In continuation of my earlier article Analysis of major amendments under Punjab VAT (Second Amendment) Act, 2013 – Part-1 , here below the remaining provisions of the said Act are being discussed and analysed.

Insertion of section 8-D-Power to grant tax incentives: A new section 8-D has been introduced under Punjab VAT Act so as to give power to the State Government under a non-abstante clause, to grant tax incentives to the industries which come into production for the first time as and when notified in the industrial policy framed by the Department of Industries.

It seems that Government is soon going to frame a new Industrial Policy after the industrial policy of 1996 so as to grant the tax incentives to the new industries, for which purpose the above amendment has been made.

Insertion of section 8-E-Retention of tax collected: Section 8-E has also been introduced which gives power to the State Government to allow retention of tax collected to such class of industries subject to such conditions as may be prescribed.

Amendments u/s 13 relating to input tax credit: Section 13 which is a very important section under Punjab VAT Act, 2005 relating to the input tax crediit has also been amended.

First proviso to section 13 has been substituted as follows:

“Provided that the input tax shall not be available as input tax Credit unless such goods are sold within the State or in the course of inter-State trade or commerce or in the course of export or are used in the manufacture, processing or packing of taxable goods for sale within the State or in the course of inter-State trade or commerce or in the course of export.”

The amended proviso has been differently worded from the earlier proviso. In the amended proviso the words used are “unless such goods are sold” where as in the proviso before amendment the words used were “such goods are for sale”.

Does that mean input tax credit will be available only if the goods are sold? If the goods remain unsold at the end of the tax period then what will be the effect of amended first proviso?

The above amendment in section 13(1) shall come into force w.e.f 01.04.2014.

Advance VAT not to be treated as input tax credit: Section 13(1-A) has been omitted w.e.f 04.10.2013. Section 13(1-A) provided for treatment of Advance VAT as input tax credit. Since Advance VAT has to be counted towards final tax liability as per section 6(7) and final liability is calculated after adjustment of output tax with input tax credit, therefore omission of section 13(1-A) was necessary in view of section 6(7).

The effect of this amendment will be that advance VAT will not be subject to reversals as input tax credit.

Reversal of input tax credit as the time of closure of business: Sub-section 9 of section 13 has also been amended so as to provide that a person shall reverse input tax credit availed by him on goods which remained in stock at the time of closure of business.

Before amendment section 13(9) also provided a condition that input tax credit shall be reversed on the goods if they are not used for the purposes as mentioned in section 13(1). Now the said condition has been removed in view of the amendment in first proviso to section 13(1).

Input tax credit not to exceed tax paid in the Government Treasury-attempt to negate the judgement in Gheru Lal Bal Chand case?: Section 13(12) has been amended so as to additionaly provide that the input tax credit shall be utilized in accordance with the conditions mentioned in this section, but in no case the amount of input tax credit on any purchase of goods shall exceed the amount of tax, in respect of the same goods or goods used in manufacture of same goods, actually paid, if any, under this Act, into the Government Treasury.

This is a very important amendment. The Punjab and Haryana High Court in Gheru Lal Bal Chand vs State of Haryana had held that selling dealer while collecting the tax is an agent of the Government and unless the collusion is proved between selling and the purchasing dealer or its predeceasors, purchasing dealer cannot be disallowed input tax credit for the reason that selling dealer has not paid the tax into the Government Treasury.

Now in the above amendment the claim of input tax credit has been restricted only to the extent of tax actually paid in the Government Traesury.

Now, does it mean the purchasing dealer shall be allowed input tax credit only to the extent of the tax actually paid in the Government Treasury by the selling dealer?

If the selling dealer makes default in the payment of tax collected by him then corresponding input tax credit of purchasing dealer shall fall short of the tax actually paid by the selling dealer, wherefore the input tax credit of the purchasing dealer will be disallowed to the extent of tax not paid by the selling dealer.

By this amendment has the Government tried to overcome the difficulties faced by the revenue after the Judgement of Punjab and Haryana High Court in Gheru Lal Bal Chand case?

Will this amendment work for the revenue in disallowing the input tax credit for non payment of tax by selling dealer despite the verdict in Gheru Lal Bal Chand case, remains to be seen.

Also Read :– Analysis of Punjab Value added Tax (Second Amendment) Act, 2013 – Part 3

to be continued….

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Read Other Articles from Advocate Amit Bajaj

(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email: amit@amitbajajadvocate.com, M +919815243335)

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