d) dispatches them to a place outside the State otherwise than as a result of sale in the course of inter-state sale, trade or commerce or export out of India,
there shall be levied a tax on the taxable turnover of purchases of such goods at the rate applicable to such goods as per the Schedules.
Purchase Tax on TOT dealer:Sub section 2 of Section 15 further provides that if a registered person (i.e TOT Dealer) purchases taxable goods from a person other than a taxable or registered person then purchase tax shall be levied on the such purchase turnover at the rate as applicable to the goods purchased in the schedules appended to PVAT Act 2005.
Amit Bajaj Advocate
Bajaj & Bajaj Advocates
128, Sangam complex, Milap Chowk, Jalandhar city