Reversal of Input tax credit on sale of by-products amounts to double taxation and also exceeds the outer limit of taxability prescribed under the Act Specially in Sheller Trade which is clear cut violation of Article 286 of the Constitution of India.
As we all are aware of this fact that while framing the assessment of Sheller trade the taxable person are unnecessarily burdened with the tax liabilities by making the reversal on the sale of by-products beside this other reversals were made by the Designated Officers by quoting section 19(4) and 19(5) of the Punjab VAT Act, 2005 which is infact not permissible in terms of Article 286 (3) which lays down that
“If a State law contains provisions contrary to the limitations so laid down, the effect of Article 286(3) read with section 15 of the Central Sales Tax Act would be to automatically modify the State law in so far as it relates to declared goods and to bring such law in conformity with the said provisions.”
Article 286(3), as it appears after the Sixth Amendment of the Constitution, but before the Constitution ( Forty Sixth) Amendment Act, 1982 places certain limitations on the taxing power of a State. It says:
“ Any law of a State shall in so far as it imposes or authorities the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and incidents of the tax as Parliament may by law specify.”
It means that the Parliament may declare particular goods to be of special importance in inter-State trade or commerce. The Parliament may place restrictions and conditions on a State law imposing tax on the sale or purchase of such goods. The restrictions and conditions to be prescribed by the Parliament by law should be related to the system of levy, rates and other incidents of the tax. In accordance with this provision the Parliament has enacted sections 14 and 15 of the Central Sales Tax Act, 1956.
“Section 15 (a) is to the effect that every sales tax law of a State, in so far as it relates to imposition of tax on the sale or purchase of declared goods, would be subject to two limitations namely, (i) the tax payable under such law in respect of sale or purchase price thereof, and (ii) such tax shall not be levied at more than one stage. If a State law contains provisions contrary to the limitations so laid down, the effect of Article 286(3) read with section 15 of the Central Sales Tax Act would be to automatically modify the State law in so far as it relates to declared goods and to bring such law in conformity with the said provisions.”
But by making the reversals which create the liability of more than five percent which is outer limit for levy of tax on declared goods is totally in contradiction with section 15(a) of the Central Sales Tax Act, 1956 and with Article 286 (3) of the Constitution of India Here it is worthwhile to mention that if any law made by the state which is in contradiction with section 15 of the Central Sales Act, 1956 then the State Law will automatically modify as per the CST Act.Online GST Certification Course by TaxGuru & MSME- Click here to Join
In the Light of Section 19(4) Designated Officers are levying the tax on the closing stock at the end of Financial year which is infact not permissible under the provisions of the Act
As taxable event is sale or purchase of goods and tax can be levied on the transactions which is within the purview of Sale or purchase as per the scheme of the Punjab Vat Act, 2005 and no tax can be levied on the closing stock.
Department is taking the stand that at the end of the year the stock left must be taxed without appreciating the provision of the Punjab VAT Act, 2005 which deals with the admissibility of input tax credit but the authority are levying the tax on the stock and even if we assume that the same is admissible when the goods are sold or used in manufacturing even then the figure of input tax credit is allowed as carried forward which too can be adjusted with the liability of that specific year in terms of section 15 of the Punjab VAT Act 2005.
Here it is worthwhile to mention that section 15 of the CST Act creates restrictions and section 15 of the Punjab Vat Act deals with the situations of net tax payable by a taxable person after adjusting the excess input tax credit.
In the light of Section 19(5) of the Punjab Vat Act, Designated Officer are making the reversal on rice manufactured from paddy or paddy sold in the course of inter state trade or commerce.
By virtue of Section 19 (5) the ITC cannot be reversed as section 15(b) & 15(c) of the Central Sales Act, 1956 creates restrictions which are as under:
Section 15(b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of inter State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State;
Section 15 (c) where a tax has been levied under that law in respect of the sale or purchase inside the State of any paddy referred to in sub-clause (i) of clause (i) of section 14, the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy.
Avowedly section 15 was designed to override and control the State power to tax and the existing tax provisions in the State laws prevailing in the Indian Union in respect of declared goods. The States must have been reluctant that their taxation laws, and budgets, be bridled by an overriding Central provision. That is why section 15 as originally enacted could not be brought into force alongwith the other provisions of the Act. It was delayed and deferred while the other provision of the Act were brought into force w.e.f. 5th Jan, 1957, section 15 was held over in the cold storage. Even actual taxation of inter- State sales came into effect from 1st July, 1957 but section could not be brought into force. Not that the Central Government willfully withheld giving effect to these provisions; a long list of notifications issued by the Central Government in an attempt to bring Section 15 into force would prove its sincerity thereabout.
But unfortunately the States are making the laws which are totally in contradiction with the CST Act and thereafter innocent dealers will be burdened without any reasons.
Here it is worthwhile to mention that violation of section 15 (a) of the Central sales Tax Act automatically results in contravention of Article 301 of the Constitution of India which deals with restriction related to freedom of trade or commerce.
(Author – J S BEDI Advocate, Email: firstname.lastname@example.org, Mobile: 98140-66336)