Abhay Desai

1. Vide letter dated 07.12.2018 Ld. Joint Commissioner (Legal), Gujarat has clarified that even cases where taxable turnover exceeds INR 25 lakhs (wherein total turnover is less than INR 1 crore) for FY 2017-18 shall also be liable to obtain VAT Audit Report and submit the same. Our analysis in this regard is as under:

2. Two provisos inserted in Sec. 63(1) of the GVAT Act, 2003 vide GVAT (Amendment) Act, 2017 reads as under:

“Provided that registered dealer whose taxable turnover is more than twenty five lakh shall file a final return for the period ending on the last day before the appointed day of the coming into force of the Gujarat Goods and Services Tax Act, 2017 in such manner as may be prescribed, reflecting such details as may be prescribed from the books of Account:

Provided further that where the amount of tax credit is carried forward for more than rupees five lakhs, the books of accounts related to such final return shall have to be duly audited by a chartered Accountant or cost accountant.”

3. Reference is also invited to sub-rule (4) & (5) as inserted in Rule 44 vide Notification No. GHN-05 VAR-2018(47)/Th dated 19.01.2018. Same is also reproduced below for ready reference:

“(4) Every registered dealer whose taxable turnover is more than rupees twenty five lakh for the period from 1st April, 2017 to 30th June, 2017, shall furnish, by way of uploading on the website, a final return for such period within seven months from 1st July, 2017 as follows,-

(i) in Form 202 in case of a registered dealer who furnishes return under sub-rule (3) of rule 19, and

(ii) In Form 205B along with the information in respect of inventories in Form 201C in case of a registered dealer other than referred to in clause

(i) above.

Provided that the Commissioner may, in the public interest and on such terms and conditions as may be specified, further extend the date not exceeding one month of furnishing such return.

(5) Every registered dealer, in whose case the amount of tax credit is carried forward for more than rupees five lakh on 30th June, 2017, shall get the books of accounts related to the final return referred to in sub-rule (4), duly audited by Chartered Accountant or Cost Accountant and furnish, by way of uploading on the website, a certificate in Form 217A duly signed by him within seven months from 1st July, 2017. Provided that the Commissioner may, in the public interest and on such terms and conditions as may be specified, further extend the date not exceeding one month of furnishing such certificate.”

4. Normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment (see Kedarnath Jute Manufacturing Co. Ltd. V. Commercial Tax Officer (1965) 3 SCR 626 (SC)). Proviso is never normally meant to make a fresh enactment. As rightly observed by the Apex Court in the case of Sundaram Pillai v. Pattabiraman (1985) 1 SCC 591 (SC), it is “a very dangerous and certainly unusual course to import legislation from a proviso wholesale into the body of the statute”. Doing so will be treated as if proviso were an independent enacting clause instead of being dependent on the main enactment.

5. With the above background one can observe that Sec. 63(1) clearly covers only those cases under Audit where the total turnover is not being less than one crore. A proviso attached to such provision normally is meant to provide a separate treatment to the cases which are sub-set of the said provision. In the issue before us, the first proviso clearly provides for filing of the final return in cases where the taxable turnover exceeds INR 25 lakhs. It does not in any which way alter the threshold of total turnover of INR 1 crore prescribed in the provision to which the said proviso is attached. Seen in this light, one can conclude that even cases falling under the said proviso requires to also cross the threshold of total turnover exceeding INR 1 crore so as to be covered under the Audit.

6. Even if the issue is considered from the perspective that the newly inserted proviso is enacting an independent clause, the said proviso only seeks filing of final return and not audit. Hence even if the proviso is seen in isolation, audit for such cases is not required.

7. The issue becomes much clear when the newly inserted provisos are read along with the newly inserted sub-rules to Rule 44. Plain reading of the above referred first proviso along with sub-rule (4) will suggest that registered dealer whose taxable turnover exceeds INR 25 lakhs is required to file a final return in the manner which may be prescribed. As against the same, subsequent proviso read with sub-rule (5) clearly provides that cases where the amount of tax credit carried forward is more than INR 5 lakhs shall require the books in respect of such final return to be duly audited. Hence on one hand, second proviso read with the applicable sub-rule (5) clearly provides for audit in cases where final return is filed (carried amount is more than INR 5 lakhs) whereas on the other hand first proviso read with the applicable sub-rule (4) only provides for filing of the annual return (in cases where taxable turnover exceeds INR 25 lakhs).

8. We also submit that even though the heading of Sec. 63 refers to “Accounts to be audited in certain cases”, the same cannot be considered while interpreting the newly inserted first proviso referred above. To support the same reference is invited to the judgment of Apex Court in the case of Frick India Ltd. v. Union of India (1990) 1 SCC 400 (SC)wherein the Court observed as under with respect to the importance one can place on the headings provided in the provision while interpreting the same:

“It is well-settled that the headings prefixed to sections or entries cannot control the plain words of the provision; they cannot also be referred to for the purpose of construing the provision when the words used in the provision are clear and unambiguous; nor can they be used for cutting down the plain meaning of the words in the provision. Only, in the case of ambiguity or doubt the heading or sub-heading may be referred to as an aid in construing the provision but even in such a case it could not be used for cutting down the wide application of the clear words used in the provision.”

9. Above ratio has also been applied subsequently by the Apex Court in the decision of Forage & Co v. Municipal Corporation of Greater Bombay (1999) 8 SCC 577. Hence in view of the plain words of the first proviso to Sec. 63(1) read with the applicable sub-rule (4) of Rule 44, we submit that the heading of Sec. 63 shall not be considered for interpreting the same.

10. In view of the above discussion, we submit that the appropriate changes should be made in the provisions of law to clearly cover the cases, where taxable turnover exceeds INR 25 lakhs, under audit. Such clarity shall go a long way in avoiding any confusion in this regard within the trade and industry.

(views are strictly personal)

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