Recently while filing the fourth quarter return of year 2013-14, the Excise and Taxation Department, Punjab asked for the closing stock of Iron and steel goods lying in stock of dealers as on 29.01.2014 for the purpose of making reversal on such stock at the rate of 2.20% of the available Input tax credit on such closing stock. The reason for such action was the newly added rule 21(8) in Punjab VAT Rules, 2005, which was introduced w.e.f. 01.02.2014.
This rule 21(8) runs as under:
“Where some goods as input or output are lying in the stock of a taxable person and where rate of tax on such goods is reduced from a particular date, then from that date, input tax credit shall be admissible to the taxable person on the sale of goods lying in stock or on using the goods as input for manufacturing taxable goods, at the reduced rate.”
As the rate of tax on iron and steel goods was reduced from 4.95% to 2.75%, therefore the Department asked for the reversal of available ITC on such stock.
It is to be noted that the rate of tax on iron and steel goods was reduced with immediate effect as per the notification dated 25.01.2014 bearing No. S.O. 9/P.A 8/2005/S.8/2014, which was published in the official gazette on 29.01.2014, meaning thereby the rate of tax on iron and steel goods was reduced w.e.f. 29.01.2014.
I also had written an article earlier stating that reversal on stock of iron and steel goods is to be made only if the input tax credit is available at all and if no input tax credit is available on the date of reduction of rate of tax, then no reversal is required to be made.
However, I have come across a very astonishing discrepency whereby a big question has arisen i.e whether any reversal under rule 21(8) of input tax credit on account of reduction of rate of tax on iron and steel goods is warranted at all?The reason for it is that Rule 21(8) of the Punjab VAT Rules, as stated above has been introduced prospectively w.e.f 01.02.2014, which means that reversal under rule 21(8) will be made in case of only those goods on which rate of tax has been reduced on or after 01.02.2014.
In case of iron and steel goods the rate of tax was reduced w.e.f 29.01.2014 as per the notification stated above. Once it is clear that the rate of tax on iron and steel goods was reduced before the introduction of rule 21(8), therefore rule 21(8) cannot have any bearing on the reduced rate of tax on iron and steel goods, as the sub-rule 8 of rule 21 was introduced prospectively w.e.f. 01.02.2014 and not retrospectively.
Hence the conclusion should be that no reversal of input tax credit on iron and steel goods is warranted at all under rule 21(8) of Punjab VAT Rules, 2005, which the Department has sought by asking the dealers to declare their closing stock of iron and steel goods on the date of reduction of rate of tax.