CA Vinamar Gupta
Introduction: The Vat department vide Notification dated 15-11-2013, had amended section 13(1) proviso and allowance of Input tax credit was restricted to goods sold or used in manufacturing, processing or packing of taxable goods w.e.f. 01-04-2014. The various trade organizations pitched their voice against this law which is going to deny their rightful claim of Input tax credit and going to keep them glued to their account books in general and stock records in particular. However the department in its spree to collect more and more taxes decided to give it a go ahead and has come out with a grandiose worksheet vide public notice dated 11-06-2014. However following issues require the attention of the department:
1. Opening Stock: The worksheet requires declaration of opening Stock of locally purchased goods on 01-04-2014 with in permissible variations. The dealers who normally compute their stock on the basis of Gross Profit ratio, as acknowledged and prescribed by the circular also, do not have any such segregation available. For making this segregation, they shall have to make some presumptions like Specific Identification, FIFO or LIFO or a combination. The department should allow use of any of these methods.
Further the dealers are not in position to determine
their inventories till the finalization of their audits till 30th September .
Since the notice dated 11-06-2014 has been slammed just on 12-06-2014, they are left with very little time to finalize their stock. To enable the transition the department should extend the date of filing of first quarter return till 31st October 2014. This extension is very much practical having regard to the hardship the dealers are being put across.
Further the dealers have available inventories on 31st March 2014 against which Input Tax Credit has already been utilized. Since the worksheet requires calculation of ITC against stock, it should be clarified as to whether the dealers are required to submit the figures of such stock against which no ITC is standing on 31-03-2014.
This fact shall further effect the appropriation of sale against stock against which ITC is available.
Column 6 of the worksheet talks about total stock available for sale and then column 9 talks about cost price of the goods sold/used/ consumed out of col. 6 during the quarter.
In this regard, first of all, the legal provisions should be taken note of. First Proviso to section 13(1) promulgates that ITC shall be available against goods used for manufacture, processing or packing of taxable goods for sale which implies that use of raw material for manufacture or processing shall enable utilization of ITC by the dealer. Now, either when the finished goods are manufactured or processed or are lying as work-in –progress during the stage of manufacturing or processing, it tantamounts to use for manufacturing. But at the same time finished goods ,in many a cases ,where they are to be sent for further processing outside the factory of manufacturer and work-in-progress, in all the cases, shall not be available for sale. Hence the worksheet has not taken into account this position of the law and should suitably be amended to accommodate the use of raw material for manufacturing against which ITC is available as per provisions of the law but has been referred in a restrictive way which takes out the effect of the pith and substance of the law.
4. Following variations have been allowed under public notice:
|Dealer Turnover above 5 crores||Dealer Turnover less than 5 crores|
|Opening Stock||+/- 5%||+/- 10%|
|Sale Price of Goods Sold||+/- 5%||+/- 10%|
|Cost Price of Goods Sold||+/- 5%||+/- 10%|
|Balance Stock||+/- 5%||+/- 10%|
i) No variation has been defined for dealer having turnover equal to five crore as to whether he shall be in lower bracket or upper bracket.
ii) If all the variations are allowed as per above chart, maximum variation in balance stock comes to 30% and not variation as referred.
Further the G.P. margin method has been allowed to retailer only. It should be extended to wholesale, distributor and traders at all the stages.
The method of working out stock in case of manufacturer is again very obscure and requires further clarifications as under:
i) Which period should be taken as reference period
ii) How the adjustment is to allowed on the basis of actual data
iii) How the value of Goods Used or Consumed in the manufacture to be computed. Point c.2 does not bear reference to locally purchased goods which makes the term all the more obscure. The department here in if means to refer to GP margin without reducing direct expenses, it should state the same in clear terms
Further the law does not envisage the denial of ITC against stock of 31-03-2014 because amended section 13(1) proviso has come into operation w.e.f 01-04-2014 only. However the worksheet has not taken into account this position of the law and envisages calculation which is not as per provisions of the law.
Col. 8 of the Worksheet on Sale Price of Goods Sold also bears reference to goods used/ consumed which can not fetch any sale price at all. Rather column 8 has not relevance to stock calculation and if it is being used as a reference column for goods sold as well as used, it should be appropriately worded to reflect the intent and purpose.
Conclusions: The course that department has decided to chose shall lead to large number of complications in times to come . Vat returns which once used to be believed a statement of facts shall become a statement of presumed facts or precarious facts or rather it shall be more rightful to call it a statement of defective facts. If the department is undergoing a state of experimentation and trials, it should also not treat the Vat returns the last word from dealer and it is very much the need of the hour that revised returns should be allowed.
(Author :CA Vinamar Gupta, 53-E, DayaNand Nagar-II, Lawrence Road, Amritsar, Mob: 9356048001, firstname.lastname@example.org)