Interactive Session on Service Tax – Recent Developments

Chamber's Communication with Mr. Nirupam Sen

Memorandum on State Budget: 2005-06

The Calcutta Chamber of Commerce is pleased to submit a Memorandum on State Budget 2005-06 highlighting the points and suggestions for your kind consideration.

Value Added Tax

1. Items presently taxed are at a rate between 6% & 10%. But under the W.B. VAT Act, the proposed rate is 12.5%. In the White Paper, it has been emphasized that with the introduction of VAT, the prices of different products will reduce in time to come.

2. The following products at present under Schedule (1) of W.B. Sales Tax Act, 1994, i.e. exempted from tax, but in the W.B. VAT Act, these have been brought under tax net. The major items which will affect general masses include textile fabrics (SL. No.81 of Schedule (1) of existing Act, rice, wheat and pulses (SL. No. 65), processed and branded salt (SL. No. 58), sugar and khandsari (SL. No. 78), safety matches, plastic footwear and hawai chappals, hosiery goods, beedi leaves, umbrella and spare parts etc. But they have been included in Schedule C of W.B. VAT Act taxable at 4%. The rate should be brought down to a minimum of 1%.

3. In West Bengal, the rates of sales tax are the highest for Petroleum Products. It should be noted that LPG, Kerosene are mass consumption items and hence sales tax rates should be low. All the petroleum products are excluded from the VAT.

4. The White Paper on VAT states that VAT will replace the existing system of inspection by a system of built- in –self -assessment by the dealers and auditing. The W.B. VAT Act provides under Sec.43 that audit based review of accounts of the dealers will be done within five completed years prior to the date of selection as against existing provision of completion of assessment within two years from the year end under West Bengal Sales Tax Act, 1994.

5. Central Sales Tax (CST)

While the White Paper on state level VAT has accepted in principle the need of phasing out of CST. But on implementation part, it is silent for one or other reasons. At the same time the Government is citing examples of different countries where VAT has been successfully implemented, but on the point of implementation of VAT, we are dividing the whole concept into different parts. Some of the vital parts are left out and CST is one such vital part.

It is suggested that CST should be reduced to 2% in the year of implementation and should be reduced to nil in the very next year against declaration forms as the same was proposed by the earlier Union Finance Ministers.

6. Way Bill

Under the new VAT regime all the registered dealers will have a unique Registration No. on all India basis. As per the existing and proposed law, the registered dealers are required to mention the ST Registration No on invoice. Transaction of a particular invoice can be tracked down through the help of computer as to under whose jurisdiction the same dealer is being assessed.

Under these circumstances, it is suggested that the requirement of Way Bill at the entry point of every State may not be required, as no transaction backed by invoice of a registered dealer will be untraceable. Therefore, the purpose of introduction of WayBill will be sufficiently achieved that the invoice of the selling dealers itself. Further there has been long demand from the sales tax dealers that Way Bill is a cause of harassment to them and once it is announced by the government that on introduction of VAT, Way Bill will be dismissed the trading community.

7. Other Taxes vs. VAT

Entry Tax

The White Paper on state level VAT mentioned in Para 2.16 about Entry Tax that it is not made vatable, it should be abolished. However, it is also stated that it will not apply to entry tax that may be levied in lieu of octroi. It doesn’t mention about luxury tax and consumption tax presently levied in the state of West Bengal.

We strongly suggest that on introduction of VAT, all other commercial levies on the goods like entry tax, octroi, luxury tax, consumption tax and other taxes whatever may appear including the turnover tax, surcharge and additional surcharge should be abolished.

8. Export Trade

The WB VAT Act had provided for claiming refund of Sales Tax paid on inputs/purchased by the exporters. While the White Paper has stated at Para 2.5, that refund of inputs tax shall be made within 3 months. WB VAT Act had provided in Sec.41 (4) read with Sub-Sec 2 and 3 that refund will be made within 5 months.

We strongly suggest that in line with provisions under Central Excise Law of furnishing the bond by the exporter, under the VAT law all purchases by the exporters should be exempted on execution of a bond by the exporter before the appropriate authority and such exporter shall furnish a certificate against their purchasing invoice to the selling dealers as may be prescribed by the government. If the particulars of bonds executed and the purchase invoice match with certificate (as proposed herein before), no tax should be charged from the exporter dealer and there would be no cause of concern for such exporter dealers that their working capital will be blocked for payment of input VAT tax and claiming of refund.

It is further suggested that just as EOUs/SEZs units would be exempted from sales tax, the Government can consider exemption of sales tax to such units in the Domestic Tariff Area (DTA) who purchase local raw materials, pay sales tax on the same and export their total produce overseas. A small percentage of their sales could be domestic to get rid of export surplus/rejects. The Government can fix this limit to say 5-7%.

Thus, a unit that exports over say 93% of it’s total turnover may be treated at par with EOU/SEZ & be exempted from paying sales tax on its purchases. Such unit can get the status & accept the responsibility to ensure that 93% of their turnover/sales is only exports – overseas. Thus, it can very easily be verified as all overseas transactions are routed through scheduled banks only & bank statements will themselves reveal the percentage of turnover. Such units can file their “sales returns” every quarter to prove that their turnover for export only is over 93%.

9. Anomaly and need of rationalization

(i) Present definition of sale price exclude service charge for delivery (including freight), installation etc. if charged separately on sales invoice. But the WB VAT Act has provided under Sec.2(41) that the sale price shall include any service charge for delivery, distribution, installation or insurance at the time of delivery of such goods.

(ii) Sales returns are allowed up to six months under existing W.B. Sales Tax and Central Sales Tax Law. But under Sec.2 (55) of WB VAT Act has limited the period of sales return from 6 to 3 months.

Our Chamber strongly feels that at the time of introduction of new VAT Law no such anomaly should be introduced rather it should be simplified and rationalized over and above the existing Sales Tax Laws.